Notes
To Unaudited Consolidated Financial Statements
For
The Three Month Periods Ended June 30, 2020, and 2019
NOTE
1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
EVIO,
Inc., a Colorado corporation and its subsidiaries provide analytical testing and advisory services to the emerging legalized cannabis
industry. EVIO, Inc. was originally incorporated in the State of New York, December 12, 1977, under the name 3171 Holding Corporation.
On February 22, 1979, the name was changed to Electronomic Industries Corp. and on February 23, 1983, the name was changed to
Quantech Electronics Corp. The Company was reincorporated in the State of Colorado on December 15, 2003. On August 29, 2014, the
Company completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September
2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. in August 2018. The
Company has selected September 30 as its fiscal year-end. The Company is domiciled in the State of Colorado, and its corporate
headquarters are located in Henderson, Nevada.
As
a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research,
Inc., purchased 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay
Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms.
Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the
common stock. The company filed a Form 10-12G on November 25, 2014, and was determined to be a shell company by the SEC as per
the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into
a material agreement and was no longer a shell company.
After
the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly-owned subsidiary providing compliance, research,
and advisory services for Signal Bay, Inc.
Signal
Bay Services was formed on January 25, 2015, as the management services division of EVIO.
On
September 17, 2015, EVIO entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which
the Company acquired 80% of the outstanding common stock of CR Labs, Inc.
EVIO
Inc. was formed on April 4, 2016, to become the holding company for all laboratory operations.
EVIO
Labs Eugene was formed on May 23, 2016, as a wholly-owned subsidiary of EVIO Inc. Subsequently, on May 24, 2016, EVIO Labs Eugene
acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names, and personnel.
On
June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific
Industries, Inc. d/b/a Kenevir Research in Medford, OR.
On
October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus
Analytical Labs, LLC.
On
October 26, 2016, the Company entered into an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November
1, 2016.
The
Company entered into a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC which was closed on August 1, 2018.
On
December 29, 2018, the Company entered into a Membership Purchase Agreement to purchase 60% of the outstanding shares of C3 Labs,
LLC which closed On January 1, 2019.
On
June 27, 2018, Greenhaus Analytical Labs LLC, a wholly-owned subsidiary of EVIO, Inc. entered into a Purchase and Sale Agreement
with Michael G. Myers for the property located at 14775 SW 74th Ave., Tigard, OR 97224.
On
June 27, 2018, Greenhaus Analytical Labs, LLC, a wholly-owned subsidiary of EVIO, Inc., entered into an Asset Purchase Agreement
with MRX Labs LLC which closed on July 5, 2019.
On
April 29, 2018, the Company entered into an Asset Purchase Agreement with Leaf Detective, LLC which was closed on the same date.
On
May 2, 2018, the Company entered into a Stock Purchase Agreement with Keystone, Labs, Inc. to purchase 50% of the outstanding
shares of Keystone Labs which was closed on the same date.
On
May 29, 2020, the Company entered into a Membership Interest Purchase Agreement with Green Analytics to sell 100% of Viridis Analytics,
MA, subject to permission of the Massachusetts Cannabis Control Commission.
Management’s
Representation of Interim Financial Statements
The
accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should
be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s most
recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the
interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative
of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures
contained in the audited consolidated financial statements for the most recent fiscal period, as reported in the Form 10-K, have
been omitted.
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States
dollars. For the three months ended June 30, 2020, and 2019, and the year ended September 30, 2019, the consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries.
The
subsidiaries of EVIO, Inc. are as follows:
|
Trade Name (dba)
|
|
Company Name
|
|
State of
Incorporation
|
|
Ownership %
|
|
|
Acquisition Month
|
|
|
EVIO Labs Medford
|
|
Smith Scientific Industries, LLC
|
|
Oregon
|
|
|
80
|
%
|
|
|
June 2016
|
|
|
EVIO Labs Portland
|
|
Greenhaus Analytical Labs
|
|
Oregon
|
|
|
100
|
%
|
|
|
October 2016
|
|
|
EVIO Labs MA
|
|
Viridis Analytics
|
|
Massachusetts
|
|
|
100
|
%
|
|
|
August 2017
|
|
|
EVIO Labs Berkeley
|
|
C3 Labs, LLC
|
|
California
|
|
|
90
|
%
|
|
|
January 2018
|
|
|
Keystone Labs
|
|
Keystone Labs, Inc.
|
|
Ontario, Canada
|
|
|
50
|
%
|
|
|
May 2018
|
|
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue
standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following
five steps are applied to achieve that core principle:
|
|
●
|
Step
1: Identify the contract with the customer
|
|
|
●
|
Step
2: Identify the performance obligations in the contract
|
|
|
●
|
Step
3: Determine the transaction price
|
|
|
●
|
Step
4: Allocate the transaction price to the performance obligations in the contract
|
|
|
●
|
Step
5: Recognize revenue when the company satisfies a performance obligation
|
The
Company generates revenue from consulting services, licensing agreements, and testing of cannabis and hemp products for medicinal
and adult-use consumption.
The
Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified,
payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
The
Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for
as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.
The
Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services
being provided under the contract.
The
Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services provided.
In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms,
and whether there is an alternative future use of the service.
The
Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing
services are generally completed within two weeks of receiving the order.
Consulting
engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business
plans, and financial models, operating plans, and technology support to customers within the same industry. Revenue from consulting
services is recognized upon completion of deliverables as outlined in the consulting agreement.
The
Company recognizes revenue from the right of use license agreements upon transfer of control of the functional intellectual property.
In certain licensing agreements, the Company may receive royalty revenues based upon performance metrics which are recognized
as earned over time.
Stock-Based
Compensation
In
accordance with ASC No. 718, Compensation-Stock Compensation (“ASC 718”), the Company measures the cost of stock-based
compensation arrangements based on the grant date fair value and recognizes the cost in the financial statements over the period
during which employees are required to provide services. Stock-based compensation arrangements may include stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans.
The
Company utilizes the Black Scholes option pricing model, which was developed for use in estimating the fair value of options.
Option pricing models require the input of highly complex and subjective variables including the expected life of options granted
and the expected volatility of the Company’s stock price over a period equal to or greater than the expected life of the
options.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at their original invoice amounts. We regularly review collectability and establish an allowance for uncollectible
amounts as necessary based on our experience with historical collectability. Management recognized an allowance for uncollectible
amounts, of $170,666 and $215,593 for the periods ended June 30, 2020, and September 30, 2019, respectively.
Foreign
Currency Translation
The
functional currency of the Company’s subsidiary in Canada is the Canadian Dollar. The subsidiary’s assets and liabilities
have been translated to U.S. Dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts
have been translated using the average exchange rate for each period. Resulting gains or losses from translating foreign currency
financial statements are recorded as other comprehensive income (loss).
