UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017March 31, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________ .
Commission File Number: 000-12350
|
(Exact name of registrant as specified in its charter) |
Colorado |
| 47-1890509 |
(State of Incorporation) |
| (I.R.S. Employer Identification No.) |
| ||
62930 O. B. Riley Rd, Suite 300, Bend, OR |
| 97703 |
(Address of principal executive offices) |
| (Zip Code) |
(541) 633-4568
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Non-accelerated filer | ¨ |
Accelerated filer | ¨ | Smaller reporting company | x |
Emerging growth company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
| Outstanding as of |
Common stock, par value $0.0001 per share |
|
|
SIGNAL BAY, INC.
FORM 10-Q
June 30, 2017
EVIO, INC.
FORM 10-Q
March 31, 2018
| |||||
| 3 |
| |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
| ||
|
|
| |||
|
| ||||
| |||||
| |||||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
2 |
PART I -- FINANCIAL INFORMATION
SIGNAL BAY, INC. CONSOLIDATED BALANCE SHEETS June 30, 2017 September 30, 2016 (unaudited) ASSETS Current assets Cash Accounts receivable Prepaid expenses Other current asset Note receivable Total current assets Fixed assets, net of accumulated depreciation of $179,366 and $68,610, respectively Security deposits Intangible assets, net of accumulated amortization, net of accumulated amortization of $138,509 and $49,319 Goodwill Total assets LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Accounts payable and accrued liabilities Client deposits Interest payable Capital lease obligation, current Derivative liability Convertible notes payable, net of discounts of $226,852 and $121,496, respectively Loan payable, current Loans payable, related party, current Total current liabilities Capital lease obligation, net of current portion Loans payable, net of current portion Loans payable, related party, net of current portion Total liabilities Stockholders' equity (deficit) Series A Convertible Preferred Stock, Par Value $0.0001; 1,840,000 authorized; 0 and 1,840,000 shares issued and outstanding at June 30, 2017 and September 30, 2016, respectively Series B Convertible Preferred Stock, Par Value $0.0001; 5,000,000 authorized; 5,000,000 shares issued and outstanding at June 30, 2017 and September 30, 2016, respectively Series C Convertible Preferred Stock, Par Value $0.0001; 500,000 authorized; 500,000 shares issued and outstanding at June 30, 2017 and September 30, 2016, respectively Series D Convertible Preferred Stock, Par Value $0.0001; 1,000,000 authorized; 832,500 and 48,000 shares issued and outstanding at June 30, 2017 and September 30, 2016, respectively Common Stock, Par Value $0.0001, 3,000,000,000 authorized; 999,704,367 and 850,064,268 issued and outstanding at June 30, 2017 and September 30, 2016 Additional Paid In Capital Accumulated Deficit Total stockholders' equity (deficit) Non-controlling interest Total equity (deficit) Total liabilities and stockholders' equity (deficit) EVIO, INC.$ 149,983 $ 57,486 145,893 9,483 170,442 - - 40,000 - 25,000 466,318 131,969 434,893 205,842 80,267 6,476 574,392 426,301 2,415,057 1,415,408 $ 3,970,927 $ 2,185,996 $ 571,233 $ 223,316 77,627 22,500 91,014 27,197 36,016 - 263,143 775,246 324,799 257,605 34,113 77,375 226,191 433,007 1,624,136 1,816,246 58,952 - 62,031 - 1,387,412 776,751 3,132,531 2,592,997 - 184 500 500 50 50 83 5 99,970 85,006 6,438,306 3,351,452 (5,883,329 ) (4,032,177 ) 655,580 (594,980 ) 182,816 187,979 838,396 (407,001 ) $ 3,970,927 $ 2,185,996
CONSOLIDATED BALANCE SHEETS
|
| March 31, 2018 |
|
| September 30, |
| ||
|
| (unaudited) |
|
|
|
| ||
ASSETS | ||||||||
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 3,021,247 |
|
| $ | 121,013 |
|
Accounts receivable, net of allowance of $77,850 and $74,782 |
|
| 215,540 |
|
|
| 229,564 |
|
Prepaid expenses |
|
| 91,603 |
|
|
| 169,557 |
|
Other current assets |
|
| 63,546 |
|
|
| 7,438 |
|
Note receivable, current portion |
|
| 100,000 |
|
|
| 100,000 |
|
Total current assets |
|
| 3,491,936 |
|
|
| 627,572 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $345,308 and $213,447, respectively |
|
| 1,616,796 |
|
|
| 547,073 |
|
Security deposits |
|
| 564,215 |
|
|
| 92,892 |
|
Note receivable, net of current portion |
|
| 1,239,987 |
|
|
| 1,200,000 |
|
Deposit, related party |
|
| 200,000 |
|
|
| - |
|
Intangible assets, net of accumulated amortization, net of accumulated amortization of $283,589 and $189,475 |
|
| 945,146 |
|
|
| 592,260 |
|
Goodwill |
|
| 3,249,834 |
|
|
| 2,958,137 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 11,307,914 |
|
| $ | 6,017,934 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 698,672 |
|
| $ | 773,053 |
|
Client deposits |
|
| 49,696 |
|
|
| 119,281 |
|
Deferred revenue |
|
| 27,000 |
|
|
| 40,800 |
|
Interest payable |
|
| 296,886 |
|
|
| 133,697 |
|
Capital lease obligation, current |
|
| 140,184 |
|
|
| 37,990 |
|
Derivative liability |
|
| 3,123,223 |
|
|
| 294,637 |
|
Convertible notes payable, net of discounts of $499,998 and $208,680, respectively |
|
| 718,187 |
|
|
| 1,212,720 |
|
Loans payable, current, net of discounts of $37,024 and $127,662 |
|
| 975,192 |
|
|
| 1,503,545 |
|
Loans payable, related party, current |
|
| 153,155 |
|
|
| 312,855 |
|
Total current liabilities |
|
| 6,182,195 |
|
|
| 4,428,578 |
|
|
|
|
|
|
|
|
|
|
Convertible debentures payable, net of discounts of $6,229,111 and $0, respectively |
|
| 353,889 |
|
|
| - |
|
Capital lease obligation, net of current portion |
|
| 313,444 |
|
|
| 52,777 |
|
Loans payable, net of current portion |
|
| 53,475 |
|
|
| 59,832 |
|
Loans payable, related party, net of current portion, net of discounts of $32,066 and $42,044, respectively |
|
| 1,190,428 |
|
|
| 1,251,306 |
|
Total liabilities |
|
| 8,093,431 |
|
|
| 5,792,493 |
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock, Par Value $0.0001; 1,850,000 authorized; 0 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively |
|
| - |
|
|
| - |
|
Series B Convertible Preferred Stock, Par Value $0.0001; 5,000,000 authorized; 5,000,000 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively |
|
| 500 |
|
|
| 500 |
|
Series C Convertible Preferred Stock, Par Value $0.0001; 500,000 authorized; 500,000 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively |
|
| 50 |
|
|
| 50 |
|
Series D Convertible Preferred Stock, Par Value $.0001; 1,000,000 authorized; 552,500 and 832,500 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively |
|
| 55 |
|
|
| 83 |
|
Common Stock, Par Value $.0001, 1,000,000,000 authorized; 16,068,505 and 10,732,922 issued and outstanding at March 31, 2018 and September 30, 2017, respectively |
|
| 1,607 |
|
|
| 1,073 |
|
Additional Paid In Capital |
|
| 12,925,708 |
|
|
| 7,657,982 |
|
Accumulated Deficit |
|
| (10,258,765 | ) |
|
| (7,592,371 | ) |
Total stockholders' equity |
|
| 2,669,155 |
|
|
| 67,317 |
|
Non-controlling interest |
|
| 545,328 |
|
|
| 158,124 |
|
Total equity |
|
| 3,214,483 |
|
|
| 225,441 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 11,307,914 |
|
| $ | 6,017,934 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3 |
Table of Contents |
SIGNAL BAY, INC. | ||||||||||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Three months ended June 30, |
|
| Nine months ended June 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Testing services |
|
| 767,873 |
|
| $ | 83,709 |
|
| $ | 2,081,877 |
|
| $ | 163,366 |
|
Consulting services |
|
| 9,345 |
|
|
| 32,939 |
|
|
| 196,520 |
|
|
| 228,612 |
|
Total revenue |
|
| 777,218 |
|
|
| 116,648 |
|
|
| 2,278,397 |
|
|
| 391,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
|
| 592,273 |
|
|
| 101,392 |
|
|
| 1,717,997 |
|
|
| 308,473 |
|
Consulting services |
|
| 33,373 |
|
|
| 22,533 |
|
|
| 65,378 |
|
|
| 92,601 |
|
Depreciation and amortization |
|
| 28,618 |
|
|
| 7,659 |
|
|
| 74,968 |
|
|
| 14,409 |
|
Total cost of revenue |
|
| 654,264 |
|
|
| 131,584 |
|
|
| 1,858,343 |
|
|
| 415,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
| 122,954 |
|
|
| (14,936 | ) |
|
| 420,054 |
|
|
| (23,505 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 582,113 |
|
|
| 118,513 |
|
|
| 1,478,007 |
|
|
| 326,601 |
|
Depreciation and amortization |
|
| 40,413 |
|
|
| 39,322 |
|
|
| 114,793 |
|
|
| 56,732 |
|
Total operating expenses |
|
| 622,526 |
|
|
| 157,835 |
|
|
| 1,592,800 |
|
|
| 383,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (499,572 | ) |
|
| (172,771 | ) |
|
| (1,172,746 | ) |
|
| (406,838 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 105 |
|
|
| - |
|
|
| 105 |
|
|
| - |
|
Interest expense |
|
| (227,879 | ) |
|
| (44,397 | ) |
|
| (649,288 | ) |
|
| (185,372 | ) |
Loss on disposal of asset |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (720 | ) |
Gain (loss) on change in fair market value of derivative liabilities |
|
| 156,892 |
|
|
| (203,696 | ) |
|
| (34,386 | ) |
|
| (238,038 | ) |
Total other income (expense) |
|
| (70,882 | ) |
|
| (248,093 | ) |
|
| (683,569 | ) |
|
| (424,130 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (570,454 | ) |
| $ | (420,864 | ) |
| $ | (1,856,315 | ) |
| $ | (830,968 | ) |
Loss attributable to non-controlling interest |
|
| (14,453 | ) |
|
| (5,321 | ) |
|
| (5,163 | ) |
|
| (15,059 | ) |
Net loss attributable to Signal Bay, Inc. |
| $ | (556,001 | ) |
| $ | (415,543 | ) |
| $ | (1,851,152 | ) |
| $ | (815,909 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 976,219,903 |
|
|
| 513,768,896 |
|
|
| 935,661,327 |
|
|
| 440,380,497 |
|
EVIO, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Testing services |
| $ | 689,011 |
|
| $ | 745,426 |
|
| $ | 1,576,360 |
|
| $ | 1,314,004 |
|
Consulting services |
|
| 43,300 |
|
|
| 87,297 |
|
|
| 102,816 |
|
|
| 187,175 |
|
Total revenue |
|
| 732,311 |
|
|
| 832,723 |
|
|
| 1,679,176 |
|
|
| 1,501,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
|
| 664,182 |
|
|
| 566,447 |
|
|
| 1,360,840 |
|
|
| 1,125,724 |
|
Consulting services |
|
| 78,500 |
|
|
| 19,505 |
|
|
| 88,992 |
|
|
| 32,005 |
|
Depreciation and amortization |
|
| 55,706 |
|
|
| 28,048 |
|
|
| 84,819 |
|
|
| 46,350 |
|
Total cost of revenue |
|
| 798,388 |
|
|
| 614,000 |
|
|
| 1,534,651 |
|
|
| 1,204,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
| (66,077 | ) |
|
| 218,723 |
|
|
| 144,525 |
|
|
| 297,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 2,213,094 |
|
|
| 460,736 |
|
|
| 3,033,369 |
|
|
| 895,894 |
|
Depreciation and amortization |
|
| 83,769 |
|
|
| 39,845 |
|
|
| 141,156 |
|
|
| 74,380 |
|
Total operating expenses |
|
| 2,296,863 |
|
|
| 500,581 |
|
|
| 3,174,525 |
|
|
| 970,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (2,362,940 | ) |
|
| (281,858 | ) |
|
| (3,030,000 | ) |
|
| (673,174 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income |
|
| (1,102,537 | ) |
|
| (97,987 | ) |
|
| (1,387,188 | ) |
|
| (421,409 | ) |
Loss on settlement of debt and account payable |
|
| - |
|
|
| - |
|
|
| (56,093 | ) |
|
| - |
|
Gain (loss) on change in fair market value of derivative liabilities |
|
| 1,780,769 |
|
|
| (85,035 | ) |
|
| 1,794,091 |
|
|
| (191,278 | ) |
Total other income (expense) |
|
| 678,232 |
|
|
| (183,022 | ) |
|
| 350,810 |
|
|
| (612,687 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,684,708 | ) |
| $ | (464,880 | ) |
| $ | (2,679,190 | ) |
| $ | (1,285,861 | ) |
Gain (loss) attributable to non-controlling interest |
|
| (4,906 | ) |
|
| 4,554 |
|
|
| (12,796 | ) |
|
| 9,290 |
|
Net loss attributable to EVIO, Inc. |
| $ | (1,679,802 | ) |
| $ | (469,434 | ) |
| $ | (2,666,394 | ) |
| $ | (1,295,151 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
| $ | (0.11 | ) |
| $ | (0.05 | ) |
| $ | (0.20 | ) |
| $ | (0.14 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 15,387,039 |
|
|
| 9,490,789 |
|
|
| 13,519,957 |
|
|
| 9,154,929 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 |
Table of Contents |
SIGNAL BAY, INC. | ||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
|
| ||||||
|
| Nine months ended June 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (1,856,315 | ) |
| $ | (830,968 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 358,794 |
|
|
| 92,991 |
|
Loss on disposal of asset |
|
| - |
|
|
| 720 |
|
Default penalties on convertible notes payable |
|
| - |
|
|
| 51,229 |
|
Depreciation and amortization expense |
|
| 189,761 |
|
|
| 71,142 |
|
Amortization of debt discount |
|
| 549,581 |
|
|
| 90,291 |
|
Loss on derivative liability |
|
| 34,386 |
|
|
| 238,038 |
|
Reduction of security deposit for rent expense |
|
| 2,095 |
|
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (114,643 | ) |
|
| 866 |
|
Prepaid expenses |
|
| 28,858 |
|
|
| 144 |
|
Other current asset |
|
| 40,000 |
|
|
| - |
|
Security deposits |
|
| (75,186 | ) |
|
| (6,476 | ) |
Accounts payable and accrued liabilities |
|
| 274,051 |
|
|
| 120,396 |
|
Interest payable |
|
| 84,359 |
|
|
| 11,775 |
|
Customer deposits |
|
| 55,127 |
|
|
| - |
|
Net cash used in operating activities |
|
| (429,132 | ) |
|
| (159,852 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Net cash received from (paid in) acquisitions of subsidiaries |
|
| (6,930 | ) |
|
| 9,055 |
|
Purchase of equipment |
|
| (48,726 | ) |
|
| (11,699 | ) |
Net cash used in investing activities |
|
| (55,656 | ) |
|
| (2,644 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayments of capital leases |
|
| (10,152 | ) |
|
| - |
|
Proceeds from issuance of common stock |
|
| 70,000 |
|
|
| - |
|
Proceeds from the issuance of series D preferred stock |
|
| 114,500 |
|
|
| - |
|
Proceeds from convertible notes, net of original issue discounts and fees |
|
| 640,000 |
|
|
| 193,640 |
|
Proceeds from loans payable |
|
| - |
|
|
| 43,836 |
|
Payment on loan payable |
|
| (56,396 | ) |
|
| (7,036 | ) |
Proceeds from notes payable - related party |
|
| 80,100 |
|
|
| 20,500 |
|
Payments on notes payable - related party |
|
| (260,767 | ) |
|
| (68,662 | ) |
Net cash provided by financing activities |
|
| 577,285 |
|
|
| 182,278 |
|
|
|
|
|
|
|
|
|
|
Net cash increase for period |
|
| 92,497 |
|
|
| 19,782 |
|
Cash balance, beginning of period |
|
| 57,486 |
|
|
| 25,966 |
|
Cash balance, end of period |
| $ | 149,983 |
|
| $ | 45,748 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 15,348 |
|
| $ | 12,098 |
|
Cash paid for income tax |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Equipment financed through capital leases |
| $ | 105,120 |
|
| $ | - |
|
Vehicles financed through notes payable |
| $ | 75,165 |
|
| $ | - |
|
Debt discount from derivative liability |
| $ | 641,637 |
|
| $ | 120,000 |
|
Conversion of convertible note and accrued interest into common stock |
| $ | 501,292 |
|
| $ | 88,357 |
|
Conversion of Series A Preferred stock to common stock |
| $ | 4,388 |
|
| $ | - |
|
Reclassification of derivative liability to additional paid in capital |
| $ | 1,188,126 |
|
| $ | 181,788 |
|
Acquisition of Greenstyle Consulting assets through issuance of preferred shares, cash and note payable |
| $ | 260,000 |
|
| $ | - |
|
Acquisition of GreehHaus through issuance of preferred shares and note payable |
| $ | 800,000 |
|
| $ | - |
|
Acquisition of Oregon Analytical Services' assets through issuance of preferred shares, common shares and note payable |
| $ | - |
|
| $ | 852,500 |
|
Acquisition of Smith Scientific through issuance of preferred shares, common shares and note payable |
| $ | - |
|
| $ | 471,000 |
|
Expenses paid by note payable |
| $ | - |
|
| $ | 45,000 |
|
EVIO, INC. | |||||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |
