10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2019

 

or

 

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

 

For the transition period from _________ to __________.

 

Commission File Number: 000-12350

 

EVIO, INC.
 (Exact name of registrant as specified in its charter)

 

Colorado   47-1890509
(State of Incorporation)   (I.R.S. Employer Identification No.)
     

2340 W. Horizon Ridge Pkwy, Suite 120

Henderson, NV

 

 

89052

(Address of principal executive offices)   (Zip Code)

 

(888) 544-3846

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading Symbol(s)

  Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of October 14, 2019, there were 29,288,776 shares of common stock outstanding, 0 shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock convertible at any time into 5,000,000 shares of common stock, 500,000 shares of Series C Preferred Stock convertible at any time into 2,500,000 shares of common stock, 514,500 shares of Series D Preferred Stock convertible at any time into 1,286,250 shares of common stock.

 

 

 

   
 

 

EVIO, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED MARCH 31, 2019

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements (Unaudited) 3
  Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and September 30, 2018 3
  Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2019 and 2018 (Unaudited) 4
  Consolidated Statements of Stockholders Equity for the Three and Six Months Ended March 31, 2019 and 2018 (Unaudited) 6
  Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
 

Business of Registrant

22
  Results of Operations 23
  Liquidity and Capital Resources 26
  Critical Accounting Policies and Estimates 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Control and Procedures 28
   
PART II — OTHER INFORMATION  
     
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Mine Safety Disclosures 29
Item 5. Other Information 29
Item 6. Exhibits 30

 

   2
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1 –FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2019 AND SEPTEMBER 30, 2018

(UNAUDITED)

 

   March 31,
2019
   September 30,
2018
 
ASSETS          
Current assets:          
Cash and cash equivalents  $47,261   $81,736 
Accounts receivable, net of allowance of $445,887 and $414,475   122,783    234,178 
Prepaid expenses   131,982    45,940 
Other current assets   113,694    146,816 
Note receivable, current portion   100,000    100,000 
Total current assets   515,720    608,670 
Right of use assets   2,667,715    - 
Capital assets, net of accumulated depreciation of $229,343 and $123,854   1,057,748    411,241 
Assets not in service   -    455,540 
Land   212,550    212,550 
Property and equipment, net of accumulated depreciation of $897,746 and $520,437   3,623,541    3,525,772 
Security deposits   160,353    159,632 
Note receivable   1,200,000    1,200,000 
Prepaid expenses   120,108    63,582 
Intangible assets, net of accumulated amortization of $506,944 and $318,816   1,463,217    1,680,569 
Goodwill   5,954,207    6,037,404 
Total assets  $16,975,159   $14,354,960 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $2,724,222   $1,546,617 
Client deposits   206,686    363,211 
Interest payable   767,524    416,459 
Capital lease obligation, current   865,558    677,030 
Derivative liability   2,102,387    1,181,2781 
Convertible notes payable, net of discounts of $792,040 and $753,557, respectively   2,978,319    1,678,265 
Loans payable, current, net of discounts $0 and $119,000, respectively   786,727    643,927 
Total current liabilities   10,431,423    6,506,787 
Convertible debentures, net of discounts of $3,484,269 and $4,043,836, respectively   1,698,731    1,153,164 
Lease liabilities   2,716,047    - 
Capital lease obligation, net of current   173,854    148,433 
Loans payable, net of current   651,365    1,193,781 
Convertible loans payable, related party, net of current   -    61,263 
Loans payable, related party, net of current and discounts of $39,302 and $51,971   1,588,904    1,348,793 
Total liabilities   17,260,324    10,412,221 
           
Stockholders’ Equity:          
Series B convertible preferred stock, $0.0001 par value. 5,000,000 authorized; 5,000,000 shares issued and outstanding at March 31, 2019 and September 30, 2018   500    500 
Series C convertible preferred stock, $0.0001 par value. 500,000 authorized; 500,000 shares issued and outstanding at March 31, 2019 and September 30, 2018   50    50 
Series D convertible preferred stock, $0.0001 par value. 1,000,000 authorized; 349,500 and 552,500 shares issued and outstanding at March 31, 2019 and September 30, 2018   35    55 
Common stock, $0.0001 par value. 1,000,000,000 authorized; 27,094,744 and 23,255,409 shares issued and outstanding at March 31, 2019 and September 30, 2018   2,709    2,326 
Subscription Receivable   (406,000)   - 
Additional paid-in capital   24,278,682    21,495,621 
Retained earnings (accumulated deficit)   (25,554,846)   (19,226,462)
Accumulated other comprehensive income   (379,546)   (263,985)
Total stockholders’ equity   (2,058,416)   2,008,105 
Noncontrolling interest   1,773,251    1,934,634 
Total equity   (285,165)   3,942,739 
Total liabilities and stockholders’ equity  $16,975,159   $14,354,960 