Fair
Value of Financial Instruments
The
Company has adopted the guidance under ASC Topic 820 for financial instruments measured on fair value on a recurring basis. Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs.
Net
Income (Loss) Per Share
Basic
loss per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding
for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number
of shares of common stock outstanding for the period. There were 94,142,473 and 26,160,911 potentially dilutive common shares
outstanding as of June 30, 2020 and 2019, respectively. Because of the net losses incurred during the three months ended June
30, 2020, and 2019, the impacts of dilutive instruments would have been anti-dilutive for the period presented and have been excluded
from the diluted loss per share calculations.
Recently
Issued Accounting Pronouncements
In
January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment”. The amendments in this update simplify how an entity is required to test goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. This update is effective for annual or interim goodwill impairment tests
in fiscal years beginning after December 31, 2019. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing after January 1, 2017. The Company notes that this guidance applies to its reporting requirements and will
implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this update
will have a material impact on the consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,”
which revises the definition of a business. This update is effective for annual periods beginning after December 15, 2017, including
interim periods within those years. Early adoption is permitted. The Company notes that this guidance will impact its acquisitions
beginning January 1, 2018. Management believes recently issued accounting pronouncements will have no impact on the financial
statements of the Company.
In
June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) which simplifies certain aspects of
the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock
Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Certain areas
of the simplification apply only to nonpublic entities. The amendments specify that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing
share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively
provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of
a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments of the ASU are effective
for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal
year. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated
financial statements.
In
August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update, and Simplification. Under the final rule Company’s
must now analyze changes in stockholders’ equity in the form of a reconciliation, for the current and comparative year-to-date,
with subtotals for each interim period.
Other
accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on our financial statements upon adoption.
Note
2 – Going concern
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course
of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues
sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described
in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any
adjustments that may be necessary if the Company is unable to continue as a going concern.
In
the coming year, the Company’s foreseeable cash requirements will relate to the continual development of the operations
of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and
the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and
be required to raise additional capital.
Historically,
it has mostly relied upon convertible debentures, convertible promissory notes, internally generated funds such as shareholder
loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or
through future public or private offerings of the Company’s stock or loans from private investors, although there can be
no assurance that it will be able to obtain such financing. Additionally, due to the onset of COVID-19 obtaining financing may
be more difficult to obtain currently compared to historic levels. The Company’s failure to do so could have a material
and adverse effect upon it and its shareholders.
Note
3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants
on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs.
ASC
Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy.
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable,
as follows:
|
●
|
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or
liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations
in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
|
|
|
|
●
|
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities.
|
The
Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values
of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s
debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar
terms available to the Company.
The
Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value
at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to
fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving
at the overall fair value of the financial instruments. Also, the fair value of freestanding derivative instruments such as warrant
and option derivatives are valued using the Black-Scholes simulation model.
The
Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
The
following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured
at fair value on June 30, 2020:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,134,395
|
|
|
$
|
2,134,395
|
|
The
following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured
at fair value on September 30, 2019:
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,545,735
|
|
|
$
|
2,545,735
|
|
Note
4 –leases
The
Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment.
These commitments have remaining non-cancelable lease terms, with lease expirations that range from 2020 to 2024.
As
a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet
with a lease liability and right-of-use asset (“ROU”). Application of this standard resulted in the recognition of
ROU assets of $1,832,856, net of accumulated amortization, and a corresponding lease liability of $1,886,722. 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 June 30, 2020, are as follows:
|
For the years ended September 30,
|
|
Operating Leases
|
|
|
Financing Leases
|
|
|
2020
|
|
|
972,244
|
|
|
|
430,591
|
|
|
2021
|
|
|
697,436
|
|
|
|
514,152
|
|
|
2022
|
|
|
549,390
|
|
|
|
183,020
|
|
|
2023
|
|
|
347,745
|
|
|
|
206,674
|
|
|
2024 and thereafter
|
|
|
27,911
|
|
|
|
5,022
|
|
|
Total lease payments
|
|
|
2,594,726
|
|
|
|
1,339,450
|
|
|
Less: Payments Made
|
|
|
(708,004
|
)
|
|
|
(307,783
|
)
|
|
Total Lease Liabilities
|
|
$
|
1,886,722
|
|
|
|
1,031,667
|
|
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 June 30, 2020, and September 30, 2019 consist of:
|
|
|
June 30,
2020
|
|
|
September 30,
2019
|
|
|
Customer list
|
|
$
|
-
|
|
|
$
|
854,014
|
|
|
License
|
|
|
-
|
|
|
|
503,000
|
|
|
Favorable lease
|
|
|
-
|
|
|
|
3,100
|
|
|
Domains & Websites
|
|
|
-
|
|
|
|
49,516
|
|
|
Non-compete agreements
|
|
|
-
|
|
|
|
182,388
|
|
|
Assembled Workforce
|
|
|
-
|
|
|
|
50,750
|
|
|
Intellectual Property
|
|
|
-
|
|
|
|
342,610
|
|
|
Total
|
|
|
-
|
|
|
|
1,977,661
|
|
|
Accumulated amortization
|
|
|
-
|
|
|
|
(1,977,661
|
)
|
|
Net value
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company had fully amortized all intangible assets during the fiscal year ended September 30, 2019.
Note
6 – Concentration of Credit Risk
Instruments
that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and
accounts receivable. As of June 30, 2020, the Company did not hold cash at any financial institution in excess of the amount insured
by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.
As
of June 30, 2020, the Company had total accounts receivable net of allowances of $146,443. Five clients comprised a total of 21%
of this balance as follows:
|
|
|
Balance
|
|
|
Percent of Total
|
|
|
Customer 1
|
|
$
|
20,321
|
|
|
|
6
|
%
|
|
Customer 2
|
|
|
14,923
|
|
|
|
5
|
%
|
|
Customer 3
|
|
|
12,000
|
|
|
|
4
|
%
|
|
Customer 4
|
|
|
11,955
|
|
|
|
3
|
%
|
|
Customer 5
|
|
|
11,284
|
|
|
|
3
|
%
|
|
All others
|
|
|
250,945
|
|
|
|
79
|
%
|
|
Total
|
|
|
317,108
|
|
|
|
100
|
%
|
|
Allowance for doubtful accounts
|
|
|
(170,666
|
)
|
|
|
|
|
|
Net accounts receivable
|
|
$
|
146,443
|
|
|
|
|
|
As
of September 30, 2019, the Company had total accounts receivable, net of allowances, of $133,022. Five separate clients comprised
a total of 41% of this balance as follows:
|
|
|
Balance
|
|
|
Percent of Total
|
|
|
Customer 1
|
|
$
|
48,606
|
|
|
|
14
|
%
|
|
Customer 2
|
|
|
33,572
|
|
|
|
10
|
%
|
|
Customer 3
|
|
|
20,336
|
|
|
|
6
|
%
|
|
Customer 4
|
|
|
20,321
|
|
|
|
6
|
%
|
|
Customer 5
|
|
|
20,208
|
|
|
|
6
|
%
|
|
All others
|
|
|
246,456
|
|
|
|
59
|
%
|
|
Total
|
|
|
348,955
|
|
|
|
100
|
%
|
|
Allowance for doubtful accounts
|
|
|
(215,933
|
)
|
|
|
|
|
|
Net accounts receivable
|
|
$
|
133,022
|
|
|
|
|
|
Note
7 – Property and Equipment
Property
and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and
betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income
for the period.