Six months ended March 31, 2018 2017 Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash used in operating activities: Stock based compensation Common stock issued for services Loss on settlement of debt Loss on settlement of account payable (Gain) loss on derivative liability Amortization of debt discount Depreciation and amortization expense Allowance for doubtful accounts Reduction of security deposit for rent expense Changes in operating assets and liabilities: Accounts receivable Prepaid expenses Other current asset Security deposits Accounts payable and accrued liabilities Interest payable Deferred revenue Customer deposits Net cash used in operating activities Cash flows from investing activities Net cash acquired (paid) in acquisitions of subsidiaries Note receivable Deposit, related party Purchase of equipment Net cash used in investing activities Cash flows from financing activities Repayments of capital leases Proceeds from issuance of convertible debenture Proceeds from issuance of common stock Proceeds from the issuance of series D preferred stock Proceeds from convertible notes, net of original issue discounts and fees Payment on loan payable Proceeds from notes payable - related party Payments on notes payable - related party Net cash provided by financing activities Net cash increase for period Cash balance, beginning of period Cash balance, end of period Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for income tax Supplemental disclosure of non-cash investing and financing activities: Conversion of convertible note and accrued interest into common stock Reclassification of derivative liability to additional paid in capital Settlement of account payable for common stock Common stock issued for settlement of note payable Common stock issued for settlement of related party note payable Conversion of Series D Preferred stock to common stock Debt discount recorded on convertible notes and convertible debentures payable upon initial measurement of derivative liability Debt discounts recorded for original issue discounts on convertible notes and convertible debentures payable Vehicles financed through notes payable Equipment financed through capital leases Debt discount from derivative liability Conversion of Series A Preferred stock to common stock Acquisition of C3 Labs through the issuance of note payable and convertible note payable Acquisition of Greenstyle Consulting assets through issuance of preferred shares, cash and note payable Acquisition of GreehHaus through issuance of preferred shares and note payable $ (2,679,190 ) $ (1,285,861 ) 1,234,415 247,951 254,720 - 52,343 - 3,750 - (1,794,091 ) 191,278 1,199,159 357,552 225,975 120,730 3,067 - - 2,095 16,067 (196,738 ) 77,954 (973 ) (52,647 ) 40,000 (451,323 ) (6,418 ) (348,073 ) 274,601 192,616 56,826 (13,800 ) - (69,585 ) 136,645 (2,148,643 ) (62,312 ) 20,468 (6,930 ) (39,987 ) - (200,000 ) - (571,501 ) (45,764 ) (791,020 ) (52,694 ) (22,347 ) (4,590 ) 6,136,120 - 508,000 20,000 - 114,500 - 390,000 (605,348 ) (54,875 ) - 80,100 (176,528 ) (223,022 ) 5,839,897 322,113 2,900,234 207,107 121,013 57,486 $ 3,021,247 $ 264,593 $ 80,028 $ 7,034 $ - $ - $ 730,485 $ 316,457 $ 882,454 $ 889,509 $ 18,750 $ - $ 162,000 $ - $ 62,500 $ - $ 70 $ - $ 5,505,131 $ 351,600 $ 446,800 $ 13,300 $ - $ 75,165 $ 385,208 $ 105,120 $ - $ 351,600 $ - $ 4,388 $ 600,000 $ - $ - $ 260,000 $ - $ 800,000
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5 |
Table of Contents |
SIGNAL BAY,EVIO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017MARCH 31, 2018
NOTE 1 – NATURE OF ACTIVITIES AND CONTINUANCE OF BUSINESS
Signal Bay,EVIO, Inc., a Colorado corporation and its subsidiaries (“the Company”) provide advisory, management and analytical testing and advisory services to the emerging legalized cannabis industry. Signal Bay, 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 CompanySignal Bay Research completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation,shell company, Quantech Electronics, and in September 2014, changed its name and assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. tooperations as Signal Bay, Inc. The Company has selected September 30 as its fiscal year end. Signal Bay, Inc. is domiciled in the State of Colorado, and its corporate headquarters are located in Bend, Oregon.Bay.
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 afterIn September 2014, the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014,Company changed its name to Signal Bay, Inc. and was determinedthen 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.EVIO, INC. in September 2017.
AfterEVIO, Inc. has selected September 30 as its fiscal year end. The Company is domiciled in the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly owned subsidiary providing compliance, researchState of Colorado, and advisory services for Signal Bay, Inc.its corporate headquarters are located in Bend, Oregon.
Signal Bay Services was formed on January 25, 2015, as the management services division of Signal Bay.EVIO.
On September 17, 2015, Signal Baythe Company 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 Labs OR Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations.operations in Oregon.
EVIO Labs Eugene, LLC 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.the Company 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.LLC (“GreenHaus”). GreenHaus is a full-service cannabis testing laboratory.
On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.2016 (“GreenStyle”). GreenStyle is a full-service cannabis testing laboratory.
The Company entered in to a Membership Interest Purchase Agreement with Viridis Analytics MA, LLC (“Viridis”) which was closed on August 1, 2017. Viridis is a full-service cannabis testing laboratory.
On December 29, 2017, the Company entered in to an Membership Purchase Agreement to purchase 60% of the outstanding interests of C3 Labs, LC, LLC which was closed on January 1, 2018 (“C3”). C3 is a full-service cannabis testing laboratory. See Note 10 – Acquisitions.
6 |
Table of Contents |
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 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 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:Presentation
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 omittedomitted.
Principles of Consolidation
The Company prepares its 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 significant 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.
7 |
Table of Contents |
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 could have a material impact on Signal Bay, Inc.’sthe Company’s financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates. Signal Bay, Inc.’sThe 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.
Reclassification of Prior Period Presentation
Certain amounts have been reclassified on the September 30, 2016 balance sheet to conform to current period presentation. Specifically, websites and domains net of accumulated amortization of $31,178 have been reclassified on the balance sheet to be included in intangibles assets where previously they were included in fixed assets and $100,000 of related party notes payable have been reclassified from long term to current. These reclassifications have no impact on net loss.
Financial Instruments
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 of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
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, 2017:March 31, 2018:
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Derivative financial instruments |
| $ | - |
| $ | - |
| $ | 263,143 |
| $ | 263,143 |
|
| $ | - |
| $ | - |
| $ | 3,123,223 |
| $ | 3,123,223 |
|
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, 2016:2017:
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Derivative financial instruments |
| $ | - |
| $ | - |
| $ | 775,246 |
| $ | 775,246 |
|
| $ | - |
| $ | - |
| $ | 294,637 |
| $ | 294,637 |
|
Recently Issued Accounting Pronouncements
In February 2015, the FASB issued ASC 2015-02, "Consolidation (Topic 810) - Amendments to the Consolidation Analysis." This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company adopted has this standard and determined it does not have a significant impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.” This update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim and annual periods beginning after December 15, 2015 and early adoption is permitted. The Company has adopted this guidance and the adoption of this guidance did not have an impact on the Company’s results of operations, financial position, or cash flows for the three or nine months ended June 30, 2017 or 2016.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the new guidance on January 1, 2017. The primary impact of adoption was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital. However, as the Company has a full valuation allowance against its deferred tax asset, a corresponding adjustment was recorded to increase the valuation allowance.
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 JanuaryOctober 1, 2018.
Management believes recently
8 |
Table of Contents |
In April 2016, the FASB issued accounting pronouncementsASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing" ("ASU 2016-1O"). The amendments in this update clarify the following two aspects to Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The Company evaluated the impacts of ASU 2016-10 and does not believe it will have noan impact on the Company’s revenue recognition practices and will adopt the standard on October 1, 2018.
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 of the Company.upon adoption
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 1,006,868,22413,688,531 and 1,433,085,5759,958,808 potentially dilutive common shares outstanding as of June 30, 2017March 31, 2018 and 2016.2017. Because of the net losses incurred during the three and ninesix months ended June 30,March 31, 2018 and 2017, and 2016, 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.
NOTE 3 – ACQUISITIONSAccounts 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. There was an allowance for uncollectible accounts receivable of $77,850 and $74,782 as of March 31, 2018 and September 30, 2017, respectively.
GreenHaus Analytical Labs, LLC (or “GHA”)
On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus Analytical Labs, LLC. for 460,000 shares of Series “D” preferred stock and a $340,000 promissory note.Notes Receivable
The Company appliedaccounts investments for notes receivable in accordance with ASC 320. On September 6, 2017, the acquisition method toCompany entered in a note receivable with an unrelated entity for $1,300,000. During the business combinationsix months ended March 31, 2018, the Company made additional advances of $39,987. The note is due on September 6, 2024 and valuedcarries 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 Company evaluated the collectability of the assets acquired (cash, accountsnote receivable prepaid expenses, security deposits, customer lists, certain testing licenses and property, plant and equipment) and liabilities assumed (accounts payable, related party payables and notes payable) at fair value as of March 31, 2018 and September 30, 2017 and determined the acquisition date. The cash, accounts receivablefull balance is collectible and accounts payable were deemed to be recorded at fair valueno reserve for write off was recorded. As of March 31, 2018 and September 30, 2017, there was $1,339,987 of principal, of which $100,000 was current and $1,239,987 was long term. Additionally, there was $59,485 and $6,838 of interest due as of March 31, 2018 and September 30, 2017 which is included in other current assets.
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 acquisition date. The Company determinedbeginning 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 property, plant and equipment to be historical book value. The preliminary allocationeach reporting unit with the carrying amount of the purchase price was based on estimates ofreporting 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 assumed based on provisional amounts. The allocationother than goodwill (including any unrecognized intangible assets). We compare the resulting implied fair value of the excess purchase price is not finalgoodwill to the carrying amount and record an impairment charge for the amounts allocated todifference. We test individual indefinite-lived intangible assets are subject to change pending the completion of final valuations of certain assets and liabilities. Under the purchase agreement, the Company issued 460,000 shares of Series “D” preferred stock, valued at $460,000 and a $340,000 promissory note for total consideration of $800,000. The following table showsby comparing the estimated fair value with the book values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED |
|
|
| |
CASH |
| $ | 13,070 |
|
ACCOUNTS RECEIVABLE |
|
| 21,767 |
|
PREPAID EXPENSES |
|
| 300 |
|
SECURITY DEPOSITS |
|
| 700 |
|
PROPERTY PLANT AND EQUIPMENT |
|
| 81,311 |
|
LICENSE |
|
| 132,668 |
|
CUSTOMER LIST |
|
| 43,562 |
|
GOODWILL |
|
| 800,000 |
|
TOTAL ASSETS ACQUIRED |
| $ | 1,093,378 |
|
|
|
|
|
|
LIABILITIES ASSUMED |
|
|
|
|
ACCOUNTS PAYABLE |
| $ | (73,866 | ) |
RELATED PARTY PAYABLES |
|
| (194,512 | ) |
NOTES PAYABLE |
|
| (25,000 | ) |
TOTAL LIABILITIES ASSUMED |
|
| (293,378 | ) |
|
|
|
|
|
NET ASSETS ACQUIRED FROM GHA ACQUISITION |
| $ | 800,000 |
|
Green Style Consulting, LLC
On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC. Effective, November 1, 2016, the company owned all assets of Green Style Consulting, LLC d/b/a Green Style Analytics, including 1,300 client names, analytical testing equipment, brands/websites, and the vanity toll-free number 844-420-TEST for 210,000 shares of Series “D” preferred stock, $20,000 cash down payment and a $50,000 promissory note.each asset.
9 |
Table of Contents |
The Company appliedrecognizes an acquired intangible apart from goodwill whenever the acquisition methodintangible 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), websites, non-compete agreements (amortized over 5 years), domain names (amortized over 15 years) and testing licenses (amortized over 5 years).
Stock-Based Compensation
The Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based compensation, which requires the business combination and valued eachmeasurement of the assets acquired (customer lists and property, plant and equipment) atcost of services received in exchange for an award of an equity instrument based on the grant-date fair value as of the acquisition date.award. Compensation cost is recognized when the event occurs. The property, plant and equipment were deemedBlack-Scholes option-pricing model is used to be recorded at fair value as of the acquisition date. The Company determinedestimate the fair value of property, plant and equipmentoptions granted.
The Company accounts for equity-based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be historical book value. The preliminary allocation of the purchase price was based on estimates ofmeasured at the fair value of the assets and liabilities assumed based on provisional amounts. The allocationconsideration received or the fair value of the excess purchase priceequity instruments issued, whichever is more reliably measurable.
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 finalrequired 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 allocateddue from or to intangible assets are subject to change pending the completionrelated parties as of final valuations of certain assets and liabilities Under the purchase agreement, the Company issued 210,000 shares of Series “D” preferred stock, valued at $210,000, a cash payment of $20,000 and a $50,000 promissory note for total consideration of $280,000. Additionally, the Company has agreed to pay the sellers 20% of Evio California, Inc.’s net profits effective November 1, 2016 for a period of three years ending October 31, 2019. The following table shows the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
ASSETS ACQUIRED |
|
|
| |
PROPERTY PLANT AND EQUIPMENT |
| $ | 19,300 |
|
CUSTOMER LIST |
|
| 61,051 |
|
GOODWILL |
|
| 199,649 |
|
TOTAL ASSETS ACQUIRED |
| $ | 280,000 |
|
|
|
|
|
|
LIABILITIES ASSUMED |
|
| - |
|
NET ASSETS ACQUIRED FROM GREEN STYLE ACQUISITION |
| $ | 280,000 |
|
In accordance with ASC 805-10-50,each balance sheet presented and, if not otherwise apparent, the Company is providing the following unaudited pro-forma to present a summaryterms and manner 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.settlement.