 

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

 

   3
 

 

EVIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

   Three Month Ended March 31,   Six Months Ended March 31, 
   2019   2018   2019   2018 
Revenues                    
Testing revenue  $735,179   $689,011   $1,922,417   $1,576,360 
Consulting revenue   -    43,300    -    102,816 
Total revenues   735,179    732,311    1,922,417    1,679,176 
                     
Cost of revenue                    
Testing services   835,186    664,182    1,849,166    1,360,840 
Consulting services   -    78,500    -    88,992 
Depreciation and amortization   321,846    55,706    612,304    84,819 
Total cost of revenue   1,157,042    798,388    2,461,470    1,534,651 
                     
Gross margin   (421,863)   (66,077)   (539,053)   144,525 
                     
Operating expenses:                    
Selling, general and administrative   1,223,662    2,213,094    2,702,302    3,033,369 
Depreciation and amortization   57,116    83,769    115,982    141,156 
Total operating expenses   1,280,778    2,296,863    2,836,284    3,174,525 
                     
Income (loss) from operations   (1,702,641)   (2,362,940)   (3,375,337)   (3,030,000)
                     
Other income (expense)                    
Interest income (expense), net   (692,419)   (1,102,537)   (2,457,297)   (1,387,188)
Other income (expense)   (33,422)   -    (97,517)   - 
Gain (loss) on settlement of debt   -    -    -    (56,093)
Gain (loss) on change in fair market value of derivative liabilities   (1,409,305)   1,780,769    (556,647)   1,794,091 
Total other income (expense)   (2,135,146)   678,232    (3,111,461)   350,810 
Income (loss) before income taxes   (3,837,787)   (1,684,708)   (6,486,798)   (2,679,190)
                     
Provision for income taxes (benefit)   613         2,969    - 
                     
Net income (loss)   (3,838,400)   (1,684,708)   (6,489,767)   (2,679,190)
Net income (loss) attributable to noncontrolling interest   18,439    (4,906)   (161,383)   (12,796)
Net income (loss) attributable to EVIO, Inc. shareholders  $(3,856,839)  $(1,679,802)  $(6,328,384)  $(2,666,394)
                     
Basic and diluted earnings (loss) per common share   (0.16)   (0.11)  $(0.25)  $(0.20)
                     
Weighted-average number of common shares outstanding:                    
Basic and diluted   24,753,819    15,387,039    25,366,021    13,519,957 
                     
Comprehensive loss:                    
Net income (loss)  $(3,838,400)  $(1,684,708)  $(6,489,767)  $(2,679,190)
Foreign currency translation adjustment   (115,561)        (115,561)   - 
Comprehensive income (loss)  $(3,953,961)  $(1,684,708)  $(6,605,328)  $(2,679,190)

 

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

 

   4
 

 

EVIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Six Months Ended March 31, 
   2019   2018 
Cash flows from operating activities of continuing operations:          
Net income (loss)  $(6,489,767)  $(2,679,190)
           
Amortization of debt discount   1,951,983    1,199,159 
Common stock issued in exchange for fees and services   240,501    254,720 
Depreciation and amortization   720,739    225,975 
Loss on disposal of assets   64,095    - 
Loss on settlement of accounts payable   -    3,750 
Loss on settlement of debt   -    52,343 
Provision for doubtful accounts   35,333    3,067 
Stock based compensation   395,850    1,234,415 
Unrealized (gain) loss on derivative liability   556,647    (1,794,091)
Changes in operating assets and liabilities:          
Accounts receivable   74,625    16,067 
Prepaid expenses   (142,911)   77,954 
Other current assets   33,122    (52,647)
Security deposits   (722)   (451,323)
Operating lease right of use assets   48,332    - 
Accounts payable and accrued liabilities   1,179,775    (348,073)
Customer deposits and deferred revenues   (156,363)   (83,385)
Interest payable   410,712    192,616 
Net cash provided by (used in) operating activities   (1,078,049)   (2,148,643)
           
Cash flows from investing activities:          
Cash consideration for acquisition of business   -    20,468 
Notes receivable   -    (39,987)
Deposit, related party   -    (200,000)
Purchase of fixed assets   (580,075)   (571,501)
Net cash provided by (used in) investing activities   (580,075)   (791,020)
           