Depreciation
is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the
modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:
|
|
|
Estimated
|
|
|
|
Useful Lives
|
|
Building
|
|
39 years
|
|
Laboratory and Computer Equipment
|
|
5 years
|
|
Furniture and Fixtures
|
|
7 years
|
|
Software
|
|
3 years
|
|
Domains
|
|
15 years
|
The
Company’s property and equipment consisted of the following as of June 30, 2020, and September 30, 2019:
|
|
|
June 30, 2020
|
|
|
September 30, 2019
|
|
|
Assets Not-In-Service
|
|
$
|
|
|
|
$
|
-
|
|
|
Capital Assets
|
|
|
1,786,949
|
|
|
|
1,800,347
|
|
|
Land
|
|
|
212,550
|
|
|
|
212,550
|
|
|
Buildings & Real Estate
|
|
|
941,857
|
|
|
|
941,857
|
|
|
Furniture and Equipment
|
|
|
152,933
|
|
|
|
152,933
|
|
|
Laboratory Equipment
|
|
|
2,223,244
|
|
|
|
2,188,828
|
|
|
Software
|
|
|
82,899
|
|
|
|
78,996
|
|
|
Computers
|
|
|
31,939
|
|
|
|
|
|
|
Leasehold Improvements
|
|
|
696,325
|
|
|
|
697,333
|
|
|
Vehicles
|
|
|
183,589
|
|
|
|
83,915
|
|
|
Total
|
|
|
6,312,285
|
|
|
|
6,188,777
|
|
|
Accumulated depreciation
|
|
|
(2,339,541
|
)
|
|
|
(1,511,973
|
)
|
|
Net value
|
|
$
|
3,972,744
|
|
|
$
|
4,676,804
|
|
Note
8 – Related Party Transactions
During
the periods ended June 30, 2020 and September 30, 2019 the Company received loans from its Chief Operating Officer totaling $40,014
and $194,820, respectively, and made repayments totaling $0 and $1,040, respectively. There was $181,676 and $143,780 due as of
June 30, 2020, and September 30, 2019, respectively, and are included in the accompanying consolidated balance sheets as a current
portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.
During
the periods ended June 30, 2020 and September 30, 2019 the Company received loans from its Chief Executive Officer totaling $14,000
and $75,000, respectively, and made repayments totaling $5,750 and $19,200, respectively. There was $64,050 and $55,800 due as
of June 30, 2020, and September 30, 2019, respectively, and are included in the accompanying consolidated balance sheets as a
current portion of notes payable to related parties. The loans carry a 0% interest rate and are due on demand.
During
the periods ended June 30, 2020, and September 30, 2019, the Company made payments to Sara Lausmann, associated with the asset
purchase of Oregon Analytical Services, LLC, totaling $2,000 and $0, respectively. There was $566,289 and $568,299 of principal
due as of June 30, 2020 and September 30, 2019, respectively. The note carries interest at a rate of 5% per annum and had accrued
interest totaling $122,095 and $107,899 due as of June 30, 2020, and September 30, 2019, respectively.
During
the periods ended June 30, 2020, and September 30, 2019, the Company made payments to Anthony Smith, our Chief Science Officer,
associated with the purchase of 80% of Smith Scientific Industries, totaling $63,662 and $55,090, respectively. There was $117,247
and $180,910 of principal due as of June 30, 2020 and September 31, 2019, respectively. The note carries interest at a rate of
5% per annum and had accrued interest totaling $43,290 and $41,600 due as of June 30, 2020, and September 30, 2019, respectively.
During
the periods ended June 30, 2020, and September 30, 2019, the Company made repayments to Henry Grimmett, prior Company Director
(retired April 2018), on an outstanding loan from member assumed by the Company, totaling a note payable of Greenhaus Analytical
Services, LLC, totaling $0 and $3,859, respectively. There was $113,554 and $113,554 of principal due as of June 30, 2020 and
September 30, 2019, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.
During
the periods ended June 30, 2020, and September 30, 2019, the Company made no payments to Henry Grimmett, prior Company Director
(retired April 2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000
note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum
and matures on October 16, 2020. During the quarter ended June 30, 2020, a third party purchased the remaining balance of the
$170,000 note. During the year ended September 30, 2019, a third party purchased $170,000 of the note from Henry Grimmett, refer
to Note 10, Convertible Notes; Noteholder 14. There was $0 and $170,000 of principal due as of June 30, 2020 and September 30,
2019, respectively. Unamortized debt discount of $0 and $25,563 as of June 30, 2020 and September 30, 2019, respectively and $0
and $59,412 of accrued interest due as of June 30, 2020 and September 30, 2019, respectively.
During
the periods ended June 30, 2020 and September 30, 2019, the Company received loans from a related party associate with Keystone
Labs totaling $30,796 and $191,515, respectively, and made repayments totaling $19,248 and $9,034, respectively. There was $355,070
and $354,050 due as of June 30, 2020 and September 30, 2019, respectively. Amounts have been adjusted for USD. The advances are
non-interest bearing and due on demand and is included in the accompanying consolidated balance sheets as a current portion of
notes payable to related parties.
Note
9 – STOCKHOLDERS’ EQUITY
Series
A Convertible Preferred Stock
The
Company has -0- shares of Series A Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019.
Series
B Convertible Preferred Stock
The
Company designated 5,000,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with a par
value of $0.0001 per share. The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of June 30,
2020, and September 30, 2019. These shares converted to common stock at a rate of 1 common share per each share of Series B Convertible
Preferred Stock.
Series
C Convertible Preferred Stock
The
Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par
value of $0.0001 per share. There were 500,000 shares of Series C Convertible Stock issued and outstanding as of June 30, 2020,
and September 30, 2019. These shares converted to common stock at a rate of 5 common shares per each share of Series C Convertible
Preferred Stock.
Series
D Convertible Preferred Stock
The
Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par
value of $0.0001 per share. These shares converted to common stock at a rate of 2.5 common shares per each share of Series D Convertible
Preferred Stock.
During
the Year Ended September 30, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a
total of 532,500 shares of common stock being issued for the conversion of 213,000 shares of Series D Preferred Stock.