SIGNAL BAY, INC | ||||||||||||||||
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Three months ended June 30, |
|
| Nine months ended June 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Testing services |
| $ | 767,873 |
|
| $ | 109,810 |
|
| $ | 2,122,073 |
|
| $ | 273,769 |
|
Consulting services |
|
| 9,345 |
|
|
| 32,939 |
|
|
| 196,520 |
|
|
| 228,612 |
|
Total revenue |
|
| 777,218 |
|
|
| 142,749 |
|
|
| 2,318,593 |
|
|
| 502,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
|
| 620,687 |
|
|
| 147,196 |
|
|
| 1,811,382 |
|
|
| 415,052 |
|
Consulting services |
|
| 33,373 |
|
|
| 22,533 |
|
|
| 65,378 |
|
|
| 92,601 |
|
Total cost of revenue |
|
| 654,060 |
|
|
| 169,729 |
|
|
| 1,876,760 |
|
|
| 507,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
| 123,158 |
|
|
| (26,979 | ) |
|
| 441,833 |
|
|
| (5,271 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 583,364 |
|
|
| 150,802 |
|
|
| 1,484,590 |
|
|
| 427,241 |
|
Depreciation and amortization |
|
| 30,349 |
|
|
| 39,322 |
|
|
| 89,625 |
|
|
| 56,732 |
|
Total operating expenses |
|
| 613,713 |
|
|
| 190,124 |
|
|
| 1,574,215 |
|
|
| 483,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (490,555 | ) |
|
| (217,103 | ) |
|
| (1,132,382 | ) |
|
| (489,244 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 105 |
|
|
| - |
|
|
| 105 |
|
|
| - |
|
Interest expense |
|
| (227,879 | ) |
|
| (46,633 | ) |
|
| (649,744 | ) |
|
| (189,899 | ) |
Loss on disposal of asset |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (720 | ) |
Gain (loss) on change in fair market value of derivative liabilities |
|
| 156,892 |
|
|
| (203,696 | ) |
|
| (34,386 | ) |
|
| (238,038 | ) |
Total other income (expense) |
|
| (70,882 | ) |
|
| (250,329 | ) |
|
| (684,025 | ) |
|
| (428,657 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (561,437 | ) |
| $ | (467,433 | ) |
| $ | (1,816,407 | ) |
| $ | (917,902 | ) |
10 |
Table of Contents |
Future AmortizationCapital Leases
The Company accounts for capital leases in accordance with ACS 840-30. During the year ended September 30, 2017, the Company entered into three separate long-term leases for equipment that contain a $1 buyout option upon lease termination. The Company determined these were capital leases based on the minimum buy out price and capitalized the net present value of the leases which totaled $116,800 as equipment.
On February 2, 2018, the Company entered into a long term lease for equipment that contain a bargain purchase option upon lease termination. The Company determined this was a capital lease based on the minimum buy out price and capitalized the net present value of the lease of $385,208 plus the required up front cash payment of $39,986 which totaled $425,194 as equipment.
As of September 30, 2017, there was a total of $111,501 of future amortization associated withpayments due through December 2019 of which $20,734 are financing charges leaving a total principal balance of $90,967 as of September 30, 2017. Of this amount, $37,990 was current and $52,777 was long term as of September 30, 2017.
As of March 31, 2018, there was a total of $499,242 of future payments due through March 2021 of which $45,614 are financing charges leaving a total principal balance of $453,628 as of March 31, 2018. Of this amount, $140,184 was current and $313,444 was long term as of March 31, 2018.
Future annual payments required under the intangible assets acquired in the above mentioned and prior acquisitions iscapital leases through termination are as follows:
For the years ended September 30, |
| Amortization |
| |||||||||||||
2017 |
| $ | 33,908 |
| ||||||||||||
Year ended September 30, |
| Principal |
|
| Interest |
|
| Total |
| |||||||
2018 |
| 135,630 |
|
| $ | 69,198 |
| $ | 14,390 |
| $ | 83,588 |
| |||
2019 |
| 135,630 |
|
| 144,889 |
| 19,671 |
| 164,560 |
| ||||||
2020 |
| 135,630 |
|
| 121,904 |
| 9,210 |
| 131,114 |
| ||||||
2021 |
| 93,455 |
|
|
| 117,637 |
|
|
| 2,343 |
|
|
| 119,980 |
| |
Thereafter |
|
| 3,955 |
| ||||||||||||
Total |
| $ | 538,208 |
|
| $ | 453,628 |
|
| $ | 45,614 |
|
| $ | 499,242 |
|
Concentration of Credit Risk
Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of March 31, 2018 and September 30, 2017, the Company held $2,472,536 and $0 of cash at one financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000. As of March 31, 2018 and September 30, 2017, the Company had a note receivable totaling $1,339,987 and $1,300,000 due from a single entity.
As of September 30, 2017, the Company had total accounts receivable net of allowances of $229,564. Three separate clients comprised a total of 41% of this balance as follows:
|
| Balance |
|
| Percent of |
| ||
Customer 1 |
| $ | 42,878 |
|
|
| 14 | % |
Customer 2 |
|
| 45,635 |
|
|
| 15 | % |
Customer 3 |
|
| 37,540 |
|
|
| 12 | % |
All others |
|
| 178,294 |
|
|
| 59 | % |
Total |
|
| 304,347 |
|
|
| 100 | % |
Allowance for doubtful accounts |
|
| (74,783 | ) |
|
|
|
|
Net accounts receivable |
| $ | 229,564 |
|
|
|
|
|
11 |
Table of Contents |
As of March 31, 2018 the Company had total accounts receivable net of allowances of $215,540. Three separate clients comprised a total of 35% of this balance as follows:
Balance Percent of Total Customer 1 Customer 2 Customer 3 All others Total Allowance for doubtful accounts Net accounts receivable $ 33,219 11 % 45,635 16 % 36,600 12 % 177,936 61 % 293,390 (77,850 ) $ 215,540
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 | ||||
Laboratory and Computer Equipment | 5 years | |||
Furniture and Fixtures | 7 years | |||
Software | 3 years | |||
Domains | 15 years |
12 |
Table of Contents |
The Company’s property and equipment consisted of the following as of March 31, 2018 and September 30, 2017:
|
| March 31, |
|
| September 30, |
| ||
Furniture and Equipment |
| $ | 169,051 |
|
| $ | 146,870 |
|
Laboratory Equipment |
|
| 1,543,487 |
|
|
| 439,071 |
|
Software |
|
| 58,333 |
|
|
| 58,333 |
|
Leasehold Improvements |
|
| 107,318 |
|
|
| 41,081 |
|
Vehicles |
|
| 83,915 |
|
|
| 75,165 |
|
Total |
|
| 1,962,104 |
|
|
| 760,520 |
|
Accumulated depreciation |
|
| (345,308 | ) |
|
| (213,447 | ) |
Net value |
| $ | 1,616,796 |
|
| $ | 547,073 |
|
The Company capitalized a total of $425,194 of equipment purchased through capital leases and recorded depreciation expense of $23,619 and $6,029 and $33,064 and $8,134 and on that equipment during the three and six months ended March 31, 2018 and 2017, respectively.
NOTE 3 – INTANGIBLE ASSETS
The Company’s intangible assets consist of customer lists, testing licenses, favorable leases and websites. The components of intangible assets as of March 31, 2018 and September 30, 2017 consist of:
|
| March 31, |
|
| September 30, |
| ||
Customer list |
| $ | 592,670 |
|
| $ | 480,670 |
|
License |
|
| 503,000 |
|
|
| 256,000 |
|
Favorable lease |
|
| 3,100 |
|
|
| 3,100 |
|
Website |
|
| 41,965 |
|
|
| 41,965 |
|
Non-compete agreement |
|
| 88,000 |
|
|
| - |
|
Total |
|
| 1,228,735 |
|
|
| 781,735 |
|
Accumulated amortization |
|
| (283,589 | ) |
|
| (189,475 | ) |
Net value |
| $ | 945,146 |
|
| $ | 592,260 |
|
13 |
Table of Contents |
The Company estimates amortization to be recorded on existing intangible assets through the estimated lives to be:
For the years ended September 30, |
| Amortization |
| |
2018 |
| $ | 109,268 |
|
2019 |
|
| 218,537 |
|
2020 |
|
| 218,537 |
|
2021 |
|
| 176,362 |
|
2022 |
|
| 78,607 |
|
Thereafter |
|
| 143,835 |
|
Total |
| $ | 945,146 |
|
NOTE 4 – RELATED PARTY TRANSACTIONS
Through September 30, 2016,2017, the Company received loans from its Chief Operating Officer totaling $96,000. Through$106,000 and made repayments totaling $21,795 leaving a balance due as of September 30, 2016,2017 of $84,205. Additionally, the Company made repayments totaling $4,295. There were repayments totaling $7,500 made$60,000 during the ninesix months ended June 30, 2017.March 31, 2018. The advances are non-interest bearing and due on demand. There was $84,205$24,204 and $91,705$84,205 due as of June 30, 2017March 31, 2018 and September 30, 2016,2017, and is 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 three and ninesix months ended June 30,March 31, 2018 and 2017, and 2016, the Company incurred total expenses of $7,858$2,000 and $14,000$13,124 and $35,530$14,317 and $48,006$27,672, respectively, for management advisoryconsulting services performed by Newport Commercial Advisors, an entity fully owned and controlled by our Chief Executive Officer. There was not a balance payable to Newport Commercial Advisors as of June 30, 2017March 31, 2018 or September 30, 2016.2017.
During the nine monthsyear ended JuneSeptember 30, 2017, the Company received loans from its Chief Executive Officer totaling $80,100 and made repayments totaling $75,650. There were no additional advances or repayments made during the six months ended March 31, 2018. The loans are non-interest bearing and due on demand. There was $4,450 due as of JuneMarch 31, 2018 and September 30, 2017.
During the nine monthsyear ended JuneSeptember 30, 2017 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $10,708.$13,139. The loans carry an interest rate of 0% per annum. There was $2,560 and $13,269$130 due as of June 30, 2017March 31, 2018 and September 30, 2016, respectively.2017. Additionally, the Company entered into a severance agreement with Mr. Ezrine whereby it agreed to make payments totaling $44,500 through August 2018. The Company made repayments of $18,050$22,050 during the nineyear ended September 30, 2017 and $14,000 during the six months ended June 30, 2017.March 31, 2018. There was $26,450$8,450 and $44,500$22,450 accrued as of June 30, 2017March 31, 2018 and September 30, 2016.2017, respectively.
On May 24, 2016, the Company executed an asset purchase agreement with Sara Lausmann, managing member owner of Oregon Analytical Services, LLC, for $972,500. The terms of the purchase required the issuance of 200,000 shares of Series C Preferred Stock, valued at $80,000, $72,500 in a short-term loan and $700,000 in a long-term note. DuringThrough the nine monthsyear ended JuneSeptember 30, 2017, the Company repaid $36,808a total of $82,630 to Sara Lausmann, Vice President Client Services. The Company made additional repayments of $59,000 during the six months ended March 31, 2018. The total amount owedoutstanding is $700,776$630,870 and $737,584$689,870 as of June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively. As of June 30, 2017March 31, 2018 and September 30, 2016, $100,7762017, $74,370 and $137,584$89,870 and $600,000$556,500 and $600,000 are included in the accompanying consolidated balance sheets as current and long-term portions of notes payable to related party, respectively. The notes carry interest at a rate of 5% per annum and had accrued interest totaling $40,309$64,222 and $13,521$47,409 due as of June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
On June 1, 2016, the companyCompany executed a share purchase agreement with Anthony Smith, for the purchase of 80% of Smith Scientific Industries for $636,000. The terms of the purchase required the issuance of 300,000 shares of Series C Preferred Stock, valued at $135,000 and $336,000 in a promissory note. During the nine monthsyear ended JuneSeptember 30, 2017, the Company repaid $50,000 to Anthony Smith, our Chief Science Officer. During the six months ended March 31, 2018, the Company made repayments totaling $25,000. The note carries interest at a rate of 5% per annum. There was $261,000$236,000 and $311,000$261,000 of principal due as of JuneMarch 31, 2018 and September 30, 2017 and September 30, 2016$25,044 and $15,556 and $5,155$18,846 of accrued interest due as of June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
On October 19, 2016, the Company assumed a $194,512 payable due to Henry Grimmett, and officer of Greenhaus and current Director of the Company, with its acquisition of Greenhaus Analytical Services, LLC. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly. During the nine monthsyear ended JuneSeptember 30, 2017, the Company made repayments totaling $24,100.$25,100. Additionally, during the six months ended March 31, 2018, the Company made cash repayments of $2,000 and agreed to issue 125,000 shares of common stock valued at $62,500 for the settlement of $50,000 of principal resulting in a loss on the settlement of debt of $15,000. There was a total of $117,412 and $169,412 due as of JuneMarch 31, 2018 and September 30, 2017 of which $100,000$50,000 is current and $69,412$67,412 is long term.
14 |
Table of Contents |
On October 19, 2016, the Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. At the time of issuance, the note carried a debt discount of $55,277. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. There was $340,000 of principal, an unamortized debt discount of $35,158 and $14,364$42,044 and $29,678 and $19,506 of accrued interest due as of JuneMarch 31, 2018 and September 30, 2017.2017, respectively.
On November 1, 2016, the Company entered into a $50,000 note payable, that contained a premium of $7,416 based on fair value, to Green Style Consulting, LLC as part of the asset purchase agreement.LLC. The Green Style Consulting, LLC Managing Member is our General Manager Northern California, who was hired by the Company concurrent to the asset purchase. The note carries interest at a rate of 5% per annum and matures on October 31, 2018. During the nineyear ended September 30, 2017 and the six months ended June 30, 2017,March 31, 2018, the Company made repayments of $8,000.$6,090 and $21,328. There was $42,000$22,582 and $43,910 of principal, $3,093 and $1,532$4,028 of unamortized note premium and $436 and $2,055 of accrued interest due as of JuneMarch 31, 2018 and September 30, 2017, respectively.
On October 19, 2016, the Company entered into an asset purchase agreement with Green Style Consulting LLC requiring a future share of net profits generated by Green Style Consulting. The fair value of these future net profits were estimated to be $15,809. There have been no monthly net profits to distribute from the time of acquisition to March 31, 2018 and as such no repayments have been made. There was $15,809 accrued and included in accounts payable and accrued liabilities for future payments related to this earn out as of March 31, 2018 and September 30, 2017.
Through September 30, 2016, the Company borrowed a total of $16,200 from our Chief Science Officer to fund operations. The loans are non-interest bearing, due on demand and as such are included in current liabilities. During the nineyear ended September 30, 2017 and the six months ended June 30, 2017,March 31, 2018, the Company made repayments totaling $7,000.$7,000 and $9,200, respectively. There was $9,200$0 and $16,200$9,200 due as of June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
NOTE 5 – STOCKHOLDERS’ EQUITY TRANSACTIONS
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.
15 |
Table of Contents |
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 companyCompany 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 companyCompany 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.
All 1,840,000 outstanding Series A Convertible Stock was converted into 43,875,285438,753 shares of common sharesstock during the nine monthsyear ended JuneSeptember 30, 2017.
The Company has 0 and 1,840,000 shares of Series A Convertible Stock issued and outstanding as June 30, 2017of March 31, 2018 and September 30, 2016, respectively.2017.
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 hundred (100) Common Shares.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 a 100 ofone (1) 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 companyCompany 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 companyCompany 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 June 30, 2017March 31, 2018 and September 30, 2016.2017.
16 |
Table of Contents |
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 hundred (500)(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 a 500 offive (5) fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 10,000100 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 companyCompany 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 companyCompany 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.
During the year ended September 30, 2016, the Company issued 300,000 shares of Series C Preferred Stock for the acquisition of Smith Scientific Industries, Inc. and 200,000 shares of Series C Preferred Stock for the acquisition of the assets of Oregon Analytical Services.
There were 500,000 shares of Series C Convertible Stock issued and outstanding as of June 30, 2017March 31, 2018 and September 30, 2016.2017.
17 |
Table of Contents |
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, 2017, 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 a 250 of2.5 fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 50,000500 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 companyCompany 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 companyCompany 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, 2016, the Company issued 48,000 shares of Series D Preferred Stock for cash proceeds of $48,000. During the nine monthsyear ended JuneSeptember 30, 2017, the Company issued 114,500 shares of Series D Preferred Stock for cash proceeds of $114,500 and 670,000 shares of Series D Preferred Stock, valued at $670,000, in conjunction with certain acquisitions.