Cash flows from financing activities:          
Proceeds from issuance of common stock, net of issuance costs   186,000    508,000 
Proceeds from issuance of convertible debentures   414,183    6,136,120 
Proceeds from issuance of convertible notes, net of issuance costs   971,014    - 
Proceeds from related party advances   199,040    - 
Repayments of capital leases   (93,050)   (22,347)
Repayments of loans payable   (18,617)   (605,348)
Repayments of related party loans payable   (27,151)   (176,528)
Net cash provided by (used in) financing activities   1,631,419    5,839,897 
           
Effect of exchange rates on cash and cash equivalents   (7,769)   - 
Net increase (decrease) in cash and cash equivalents   (34,474)   2,900,234 
Cash and cash equivalents at beginning of period   81,735    121,013 
Cash and cash equivalents at end of period  $47,261   $3,021,247 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest   -    80,028 
Cash paid for income taxes   -    - 
           
Supplemental disclosure of non-cash investing and financing activities:          
Conversion of convertible note and accrued interest into common stock   708,089    730,485 
Reclassification of derivative liability to additional paid in capital   -    882,454 
Settlement of account payable for common stock   -    18,750 
Common stock issued for settlement of note payable   -    162,000 
Common stock issued for settlement of related party note payable   -    62,500 
Common stock issued for subscription receivable   406,000    - 
Conversion of Series D Preferred stock to common stock   -    70 
Debt discount recorded on convertible notes and debentures payable upon initial measurement of derivative liability   364,462    5,505,131 
Debt discounts recorded for original issue discounts on convertible debentures   846,985    446,800 
Equipment financed through capital leases   323,411    385,208 
Issuance of convertible notes payable and other obligations in connection with the acquisition of a business        600,000 
Sale and assumption of note payable and accrued interest   556,658    - 

 

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

 

   5
 

 

EVIO, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three and Six Months Ended March 31, 2019 and 2018.

 

                                   Accumulated            
   Series B
Preferred Stock
   Series C
Preferred Stock
   Series D Preferred Stock   Common Stock   Stock
Subscriptions
   Additional
Paid-in
   Retained   Other
Comprehensive
   Total
Stockholders’
   Non
controlling
   Total 
   Shares   Value   Shares   Value   Shares   Value   Shares   Value   Receivable   Capital   Earnings   Income   Equity   Interest   Equity 
                                                             
Balance, September 30, 2017   5,000,000   $500    500,000   $50    832,500   $83    10,732,922   $1,073   $-   $7,657,982   $(7,592,371)  $-   $67,317   $        158,124   $225,441 
                                                                            
Net income (loss)   -    -    -    -    -    -    -    -    -    -    (986,592)   -             (986,592)   (7,890)   (994,482)
Change in foreign currency translation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the conversion of Series D preferred stock   -    -    -    -    (87,728)   (9)   219,320    22    -    (13)   -    -    -    -    - 
Issuance of common stock in connection with sales made under private offerings   -    -    -    -    -    -    1,245,000    125    -    497,875    -    -    498,000    -    498,000 
Issuance of common stock in connection with the exercise of common stock purchase warrants   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock as compensation to employees, officers and/or directors   -    -    -    -    -    -    15,000    2    -    6,562    -    -    6,564    -    6,564 
Issuance of common stock in exchange for consulting, professional and other services provided   -    -    -    -    -    -    239,750    24    -    241,133    -    -    241,157    -    241,157 
Issuance of common stock in connection with the settlement of accounts payable   -    -    -    -    -    -    37,500    4    -    18,746    -    -    18,750    -    18,750 
Issuance of common stock in connection with the settlement of notes payable   -    -    -    -    -    -    324,000    32    -    161,968    -    -    162,000    -    162,000 
Issuance of common stock in connection with the conversion of loans payable   -    -    -    -    -    -    900,793    90    -    318,910    -    -    319,000    -    319,000 
Issuance of common stock in connection with the conversion of related party notes payable   -    -    -    -    -    -    125,000    13    -    62,487    -    -    62,500    -    62,500 
Issuance of common stock in connection with the conversion of interest payable   -    -    -    -    -    -    50,743    5    -    17,879    -    -    17,884    -    17,884 
Common stock options issued under employee equity incentive plan   -    -    -    -    -    -    -    -    -    72,587    -    -    72,587    -    72,587 
Reclassifcation of derivative liability to additional paid-in capital   -    -    -    -    -    -    -    -    -    281,315    -    -    281,315    -    281,315 
Recognition of beneficial conversion features related to convertible debt instruments   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Acquisition of equity interests in subsidiaries   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
                                                                            
Balance, December 31, 2017   5,000,000   $500    500,000   $50    744,772   $74    13,890,028   $1,390   $-   $9,337,431   $(8,578,963)  $-   $760,482   $150,234   $910,716 
                                                                            