There
were 349,500 shares of Series D Convertible Stock issued and outstanding as of June 30, 2020, and September 30, 2019, respectively.
Common
Stock
During
the three months ended June 30, 2020, the Company issued the following common shares:
|
Number of
Shares issued
|
|
|
Description
|
|
$ Value
|
|
|
|
500,000
|
|
|
Issuance of shares in exchange for consulting, professional and services
|
|
|
5,000
|
|
|
|
5,000,000
|
|
|
Shares issued for acquisition of equity interests in subsidiaries
|
|
|
105,000
|
|
|
|
10,000,000
|
|
|
Issuance of shares in connection with the conversion of debentures
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 15,500,000
|
|
|
|
|
$
|
210,000
|
|
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 94,217,473 and 29,314,419 shares of common stock issued and outstanding at June 30, 2020, and September 30, 2019
Note
10 – LOANS PAYABLE
The
Company had the following loans payable outstanding as of June 30, 2020, and September 30, 2019:
|
|
|
June 30, 2020
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
On March 16, 2018, the Company executed notes payable for the purchase of three vehicles. The notes carry interest at 6.637% annually and mature on March 31, 2023.
|
|
|
38,269
|
|
|
|
47,551
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74th Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.
|
|
|
603,470
|
|
|
|
622,523
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs. The note carries interest at 8% annually and is due on January 5, 2019. (This note is in default as of 7/5/2019, which resulted in a 5% penalty on outstanding amount.)
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 20, 2019, the Company executed notes payable for the purchase of four vehicles. The notes carry interest at 5.990% annually and mature on December 31, 2023.
|
|
|
98,844
|
|
|
|
-
|
|
|
Total loans payable
|
|
|
1,490,583
|
|
|
|
1,420,079
|
|
|
Less: current portion of loans payable
|
|
|
788,006
|
|
|
|
762,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of loans payable
|
|
$
|
702,577
|
|
|
$
|
657,603
|
|
As
of June 30, 2020 and September 30, 2019, the Company accrued interest of $119,342 and $74,301 respectively
Note
11 – Convertible NOTES PAYABLE
The
Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices.
As further discussed in Note 13 – Derivative Liability, the Company analyzed the conversion features of the agreements
for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded
conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to
a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded
a derivative liability.
The
following table summarizes all convertible notes outstanding as of June 30, 2020:
|
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized
Debt Discount
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder #1
|
|
04/24/18
|
|
04/24/19
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
Noteholder #2
|
|
07/01/19
|
|
09/30/19
|
|
|
675,930
|
|
|
|
-
|
|
|
|
675,930
|
|
|
|
61,154
|
|
|
Noteholder #3
|
|
08/01/18
|
|
01/01/19
|
|
|
396,000
|
|
|
|
-
|
|
|
|
396,000
|
|
|
|
100,253
|
|
|
Noteholder #3
|
|
10/02/18
|
|
01/01/19
|
|
|
264,000
|
|
|
|
-
|
|
|
|
264,000
|
|
|
|
53,846
|
|
|
Noteholder #5
|
|
09/17/18
|
|
09/17/19
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,260
|
|
|
Noteholder #6
|
|
11/15/18
|
|
11/15/19
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,564
|
|
|
Noteholder #6
|
|
02/04/19
|
|
02/04/20
|
|
|
230,000
|
|
|
|
-
|
|
|
|
230,000
|
|
|
|
26,938
|
|
|
Noteholder #6
|
|
08/08/19
|
|
08/08/20
|
|
|
33,092
|
|
|
|
(1,282
|
)
|
|
|
31,810
|
|
|
|
2,372
|
|
|
Noteholder #6
|
|
11/04/19
|
|
11/04/20
|
|
|
33,516
|
|
|
|
(11,630
|
)
|
|
|
21,886
|
|
|
|
1,756
|
|
|
Noteholder #6
|
|
12/23/19
|
|
12/23/20
|
|
|
137,375
|
|
|
|
(66,060
|
)
|
|
|
71,315
|
|
|
|
5,721
|
|
|
Noteholder #6
|
|
01/21/20
|
|
02/21/21
|
|
|
52,500
|
|
|
|
(2,500
|
)
|
|
|
50,000
|
|
|
|
2,532
|
|
|
Noteholder #6
|
|
02/04/20
|
|
02/04/20
|
|
|
265,637
|
|
|
|
-
|
|
|
|
265,637
|
|
|
|
14,774
|
|
|
Noteholder #7
|
|
12/27/18
|
|
12/27/19
|
|
|
20,000
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
3,695
|
|
|
Noteholder #7
|
|
02/05/19
|
|
02/05/20
|
|
|
131,250
|
|
|
|
-
|
|
|
|
131,250
|
|
|
|
14,613
|
|
|
Noteholder #7
|
|
02/11/19
|
|
02/11/20
|
|
|
131,250
|
|
|
|
-
|
|
|
|
131,250
|
|
|
|
14,325
|
|
|
Noteholder #7
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
7,352
|
|
|
Noteholder #7
|
|
08/08/19
|
|
08/08/20
|
|
|
33,092
|
|
|
|
(1,282
|
)
|
|
|
31,810
|
|
|
|
2,372
|
|
|
Noteholder #7
|
|
11/04/19
|
|
11/04/20
|
|
|
33,516
|
|
|
|
(11,630
|
)
|
|
|
21,886
|
|
|
|
1,756
|
|
|
Noteholder #7
|
|
01/03/20
|
|
01/03/21
|
|
|
137,375
|
|
|
|
|
|
|
|
137,375
|
|
|
|
5,480
|
|
|
Noteholder #7
|
|
01/21/20
|
|
02/22/21
|
|
|
52,500
|
|
|
|
(2,500
|
)
|
|
|
50,000
|
|
|
|
2,532
|
|
|
Noteholder #7
|
|
02/04/20
|
|
02/04/20
|
|
|
265,637
|
|
|
|
-
|
|
|
|
265,637
|
|
|
|
14,774
|
|
|
Noteholder #10
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
7,352
|
|
|
Noteholder #11
|
|
08/30/19
|
|
05/30/20
|
|
|
110,000
|
|
|
|
|
|
|
|
110,000
|
|
|
|
7,353
|
|
|
Noteholder #11
|
|
04/30/20
|
|
04/03/21
|
|
|
66,000
|
|
|
|
(41,900
|
)
|
|
|
24,100
|
|
|
|
1,591
|
|
|
Noteholder #12
|
|
01/15/20
|
|
04/14/21
|
|
|
100,000
|
|
|
|
0
|
|
|
|
100,000
|
|
|
|
1,372
|
|
|
Noteholder #13
|
|
01/24/20
|
|
01/23/21
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,860,496
|
|
|
$
|
(138,784
|
)
|
|
$
|
3,721,712
|
|
|
$
|
379,737
|
|
The
following table summarizes all convertible notes outstanding as of September 30, 2019:
|
Holder
|
|
Issue Date
|
|
Due Date
|
|
Principal
|
|
|
Unamortized
Debt Discount
|
|
|
Carrying Value
|
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noteholder #1
|
|
04/24/18
|
|
04/24/19
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
Noteholder #2
|
|
07/01/19
|
|
09/30/19
|
|
|
825,930
|
|
|
|
-
|
|
|
|
825,930
|
|
|
|
18,983
|
|
|
Noteholder #3
|
|
08/01/18
|
|
01/01/19
|
|
|
396,000
|
|
|
|
-
|
|
|
|
396,000
|
|
|
|
76,471
|
|
|
Noteholder #3
|
|
10/02/18
|
|
01/01/19
|
|
|
264,000
|
|
|
|
-
|
|
|
|
264,000