During the acquisitions as discussedsix months ended March 31, 2018, the Company accepted five separate conversion notices from Series D Preferred Stockholders resulting in Note 3.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 832,500552,500 and 48,000832,500 shares of Series D Convertible Stock issued and outstanding as of June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
18 |
Table of Contents |
Common Stock
The Company has authorized to issue up to 1,000,000,000 shares of common stock with a par value of $0.0001 per share.
During the year ended September 30, 2016,2017, the Company issued 6,087,500333,949 common shares valued at $46,473$537,515 for services; 438,753 common shares for the conversion of 1,840,000 shares of Series A Preferred Stock; 112,000 common shares for cash proceeds of $112,000; 93,691 common shares valued at $211,071 under its employee equity incentive plan; 401,032,58110,000 common shares for the settlement of $11,400 of accounts payable; 1,755 common share due to the rounding impacts of the 1:100 reverse stock split; 1,142,892 common shares for the conversion of $207,367$765,050 of outstanding principal on convertible notes payable; 1,468,58253,304 for the conversion of $30,975 of convertible accrued interest; 40,935 common shares for the conversionsettlement of $4,135 of convertible accrued interestnon-convertible debt totaling $46,666 and 42,827,0105,000 common shares for services valued at $138,447.$7,651 as a settlement. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
During the ninesix months ended June 30, 2017,March 31, 2018, the Company issued 18,294,900207,750 common shares valued at $307,251$254,720 for services; 43,875,285700,000 common shares for the conversion of 1,840,000280,000 shares of Series AD Preferred Stock; 7,000,0001,270,000 common shares for cash proceeds of $70,000; 4,931,250$508,000; 57,000 common shares valued at $133,941$75,755 under its employee equity incentive plan; 71,985,755plan under which a total expense of $166,647 was recorded; 37,500 common shares for the settlement of $15,000 of accounts payable; 1,869,650 common shares for the conversion of $530,750$703,215 of outstanding principal on convertible notes payable and 3,552,909payable; 74,412 for the conversion of $23,227$27,270 of convertible accrued interest.interest; 324,000 common shares for the settlement of non-convertible debt and interest totaling $122,157; 125,000 common shares for the settlement of non-convertible related party debt totaling $50,000 and 670,271 common shares valued at $1,414,907 for debt issue costs from a capital raise. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.
There were 999,304,36716,068,505 and 850,064,26810,732,922 shares of common stock issued and outstanding at June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
NOTE 6 – LOANS PAYABLE
The Company had the following loans payable outstanding as of June 30, 2017March 31, 2018 and September 30, 2016:2017:
|
| June 30, 2017 |
|
| September 30, 2016 |
| ||||||||||
On July 22, 2016, the Company entered into a Purchase and Sale of Future Receivables agreement (the “Agreement”) with 1 Global Capital, LLC (“1GC”) for $50,000. The Agreement calls for 160 daily payments of $437.50, due on business days, for total payments of $70,000. The Company recognized an original debt discount of $20,000 as interest expense. |
| $ | - |
| $ | 49,875 |
| |||||||||
|
|
|
|
|
| |||||||||||
On May 24, 2016, the Company assumed a $27,500 Promissory note with annual interest of 5%, as part of the acquisition of Oregon Analytical Services (see note 3). The note is due on demand and requires quarterly payments. |
| 22,500 |
| 27,500 |
| |||||||||||
|
|
|
|
|
|
| March 31, |
|
| September 30, |
| |||||
On March 16, 2017, 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. |
|
| 73,644 |
|
|
| - |
|
| $ | 65,691 |
| $ | 71,039 |
| |
|
| 96,144 |
| 77,375 |
|
|
|
|
|
| ||||||
On August 1, 2017, the Company entered into a note payable totaling $500,000 for the acquisition of Viridis (see note 3). The note carries interest at 8% annually and is due on July 1, 2018. |
| 500,000 |
| 500,000 |
| |||||||||||
|
|
|
|
|
| |||||||||||
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 |
| 1,000,000 |
| |||||||||||
|
|
|
|
|
| |||||||||||
On August 31, 2017, the Company executed a note payable for $120,000 of which $20,000 was an original issue discount resulting in cash proceeds of $100,000. The note carries interest at 8% annually and is due on March 3, 2018. |
|
| - |
|
|
| 120,000 |
| ||||||||
|
| 1,065,691 |
| 1,691,039 |
| |||||||||||
Less: unamortized original issue discounts |
|
| (37,024 | ) |
|
| (127,662 | ) | ||||||||
Total loans payable |
| 1,028,667 |
| 1,563,377 |
| |||||||||||
Less: current portion of loans payable |
|
| 34,113 |
|
|
| 77,375 |
|
|
| 975,192 |
|
|
| 1,503,545 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term portion of loans payable |
| $ | 62,031 |
|
| $ | - |
|
| $ | 53,475 |
|
| $ | 59,832 |
|
19 |
Table of Contents |
As discussed in Note 10 – Acquisitions, on January 1, 2018, the Company entered into a note payable for $100,000 as part of the acquisition of C3 Labs, LLC. The note was due 90 days from issuance on March 31, 2018, carried no interest and was paid in full during the three months from the date of acquisition to March 31, 2018.
As of June 30, 2017,March 31, 2018 and September 30, 2016,2017, the Company accrued interest of $2,944$39,682 and $638,$12,625, respectively.
NOTE 7 – CONVERTIBLE DEBTNOTES 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 9 – 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 September 30, 2016:2017:
Holder |
| Issue Date |
| Due Date |
| Principal |
|
| Unamortized Debt Discount |
|
| Carrying Value |
|
| Accrued Interest |
| ||||
Noteholder 1 |
| 5/17/2016 |
| 5/18/2017 |
| $ | 76,650 |
|
| $ | (5,867 | ) |
| $ | 70,783 |
|
| $ | 2,268 |
|
Noteholder 1 |
| 8/26/2016 |
| 8/26/2017 |
|
| 76,650 |
|
|
| (6,650 | ) |
|
| 70,000 |
|
|
| 588 |
|
Noteholder 2 |
| 5/22/2016 |
| 5/23/2017 |
|
| 45,000 |
|
|
| - |
|
|
| 45,000 |
|
|
| 1,282 |
|
Noteholder 3 |
| 3/20/2016 |
| 3/21/2017 |
|
| 27,500 |
|
|
| (12,958 | ) |
|
| 14,542 |
|
|
| 1,454 |
|
Noteholder 3 |
| 5/18/2016 |
| 5/19/2017 |
|
| 76,650 |
|
|
| (48,510 | ) |
|
| 28,140 |
|
|
| 2,252 |
|
Noteholder 3 |
| 9/19/2016 |
| 5/19/2017 |
|
| 76,650 |
|
|
| (47,510 | ) |
|
| 29,140 |
|
|
| 185 |
|
|
|
|
|
|
| $ | 379,100 |
|
| $ | (121,495 | ) |
| $ | 257,605 |
|
| $ | 8,029 |
|
Holder |
| Issue |
| Due Date |
| Principal |
|
| Unamortized |
|
| Carrying |
|
| Accrued |
| ||||
Noteholder 1 |
| 3/2/2017 |
| 3/2/2018 |
| $ | 125,000 |
|
| $ | (38,112 | ) |
| $ | 86,888 |
|
| $ | 5,671 |
|
Noteholder 1 |
| 7/14/2017 |
| 7/14/2018 |
|
| 275,600 |
|
|
| (11,795 | ) |
|
| 263,805 |
|
|
| 4,712 |
|
Noteholder 1 |
| 8/14/2017 |
| 8/14/2018 |
|
| 275,600 |
|
|
| (13,068 | ) |
|
| 262,532 |
|
|
| 2,839 |
|
Noteholder 4 |
| 3/2/2017 |
| 3/2/2018 |
|
| 69,000 |
|
|
| (50,009 | ) |
|
| 18,991 |
|
|
| 7,187 |
|
Noteholder 4 |
| 6/5/2017 |
| 3/2/2018 |
|
| 125,000 |
|
|
| (70,833 | ) |
|
| 54,167 |
|
|
| 3,205 |
|
Noteholder 4 |
| 7/14/2017 |
| 7/14/2018 |
|
| 275,600 |
|
|
| (11,795 | ) |
|
| 263,805 |
|
|
| 4,470 |
|
Noteholder 4 |
| 8/14/2017 |
| 8/14/2018 |
|
| 275,600 |
|
|
| (13,068 | ) |
|
| 262,532 |
|
|
| 2,597 |
|
|
|
|
|
|
| $ | 1,421,400 |
|
| $ | (208,680 | ) |
| $ | 1,212,720 |
|
| $ | 30,681 |
|
The following table summarizes all convertible notes outstanding as of June 30, 2017:March 31, 2018:
Holder |
| Issue Date |
| Due Date |
| Principal |
|
| Unamortized Debt Discount |
|
| Carrying Value |
|
| Accrued Interest |
| ||||
Noteholder 1 |
| 3/2/2017 |
| 3/2/2018 |
| $ | 125,000 |
|
| $ | - |
|
| $ | 125,000 |
|
| $ | 4,877 |
|
Noteholder 1 |
| 6/5/2017 |
| 3/2/2018 |
|
| 125,000 |
|
|
| (113,426 | ) |
|
| 11,574 |
|
|
| 685 |
|
Noteholder 3 |
| 9/19/2016 |
| 5/19/2017 |
|
| 51,650 |
|
|
| - |
|
|
| 51,650 |
|
|
| 4,771 |
|
Noteholder 4 |
| 3/2/2017 |
| 3/2/2018 |
|
| 125,000 |
|
|
| - |
|
|
| 125,000 |
|
|
| 4,877 |
|
Noteholder 4 |
| 6/5/2017 |
| 3/2/2018 |
|
| 125,000 |
|
|
| (113,426 | ) |
|
| 11,574 |
|
|
| 685 |
|
|
|
|
|
|
| $ | 551,650 |
|
| $ | (226,852 | ) |
| $ | 324,798 |
|
| $ | 15,210 |
|
Noteholder 1
On May 17, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 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 May 18, 2017. The Note was convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company may prepay the note during the first six months it is outstanding. During the nine months ended June 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 11,157,314 common shares. There was $0 and $76,650 of principal and $0 and $2,268 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.
Holder |
| Issue |
| Due |
| Principal |
|
| Unamortized |
|
| Carrying |
|
| Accrued Interest |
| ||||
Noteholder 1 |
| 7/14/2017 |
| 7/14/2018 |
| $ | 40,300 |
|
| $ | (26,071 | ) |
| $ | 14,229 |
|
| $ | 6,297 |
|
Noteholder 1 |
| 8/14/2017 |
| 8/14/2018 |
|
| 275,600 |
|
|
| (200,290 | ) |
|
| 75,310 |
|
|
| 13,815 |
|
Noteholder 4 |
| 7/14/2017 |
| 7/14/2018 |
|
| 126,685 |
|
|
| (73,348 | ) |
|
| 53,337 |
|
|
| 15,683 |
|
Noteholder 4 |
| 8/14/2017 |
| 8/14/2018 |
|
| 275,600 |
|
|
| (200,289 | ) |
|
| 75,311 |
|
|
| 13,815 |
|
Noteholder 5 |
| 1/1/2018 |
| 6/30/2018 |
|
| 500,000 |
|
|
| - |
|
|
| 500,000 |
|
|
| - |
|
|
|
|
|
|
| $ | 1,218,185 |
|
| $ | (499,998 | ) |
| $ | 718,187 |
|
| $ | 49,610 |
|
Table of Contents |
On May 17, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 which was funded on December 13, 2016 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 May 18, 2017. The Note was convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the nine months ended June 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 7,164,852 common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.
On August 26, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 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 August 26, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the nine months ended June 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 10,087,373 common shares. There was $0 and $76,650 of principal and $0 and $588 of accrued interest due at June 30, 2017 September 30, 2016, respectively.
On August 26, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000 which was funded on January 3, 2017 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 August 26, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the nine months ended June 30, 2017, the noteholder converted all outstanding principal and interest in exchange for a total of 11,103,272 common shares. There was $0 and $0 of principal and $0 and $0 of accrued interest due at June 30, 2017 September 30, 2016, respectively.Noteholder 1
On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 of which $0 was an original issue discount resulting in cash proceeds to the Company of $125,000 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 March 2, 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 65% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the six months ended March 31, 2018 , the holder elected to convert a total of $125,000 of principal in exchange for 325,562 common shares. There was $125,000$0 and $0$125,000 of principal and $4,877$0 and $0$7,397 of accrued interest due at JuneMarch 31, 2018 and September 30, 2017, respectively.
On July 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%, is due on July 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 six months ended March 31, 2018, the holder elected to convert $235,300 of outstanding principal and $9,386 of accrued interest to 593,345 and 23,669 shares of common stock. There was $40,300 of principal and $6,297 and $4,712 of accrued interest due at March 31, 2018 and September 30, 2016,2017, respectively.
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%, is 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. There was $275,600 of principal and $13,815 and $2,839 of accrued interest due at March 31, 2018 and September 30, 2017, respectively.
Noteholder 4
On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 resulting in cash proceeds to the Company of $125,000 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 March 2, 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 65% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. During the year ended September 30, 2017, the holder elected to convert a total of $56,000 of principal in exchange for 111,538 shares of common stock. Additionally, during the six months ended March 31, 2018, the holder elected to convert a total of $69,000 of principal in exchange for 219,258 shares of common stock. There was $0 and $69,000 of principal and $0 and $7,187 of accrued interest due at March 31, 2018 and September 30, 2017, respectively.
On March 2, 2017, the Company sold a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 of which $0 was an original issue discount resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith which was funded on June 5, 2017. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock upon funding at a conversion price equal to 65% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. During the six months ended March 31, 2018, the holder elected to convert a total of $125,000 or principal in exchange for 355,973 shares of common stock. There was $125,000$0 and $0$125,000 of principal and $685$0 and $0$3,205 of accrued interest due at JuneMarch 31, 2018 and September 30, 2017, September 30, 2016, respectively.
Noteholder 2
On May 23, 2016,July 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $45,000$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 $45,000$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%, is due on May 23, 2017.July 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 72%75% of the lowest trade price of the Company's common stock for the tenfifteen prior trading days including the date of conversion. The Company may prepay the note during the first 90 days it is outstanding for a sum of 115% of the unpaid principal and accrued interest outstanding and within the next 90 days at a rate of 130% of the unpaid principal and accrued interest outstanding. The note may not be prepaid after 180 days from issuance. During the ninesix months ended June 30, 2017,March 31, 2018, the noteholderholder elected to convert all$148,915 of outstanding principal and interest due in exchange for a totalto 375,512 shares of 3,334,387 common shares.stock. There was $0 and $45,000$126,685 of principal and $0$15,683 and $1,282$4,712 of accrued interest due at June 30, 2017March 31, 2018 and September 30, 2016,2017, respectively.
Noteholder 3
On March 21, 2016,August 14, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $27,500$275,600 of which $2,500$15,600 was an original issue discount and $10,000 was paid directly to third parties resulting in cash proceeds to the Company of $25,000 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 March 21, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 50% of the lowest trade price of the Company's common stock for the twenty-five prior trading days including the date of conversion. The Company may prepay the note during the first 180 days it is outstanding at a graduated scale of 100% of the principal amount if repaid within 30 days from issuance; 110% of the principal during the next 30 days; 120% of the principal during the next 30 days; 130% of the principal during the next 30 days; 140% of the principal during the next 30 days and 150% of the principal during the next 30 days. The note may not be prepaid after 180 days without the expressed written consent of the noteholder. During the nine months ended June 30, 2017 the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 9,885,621 common shares. There was $0 and $27,500 of principal and $0 and $1,454 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.
On May 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount resulting in cash proceeds to the Company of $70,000$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%, is due on May 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company may prepay the note during the first 180 days it is outstanding at a rate of 115% of the outstanding principal amount during the first 90 days from issuance and 135% of the principal amount during the next 90 days. The note may not be prepaid without the consent of the noteholder after 180 days. During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 12,735,692 common shares. There was $0 and $76,650 of principal and $0 and $2,252 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.