Net income (loss)   -    -    -    -    -    -    -    -    -    -    (1,679,802)   -    (1,679,802)   (4,906)   (1,684,708)
Change in foreign currency translation   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the conversion of Series D preferred stock   -    -    -    -    (192,272)   (19)   480,680    48    -    (29)   -    -    -    -    - 
Issuance of common stock in connection with sales made under private offerings   -    -    -    -    -    -    25,000    2    -    9,998    -    -    10,000    -    10,000 
Issuance of common stock in connection with the exercise of common stock purchase warrants   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock as compensation to employees, officers and/or directors   -    -    -    -    -    -    45,000    5    -    160,890    -    -    160,895    -    160,895 
Issuance of common stock in exchange for consulting, professional and other services provided   -    -    -    -    -    -    15,000    1    -    38,251    -    -    38,252    -    38,252 
Issuance of common stock in satisfaction of debt issuances costs   -    -    -    -    -    -    620,271    62    -    1,389,345    -    -    1,389,407    -    1,389,407 
Issuance of common stock in connection with the settlement of accounts payable   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the settlement of notes payable   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the conversion of loans payable   -    -    -    -    -    -    968,857    97    -    384,118    -    -    384,215    -    384,215 
Issuance of common stock in connection with the conversion of debentures   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the conversion of related party notes payable   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock in connection with the conversion of interest payable   -    -    -    -    -    -    23,669    2    -    9,384    -    -    9,386    -    9,386 
Common stock options issued under employee equity incentive plan   -    -    -    -    -    -    -    -    -    995,181    -    -    995,181    -    995,181 
Reclassifcation of derivative liability to additional paid-in capital   -    -    -    -    -    -    -    -    -    601,139    -    -    601,139    -    601,139 
Recognition of beneficial conversion features related to convertible debt instruments   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Acquisition of equity interests in subsidiaries   -    -    -    -    -    -    -    -    -    -    -    -    -    400,000    400,000 
                                                                            
Balance, March 31, 2018   5,000,000   $500    500,000   $50    552,500   $55    16,068,505   $1,607   $-   $12,925,708   $(10,258,765)  $-   $2,669,155   $545,328   $3,214,483 

 

   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Additional
Paid-in
   Additional
Paid-in
   Retained   Accumulated
other
Comprehensive
   Total
Stockholders’
   Non
controlling
   Total 
   Shares   Value   Shares   Value   Shares   Value   Shares   Value   Capital   Capital   Earnings   Income   Equity   Interest   Equity 
                                                             
Balance, September 30, 2018   5,000,000   $500    500,000   $50    552,500   $55    23,255,411   $2,326   $-   $21,495,621   $(19,226,462)  $(263,985)  $       2,008,105   $1,934,634   $3,942,739 
                                                                            
Net income (loss)   -    -    -    -    -    -    -    -    -    -    (2,596,659)   -    (2,596,659)   (54,738)   (2,651,397)
Change in foreign currency translation   -    -    -    -    -    -    -    -    -    -    -    (179,822)   (179,822)   -    (179,822)
Issuance of common stock in connection with the conversion of Series D preferred stock   -    -    -    -    (38,000)   (4)   95,000    10    -    (6)   -    -    (1)   -    (1)
Issuance of common stock in connection with sales made under private offerings   -    -    -    -    -    -    200,000    20    -    105,980    -    -    106,000    -    106,000 
Issuance of common stock in connection with the exercise of common stock purchase warrants   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock as compensation to employees, officers and/or directors   -    -    -    -    -    -    50,000    5    -    35,870    -    -    35,875    -    35,875 
Issuance of common stock in exchange for consulting, professional and other services provided   -    -    -    -    -    -    250,000    25    -    128,375    -    -    128,400    -    128,400 
Issuance of common stock in connection with the conversion of loans payable   -    -    -    -    -    -    779,808    78    -    317,022    -    -    317,100    -    317,100 
Issuance of common stock in connection with the conversion of debentures   -    -    -    -    -    -    669,362    67    -    387,933    -    -    388,000    -    388,000 
Issuance of common stock in connection with the conversion of interest payable   -    -    -    -    -    -    10,163    1    -    2,987    -    -    2,988    -    2,988 
Issuance of common stock and common stock purchase warrants in satisfaction of debt issuances costs   -    -    -    -    -    -    -    -    -    12,423    -    -    12,423    -    12,423 
Recognition of beneficial conversion features related to convertible debt instruments   -    -    -    -    -    -    -    -    -    280,144    -    -    280,144    -    280,144 
Stock based compensation related to employee stock options   -    -    -    -    -    -    -    -    -    169,922    -    -    169,922    -    169,922 
                                                                            