|
|
|
|
40,634
|
|
|
Noteholder #4
|
|
09/06/18
|
|
09/06/19
|
|
|
145,000
|
|
|
|
-
|
|
|
|
145,000
|
|
|
|
15,575
|
|
|
Noteholder #5
|
|
09/17/18
|
|
09/17/19
|
|
|
82,500
|
|
|
|
-
|
|
|
|
82,500
|
|
|
|
8,586
|
|
|
Noteholder #6
|
|
11/15/18
|
|
11/15/19
|
|
|
222,600
|
|
|
|
(28,054
|
)
|
|
|
194,546
|
|
|
|
15,564
|
|
|
Noteholder #6
|
|
01/14/19
|
|
01/14/20
|
|
|
131,250
|
|
|
|
(46,027
|
)
|
|
|
85,223
|
|
|
|
7,364
|
|
|
Noteholder #6
|
|
02/04/19
|
|
02/04/20
|
|
|
265,000
|
|
|
|
(92,205
|
)
|
|
|
172,795
|
|
|
|
13,824
|
|
|
Noteholder #6
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder #6
|
|
08/08/19
|
|
08/08/20
|
|
|
33,092
|
|
|
|
(10,291
|
)
|
|
|
22,801
|
|
|
|
384
|
|
|
Noteholder #7
|
|
12/27/18
|
|
12/27/19
|
|
|
105,000
|
|
|
|
(25,603
|
)
|
|
|
79,397
|
|
|
|
18,204
|
|
|
Noteholder #7
|
|
02/05/19
|
|
02/05/20
|
|
|
131,250
|
|
|
|
(48,185
|
)
|
|
|
83,065
|
|
|
|
6,616
|
|
|
Noteholder #7
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder #7
|
|
08/08/19
|
|
08/08/20
|
|
|
33,092
|
|
|
|
(10,291
|
)
|
|
|
22,801
|
|
|
|
384
|
|
|
Noteholder #8
|
|
02/08/19
|
|
02/08/20
|
|
|
783,724
|
|
|
|
(208,357
|
)
|
|
|
575,367
|
|
|
|
89,627
|
|
|
Noteholder #9
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder #10
|
|
03/15/19
|
|
03/15/20
|
|
|
70,913
|
|
|
|
-
|
|
|
|
70,913
|
|
|
|
3,093
|
|
|
Noteholder #11
|
|
08/29/19
|
|
05/29/20
|
|
|
100,000
|
|
|
|
(150,146
|
)
|
|
|
(50,146
|
)
|
|
|
964
|
|
|
Noteholder #11
|
|
08/30/19
|
|
05/30/20
|
|
|
110,000
|
|
|
|
(97,555
|
)
|
|
|
12,445
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,412,090
|
|
|
$
|
(716,714
|
)
|
|
$
|
3,695,376
|
|
|
$
|
326,145
|
|
Noteholder
#1
On
April 24, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for 100% of the assets of Leaf
Detective LLC. The note bears no interest, matures on April 24, 2019, and automatically converted to common stock at $1.25 per
share on the maturity date. In the event the average lowest trading price of the Company’s common stock during the five
days prior to maturity is less than $1.25 per share, the Company will pay the noteholder the difference between $1.25 and the
average lowest trading price during the preceding five days per share converted in cash. On or about April 30, 2020, Michele Malaret
and Gordon Griswold filed, filed a breach of contract in the original principal amount of $500,000, with the Superior Court of
California, County of Humboldt. The Company currently recognizes the full liability on its balance sheet. There is no interest
due associated with the note.
Noteholder
#2
On
July 2, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $220,000
of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of
a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018.
The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares
of the Company at any time at a conversion price of $0.60 per share. This note was replaced on July 1, 2019.
On
September 13, 2018, the Company entered into an exchange agreement with an unrelated party for the principal amount $585,000,
of which the loan payable to Palliatech, dated August 1, 2017, outstanding and principal of $549,652 would be assumed by the new
note holder, with the difference of $35,348 to be treated as an original issue discount. The new convertible note payable carries
an interest rate of 0% per annum is convertible into common stock of the Company at the option of the noteholder immediately at
80% of the lowest volume-weighted average price of the Company’s common stock in the preceding 20 trading days. This note
was replaced on July 1, 2019.
On
July 1, 2019, the two previous notes were replaced for the aggregate principal amount of $825,890. This included a default penalty
of $150,000 for non-payment of the prior two notes. The note, together with accrued interest at the annual rate of 8%, is due
on September 30, 2019. The note is convertible into common stock of the Company at the option of the noteholder at a rate equal
to a 35% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was
$675,930 of principal and $61,154 of accrued interest on June 30, 2020.
Noteholder
#3
On
August 1, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $330,000
of which $30,000 was an original issue discount resulting in cash proceeds to the Company of $300,000 pursuant to the terms of
a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, was due on October 1, 2018.
The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares
of the Company at any time the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from the lowest
trading price of the Company’s common stock in the preceding 15 trading days. On September 30, 2019, a fee for payment default
of $66,000 was added to the principal. There was $396,000 of principal and $100,253 of accrued interest due on June 30, 2020.
On
October 2, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of $220,000
of which $20,000 was an original issue discount resulting in cash proceeds to the Company of $200,000 pursuant to the terms of
a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, is due on January 1, 2019.
The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common shares
of the Company at any time at a conversion price of $0.50 per share or a rate equal to a 35% discount from the lowest trading
price of the Company’s common stock in the preceding 15 trading days. On September 30, 2019, a fee for payment default of
$44,000 was added to the principal. There was $264,000 of principal and $53,846 of accrued interest on June 30, 2020.
Noteholder
#4
On
September 6, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of
$125,000 of which $15,000 was an original issue discount resulting in cash proceeds to the Company of $110,000 pursuant to the
terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 10%, was due on September
6, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common
shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days. On July 5, 2019, a fee for payment
default of $20,000 was added to the principal. There was no note principal or accrued interest due on June 30, 2020.