On September 19, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $76,650 of which $6,650 was an original issue discount and $7,000 was paid to a third party on our behalf resulting in cash proceeds to the Company of $63,000 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 May 19, 2017. The Note is convertible into the Company's common stock commencing from the date of issuance at a conversion price equal to 55% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. The Company may prepay the note during the first 180 days it is outstanding at a rate of 115% of the outstanding principal amount during the first 90 days from issuance and 135% of the principal amount during the next 90 days. The note may not be prepaid without the consent of the noteholder after 180 days. During the nine months ended June 30, 2017, the noteholder elected to convert $25,000 of outstanding principal in exchange for $4,807,692 shares of common stock. There was $51,650 and $76,650 of principal and $4,771 and $185 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.
Noteholder 4
On March 2, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 of which $0 was an original issue discount resulting in cash proceeds to the Company of $125,000 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 March 2,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 65% of the lowest trade price of the Company's common stock for the twenty prior trading days including the date of conversion. There was $125,000 and $0 of principal and $4,877 and $0 of accrued interest due at June 30, 2017 September 30, 2016, respectively.
On March 2, 2017, the Company sold a Convertible Promissory Note to an unrelated party, for the principal amount of $125,000 of which $0 was an original issue discount resulting in cash proceeds to the Company of $125,000 pursuant to the terms of a Securities Purchase Agreement of even date therewith which was funded on June 5, 2017. The Note, together with accrued interest at the annual rate of 8%, is due on March 2, 2018. The Note is convertible into the Company's common stock upon funding at a conversion price equal to 65%75% of the lowest trade price of the Company's common stock for the fifteen prior trading days including the date of conversion. There was $125,000 and $0$275,600 of principal and $685$13,815 and $0$2,896 of accrued interest due at JuneMarch 31, 2018 and September 30, 2017 September 30, 2016, respectively.
Noteholder 5
On February 5, 2017, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $50,000 pursuant to a settlement agreement entered into on the same date. The Note was retroactively dated to August 23, 2016. The Note, together with accrued interest at the annual rate of 8%, is due on August 23, 2017. The Note is convertible into the Company's common stock commencing 180 days from the date of the note at a conversion price equal to 72% of the lowest trade price of the Company's common stock for the ten prior trading days including the date of conversion. The Note was converted in full on April 25, 2017. There was $0 of principal and $0 of accrued interest due at June 30, 2017 September 30, 2016, respectively.
Table of Contents |
Noteholder 5
On January 1, 2018, the Company entered into a convertible note payable totaling $500,000 in exchange for a 60% interest in C3 Labs, LLC. The note bears no interest, matures on June 30, 2018 and automatically converts to common stock at $0.75 per share on the maturity date. In the event the average trading price of the Company’s common stock during the five days prior to maturity is less than $0.75 per share, the Company will pay the noteholder the difference between $0.75 and the average trading price during the preceding five days per share converted in cash. The Company may prepay the outstanding principal in whole or in part before maturity without penalty. There was $500,000 and $0 of principal due as of March 31, 2018 and September 30, 2017, respectively.
NOTE 8 – 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.
Associated with the issuance of the convertible debentures, 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 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 | % |
22 |
Table of Contents |
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 7 – 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 March 31, 2018 the Company has amortized $353,889 of the total outstanding debt discount leaving an unamortized debt discount of $6,229,111. The debt discount will be amortized to interest expense over the expected life of the note. There was $6,583,000 of principal and accrued interest totaling $86,454 outstanding as of March 31, 2018.
NOTE 89 – DERIVATIVE LIABILITY
As of June 30, 2017,March 31, 2018 and September 30, 2016 the2017, Company had a $263,143 and $775,246 derivative liability balance of $3,123,223 and $294,637 on the balance sheets and recorded a gain of $1,780,769 and $1,794,091 from derivative liability fair value adjustments of $156,892 and loss of $203,696 during the three and six months ended June 30, 2017 and 2016, respectively and losses of $34,386 and $238,038 during the nine months ended June 30, 2017.March 31, 2018. The derivative liability activity comes from convertible notes payable as follows:
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $27,500 Convertible Promissory Notes to an unrelated party that matures on March 21, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $36,769 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $25,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $11,769 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion in full, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $55,525 loss from change in fair value of derivatives and a write off due to conversion of $179,115 for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 279%, (3) risk-free interest rate of .48%, (4) expected life of 0.46 of a year, and (5) estimated fair value of the Company’s common stock of $0.0221 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $166,260 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $70,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $96,260 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $39,489 gain from change in fair value of derivatives and a write off due to conversion of $286,339 for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 260%, (3) risk-free interest rate of .63%, (4) expected life of 0.49 of a year, and (5) estimated fair value of the Company’s common stock of $0.0285 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 19, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 50% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $255,582 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $70,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $185,582 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert $25,000 of the outstanding principal to common shares. At June 30, 2017, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $47,805 and recorded a $237,145 gain from change in fair value of derivatives and a write of due to conversion of $40,878 for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 18%, (3) risk-free interest rate of .84%, (4) expected life of 0.05 of a year, and (5) estimated fair value of the Company’s common stock of $0.0126 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $279,490 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $202,840 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $22,645 gain from change in fair value of derivatives and write off $256,845 due to conversion for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 260%, (3) risk-free interest rate of .63%, (4) expected life of 0.48 of a year, and (5) estimated fair value of the Company’s common stock of $0.0285 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,500 Convertible Promissory Notes to an unrelated party that matures on May 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $136,874 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $60,224 being recognized as a loss on derivative fair value measurement.
During the nine months ended September 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $31,054 gain from change in fair value of derivatives and write off $105,820 due to conversion for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 245%, (3) risk-free interest rate of .66%, (4) expected life of 0.43 of a year, and (5) estimated fair value of the Company’s common stock of $0.0209 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $45,000 Convertible Promissory Notes to an unrelated party that matures on May 23, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 28% discount from the lowest trading price in the ten trading days prior to conversion. 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 $69,650 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $45,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $24,650 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $8,260 gain from change in fair value of derivatives and write off $61,390 due to conversion for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 253%, (3) risk-free interest rate of .63%, (4) expected life of 0.46 of a year, and (5) estimated fair value of the Company’s common stock of $0.0264 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,650 Convertible Promissory Notes to an unrelated party that matures on August 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $108,896 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $32,246 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded an $8,220 loss from change in fair value and write off of derivatives of $117,116 due to conversion for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 73%, (3) risk-free interest rate of .78%, (4) expected life of 0.37 of a year, and (5) estimated fair value of the Company’s common stock of $0.0201 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $76,650 Convertible Promissory Notes to an unrelated party that matures on August 18, 2017. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rate equal to a 45% discount from the lowest trading price in the twenty trading days prior to conversion. 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 $108,896 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $76,650 which was up to the face value of the convertible note with the excess fair value at initial measurement of $32,246 being recognized as a loss on derivative fair value measurement.
During the nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due. Upon conversion, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $24,629 gain from change in fair value and write off of derivatives of $84,267 due to conversion for the nine months ended June 30, 2017. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 37%, (3) risk-free interest rate of .85%, (4) expected life of 0.17 of a year, and (5) estimated fair value of the Company’s common stock of $0.0150 per share.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen trading days prior to conversion. 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 $159,867$107,768 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $125,000$107,768 which was up to the face value of the convertible note with the excess fair value at initial measurement of $34,867 being recognized as a loss on derivative fair value measurement.note.
At JuneDuring the year ended September 30, 2017 and six months ended March 31, 2018, the noteholder elected to convert a total of $56,000 and $69,000 of principal. At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $107,669$0 and recorded a $52,198$3,312 gain from change in fair value of derivative liabilitiesand $63,225 due to conversion for the ninesix months ended June 30, 2017.March 31, 2018. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricinga Monte Carlo simulation model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 118%110%, (3)(2) risk-free interest rate of 1.14%1.3%, (4)and (3) expected life of 0..670.26 of a year, and (5) estimated fair value of the Company’s common stock of $0.0126 per share. year.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen trading days prior to conversion. 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.
23 |
Table of Contents |
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 $107,785 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $107,785 which was up to the face value of the convertible note.
During the six months ended March 31, 2018, the noteholder elected to convert a total of $125,000 of principal. At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0 and recorded a $4,043 gain from change in fair value and $111,758 due to conversion for the six months ended March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 111%, (2) risk-free interest rate of 1.3%, and (3) expected life of 0.25 of a year.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $125,000 Convertible Promissory Notes to an unrelated party that matures on March 2, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 35% discount from the lowest trading price in the fifteen trading days prior to conversion. 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 $159,867$157,523 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $125,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $34,867$32,523 being recognized as a loss on derivative fair value measurement.
During the six months ended March 31, 2018, the noteholder elected to convert a total of $125,000 of principal. At June 30, 2017,March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $107,669$0 and recorded a $52,198$5,967 gain from change in fair value of derivative liabilitiesand $106,332 due to conversion for the ninesix months ended June 30, 2017.March 31, 2018. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricinga Monte Carlo simulation model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 118%113%, (3)(2) risk-free interest rate of 1.14%1.3%, (4)and (3) expected life of 0.670.18 of a year, and (5) estimated fair value of the Company’s common stock of $0.0126 per share. year.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $50,000$275,600 Convertible Promissory NotesNote to an unrelated party that matures on August 23, 2017.July 14, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 28%25% discount from the lowest trading price in the fifteen trading days prior to conversion. 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.a Monte Carlo Simulation. The aggregate fair value of the derivative uponat the issuance date of the note becoming convertible on February 23, 2017 was $40,037$419,722 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $40,037$260,000 which was up to the face value of the convertible note.note with the excess fair value at initial measurement of $159,722 being recognized as a loss on derivative fair value measurement.
Table of Contents |
During the ninesix months ended June 30, 2017,March 31, 2018, the noteholder elected to convert all outstanding principal and interest due. Upon conversion,a total of $148,915 of principal. At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $0$123,338 and recorded a $16,319 loss$69,346 gain from change in fair value and write off of derivatives of $56,356$227,038 due to conversion for the ninesix months ended June 30, 2017.March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.76%, and (3) expected life of 0.29 of a year.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matures on July 14, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. 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 a Monte Carlo simulation. The aggregate fair value of the derivative at the issuance date of the note was $419,796 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $159,796 being recognized as a loss on derivative fair value measurement.
During the six months ended March 31, 2018, the noteholder elected to convert a total of $235,300 of principal. At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $38,442 and recorded a $7,253 gain from change in fair value and $374,101 due to conversion for the six months ended March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.76%, and (3) expected life of 0.29 of a year.
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matures on August 14, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $330,278 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $70,278 being recognized as a loss on derivative fair value measurement.
At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $248,420 and recorded a $81,858 gain from change in fair value for the six months ended March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.83%, and (3) expected life of 0.37 of a year.
25 |
Table of Contents |
As discussed in Note 7 – Convertible Notes Payable, the Company issued a $275,600 Convertible Promissory Note to an unrelated party that matures on August 14, 2018. The note bears interest at a rate of 8% per annum and can be convertible into the Company’s common shares six months after issuance, at the holder’s option, at the conversion rate equal to a 25% discount from the lowest trading price in the fifteen trading days prior to conversion. 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 a Monte Carlo Simulation. The aggregate fair value of the derivative at the issuance date of the note was $329,356 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $260,000 which was up to the face value of the convertible note with the excess fair value at initial measurement of $69,356 being recognized as a loss on derivative fair value measurement.
At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to notes and determined an aggregate fair value of $299,373 and recorded a $29,983 gain from change in fair value for the six months ended March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Monte Carlo simulation model based on the following assumptions: (1) expected volatility of 128%, (2) risk-free interest rate of 1.83%, and (3) expected life of 0.37 of a year.
As discussed in Note 8 – Convertible Debentures, the Company issued a total of $6,583,000 of Convertible Debentures to unrelated parties that mature on dates ranging from January 29, 2021 to March 8, 2021. The Company issued a total of 2,243,050 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 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 embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the issuance date of the warrants was $4,616,545 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $4,465,131 which was up to the face value of the convertible debentures with the excess fair value at initial measurement of $151,414 being recognized as a loss on derivative fair value measurement.
At March 31, 2018, the Company marked-to-market the fair value of the derivative liabilities related to warrants and determined an aggregate fair value of $2,413,650 and recorded a $2,202,895 gain from change in fair value for the six months ended March 31, 2018. The fair value of the embedded derivatives for the notes was determined using a Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 70%194% - 205%, (3)(2) risk-free interest rate of .82%1.83%, (3) exercise prices of $0.60 - $0.80, and (4) expected lifelives of 0.331.84 – 1.88 of a year, and (5) estimated fair value of the Company’s common stock of $0.0212 per share. year.
The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2016:2017:
Fair Value of Embedded Derivative Liabilities: |
|
|
|
|
|
| ||
Balance, September 30, 2015 |
| $ | 200,460 |
| ||||
Balance, September 30, 2016 |
| $ | 775,246 |
| ||||
Initial measurement of derivative liabilities |
| 634,862 |
|
| 1,312,384 |
| ||
Change in fair market value |
| 1,014,678 |
|
| (195,907 |
| ||
Write off due to conversion |
|
| (1,074,754 | ) |
|
| (1,597,086 | ) |
Balance, September 30, 2016 |
| $ | 775,246 |
| ||||
Balance, September 30, 2017 |
| $ | 294,637 |
|
26 |
Table of Contents |
The following table summarizes the derivative liabilities included in the balance sheet at June 30, 2017:March 31, 2018:
Fair Value of Embedded Derivative Liabilities: |
|
|
|
|
|
| ||
Balance, September 30, 2016 |
| $ | 775,246 |
| ||||
Balance, September 30, 2017 |
| $ | 294,637 |
| ||||
Initial measurement of derivative liabilities |
| 1,063,577 |
|
| 6,115,697 |
| ||
Change in fair market value |
| (387,554 | ) |
| (2,404,657 | ) | ||
Write off due to conversion |
|
| (1,188,126 | ) |
|
| (882,454 | ) |
Balance, June 30, 2017 |
| $ | 263,143 |
| ||||
Balance, March 31, 2018 |
| $ | 3,123,223 |
|
The following table summarizes the lossgain (loss) on derivative liability included in the income statement for the ninethree and six months ended June 30,March 31, 2018 and 2017, and 2016, respectively.
|
| June 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| Three Months Ended March 31, |
| Six Months Ended March 31, |
| |||||||||||||
|
|
|
|
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||
Day one loss due to derivatives on convertible debt |
| $ | 421,940 |
| $ | 170,637 |
|
| $ | (610,566 | ) |
| $ | (64,492 | ) |
| $ | (610,566 | ) |
| $ | (352,206 | ) | |
Change in fair value of derivatives |
|
| (387,554 | ) |
|
| 67,401 |
|
|
| 2,391,335 |
|
|
| (20,543 | ) |
|
| 2,404,657 |
|
|
| 160,928 |
|
Total derivative expense (gain) |
| $ | 34,386 |
|
| $ | 238,038 |
|
| $ | 1,780,769 |
|
| $ | (85,035 | ) |
| $ | 1,794,091 |
|
| $ | (191,278 | ) |
NOTE 10 – ACQUISITIONS
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.
(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.
27 |
Table of Contents |
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
From the date of acquisition on January 1, 2018 to March 31, 2018, C3 Labs generated total revenues of $34,555.
NOTE 911 – INDUSTRY SEGMENTS
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.