Balance, December 31, 2018   5,000,000   $500    500,000   $50    514,500   $51    25,309,744   $2,531   $-   $22,936,272   $(21,823,121)  $(443,807)  $672,476   $1,879,896   $2,552,372 
                                                                            
Net income (loss)   -    -    -    -    -    -    -    -    -    -    (3,731,725)   -    (3,731,725)   (106,645)   (3,838,370)
Change in foreign currency translation   -    -    -    -    -    -    -    -    -    -    -    64,261    64,261    -    64,261 
Issuance of common stock in connection with the conversion of Series D preferred stock   -    -    -    -    (165,000)   (16)   412,500    41    -    (24)   -    -    1    -    1 
Issuance of common stock in connection with sales made under private offerings   -    -    -    -    -    -    200,000    20    -    79,980    -    -    80,000    -    80,000 
Issuance of common stock in connection with stock subscriptions received under private offerings   -    -    -    -    -    -    1,015,000    101    (406,000)   405,899    -    -    -    -    - 
Issuance of common stock in connection with the exercise of common stock purchase warrants   -    -    -    -    -    -    -    -    -    -    -    -    -    -    - 
Issuance of common stock as compensation to employees, officers and/or directors   -    -    -    -    -    -    37,500    4    -    19,496    -    -    19,500    -    19,500 
Issuance of common stock in exchange for consulting, professional and other services provided   -    -    -    -    -    -    100,000    10    -    52,990    -    -    53,000    -    53,000 
Issuance of common stock and common stock purchase warrants in satisfaction of debt issuances costs   -    -    -    -    -    -    20,000    2    -    46,675    -    -    46,677    -    46,677 
Recognition of beneficial conversion features related to convertible debt instruments   -    -    -    -    -    -    -    -    -    566,841    -    -    566,841    -    566,841 
Stock based compensation related to employee stock options   -    -    -    -    -    -    -    -    -    170,553    -    -    170,553    -    170,553 
                                                                            
Balance, March 31, 2019   5,000,000   $500    500,000   $50    349,500   $35    27,094,744   $2,709   $(406,000)  $24,278,682   $(25,554,846)  $(379,546)  $(2,058,416)  $1,773,251   $(285,165)

 

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

 

   6
 

 

EVIO, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019

 

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

EVIO, Inc., a Colorado corporation and its subsidiaries (“the Company”, “EVIO”, “EVIO Labs”, “we”, “us”, or “our”) provide analytical testing and advisory services to the developing legalized cannabis and hemp industries. The Company operates both corporate owned and licensed laboratories through-out North America. Our laboratories provide testing for both cannabis and hemp products at all our labs.

 

Oregon: The Company operates two OLCC licensed and ORELAP accredited laboratories in Oregon. EVIO Labs Portland, located in Tigard, OR, is 100% owned by EVIO. EVIO Labs Medford, located in Central Point, OR is 80% owned by EVIO.

 

California: The Company operates one BCC licensed and ISO 17025 accredited laboratory in Berkeley serving both the cannabis and hemp markets in the state and the hemp market nationwide. EVIO owns 90% of this company.

 

Massachusetts: The Company is completing the relocation and re-accreditation of our laboratory in the state.

 

Florida: The Company licenses its brand to Kaycha Holdings, which operates two ISO 17025 accredited laboratories in the state.

 

Colorado: The Company licenses its brand to Kaycha Holdings, which operates one ISO 17025 accredited laboratory in the state.

 

Canada: The Company operates one Health Canada licensed, GMP certified laboratory, in Edmonton, Alberta. EVIO owns 50% of this company.

 

Basis of 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 omitted.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

 

Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation

 

The Company generates revenue from consulting services, licensing agreements and testing of cannabis and hemp products for medicinal and adult-use consumption.

 

The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

 

The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The Company’s services included in its contracts are distinct from one another.

 

The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.

 

   7
 

 

The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services provided. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the service.

 

The Company recognizes revenue from testing services upon delivery of its testing results to the client. Customer orders for testing services are generally completed within two weeks of receiving the order.

 

Consulting engagements may vary in length and scope, but will generally include the review and/or preparation of regulatory filings, business plans and financial models, operating plans, and technology support to customers within the same industry. Revenue from consulting services is recognized upon completion of deliverables as outlined in the consulting agreement.

 

The Company recognizes revenue from right of use license agreements upon transfer of control of the functional intellectual property. In certain licensing agreements, the Company may receive royalty revenues based upon performance metrics which are recognized as earned over time.

 

Foreign Currency Translation

 

The functional currency of the Company’s subsidiary in Canada is the Canadian Dollar. The subsidiary’s assets and liabilities have been translated to U.S. Dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts have been translated using the average exchange rate for each period. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss).