Noteholder
#5
On
September 6, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of
$62,500 of which $6,250 was an original issue discount resulting in cash proceeds to the Company of $56,250 pursuant to the terms
of a securities purchase agreement. The note, together with accrued interest at the annual rate of 10%, is due on September 6,
2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common
shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days. On July 5, 2019, a fee for payment
default of $20,000 was added to the principal. There was $0 of principal and $10,260 of accrued interest due on June 30, 2020.
Noteholder
#6
On
November 15, 2018, the Company sold and issued a convertible promissory note to an unrelated party for the principal amount of
$222,600 of which $12,600 was an original issue discount resulting in cash proceeds to the Company of $210,000 pursuant to the
terms of a securities purchase agreement. The note, together with accrued interest at the annual rate of 8%, is due on November
15, 2019. The principal amount of the note and any accrued interest thereon are convertible at the option of the holder into common
shares of the Company at any time at the lower of a conversion price of $0.50 per share or at a rate equal to a 35% discount from
the lowest trading price of the Company’s common stock in the preceding 15 trading days. There was $0 of principal and $15,564
of accrued interest due on June 30, 2020.
On
February 4, 2019, the Company entered into a convertible note payable with an unrelated party for $265,000 of which $15,000 was
an original issue discount and $10,000 in third party fees resulting in net cash proceeds to the Company of $240,000. The convertible
note payable carries interest at a rate of 8% per annum, is due on February 4, 2020, and is convertible into common stock of the
Company at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price
of the Company’s common stock in the preceding 15 trading days. There was $230,000 of principal and $26,938 accrued interest
due on June 30, 2020.
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 $2,372 of accrued interest due on June 30, 2020.
On
November 4, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,516 of which $2,000 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 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. There was $33,092 of principal and $1,756 of accrued interest due on June 30, 2020.
On
December 23, 2019, the Company entered into a convertible note agreement with an unrelated party for $137,375 of which $16,375
in 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. There was $137,375 of principal and $5,721 of accrued interest due on June 30, 2020.
On
January 21, 2020, the Company entered into a convertible note agreement with an unrelated party for $52,500 of which $2,500 in
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 21, 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. There was $52,500 of principal and $2,532 of accrued interest due on June 30, 2020.
On
February 4, 2020, the Company entered into an exchange agreement with an unrelated party for $265,637, of which the loan payable
to Noteholder 8, dated February 8, 2019, 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 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 35% discount from the lowest trading price
of the Company’s common stock in the preceding 15 trading days. There was $265,637 of principal and $14,774 of accrued interest
due on June 30, 2020.
Noteholder
#7
On
December 27, 2018, the Company sold and issued a Convertible Promissory to an unrelated party for the principal amount of $105,000
pursuant to the terms of a Securities Purchase Agreement of even date therewith. The Note, together with accrued interest at the
annual rate of 8%, is due on December 27, 2019, and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $20,000 of principal and $3,695 of accrued interest due on June 30, 2020.
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 $14,613 of accrued interest due on June 30, 2020.
On
February 11, 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 $14,325 of accrued interest due on June 30, 2020.
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 $7,352 of accrued interest due
on June 30, 2020.
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 $2,372 of accrued interest due on June 30, 2020.
On
November 4, 2019, the Company entered into a convertible note agreement with an unrelated party for $33,516 of which $2,000 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 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. There was $33,092 of principal and $1,756 of accrued interest due on June 30, 2020.
On
January 3, 2020, the Company entered into a convertible note agreement with an unrelated party for $137,375 of which $16,375 in
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. There was $137,375 of principal and $5,480 of accrued interest due on June 30, 2020.
On
January 21, 2020, the Company entered into a convertible note agreement with an unrelated party for $52,500 of which $2,500 in
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 21, 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. There was $52,500 of principal and $2,532 of accrued interest due on June 30, 2020.
On
February 4, 2020, the Company entered into an exchange agreement with an unrelated party for $265,637, of which the loan payable
to Noteholder 8, dated February 8, 2019, 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 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 35% discount from the lowest trading price
of the Company’s common stock in the preceding 15 trading days. There was $265,637 of principal and $14,774 of accrued interest
due on June 30, 2020.
Noteholder
#8
On
February 8, 2019, the Company entered into an exchange agreement with an unrelated party for $580,537, of which the loan payable
to Palliatech, dated September 1, 2017, outstanding and principal would be assumed by the new note holder. The new convertible
note payable carries an interest rate of 10% per annum, with one-year interest guaranteed, is due on February 8, 2020, and is
convertible into common stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30%
discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days. A principal non-pay
default was applied in the amount of $203,188. This remaining balance of this note was purchased by Noteholder 6 & 7, on February
4, 2020. There was no note principal or accrued interest due on June 30, 2020.
Noteholder
#9
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020, and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was no note principal or accrued interest due on June 30,
2020.
Noteholder
#10
On
March 15, 2019, the Company entered into an exchange agreement with an unrelated party for $70,913, of which the loan payable
to Noteholder 2, dated July 2, 2018, outstanding and principal would be assumed by the new note holder. The new convertible note
payable carries an interest rate of 8% per annum is due on March 15, 2020, and is convertible into common stock of the Company
at the option of the noteholder six months after issuance at a rate equal to a 35% discount from the lowest trading price of the
Company’s common stock in the preceding 15 trading days. There was $70,913 of principal and $7,352 of accrued interest due
on June 30, 2020.
Noteholder
#11
On
August 30, 2019, the Company entered into a convertible note payable with an unrelated party for $110,000 which included $10,000
original issue discount resulting in net cash proceeds to the Company of $100,000. The convertible note payable carries interest
at a rate of 8% per annum, is due on May 30, 2020, and is convertible into common stock of the Company at the option of the noteholder
six months after issuance at a rate equal to a 35% discount from the lowest trading price of the Company’s common stock
in the preceding 15 trading days. There was $110,000 of principal and $7,353 of accrued interest due on June 30, 2020.
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 principal and $0 of accrued interest due on
June 30, 2020.
On
April 3, 2020, the Company entered into a convertible note payable with an unrelated party for $66,000 which included $6,000 original
issue discount resulting in net cash proceeds to the Company of $60,000. The convertible note payable carries interest at a rate
of 10% per annum, is due on April 3, 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. There was $66,000 of principal and $1,591 of accrued interest due on June 30, 2020.
Noteholder
#12
On
January 15, 2020, the Company entered into a convertible note payable with an unrelated party for $100,000. The convertible note
payable carries interest at a rate of 0% per annum, is due on January 23, 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 20% discount from the lowest trading price of the
Company’s common stock in the preceding 5 trading days. There was $100,000 of principal and $1,372 of accrued interest due
on June 30, 2020.