28 |
Table of Contents |
AdvisoryConsulting
The Company provides advisory, licensing and compliance services to the cannabis industry under its brand Signal Bay Research. Advisoryindustry. Consulting clients are located in states that have state regulatedmanaged medical and/or recreational programs. Signal Bay ResearchEVIO 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 June 30, 2017,March 31, 2018, EVIO Labs has fiveseven operating labs: CR Labs, Inc. d/b/a EVIO Labs, Bend; EVIO Labs Eugene d/b/a Oregon Analytical Services; Smith Scientific Industries d/b/a Kenevir Research; Greenhaus Analytical Labs, LLC and Green Style Consulting LLC d/b/a EVIO Labs California.labs. EVIO Labs clients are located in Oregon, California and CaliforniaMassachusetts and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state governing bodies,regulating body, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumer in the States of Oregon and California.consumers.
Nine months ended June 30, 2017 |
| Corporate |
|
| Consulting Services |
|
| Testing Services |
|
| Total Consolidated |
| ||||
Revenue |
| $ | - |
|
| $ | 196,520 |
|
| $ | 2,081,877 |
|
| $ | 2,278,397 |
|
Segment income (loss) from operations |
|
| (589,258 | ) |
|
| (192,898 | ) |
|
| (390,590 | ) |
|
| (1,172,746 | ) |
Total assets |
|
| 85,877 |
|
|
| 240,459 |
|
|
| 3,644,591 |
|
|
| 3,970,927 |
|
Capital expenditures |
|
| - |
|
|
| (1,038 | ) |
|
| (47,688 | ) |
|
| (48,726 | ) |
Depreciation and amortization |
|
| - |
|
|
| 17,922 |
|
|
| 171,839 |
|
|
| 189,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended June 30, 2016 |
| Corporate |
|
| Advisory Services |
|
| Testing Services |
|
| Total Consolidated |
| ||||
Revenue |
| $ | - |
|
| $ | 228,612 |
|
| $ | 163,366 |
|
| $ | 391,978 |
|
Segment income (loss) from operations |
|
| (173,229 | ) |
|
| (112,917 | ) |
|
| (120,692 | ) |
|
| (406,838 | ) |
Total assets |
|
| 18,545 |
|
|
| 116,504 |
|
|
| 2,036,821 |
|
|
| 2,171,870 |
|
Capital expenditures |
|
| - |
|
|
| - |
|
|
| 12,407 |
|
|
| 12,407 |
|
Depreciation and amortization |
|
| - |
|
|
| 17,766 |
|
|
| 53,375 |
|
|
| 71,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017 |
| Corporate |
|
| Advisory Services |
|
| Testing Services |
|
| Total Consolidated |
| ||||
Revenue |
| $ | - |
|
| $ | 9,345 |
|
| $ | 767,873 |
|
| $ | 777,218 |
|
Segment income (loss) from operations |
|
| (210,554 | ) |
|
| (197,546 | ) |
|
| (91,472 | ) |
|
| (499,572 | ) |
Total assets |
|
| 85,877 |
|
|
| 240,459 |
|
|
| 3,644,591 |
|
|
| 3,970,927 |
|
Capital expenditures |
|
| - |
|
|
| - |
|
|
| (2,962 | ) |
|
| (2,962 | ) |
Depreciation and amortization |
|
| - |
|
|
| 5,975 |
|
|
| 63,056 |
|
|
| 69,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016 |
| Corporate |
|
| Advisory Services |
|
| Testing Services |
|
| Total Consolidated |
| ||||
Revenue |
| $ | - |
|
| $ | 6,399 |
|
| $ | - |
|
| $ | 6,399 |
|
Segment income (loss) from operations |
|
| (22,681 | ) |
|
| (297,471 | ) |
|
| - |
|
|
| (320,152 | ) |
Total assets |
|
| 4,345 |
|
|
| 139,910 |
|
|
| - |
|
|
| 144,255 |
|
Capital expenditures |
|
| - |
|
|
| 5,694 |
|
|
| - |
|
|
| 5,694 |
|
Depreciation and amortization |
|
| - |
|
|
| 5,612 |
|
|
| - |
|
|
| 5,612 |
|
Six months ended March 31, 2018 Corporate Consulting Services Testing Services Total Consolidated Revenue Segment income (loss) from operations Total assets Capital expenditures Depreciation and amortization Six months ended March 31, 2017 Corporate Consulting Services Testing Services Total Consolidated Revenue Segment income (loss) from operations Total assets Capital expenditures Depreciation and amortization Three months ended March 31, 2018 Corporate Consulting Services Testing Services Total Consolidated Revenue Segment income (loss) from operations Total assets Capital expenditures Depreciation and amortization Three months ended March 31, 2017 Corporate Consulting Services Testing Services Total Consolidated Revenue Segment income (loss) from operations Total assets Capital expenditures Depreciation and amortization $ - $ 102,816 $ 1,576,360 $ 1,679,176 (1,459,932 ) (975,276 ) (594,792 ) (3,030,000 ) 4,262,523 217,092 6,828,299 11,307,914 - (1,038 ) (530,476 ) (531,514 ) - 7,171 218,804 225,975 $ - $ 187,175 $ 1,314,004 $ 1,501,179 (378,704 ) 4,648 (299,118 ) (673,174 ) 93,328 90,600 3,811,833 3,995,761 - (1,038 ) (44,726 ) (45,764 ) - 11,947 108,783 120,730 $ - $ 43,300 $ 689,011 $ 732,311 (1,264,646 ) (618,691 ) (479,603 ) (2,362,940 ) 4,262,523 217,092 6,828,299 11,307,914 - - (524,562 ) (524,562 ) - 1,197 138,278 139,475 $ - $ 87,297 $ 745,426 $ 832,723 (163,362 ) (7,717 ) (110,779 ) (281,858 ) 93,328 90,600 3,811,833 3,995,761 - - (19,450 ) (19,450 ) - 5,973 61,920 67,893
29 |
Table of Contents |
NOTE 1012 – STOCK OPTIONS AND WARRANTS
The following table summarizes all stock option and warrant activity for the nineyear ended September 30, 2017 and the six months ended June 30, 2017:March 31, 2018:
|
| Shares |
|
| Weighted- Average Exercise Price Per Share |
|
| Shares |
|
| Weighted- Average Exercise Price Per Share |
| ||||
Outstanding, September 30, 2016 |
| 31,500,000 |
|
| $ | 0.004 |
|
| 315,000 |
| $ | 0.449 |
| |||
Granted |
| 4,000,000 |
| 0.013 |
|
| 380,000 |
| 1.295 |
| ||||||
Exercised |
| - |
| - |
|
| - |
| - |
| ||||||
Forfeited |
| (1,000,000 | ) |
| 0.004 |
|
| (40,000 | ) |
| 1.075 |
| ||||
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding, June 30, 2017 |
|
| 34,500,000 |
|
| $ | 0.005 |
| ||||||||
Outstanding, September 30, 2017 |
|
| 655,000 |
|
| $ | 0.902 |
|
|
| Shares |
|
| Weighted- Average Exercise Price Per Share |
| ||
Outstanding, September 30, 2017 |
|
| 655,000 |
|
| $ | 0.902 |
|
Granted |
|
| 3,948,050 |
|
|
| 0.763 |
|
Exercised |
|
| - |
|
|
| - |
|
Forfeited |
|
| (70,000 | ) |
|
| 0.891 |
|
Expired |
|
| - |
|
|
| - |
|
Outstanding, March 31, 2018 |
|
| 4,533,050 |
|
| $ | 0.781 |
|
Table of Contents |
The following table discloses information regarding outstanding and exercisable options and warrants at JuneSeptember 30, 2017:
|
|
| Outstanding |
| Exercisable |
|
|
| Outstanding |
| Exercisable |
| ||||||||||||||||||||||||||||||||
Exercise Prices | Exercise Prices |
|
| Number of Option Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (Years) |
|
| Number of Option Shares |
|
| Weighted Average Exercise Price |
| Exercise Prices |
|
| Number of Option Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (Years) |
|
| Number of |
|
| Weighted Average Exercise Price |
| ||||||||||
$ | 0.004 |
| 30,500,000 |
| $ | 0.004 |
| 4.13 |
| 7,625,000 |
| $ | 0.004 |
| 0.400 |
| 150,000 |
| $ | 0.400 |
| 3.88 |
| 75,000 |
| $ | 0.400 |
| ||||||||||||||||
$ | 0.013 |
|
| 4,000,000 |
|
|
| 0.013 |
|
|
| 4.31 |
|
|
| - |
|
|
| 0.013 |
| 0.500 |
| 155,000 |
| $ | 0.500 |
| 3.88 |
| 77,500 |
| $ | 0.500 |
| |||||||||
$ | 1.260 |
| 270,000 |
| $ | 1.260 |
| 4.75 |
| - |
| $ | 1.260 |
| ||||||||||||||||||||||||||||||
$ | 1.386 |
| 60,000 |
| $ | 1.386 |
| 4.75 |
| - |
| $ | 1.386 |
| ||||||||||||||||||||||||||||||
$ | 1.300 |
| 10,000 |
| $ | 1.300 |
| 4.05 |
| 2,500 |
| $ | 1.300 |
| ||||||||||||||||||||||||||||||
$ | 1.666 |
|
| 10,000 |
|
| $ | 1.666 |
|
|
| 4.84 |
|
|
| - |
|
|
| 1.666 |
| |||||||||||||||||||||||
Total | Total |
|
| 34,500,000 |
|
| $ | 0.005 |
|
|
| 4.15 |
|
|
| 7,625,000 |
|
| $ | 0.004 |
| Total |
|
| 655,000 |
|
| $ | 0.902 |
|
|
| 4.33 |
|
|
| 155,000 |
|
| $ | 0.465 |
|
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:
|
|
| ||
Expected term of options granted |
| 5 years |
| |
Expected volatility |
|
| 2.68 | % |
Risk-free interest rate | 1.89 | % | ||
Expected dividend yield | 0 | % |
The following table discloses information regarding outstanding and exercisable options and warrants at March 31, 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 Total $ 0.400 120,000 $ 0.400 3.38 90,000 $ 0.400 $ 0.500 165,000 $ 0.500 3.45 121,250 $ 0.500 $ 0.600 597,300 $ 0.600 1.83 597,300 $ 0.600 $ 0.650 145,000 $ 0.650 4.57 - $ 0.650 $ 0.800 3,195,750 $ 0.800 3.24 2,420,750 $ 0.800 $ 1.260 230,000 $ 1.260 4.25 57,500 $ 1.260 $ 1.300 10,000 $ 1.300 3.56 5,000 $ 1.300 $ 1.386 60,000 $ 1.386 4.25 15,000 $ 1.386 $ 1.666 10,000 $ 1.666 4.34 2,500 $ 1.666 4,533,050 $ 0.781 3.82 3,309,300 $ 0.754
31 |
Table of Contents |
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:
March 31, 2018 | ||||
Expected term of options granted | 4.98 – 5.00 years | |||
Expected volatility | 251-256 | % | ||
Risk-free interest rate |
|
| % | |
Expected dividend yield |
|
| 0 | % |
The Company recognized stock option expense of $63,917$986,203 and $0 during the nine months ended June 30, 2017$21,749 and 2016$1,067,768 and $14,133 and $0$42,165 during the three and six months ended June 30,March 31, 2018 and 2017, and 2016, respectively. There was $106,208$1,014,765 of unrecognized stock based compensation expense as of JuneMarch 31, 2018.
NOTE 13 – COMMITMENTS 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.
During the year ended September 30, 2017.2017, the Company purchased a software license for $200,000 in cash. The Company relied on the representation of the seller regarding the assignability of the license. However, independent verification of the assignability was not obtained. As a result, the Company recognized a $200,000 impairment loss on the write off of the asset. There have been no additional amounts accrued for potential losses related to the assignability of the license.
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, |
|
|
| |
2018 |
|
| 258,300 |
|
2019 |
|
| 475,761 |
|
2020 |
|
| 445,092 |
|
2021 |
|
| 248,667 |
|
2022 |
|
| 118,410 |
|
Total |
| $ | 1,546,230 |
|
32 |
Table of Contents |
NOTE 1114 – SUBSEQUENT EVENTS
Long Term Lease AgreementEmployment Agreements
On July 18, 2017,April 16, 2018, the Company entered into an employment agreement with our Chief Financial Officer which carries a lease for officetwo-year term with a base salary of $150,000 annually plus incentive based bonuses of $20,000. Additionally, the Company granted 200,000 shares of common stock and lab space150,000 stock options exercisable at $1.28 per share which vest in Costa Mesa, California. The lease is effective August 1, 2017 and terminates on July 31, 2022 and requires monthly rental paymentsequal quarterly installments over the term of $6,743 from August 2017 to January 2018 then monthly rental payments of $11,841 from February 2018 to July 2022.the agreement.
Convertible Notes PayableCommon Stock Issuances
The Company made the following issuances of common stock subsequent to March 31, 2018:
· | 992,265 common shares for the conversion of $677,885 of outstanding principal on convertible notes payable. All conversions were performed at contractual terms. | |
· | 66,133 common shares for the conversion of $45,135 of outstanding interest on convertible notes payable. All conversions were performed at contractual terms. | |
· | 15,000 common shares valued at $18,750 subject to the vesting requirements of certain agreements with consultants. | |
· | 125,000 common shares valued at $157,000 subject to the vesting requirements of certain agreements with employees. |
Entries into Material Agreements
On July 14, 2017,April 29, 2018, EVIO Labs Humbolt, Inc. (“EVIO Humbolt”), a wholly-owned subsidiary of the Company entered into an Asset Purchase Agreement with Leaf Detective, LLC. (“Leaf Detective”). Pursuant to the Agreement, Leaf Detective agreed to sell its assets including equipment, tools, brand, customer lists, customer contracts, rental agreements, and equipment leases for total consideration of $500,000 in a Convertible Promissory Note (“Note”). The Note is convertible at $1.25 per share, bears no interest and has a maturity of 12 months from the closing of the agreement. The agreement otherwise contains standard representations and warranties.
On May 2, 2018, EVIO Canada, Inc, (“EVIO Canada”), a wholly-owned subsidiary of the Company consummated Stock Purchase Agreements to acquire a 50% interest of Keystone Labs, Inc. (“Keystone”). Keystone agreed to sell, assign and transfer to EVIO Canada and EVIO Canada agreed to purchase certain amounts of Class A shares and Class B shares of Keystone representing 50% of the issued and outstanding shares in the capital of Keystone for CAD $2,495,000. Furthermore, the Company agreed to advance Keystone an amount up to CAD $1,000,000. For the value received under the credit agreement, the Company received a promissory note payable with an unrelated party for $275,600 of which $15,600 was an original issue discount resulting in net cash proceeds to the Company of $260,000. The convertible note payable carries interest at a rate of 8% per annum is dueinterest rate on July 14, 2018 and is convertible intoall outstanding sums. In connection with EVIO’s purchase of 50% of Keystone, the shareholders of Keystone subscribed for an aggregate of 1,291,391 of common stockshares in the capital of the Company at the option of the noteholder six months after issuance at a rate equal to a 25% discount from the lowest tradingEVIO for an aggregate purchase price of the Company’s common stock in the preceding 15 trading days.
On July 14, 2017, the Company entered intoCAD $1,950,000 on a convertible note payable with an unrelated party for $275,600 of which $15,600 was an original issue discount resulting in net cash proceeds to the Company of $260,000. The convertible note payable carries interest at a rate of 8% per annum, is due on July 14, 2018 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 25% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 14, 2017, the Company entered into a convertible note payable with an unrelated party for $275,600 of which $15,600 was an original issue discount resulting in net cash proceeds to the Company of $260,000. The convertible note payable carries interest at a rate of 8% per annum, is due on August 14, 2018 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 25% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.
On August 14, 2017, the Company entered into a convertible note payable with an unrelated party for $275,600 of which $15,600 was an original issue discount resulting in net cash proceeds to the Company of $260,000. The convertible note payable carries interest at a rate of 8% per annum, is due on August 14, 2018 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 25% discount from the lowest trading price of the Company’s common stock in the preceding 15 trading days.private placement basis.
Table of Contents |
Common Stock Issuances
On various dates in July 2017, the Company issued a total of 6,950,000 shares of common stocsk for services valued at $80,103.