 

Fair Value of Financial Instruments

 

The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

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 24,753,819 and 11,713,103 potentially dilutive common shares outstanding as of March 31, 2019 and 2018, respectively. Because of the net losses incurred during the six months ended March 31, 2019 and 2018, 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.

 

Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public entity financial statements for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. ASU 2016-02 was further clarified and amended within ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20 which included provisions that would provide us with the option to adopt the provisions of the new guidance using a modified retrospective transition approach, without adjusting the comparative periods presented. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.

 

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.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial statements upon adoption

 

Note 2 – Going concern

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have an established source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

   8
 

 

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 convertible debentures, convertible promissory notes, internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or 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 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The Company’s financial instruments consist principally cash, accounts payable, and accrued liabilities. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company.

 

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair value of freestanding derivative instruments such as warrant and option derivatives are valued using the Black-Scholes simulation model.

 

The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

 

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on
March 31, 2019:

 

   Level 1   Level 2   Level 3   Total 
Liabilities                
Derivative financial instruments  $-   $-   $2,102,387   $2,102,387 

 

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 31, 2018:

 

   Level 1   Level 2   Level 3   Total 
Liabilities                
Derivative financial instruments  $-   $-   $1,181,278   $1,181,278 

 

Note 4 –leases

 

The Company determines if an arrangement is a lease at inception and has lease agreements for warehouses, office facilities, and equipment. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2020 to 2024.

 

   9
 

 

As a result of the adoption of ASC 842, certain real estate and equipment operating leases have been recorded on the balance sheet with a lease liability and right-of-use asset (“ROU”). Application of this standard resulted in the recognition of ROU assets of $2,667,715, net of accumulated amortization, and a corresponding lease liability of $2,828,361 at the October 1, 2018, date of adoption. Accounting for finance leases is substantially unchanged.

 

Operating leases are included in operating lease ROU assets, operating lease obligations, current, and operating lease obligations, long term on the condensed consolidated balance sheets. Finance leases are included in property and equipment, finance lease obligations, short term, and finance lease obligations, long term, on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.

 

Amortization of lease assets is included in general and administrative expenses. The future minimum lease payments of lease liabilities as of March 31, 2019, are as follows:

 

Year ended March 31,  Operating Leases   Financing Leases 
2019   662,673   $404.795 
2020   784,958    354,898 
2021   525,852    340,025 
2022   489,392    181,372 
2023   323,356    204,812 
Thereafter   27,911    4,977 
Total lease payments   2,814,142    1,490,879 
Less: Payments Made   (225,192)   (196,035)
Total Lease Liabilities  $2,478,950   $1,294,845 

 

Note 5 – INTANGIBLE ASSETS

 

The Company’s intangible assets consist of customer lists, testing licenses, favorable leases and websites. The components of intangible assets as of March 31, 2019 and September 30, 2018 consist of:

 

   March 31, 2019   September 30, 2018 
Customer list  $849,458   $865,672 
License   503,000    503,000 
Favorable lease   3,100    3,100 
Domains & Websites   49,448    49,690 
Non-compete agreements   181,538    184,563 
Assembled Workforce   50,750    50,750 
Intellectual Property   332,868    342,610 
Total   1,970,162    1,999,385 
Accumulated amortization   (506,945)   (318,815)
Net value  $1,463,217   $1,680,570 

 

   10
 

 

The Company estimates amortization to be recorded on existing intangible assets through the year ended September 30, 2030 to be:

 

   Amortization 
2019  $193,959 
2020   346,656 
2021   307,469 
2022   238,289 
2023   197,765 
2024   124,847 
2025   44,097 
2026   2,317 
2027   2,317 
2028   2,317 
2029   2,317 
2030   868 
Total  $1,463,217 

 

Note 6 – Concentration of Credit Risk

 

Instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits, notes receivable and accounts receivable. As of March 31, 2019, the Company did not hold cash at any financial institution in excess of the amount insured by the Federal Deposit Insurance Corporation (“FDIC”) of up to $250,000.

 

As of both March 31, 2019 and September 30, 2018, the Company had a note receivable totaling $1,300,000 due from a single entity.

 

Customer Concentrations

 

During the six months ended March 31, 2019, there was no customers that represented over 10% of the Company’s revenues. During the six months ended March 31, 2018, no customer represented over 10% of the Company’s revenues. As of March 31, 2019, there was one customer who represented 32% of accounts receivable. As of May 31, 2018, there were no customers who represented more than 10% of accounts receivable.