Noteholder
#13
On
January 24, 2020, the Company entered into a convertible note payable with an unrelated party for $50,000. The convertible note
payable carries interest at a rate of 0% per annum, is due on January 23, 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 20% discount from the lowest trading price of the
Company’s common stock in the preceding 5 trading days. There was $50,000 of principal and $0 of accrued interest due on
June 30, 2020.
NOTE
12 – CONVERTIBLE DEBENTURES
On
January 29, 2018, the Company issued a total of 5,973 units of 8% unsecured convertible debentures. Each unit consists of one
convertible debenture with a principal face value of $1,000 and 250 warrants. The gross proceeds were $5,973,000. Each warrant
entitles the holder thereof to purchase one additional common share of the Company at an exercise price of $0.80 per warrant for
24 months. The convertible debentures have a maturity date of 36 months from issuance. Simple interest will be paid at a rate
of 8% per annum in arrears until maturity or until conversion. The principal amount of the debentures and any accrued interest
thereon are convertible at the option of the holder into common shares of the Company at any time at a conversion price of $0.60
per share.
In
addition to the warrants associated with the convertible debentures, the Company issued an additional 597,300 warrants to purchase
common stock of the Company as offering costs representing an equivalent of 6% of the fully converted debentures. The warrants
are exercisable at $0.60 per share for two years.
The
Company also issued three separate debentures under the same terms for additional cash proceeds of $610,000. The additional debentures
carry an additional 152,500 warrants to purchase additional common shares of the Company at $0.80 per share. Additionally, the
outstanding principal and interest may be converted to common stock of the Company at $0.60 per share.
Note
13 – Derivative Liability
As
of June 30, 2020 and September 30, 2019, Company had a derivative liability balance of $2,134,395 and $2,545,735 on the balance
sheets and recorded an unrealized gain of $411,340 and an unrealized loss of $556,647 from derivative liability fair value adjustments
during the nine months ended June 30, 2020 and 2019, 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 6 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15, Derivatives and
Hedging and determined that the embedded conversion features should be classified as a derivative because the exercise price
of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the
conversion feature of the note and recorded a derivative liability.
The
embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using
the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the note was $220,463
which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $184,957 which was
up to the face value of the convertible note with the excess fair value at an initial measurement of $35,506 being recognized
as a loss on derivative fair value measurement.
On
December 27, 2018, the Company issued a $105,000 convertible promissory note to an unrelated party that matures on December 27,
2019. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes is subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $98,091 which was recorded as a derivative liability
on the balance sheet. The Company recorded a debt discount of $38,365 which was up to the face value of the convertible note with
the excess fair value at an initial measurement of $59,725 being recognized as a loss on derivative fair value measurement.
On
January 14, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 5,
2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $144,752 which was recorded as a derivative liability
on the balance sheet. The Company recorded a debt discount of $14,423 which was up to the face value of the convertible note with
the excess fair value at an initial measurement of $130,329 being recognized as a loss on derivative fair value measurement
On
February 4, 2019, the Company issued a $265,000 convertible promissory note to an unrelated party that matures on February 4,
2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $322,521 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $322,521 on derivative fair value measurement.
On
February 5, 2019, the Company issued a $131,250 convertible promissory note to an unrelated party that matures on February 11,
2020. Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at the issuance date of the note was $228,916 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $228,916 on derivative fair value measurement.
On
July 1, 2019, the Company issued a $825,930 convertible promissory note to an unrelated party that matures on September 30, 2019.
Refer to Noteholder 2 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $1,807,875 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $1,807,875 on derivative fair value measurement.
On
August 8, 2019, the Company issued a $33,092 convertible promissory note to an unrelated party that matures on August 8, 2020.
Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $34,341 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $34,341 on derivative fair value measurement.
On
August 8, 2019, the Company issued a $33,092 convertible promissory note to an unrelated party that matures on August 8, 2020.
Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $34,341 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $34,341 on derivative fair value measurement.
On
August 29, 2019, the Company issued a $170,000 convertible promissory note to an unrelated party that matures on May 29, 2020.
Refer to Noteholder 14 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $143,951 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $65,965 on derivative fair value measurement.
On
August 30, 2019, the Company issued a $110,000 convertible promissory note to an unrelated party that matures on May 30, 2020.
Refer to Noteholder 11 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $109,936 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $79,183 on derivative fair value measurement.
On
November 4, 2019, the Company issued a $33,516 convertible promissory note to an unrelated party that matures on November 4, 2020.
Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at six months from issuance date of the note was $33,516 which was recorded as a derivative
liability on the balance sheet. The Company recognized a loss of $17,021 on derivative fair value measurement.
On
November 4, 2019, the Company issued a $33,516 convertible promissory note to an unrelated party that matures on November 4, 2020.
Refer to Noteholder 7 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at six months from issuance date of the note was $33,516 which was recorded as a derivative
liability on the balance sheet. The Company recognized a loss of $17,021 on derivative fair value measurement.
On
December 23, 2019, the Company issued a $137,375 convertible promissory note to an unrelated party that matures on December 23,
2020. Refer to Noteholder 6 under “Note 12 – Convertible Debentures” for more information. The Company
analyzed the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion
features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable
conversion rate.
The
aggregate fair value of the derivative at six months from issuance date of the note was $204,554 which was recorded as a derivative
liability on the balance sheet. The Company recognized a loss of $204,554 on derivative fair value measurement.
On
April 3, 2020, the Company issued a $66,000 convertible promissory note to an unrelated party that matures on November 30, 2020.
Refer to Noteholder 11 under “Note 12 – Convertible Debentures” for more information. The Company analyzed
the conversion feature of the agreement for derivative accounting consideration and determined that the embedded conversion features
should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion
rate.
The
aggregate fair value of the derivative at the issuance date of the note was $78,115 which was recorded as a derivative liability
on the balance sheet. The Company recognized a loss of $67,96 on derivative fair value measurement.
At
June 30, 2020, the Company marked-to-market the fair value of the derivative liabilities related to conversion features and determined
an aggregate fair value of $2,134,395 and recorded a $332,993 gain from change in fair value for the nine months ended June 30,
2020. 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 168%, (2) risk-free interest rate of 0.16%, (3) exercise prices of $0.011 - $0.019, and
(4) expected lives of 0.11 – 0.50 of a year.
On
October 2, 2018, the Company issued a total of $220,000 convertible debenture to an unrelated party that matures on January 1,
2019. The Company issued a total of 100,000 warrants to purchase additional shares of common stock of the Company in connection
with the convertible debenture. The Company analyzed the issued warrants for derivative accounting consideration under ASC 815-15
“Derivatives and Hedging” and determined that the warrants should be classified as a derivative because the Company
is unable to ascertain there will be adequate unissued authorized shares of common stock to fulfill its obligations should the
warrants be exercised. In accordance with AC 815, the Company has recorded a derivative liability related to the warrants.