On July 18, 2017, the Company issued 6,666,697 and 1,528,803 shares of common stock for the conversion of $26,250 of outstanding principal and $6,132 of accrued interest on a convertible note payable. The conversion was conducted under the contractual terms of the convertible note payable.
On August 3, 2017, the Company issued 19,230,769 and 248,683 shares of common stock for the conversion of $125,000 of outstanding principal and $1,616 of accrued interest on a convertible note payable. The conversion was conducted under the contractual terms of the convertible note payable.
Stock Option Issuances
During July and August 2017, the Company issued a total of 38,000,000 options to 28 different employees and consultants. The options have exercise prices ranging from $0.0126 to $0.0166 per share whereby the weighted average exercise price is $0.0129 per share. The options vest in 25% increments with the first 25% of the grant vesting six months after issuance and an additional 25% vesting every six months thereafter whereby each grant will be fully vested on the two year anniversary of issuance.
Acquisition
On August 1, 2017, the Company completed its acquisition of Viridis Analytics, Inc. pursuance to a membership interest transfer agreement entered into on July 26, 2017 for $500,000 in cash and a secured promissory note for $500,000 for total consideration of $1,000,000. The Note accrues interest at a rate of 8% annually, with all principal and any accrued and unpaid interest due and payable in full on the first anniversary of the note, or August 1, 2018. The repayment of all principal and accrued and unpaid interest is secured by a first priority interest in Viridis’ assets. An Event of Default will occur under the Note if (i) the Company fails to pay any amounts due under the note within fiteen business days from when it is due; (ii) the Company defaults in the performance of any term, covenant, agreement, condition, undertaking or provision of the membership interest transfer agreement; or (iii) the Company is involved in a bankruptcy action, is generally not paying, shall be unable to pay, or shall admit in writing its inability to pay its debts as they become due, or make a general assignment for the benefit of its creditors. In the event of such a default the noteholder may declare all amounts under the note immediately due and payable in cash and will be entitled to reimbursement of its reasonable costs and expenses related to collection of all amounts owing in connection thereof, assuming the Company fails to cure a default within a period of fifteen business days.
Amendment to Articles of Incorporation
On July 31, 2017, stockholders holding 62.54% (the “Approving Stockholders”) of the then outstanding shares of our Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock “) voted at a special meeting of holders of Series D Preferred Stock held on July 31, 2017 (the “Series D Special Meeting’) to approve an amendment to the Certificate of Designation, Preferences and Rights of Series D Preferred Stock (the “Series D Certificate of Designation”) in order to correct an error and require a proportionate adjustment to the voting ratio of the Series D Preferred Stock in the event of a reverse split of the Company’s capital stock (the “Series D Amendment”). The amendment was filed with the Secretary of State of the State of Colorado on August 1, 2017.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained herein involve risks and uncertainties, including statements as to:
| · | our future operating results; |
| · | our business prospects; |
| · | our contractual arrangements and relationships with third parties; |
| · | the dependence of our future success on the general economy; |
| · | our possible financings; and |
| · | the adequacy of our cash resources and working capital. |
These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto, included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this report, particularly in the “Risk Factors” section.
Critical Accounting Policies and Estimates.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
34 |
Table of Contents |
Business of Registrant
Signal Bay, Inc.EVIO, INC., a Colorado corporation, and its subsidiaries (“Signal Bay”EVIO”, the “Company”, the "Registrant", “we”, “our”, or “us”) provide advisory, managementanalytical testing and analytical testingadvisory services to the emerging legalized cannabis industry. Our three business units are described below:
Signal Bay, Inc.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 took over its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. then to EVIO, INC. during August 2017. The Company has selected September 30 as its fiscal year end. Signal Bay, Inc.The Company is domiciled in the State of Colorado, and its corporate headquarters areis located in Bend, Oregon.
Signal Bay ResearchEVIO Consulting Services provides advisory and research services to cannabis companies including regulatory licensing and compliance, industry research, businessoperational support, educational services and market intelligence, and advisory services. We also publish industry information via online media, research reports, and publications. Our media properties include CANNAiQ.com, a business to business information portal and MarijuanaMath.com a general interest informational website for the cannabis industry. Signal Bay also offers the Cannabis Consultant Marketplace (CCM), a network of cannabis industry consultants.
Signal Bay Services provides operating services for current and prospective licensed cannabis businesses. Signal Bay
EVIO, Inc. d/b/a EVIO Labs is the wholly owned analytical laboratory division of the Company. EVIO Labs consists of six operating companies: CR Labs, Inc. d/b/a EVIO Labs Bend, EVIO Labs Eugene LLC, Smith Scientific Industries, Inc. d/b/a EVIO Labs Medford, Greenhaus Analytical Services was engagedLLC d/b/a EVIO Labs Portland, Viridis Analytics MA d/b/a EVIO Labs MA and C3 Labs, LLC d/b/a EVIO Labs Berkeley all of which provide compliance testing services. Tests include identification of compounds and contaminants including cannabinoid potency and terpene profiling, as well as screening for residual solvents, pesticides, and hazardous microbiological growth., of cannabis products.
The subsidiaries of EVIO, Inc. are as follows:
Trade Name (dba) | Company Name | State of Incorporation | Ownership % | Acquisition Month | |||||||
EVIO Labs Bend (dba) | CR Labs, Inc. | Oregon | 80 | % | September 2015 | ||||||
EVIO Labs Eugene | EVIO Labs Eugene, LLC | Oregon | 100 | % | May 2016 | ||||||
EVIO Labs Medford (dba) | Smith Scientific Industries, LLC | Oregon | 80 | % | June 2016 | ||||||
EVIO Labs Portland (dba) | Greenhaus Analytical Labs | Oregon | 100 | % | October 2016 | ||||||
EVIO Labs MA | Viridis Analytics | Massachusetts | 100 | % | August 2017 | ||||||
EVIO Labs Berkeley | C3 Labs, LLC | California | 60 | % | January 2018 |
In addition to the wholly owned subsidiaries, the Company has entered into license agreements with independent testing laboratories in a Management Services Agreement with Libra Wellness Center, LLC, a licensed cannabis productionFlorida and processing establishment,Colorado. Under the terms of the agreements, the independent laboratories are granted non-transferable and non-exclusive rights to operate their marijuana processing facility in North Las Vegas, Nevada.use the Company’s trademarks, trade-name and testing methodologies.
Table of Contents |
The Company provides analytical testing services to the cannabis industry under the EVIO Labs brand. As of June 30, 2017, EVIO Labs has five operating labs: CR Labs, Inc. d/b/a EVIO Labs, Bend; EVIO Labs Eugene d/b/a Oregon Analytical Services; Smith Scientific Industries d/b/a Kenevir Research; Greenhaus Analytical Labs, LLC and Green Style Consulting LLC d/b/a EVIO Labs California. EVIO Labs clients are located in Oregon and California and consist of growers, processors and dispensaries. Operating under the rules of the appropriate state governing bodies, EVIO Labs certifies products have been tested and are free from pesticides and other containments before resale to patients and consumer in the States of Oregon and California.
RESULTS OF OPERATIONS
NineThree Months Ended June 30,March 31, 2018 and 2017 and 2016
Revenues and Costs of Revenues
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
| |||||
Testing services |
| $ | 2,081,877 |
|
| $ | 163,366 |
|
| $ | 1,918,511 |
|
|
| 91 | % |
|
| 42 | % |
Consulting services |
|
| 196,520 |
|
|
| 228,612 |
|
|
| (32,092 | ) |
|
| 9 | % |
|
| 58 | % |
Total revenue |
| $ | 2,278,397 |
|
| $ | 391,978 |
|
| $ | 1,886,419 |
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
| $ | 1,717,997 |
|
| $ | 308,473 |
|
|
| 1,409,524 |
|
|
| 75 | % |
|
| 79 | % |
Consulting services |
|
| 65,378 |
|
|
| 92,601 |
|
|
| (27,223 | ) |
|
| 3 | % |
|
| 24 | % |
Depreciation and amortization |
|
| 74,968 |
|
|
| 14,409 |
|
|
| 60,559 |
|
|
| 3 | % |
|
| 4 | % |
Total cost of revenue |
| $ | 1,858,343 |
|
| $ | 415,483 |
|
| $ | 1,442,860 |
|
|
| 82 | % |
|
| 106 | % |
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| |||||
Testing services |
| $ | 689,011 |
|
| $ | 745,426 |
|
| $ | (56,415 | ) |
|
| 94 | % |
|
| 90 | % |
Consulting services |
|
| 43,300 |
|
|
| 87,297 |
|
|
| (43,997 | ) |
|
| 6 | % |
|
| 10 | % |
Total revenue |
|
| 732,311 |
|
|
| 832,723 |
|
|
| (100,412 | ) |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Testing services |
| $ | 664,182 |
|
| $ | 566,447 |
|
| $ | 97,735 |
|
|
| 91 | % |
|
| 68 | % |
Consulting services |
|
| 78,500 |
|
|
| 19,505 |
|
|
| 58,995 |
|
|
| 11 | % |
|
| 2 | % |
Depreciation |
|
| 55,706 |
|
|
| 28,048 |
|
|
| 27,658 |
|
|
| 8 | % |
|
| 3 | % |
Total cost of revenue |
|
| 798,388 |
|
|
| 614,000 |
|
|
| 184,388 |
|
|
| 48 | % |
|
| 41 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
| $ | (66,077 | ) |
| $ | 218,723 |
|
| $ | (284,800 | ) |
|
| -9% |
|
|
| 26 | % |
Revenues for the ninethree months ended June 30, 2017March 31, 2018 were $2,278,397$732,311 compared to $391,978$832,723 for the ninethree months ended June 30, 2016.March 31, 2017. The increasedecrease in revenues during the ninethree months ended June 30, 2017March 31, 2018 is the result of decreased testing services completed in the current period combined with decreased advisory services performed in the current period as compared to the prior period offset by increased testing services resulting from acquisitions completed after the nine months ended June 30, 2016.period.
Cost of revenues for the ninethree months ended June 30, 2017March 31, 2018 were $1,858,343$798,388 compared to $415,483$614,000 for the ninethree months ended June 30, 2016.March 31, 2018. The increase in the cost of revenues during the ninethree months ended June 30, 2017March 31, 2018 is the result of the increased direct costs associated with providing testing services and increased costs of revenue associated with performing additional testing services and hiring additional consultants to support the increased advisory services. Gross profitloss for the ninethree months ended June 30, 2017March 31, 2018 was $420,054$66,077 compared to a gross lossprofit of $23,505$218,723 during the ninethree months ended June 30, 2016. The Company experienced an increase of $443,559 in gross profit primarily attributable to the Company’s ability to leverage fixed overhead costs in costs of revenue.March 31, 2017.
Operating Expenses
|
|
|
|
| Percentage of Revenue |
|
|
|
|
| Percentage of Revenue |
| ||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| ||||||||||
Selling, general and administrative |
| $ | 1,478,007 |
| $ | 326,601 |
| $ | 1,151,406 |
| 65 | % |
| 83 | % |
| $ | 2,213,094 |
| $ | 460,736 |
| $ | 1,752,358 |
| 302 | % |
| 55 | % | ||||||||||
Depreciation and amortization |
|
| 114,793 |
|
|
| 56,732 |
|
|
| 58,061 |
|
|
| 5 | % |
|
| 14 | % |
|
| 83,769 |
|
|
| 39,845 |
|
|
| 43,924 |
|
|
| 11 | % |
|
| 5 | % |
|
| $ | 1,592,800 |
|
| $ | 383,333 |
|
| $ | 1,209,467 |
|
|
| 70 | % |
|
| 98 | % |
| $ | 2,296,863 |
|
| $ | 500,581 |
|
| $ | 1,796,282 |
|
|
| 137 | % |
|
| 33 | % |
Total operating expenses during the ninethree months ended June 30, 2017March 31, 2018 were $1,592,800$2,296,863 compared to $383,333$500,581 during the ninethree months ended June 30, 2016.March 31, 2017. The Company experienced an increase of $1,209,467 or 316%$1,752,358 in selling, general and administrative expenses during the ninethree months ended June 30, 2017March 31, 2018 compared to the ninethree months ended June 30, 2016March 31, 2017 due to increased business size due to acquisitions and organic growth that has occurred during the period of AprilJanuary 1, 20162017 to October 1, 2016.December 31, 2017. Additionally, total stock based compensation included in selling, general and administrative expenses was $1,230,432 during the three months ended March 31, 2018 compared to $81,027 during the same period in 2017. There was an increase of $58,061$43,924 in depreciation and amortization which was driven by the amortization of intangible assets and equipment associated with the acquisitionsacquisition completed during the period from AprilJanuary 1, 20162017 to December 31, 2016.2017.
36 |
Table of Contents |
Other Income (Expense)
Percentage of Revenue 2017 2016 Change 2017 2016 Interest expense Other income Loss on disposal of asset Loss on change in fair market value of derivative liabilities $ (649,288 ) $ (185,372 ) $ (463,916 ) -28 % -47 % 105 - 105 0 % 0 % - (720 ) 720 0 % 0 % (34,386 ) (238,038 ) 203,652 -2 % -61 % $ (683,569 ) $ (424,130 ) $ (259,439 ) -30 % -108 %
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| |||||
Interest expense, net of interest income |
| $ | (1,102,537 | ) |
| $ | (97,987 | ) |
| $ | (1,004,550 | ) |
|
| -151 | %�� |
|
| -12 | % |
Loss on settlement of debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 | % |
|
| 0 | % |
Gain (loss) on change in fair market value of derivative liabilities |
|
| 1,780,769 |
|
|
| (85,035 | ) |
|
| 1,865,804 |
|
|
| 243 | % |
|
| -10 | % |
|
| $ | 678,232 |
|
| $ | (183,022 | ) |
| $ | 861,254 |
|
|
| 40 | % |
|
| -12 | % |
Total other income (expense) was a net expenseincome of $683,569$678,232 during the ninethree months ended June 30, 2017March 31, 2018 compared to a net expense of $424,130$183,022 during the ninethree months ended June 30, 2016.March 31, 2017. The increasedecrease in net expense of $259,544$861,254 is from the decrease in the loss on fair market value of derivatives of $1,865,804 combined with an increase in interest expense of $867,058 from the recognition of debt discounts associated with convertible and non-convertible notes payable offset by decreased losses recognized from the change in the fair market value of derivative liabilities.as well as convertible debentures payable.
Net Loss
|
|
|
|
|
|
|
|
|
|
| Percentage of Revenue |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
| |||||
Net loss |
| $ | (1,856,315 | ) |
| $ | (830,968 | ) |
| $ | (1,025,347 | ) |
|
| -81 | % |
|
| -212 | % |
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| |||||
Net loss |
| $ | (1,684,708 | ) |
| $ | (464,880 | ) |
| $ | (1,219,828 | ) |
|
| -230 | % |
|
| -56 | % |
Net loss during the ninethree months ended June 30, 2017March 31, 2018 was $1,856,315$1,684,708 compared to $830,968$464,880 during the ninethree months ended June 30,March 31, 2017. The increase in net loss is directed from the increase in other expenses partially offset by an increasecombined with the decrease in revenuesgross margins as described above.