 

As of March 31, 2019, the Company had total accounts receivable net of allowances of $122,783. Three clients comprised a total of 36% of this balance as follows:

 

   Balance   Percent of Total 
Customer 1  $180,000    32%
Customer 2   29,063    5%
Customer 3   22,740    4%
All others   325,034    58%
Total   556,837    100%
Allowance for doubtful accounts   (434,054)     
Net accounts receivable  $122,783      

 

As of September 30, 2018, the Company had total accounts receivable, net of allowances, of $234,178. Three separate clients comprised a total of 36% of this balance as follows:

 

   Balance   Percent of Total 
Customer 1  $180,000    27%
Customer 2   34,268    5%
Customer 3   27,317    4%
All others   427,680    64%
Total   669,265    100%
Allowance for doubtful accounts   (417,610)     
Net accounts receivable  $251,655      

 

Note 7 – Property and Equipment

 

Property and equipment are carried at cost. Expenditures for maintenance and repairs are expensed in the period incurred. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

 

   11
 

 

Depreciation is computed for financial statement purposes on a straight-line basis over estimated useful lives of the related assets and the modified accelerated cost recovery system for federal income tax purposes. The estimated useful lives of depreciable assets are:

 

   Estimated
   Useful Lives
Building  39 years
Laboratory and Computer Equipment  5 years
Furniture and Fixtures  7 years
Software  3 years
Domains  15 years

 

The Company’s property and equipment consisted of the following as of March 31, 2019 and September 30, 2018:

 

   March 31, 2019   September 30, 2018 
Assets Not-In-Service  $-   $455,540 
Capital Assets   1,287,091    535,095 
Land   212,550    212,550 
Buildings & Real Estate   941,857    937,450 
Furniture and Equipment   187,602    189,459 
Laboratory Equipment   2,651,312    2,468,141 
Software   73,908    63,913 
Leasehold Improvements   582,695    303,331 
Vehicles   83,915    83,915 
Total   6,020,931    5,249,394 
Accumulated depreciation   (1,127,091)   (644,291)
Net value  $4,893,839   $4,605,103 

 

During the six months ended March 31, 2019, the Company capitalized a total of $738,141 of equipment and depreciation expense of $230,454.

 

Note 8 – Related Party Transactions

 

During the six months ended March 31, 2019, the Company received loans from its Chief Operating Officer totaling $15,000 and made repayments totaling $1,040 leaving a balance due as of March 31, 2019 of $13,960. The advances are non-interest bearing and due on demand. There was $13,960 and $0 due as of March 31, 2019 and September 30, 2018 and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.

 

During the six months ended March 31, 2019 the Company made payments to Sara Lausmann, associated with the asset purchase of Oregon Analytical Services, LLC, totaling $9,000. There was $571,299 and $580,299 of principal due as of March 31, 2019 and September 30, 2018, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $93,653 and $79,295 due as of March 31, 2019 and September 30, 2018, respectively.

 

During the six months ended March 31, 2019, the Company made $12,000 in payments to Anthony Smith, our Chief Science Officer, associated with the purchase of 80% of Smith Scientific Industries. There was $224,000 and $236,000 of principal due as of March 31, 2019 and September 30, 2018, respectively. The note carries interest at a rate of 5% per annum and had accrued interest totaling $36,696 and $30,960 due as of March 31, 2019 and September 30, 2018, respectively.

 

During the six months ended March 31, 2019, the Company made repayments to Henry Grimmett, prior Company Director (retired April 2018), on an outstanding loan from member assumed by the Company, totaling a note payable of Greenhaus Analytical Services, LLC, totaling $3,858.85. There was $113,554 and $117,412 of principal due as of March 31, 2019 and September 30, 2018, respectively. The note bears interest at 0% per annum and requires repayments of $25,000 quarterly.

 

During the six months ended March 31, 2019, the Company made no payments to Henry Grimmett, prior Company Director (retired April 2018), associated with the acquisition of Greenhaus Analytical Services, LLC. The Company entered into a $340,000 note payable as part of its acquisition of Greenhaus Analytical Services, LLC. The note carries interest at a rate of 6% per annum and matures on October 16, 2020. There was $340,000 of principal as of March 31, 2019 and September 30, 2018. Unamortized debt discount of $39,302 and $51,971 as of March 31, 2019 and September 30, 2018, respectively and $50,078 and $39,905 of accrued interest due as of March 31, 2019 and September 30, 2018, respectively.

 

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During the six months ended March 31, 2019, the Company received $119,937 from a related party associate with Keystone Labs and made repayment of $25,886, leaving balances due of $249,546 and $153,177 as of March 31, 2019 and September 30, 2018, respectively. Amounts have been adjusted for USD. The advances are non-interest bearing and due on demand and is included in the accompanying consolidated balance sheets as a current portion of notes payable to related parties.