The
derivative for the warrants is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market
each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated
fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the derivative using the Black-Scholes
option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $57,014 which was recorded
as a derivative liability on the balance sheet. The Company recorded a debt discount of $53,333 which was up to the face value
of the convertible debentures with the excess fair value at an initial measurement of $3,681 being recognized as a loss on derivative
fair value measurement.
As
discussed in “Note 12 – Convertible Debentures”, the Company issued a total of $374,000 of convertible
debentures to unrelated parties that mature on dates ranging from October 17, 2020 to October 23, 2020. The Company issued a total
of 187,000 warrants to purchase additional shares of common stock of the Company in connection with the convertible debentures.
The Company analyzed the issued warrants for derivative accounting consideration and determined that the warrants should be classified
as a derivative. The aggregate fair value of the derivative at the issuance date of the warrants was $73,383 which was recorded
as a derivative liability on the balance sheet, for which the Company recorded an equivalent debt discount to the convertible
debentures.
At
June 30, 2020, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an
aggregate fair value of $44 and recorded a $181,772 gain from change in fair value for the six months ended June 30, 2020. The
fair value of the derivatives was determined using a Black-Scholes option pricing model based on the following assumptions: (1)
expected volatility of 168%, (2) risk-free interest rate of 0.16%, (3) exercise prices of $0.60 to $0.80, and (4) expected lives
of 0.26 – 0.30 years.
The
following table summarizes the change in derivative liabilities included in the balance sheet at June 30, 2020:
|
Fair Value of Embedded Derivative Liabilities:
|
|
|
|
|
|
Balance, September 30, 2019
|
|
$
|
2,545,735
|
|
|
Change in fair market value
|
|
|
(411,340
|
)
|
|
Balance, June 30, 2020
|
|
$
|
2,134,395
|
|
The
following table summarizes the gain (loss) on derivative liability included in the income statement for the nine months ended
June 30, 2020 and 2019, respectively.
|
|
|
Nine Months Ended June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Day one loss due to derivatives on convertible debt
|
|
$
|
(414,478
|
)
|
|
|
(780,678
|
)
|
|
Change in fair value of derivatives
|
|
|
825,818
|
|
|
|
1,225,743
|
|
|
Total derivative gain (loss)
|
|
$
|
411,340
|
|
|
|
445,065
|
|
NOTE
14 – STOCK OPTIONS AND WARRANTS
The
following tables summarize all stock option and warrant activity for the three months ended June 30, 2020:
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
|
Outstanding, September 30, 2019
|
|
|
5,484,970
|
|
|
|
0.742
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, June 30, 2020
|
|
|
5,484,970
|
|
|
|
0.742
|
|
The
following table discloses information regarding outstanding and exercisable options and warrants at June 30, 2020:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Exercise Prices
|
|
|
Number of Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average Remaining Life (Years)
|
|
|
Number of Option Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
$
|
0.225
|
|
|
|
200,000
|
|
|
$
|
0.225
|
|
|
|
4.46
|
|
|
|
200,000
|
|
|
$
|
0.225
|
|
|
$
|
0.400
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
|
1.62
|
|
|
|
110,000
|
|
|
$
|
0.400
|
|
|
$
|
0.420
|
|
|
|
330,000
|
|
|
$
|
0.420
|
|
|
|
4.05
|
|
|
|
330,000
|
|
|
$
|
0.420
|
|
|
$
|
0.500
|
|
|
|
165,000
|
|
|
$
|
0.500
|
|
|
|
1.70
|
|
|
|
162,500
|
|
|
$
|
0.500
|
|
|
$
|
0.600
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
|
|
0.11
|
|
|
|
627,220
|
|
|
$
|
0.600
|
|
|
$
|
0.650
|
|
|
|
145,000
|
|
|
$
|
0.650
|
|
|
|
2.82
|
|
|
|
36,250
|
|
|
$
|
0.650
|
|
|
$
|
0.800
|
|
|
|
3,482,750
|
|
|
$
|
0.800
|
|
|
|
1.43
|
|
|
|
3,095,250
|
|
|
$
|
0.800
|
|
|
$
|
0.850
|
|
|
|
100,000
|
|
|
$
|
0.850
|
|
|
|
3.29
|
|
|
|
-
|
|
|
$
|
0.850
|
|
|
$
|
1.050
|
|
|
|
25,000
|
|
|
$
|
1.050
|
|
|
|
3.79
|
|
|
|
-
|
|
|
$
|
1.050
|
|
|
$
|
1.260
|
|
|
|
220,000
|
|
|
$
|
1.260
|
|
|
|
2.50
|
|
|
|
110,000
|
|
|
$
|
1.260
|
|
|
$
|
1.300
|
|
|
|
10,000
|
|
|
$
|
1.300
|
|
|
|
1.80
|
|
|
|
7,500
|
|
|
$
|
1.300
|
|
|
$
|
1.386
|
|
|
|
60,000
|
|
|
$
|
1.386
|
|
|
|
2.50
|
|
|
|
30,000
|
|
|
$
|
1.386
|
|
|
$
|
1.666
|
|
|
|
10,000
|
|
|
$
|
1.666
|
|
|
|
2.59
|
|
|
|
5,000
|
|
|
$
|
1.666
|
|
|
|
Total
|
|
|
|
5,484,970
|
|
|
$
|
0.742
|
|
|
|
1.95
|
|
|
|
4,713,720
|
|
|
$
|
0.718
|
|
Compensation
related to stock-based compensation was $126,581 and $169,922, respectively, for the three months ended June 30, 2020 and 2019.
Note
15 – Subsequent Events
Common
Stock Issuances
The
Company made the following issuances of common stock subsequent to June 30, 2020:
None
Legal
Proceedings
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business.
On
February 6, 2020, MC CRE Investments, LLC landlord for the Palm Desert location, filed a Breach of Lease Agreement with the Superior
Court of the State of California, County of Riverside. EVIO Labs Palm Desert has vacated the space and turned it back over to
the landlord. The Company has expensed past due rents and late fees and these items are included in the liabilities in the balance
sheet.
On
or about March 5, 2020, Paul Tomaso, and Jonah Barber beneficiaries for MRX Labs, LLC, filed a Breach of Promissory Note in the
original principal amount of $750,000, plus late fees and penalties, with the Circuit Court of the State in Oregon, in Multnomah
County against Greenhaus Analytical Labs, LLC. The Company has expensed penalties and late fees and these items are included in
the liabilities in the balance sheet.
On
or about April 30, 2020, Michele Malaret and Gordon Griswold filed, filed a Breach of Contract in the original principal amount
of $500,000, with the Superior Court of California, County of Humboldt. The Company currently recognizes the full liability on
its balance sheet. There is no interest due associated with the note.