ThreeSix Months Ended June 30,March 31, 2018 and 2017 and 2016
Revenues and Costs of Revenues
|
|
|
|
| Percentage of Revenue |
|
|
|
|
| Percentage of Revenue |
| ||||||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| 2018 |
| 2017 |
| Change |
| 2018 |
| 2017 |
| ||||||||||||||
Testing services |
| $ | 767,873 |
| $ | 83,709 |
| $ | 684,164 |
| 99 | % |
| 72 | % |
| $ | 1,576,360 |
| $ | 1,314,004 |
| $ | 262,356 |
| 94 | % |
| 88 | % | ||||||||||
Consulting services |
| 9,345 |
| 32,939 |
| (23,594 | ) |
| 1 | % |
| 28 | % |
|
| 102,816 |
|
|
| 187,175 |
|
|
| (84,359 | ) |
|
| 6 | % |
|
| 12 | % | |||||||
Total revenue |
| $ | 777,218 |
|
| $ | 116,648 |
|
| $ | 660,570 |
|
| 100 | % |
| 100 | % |
| 1,679,176 |
| 1,501,179 |
| 177,997 |
| 100 | % |
| 100 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Testing services |
| $ | 592,273 |
| $ | 101,392 |
| 490,881 |
| 76 | % |
| 87 | % |
| $ | 1,360,840 |
| $ | 1,125,724 |
| $ | 235,116 |
| 81 | % |
| 75 | % | |||||||||||
Consulting services |
| 33,373 |
| 22,533 |
| 10,840 |
| 4 | % |
| 19 | % |
| 88,992 |
| 32,005 |
| 56,987 |
| 5 | % |
| 2 | % | ||||||||||||||||
Depreciation and amortization |
| 28,618 |
| 7,659 |
| 20,959 |
| 4 | % |
| 7 | % | ||||||||||||||||||||||||||||
Depreciation |
|
| 84,819 |
|
|
| 46,350 |
|
|
| 38,469 |
|
|
| 5 | % |
|
| 3 | % | ||||||||||||||||||||
Total cost of revenue |
| 654,264 |
|
| 131,584 |
|
| 522,680 |
|
| 84 | % |
| 113 | % |
|
| 1,534,651 |
|
|
| 1,204,079 |
|
|
| 330,572 |
|
|
| 91 | % |
|
| 80 | % | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Gross profit |
| $ | 144,525 |
|
| $ | 297,100 |
|
| $ | (152,575 | ) |
|
| 9 | % |
|
| 20 | % |
Table of Contents |
Revenues for the threesix months ended June 30, 2017March 31, 2018 were $777,218$1,679,176 compared to $116,648$1,501,179 for the threesix months ended June 30, 2016.March 31, 2017. The increase in revenues during the threesix months ended June 30, 2017March 31, 2018 is the result of increased testing services resulting from acquisitions completed afterin the three months ended March 31, 2016,current period partially offset by decreased advisory services performed in the current period as compared to the prior period.
Cost of revenues for the threesix months ended June 30, 2017March 31, 2018 were $654,264$1,534,651 compared to $131,584$1,204,079 for the threesix months ended June 30, 2016.March 31, 2018. The increase in the cost of revenues during the threesix months ended June 30, 2017March 31, 2018 is the result of the increased direct costs associated with providing testing services and increased costs of revenue associated with performing additional testing.advisory services. Gross profit for the threesix months ended June 30, 2017March 31, 2018 was $122,954$144,525 compared to a gross loss of $14,936$297,100 during the threesix months ended June 30, 2016. The Company experienced an increase of $137,890 in gross profit primarily attributable to the Company’s ability to leverage fixed overhead costs in costs of revenue.March 31, 2017.
Operating Expenses
|
|
|
|
| Percentage of Revenue |
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| ||||||||||
Selling, general and administrative |
| $ | 582,113 |
| $ | 118,513 |
| $ | 463,600 |
| 75 | % |
| 102 | % |
| $ | 3,033,369 |
| $ | 895,894 |
| $ | 2,137,475 |
| 181 | % |
| 60 | % | ||||||||||
Depreciation and amortization |
|
| 40,413 |
|
|
| 39,322 |
|
|
| 1,091 |
|
|
| 5 | % |
|
| 34 | % |
|
| 141,156 |
|
|
| 74,380 |
|
|
| 66,776 |
|
|
| 8 | % |
|
| 5 | % |
|
| $ | 622,526 |
|
| $ | 157,835 |
|
| $ | 464,691 |
|
|
| 80 | % |
|
| 136 | % |
| $ | 3,174,525 |
|
| $ | 970,274 |
|
| $ | 2,204,251 |
|
|
| 189 | % |
|
| 65 | % |
Total operating expenses during the threesix months ended June 30, 2017March 31, 2018 were $622,526$3,174,525 compared to $157,835$970,274 during the threesix months ended June 30, 2016.March 31, 2017. The Company experienced an increase of $464,691 or 2894%$2,137,475 in selling, general and administrative expenses during the threesix months ended June 30, 2017March 31, 2018 compared to the threesix months ended June 30, 2016March 31, 2017 due to increased business size due to acquisitions and organic growth that has occurred during the period of AprilJanuary 1, 20162017 to October 1, 2016.December 31, 2017. Additionally, total stock based compensation included in selling, general and administrative expenses was $1,489,135 during the six months ended March 31, 2018 compared to $247,951 during the same period in 2017. There was an increase of $1,091$66,776 in depreciation and amortization which was driven by the amortization of intangible assets and equipment associated with the acquisitionsacquisition completed during the period from AprilJanuary 1, 20162017 to December 31, 2016.2017.
Other Income (Expense)
|
|
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
| |||||
Interest expense |
| $ | (227,879 | ) |
| $ | (44,397 | ) |
| $ | (183,482 | ) |
|
| -29 | % |
|
| -38 | % |
Other income |
|
| 105 |
|
|
| - |
|
|
| 105 |
|
|
| 0 | % |
|
| 0 | % |
Loss on disposal of asset |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0 | % |
|
| 0 | % |
Gain (loss) on change in fair market value of derivative liabilities |
|
| 156,892 |
|
|
| (203,696 | ) |
|
| 360,588 |
|
|
| 20 | % |
|
| -175 | % |
|
| $ | (70,882 | ) |
| $ | (248,093 | ) |
| $ | 177,211 |
|
|
| -9 | % |
|
| -213 | % |
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| |||||
Interest expense, net of interest income |
| $ | (1,387,188 | ) |
| $ | (421,409 | ) |
| $ | (965,779 | ) |
|
| -83 | % |
|
| -28 | % |
Loss on settlement of debt |
|
| (56,093 | ) |
|
| - |
|
|
| (56,093 | ) |
|
| -3 | % |
|
| 0 | % |
Gain (loss) on change in fair market value of derivative liabilities |
|
| 1,794,091 |
|
|
| (191,278 | ) |
|
| 1,985,369 |
|
|
| 107 | % |
|
| -13 | % |
|
| $ | 350,810 |
|
| $ | (612,687 | ) |
| $ | 963,497 |
|
|
| 21 | % |
|
| -41 | % |
Total other income (expense) was a net expenseincome of $70,882$350,810 during the threesix months ended June 30, 2017March 31, 2018 compared to a net expense of $248,093$612,687 during the threesix months ended June 30, 2016.March 31, 2017. The decrease in net expense of $177,211$963,497 is from the decrease in the loss on fair market value of derivatives of $360,588 partially offset increases$1,985,369 combined with an increase in interest expense of $805,063 from the recognition of debt discounts associated with convertible and non-convertible notes payable as well as convertible debentures payable.
38 |
Table of Contents |
Net Loss
|
|
|
|
|
|
|
|
|
|
| Percentage of Revenue |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
| |||||
Net loss |
| $ | (570,454 | ) |
| $ | (420,864 | ) |
| $ | (149,590 | ) |
|
| -73 | % |
|
| -361 | % |
|
|
|
|
|
|
|
| Percentage of Revenue |
| |||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
| |||||
Net loss |
| $ | (2,679,190 | ) |
| $ | (1,285,861 | ) |
| $ | (1,393,329 | ) |
|
| -160 | % |
|
| -86 | % |
Net loss during the threesix months ended June 30, 2017March 31, 2018 was $570,454$2,679,190 compared to $420,864$1,285,861 during the threesix months ended June 30, 2016.March 31, 2017. The increase in net loss is directed from the increase in other expenses partially offset by an increasecombined with the decrease in revenuesgross margins as described above.
Liquidity and Capital Resources
The Company had cash on hand of $149,983$3,021,247 as of June 30, 2017,March 31, 2018, current assets of $466,318$3,491,936 and current liabilities of $1,624,136$6,182,195 creating a working capital deficit of $1,157,818.$2,690,259. Current assets consisted of cash totaling $149,983,$3,021,247, accounts receivable net of $145,893 andallowances totaling $215,540, prepaid expenses totaling $170,442.$91,603, other current assets of $63,546 and current portions of notes receivable of $100,000. Current liabilities consisted of accounts payable and accrued liabilities of $571,233,$698,672, client deposits of $77,627, current portions$49,696, deferred revenue of capital lease obligations of $36,016,$27,000, convertible notes payable net of discounts of $324,799,$718,187, derivative liabilities of $3,123,223, current capital lease obligations of $140,184, interest payable of $91,014, derivative liabilities of $263,143,$296,886, current portions of notes payable net of $34,113discounts of $975,192 and current portions of related party payables of $226,191.$153,155.
The Company had cash on hand of $121,013 as of September 30, 2017, current assets of $627,572 and current liabilities of $4,428,578 creating a working capital deficit of $3,801,006. Current assets consisted of cash totaling $121,013, accounts receivable net of allowances totaling $229,564, prepaid expenses totaling $169,557, other current assets of $7,438 and current portion of a note receivable of $100,000. Current liabilities consisted of accounts payable and accrued liabilities of $773,053, client deposits of $119,281, deferred revenue of $40,800, convertible notes payable net of discounts of $1,212,720, current capital lease obligations of $37,990, interest payable of $133,697, derivative liabilities of $294,637, current portions of notes payable net of discounts of $1,503,545 and current portions of related party payables of $312,855.
Six Months Ended March 31, 2018
The Company used $429,132$2,148,643 of cash in operating activities which consisted of a net loss of $1,856,315$2,679,190, non-cash losses of $1,134,617$1,179,338 and changes in working capital of $292,566.$648,791.
Net cash used in investing activities totaled $791,020 during the six months ended March 31, 2018 which consisted of $571,501 of cash used to purchase equipment, $39,987 of notes receivable, $200,000 of related party notes receivable and $20,468 of cash acquired in acquisitions.
During the six months ended March 31, 2018, the Company generated cash of $5,839,897 from financing activities. The Company received $6,136,120 from the issuance of convertible debentures, $508,000 from the sale of common stock, made repayments of $22,347 on capital leases, repayments of $605,348 on loans payable and $176,528 on related party loans payable.
Six Months Ended March 31, 2017
The Company used $62,312 of cash in operating activities which consisted of a net loss of $1,285,861, non-cash losses of $919,606 and changes in working capital of $303,943.
Net cash used in investing activities total $55,656$52,694 during the ninesix months ended June 30,March 31, 2017. The Company paid net cash of $6,930 in asset purchases and acquisitions and paid $48,726$45,764 for the purchase of equipment.
During the ninesix months ended June 30,March 31, 2017, the Company generated cash of $577,285$322,113 from financing activities. The Company received $114,500 of cash from the sale of series D preferred stock, $640,000$390,000 in cash from convertible notes payable, repayments of notes payable of $56,396,$54,875, repayments of capital leases of $10,152,$4,590, proceeds from the sale of common stock of $70,000$20,000 and net repayments on related party notes payable of $180,667.$142,922.
Dividends
The Company declared $0 of dividends during the ninesix months ended June 30, 2017ending March 31, 2018 and 2016.2017.
39 |
Table of Contents |
Critical Accounting Policies and Estimates.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
Revenue Recognition:Recognition
Signal BayEVIO currently recognizes revenue from the sale of services in accordance with ASC 605. Revenue605 and will be recognized only when alladopt ASC 606 with the beginning of its next fiscal year on October 1, 2018. The Company first identifies the promised goods or services in the contract and reduces the cost and complexity then evaluates whether promised goods and services are distinct. Specifically as it relates to certain licensing agreements whereby licensees have access to certain intellectual property of the following criteria have been met:
Stock Based Compensation
Pursuant to Accounting Standards Codification (“ASC”) 505, the guidelines for recording stock issued for services require the fair value of the shares granted be based on the fair value of the services received or the publicly traded share price of the Company’s registered shares on the date the shares were granted (irrespective of the fact that the shares granted were unregistered), whichever is more readily determinable. This position has been further clarified by the issuance of ASC 820. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Accordingly, the Company elected the application of these guidelines. Signal BayEVIO has determined that the fair value of all common stock issued for goods or services is more readily determinable based on the publicly traded share price on the date of grant.
Emerging Growth Company Status
We are an “emerging growth company” as defined under the Jumpstart Our Business Startups Act, commonly referred to as the JOBS Act. We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
40 |
Table of Contents |
As an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:
| · | not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act (we also will not be subject to the auditor attestation requirements of Section 404(b) as long as we are a “smaller reporting company,” which includes issuers that had a public float of less than $ 75 million as of the last business day of their most recently completed second fiscal quarter); |
| · | reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and |
| · | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Under this provision, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. In other words, an “emerging growth company” can delay the adoption of such accounting standards until those standards would otherwise apply to private companies until the first to occur of the date the subject company (i) is no longer an “emerging growth company” or (ii) affirmatively and irrevocably opts out of the extended transition period provided in Securities Act Section 7(a) (2) (B). The Company has elected to take advantage of this extended transition period and, as a result, our financial statements may not be comparable to the financial statements of other public companies. Accordingly, until the date that we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a) (2) (B), upon the issuance of a new or revised accounting standard that applies to your financial statements and has a different effective date for public and private companies, clarify that we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
Accounting and Audit Plan
In the next twelve months, we anticipate spending approximately $50,000$70,000 - $60,000$85,000 to pay for our accounting and audit requirements.
Off-balance sheet arrangements
On March 31, 2017, the Company entered into a long term operating lease requiring monthly payments of $10,275 for a period of 48 months terminating on March 31, 2021.
We have no other significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Our Website.
Our websiteswebsite can be found at www.signalbay.com and www.eviolabs.com.
Table of Contents |
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a smaller reporting company, as defined by Rule 229.10(f)(1), is not required to provide the information required by this Item.
ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.
The reason we believe our disclosure controls and procedures are not effective is because:
|
| |
|
| |
|
| |
|
|
As of June 30, 2017,report for the Company has not taken any remediation actions to address these weaknessesreasons disclosed in our controls even though they were identified during the year. The Company’s management hired, as soon as its financial position permitted it to do so, additional staff in its accounting department to be able to segregate the duties. The Company expects that the expense will be approximately $125,000 per year which would allowed the Company to hire two new staff members.annual report on Form 10-K.
This 10-Qquarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Rule 308(b) of Regulation S-K.S-K, which permits the Company to provide only management’s report in this Quarterly Report.
Management’s Report on Internal Control Over Financial Reporting
(b) Changes in Internal Control Overover Financial Reporting
We need toThere were no changes in Internal Controls over Financial Reporting during the six months ended March 31, 2018. Upon hiring additional financial staff, EVIO will prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.
There were no changes in the Company's internal controls over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
Table of Contents |
None.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
The above statement notwithstanding, shareholders and prospective investors should be aware that certain risks exist with respect to the Company and its business, including those risk factors contained in our most recent Registration Statements on Form S-1 and Form 10, as amended. These risks include, among others: limited assets, lack of significant revenues and only losses since inception, industry risks, dependence on third party manufacturers/suppliers and the need for additional capital. The Company’s management is aware of these risks and has established the minimum controls and procedures to insure adequate risk assessment and execution to reduce loss exposure.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
There was no other information during the quarter ended June 30, 2017,March 31, 2018, which was not previously disclosed in our filings during that period.
Table of Contents |
| Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002 | |
| Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002 | |
| Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002 | |
| Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002 | |
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
Table of Contents |
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 21, 2017.May 16, 2018.
|
| ||
| By: | /s/ William Waldrop | |
| William Waldrop | ||
| Chief Executive Officer |
| By: | /s/ | |
|
| ||
| Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on August 21, 2017.May 16, 2018.
| By: | /s/ William Waldrop | |
| William Waldrop | ||
| Director & Principal Executive Officer | ||
| By: | /s/ Lori Glauser | |
| Lori Glauser | ||
| Director | ||
| |||
By: | /s/ Anthony Smith | ||
| Anthony Smith | ||
| Director | ||
| By: | /s/ Henry Grimmett | |
| Henry Grimmett | ||
| Director |
|