 

Note 9 – STOCKHOLDERS’ EQUITY

 

Series A Convertible Preferred Stock

 

The Company has 0 shares of Series A Convertible Stock issued and outstanding as of March 31, 2019 and 2018.

 

Series B Convertible Preferred Stock

 

The Company designated 5,000,000 shares of Series B Convertible Preferred Stock (“Series B Preferred Stock”) with a par value of $0.0001 per share. The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of March 31, 2019 and 2018. These shares converted to common stock at a rate of 1 common share per each shares of Series B Convertible Preferred Stock.

 

Series C Convertible Preferred Stock

 

The Company designated 500,000 shares of Series C Convertible Preferred Stock (“Series C Preferred Stock”) with a par value of $0.0001 per share. There were 500,000 shares of Series C Convertible Stock issued and outstanding as of March 31, 2019 and 2018. These shares converted to common stock at a rate of 5 common shares per each shares of Series C Convertible Preferred Stock.

 

Series D Convertible Preferred Stock

 

The Company designated 1,000,000 shares of Series D Convertible Preferred Stock (“Series D Preferred Stock”) with a par value of $0.0001 per share. These shares converted to common stock at a rate of 2.5 common shares per each shares of Series D Convertible Preferred Stock.

 

During the six months ended March 31, 2019, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 507,500 shares of common stock being issued for the conversion of 203,000 shares of Series D Preferred Stock.

 

During the six months ended March 31, 2018, the Company received conversion notices from Series D Preferred Stockholders resulting in a total of 700,000 shares of common stock being issued for the conversion of 280,000 shares of Series D Preferred Stock.

 

There were 349,500 and 552,500 shares of Series D Convertible Stock issued and outstanding as March 31, 2019 and March 31, 2018, respectively.

 

Common Stock

 

During the six months ended March 31, 2019, the Company issued 350,000 common shares valued at $181,400 for services; 400,000 common shares for cash proceeds of $186,000; 1,015,000 common shares for stock subscription of $406,000, 87,500 common shares valued at $55,375 under its employee equity incentive plan; 779,808 common shares for the conversion of $317,100 of outstanding principal on convertible notes payable; 669,362 common shares for the conversion of $388,000 of convertible debentures; 10,163 common shares for conversion of interest payable of $2,988; 507,500 common shares for the conversion of Preferred Series D stock, and 20,000 common shares valued at $11,760 for debt issue costs. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.

 

During the six months ended March 31, 2018, the Company issued 207,750 common shares valued at $254,720 for services; 700,000 common shares for the conversion of 280,000 shares of Series D Preferred Stock; 1,270,000 common shares for cash proceeds of $508,000; 57,000 common shares valued at $75,755 under its employee equity incentive plan 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 $703,215 of outstanding principal on convertible notes payable; 74,412 for the conversion of $27,270 of convertible accrued 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 27,094,744 and 16,068,505 shares of common stock issued and outstanding at March 31, 2019 and March 31, 2018, respectively.

 

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Note 10 – LOANS PAYABLE

 

The Company had the following loans payable outstanding as of March 31, 2019 and September 30, 2018:

 

   March 31, 2019   September 30, 2018 
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.   53,476    60,477 
           
On September 6, 2017, the Company entered into a note payable totaling $1,000,000 for the purchase of an outstanding note receivable. The note carries interest at 8% annually and is due on July 6, 2018.   -    500,000 
           

On June 28, 2018, the Company executed a note payable for $650,000 for the purchase of the building at 14775 SW 74th Ave, Tigard, OR. The note carries interest at 8% annually and is due on June 28, 2021.

   634,617    646,231 
           
On July 5, 2018, the Company executed a note payable for $750,000 for the asset purchase of MRX Labs. The note carries interest at 8% annually and is due on January 5, 2019.   750,000    750,000 
    1,438,093    1,956,708 
Less: unamortized original issue discounts   -    (119,000)
Total loans payable   1,438,093    1,837,708 
Less: current portion of loans payable   786,729    643,627 
           
Long-term portion of loans payable  $651,364   $1,193,781 

 

As of March 31, 2019 and September 30, 2018, the Company accrued interest of $45,834 and $47,767 respectively

 

Note 11 – Convertible NOTES PAYABLE

 

The Company has entered into convertible notes payable that convert to common stock of the Company at variable conversion prices. As further discussed in Note 13 – Derivative Liability, the Company analyzed the conversion features of the agreements for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to a variable conversion rate. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

 

The following table summarizes all convertible notes outstanding as of March 31, 2019:

 

Holder  Issue Date  Due Date  Principal  

Unamortized

Debt Discount