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EVIO, INC. - Quarter Report: 2017 June (Form 10-Q)

sgby_10q.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 June 30, 2017

 

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

 

SIGNAL BAY, INC.

 (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 August 21, 2017

Common stock, par value $0.0001 per share 

 

1,034,329,319

 

 
 

SIGNAL BAY, INC.

FORM 10-Q

June 30, 2017

 

TABLE OF CONTENTS

 

PART I -- FINANCIAL INFORMATION

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

3

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

Item 4.

Control and Procedures

 

32

 

PART II -- OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

33

 

Item 1A.

Risk Factors

 

33

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

Item 3.

Defaults Upon Senior Securities

 

33

 

Item 4.

Mine Safety Disclosures

 

33

 

Item 5.

Other Information

 

33

 

Item 6.

Exhibits

 

34

 

 
2
 
Table of Contents

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1 –FINANCIAL STATEMENTS

 

SIGNAL BAY, INC.

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

June 30,

2017

 

 

September 30,

2016

 

 (unaudited)

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$ 149,983

 

 

$ 57,486

 

Accounts receivable

 

 

145,893

 

 

 

9,483

 

Prepaid expenses

 

 

170,442

 

 

 

-

 

Other current asset

 

 

-

 

 

 

40,000

 

Note receivable

 

 

-

 

 

 

25,000

 

Total current assets

 

 

466,318

 

 

 

131,969

 

 

 

 

 

 

 

 

 

 

Fixed assets, net of accumulated depreciation of $179,366 and $68,610, respectively

 

 

434,893

 

 

 

205,842

 

Security deposits

 

 

80,267

 

 

 

6,476

 

Intangible assets, net of accumulated amortization, net of accumulated amortization of $138,509 and $49,319

 

 

574,392

 

 

 

426,301

 

Goodwill

 

 

2,415,057

 

 

 

1,415,408

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 3,970,927

 

 

$ 2,185,996

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 571,233

 

 

$ 223,316

 

Client deposits

 

 

77,627

 

 

 

22,500

 

Interest payable

 

 

91,014

 

 

 

27,197

 

Capital lease obligation, current

 

 

36,016

 

 

 

-

 

Derivative liability

 

 

263,143

 

 

 

775,246

 

Convertible notes payable, net of discounts of $226,852 and $121,496, respectively

 

 

324,799

 

 

 

257,605

 

Loan payable, current

 

 

34,113

 

 

 

77,375

 

Loans payable, related party, current

 

 

226,191

 

 

 

433,007

 

Total current liabilities

 

 

1,624,136

 

 

 

1,816,246

 

 

 

 

 

 

 

 

 

 

Capital lease obligation, net of current portion

 

 

58,952

 

 

 

-

 

Loans payable, net of current portion

 

 

62,031

 

 

 

-

 

Loans payable, related party, net of current portion

 

 

1,387,412

 

 

 

776,751

 

Total liabilities

 

 

3,132,531

 

 

 

2,592,997

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

184

 

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

 

 

500

 

 

 

500

 

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

 

 

50

 

 

 

50

 

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

 

 

83

 

 

 

5

 

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

 

 

99,970

 

 

 

85,006

 

Additional Paid In Capital

 

 

6,438,306

 

 

 

3,351,452

 

Accumulated Deficit

 

 

(5,883,329 )

 

 

(4,032,177 )

Total stockholders' equity (deficit)

 

 

655,580

 

 

 

(594,980 )

Non-controlling interest

 

 

182,816

 

 

 

187,979

 

Total equity (deficit)

 

 

838,396

 

 

 

(407,001 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity (deficit)

 

$ 3,970,927

 

 

$ 2,185,996

 

 

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

 

 
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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

 

 

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

 

 
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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

 

 

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

 

 
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SIGNAL BAY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

 

NOTE 1 – NATURE OF ACTIVITIES AND CONTINUANCE OF BUSINESS

 

Signal Bay, Inc., a Colorado corporation and its subsidiaries provide advisory, management and analytical testing 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 Company completed a reverse merger with Signal Bay Research, Inc., a Nevada Corporation, and assumed its operations. In September 2014, the Company changed its name from Quantech Electronics Corp. to Signal Bay, Inc. 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.

 

As a part of and prior to the consummation of the reverse merger, William Waldrop and Lori Glauser, principals of Signal Bay Research, Inc., purchased 80% of the issued and outstanding common stock from WB Partners. The merger between the Company and Signal Bay Research was finalized and closed contemporaneously with the share purchase. As part of this share purchase, Mr. Waldrop and Ms. Glauser became the officers and directors of the Company. Immediately after the reverse, WB Partners owned less than 5% of the common stock. The company filed a Form 10-12G on November 25, 2014, and was determined to be a shell company by the SEC as per the Form 10-12G/A which went effective on January 24, 2015. On January 29, 2015, the company filed an 8-K stating it entered into a material agreement and was no longer a shell company.

 

After the reverse merger, Signal Bay Research, Inc. continues to operate as a wholly owned subsidiary providing compliance, research and advisory services for Signal Bay, Inc.

 

Signal Bay Services was formed on January 25, 2015, as the management services division of Signal Bay.

 

On September 17, 2015, Signal Bay entered into a share exchange agreement with CR Labs, Inc., an Oregon Corporation, pursuant to which the Company acquired 80% of the outstanding common stock of CR Labs, Inc.

 

EVIO Inc. was formed on April 4, 2016 to become the holding company for all laboratory operations. 

 

EVIO Labs Eugene was formed on May 23, 2016, as a wholly owned subsidiary of EVIO Inc. Subsequently on May 24, 2016, EVIO Labs Eugene acquired all of the assets of Oregon Analytical Services, LLC, inclusive of client lists, equipment, trade names and personnel.

 

On June 1, 2016, EVIO Inc. entered into a share purchase agreement to purchase 80% of the outstanding common stock of Smith Scientific Industries, Inc. d/b/a Kenevir Research in Medford, OR. 

 

On October 19, 2016, the Company entered into a Membership Interest Purchase Agreement to purchase 100% of the ownership of GreenHaus Analytical Labs, LLC.

 

On October 26, 2016, the Company entered in to an Asset Purchase Agreement with Green Style Consulting, LLC which was closed on November 1, 2016.

 

 
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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:

 

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

 

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. 

 

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.’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.’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.

 

 
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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:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$ -

 

 

$ -

 

 

$ 263,143

 

 

$ 263,143

 

 

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:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$ -

 

 

$ -

 

 

$ 775,246

 

 

$ 775,246

 

 

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 January 1, 2018.

 

Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.

 

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 1,006,868,224 and 1,433,085,575 potentially dilutive common shares outstanding as of June 30, 2017 and 2016. Because of the net losses incurred during the three and nine months ended June 30, 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.

 

 
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NOTE 3 – ACQUISITIONS

 

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.

 

The Company applied the acquisition method to the business combination and valued each of the assets acquired (cash, accounts 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 the acquisition date. The cash, accounts receivable and accounts payable were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical 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 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 shows the estimated fair 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.

 

 
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The Company applied the acquisition method to the business combination and valued each of the assets acquired (customer lists and property, plant and equipment) at fair value as of the acquisition date. The property, plant and equipment were deemed to be recorded at fair value as of the acquisition date. The Company determined the fair value of property, plant and equipment to be historical 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 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, the Company is providing the following unaudited pro-forma to present a summary of the combined results of the Company’s consolidated operations with all acquisitions. as if the acquisitions had been completed as of the beginning of the reporting period. Adjustments were made to eliminate any inter-company transactions in the periods presented.

 

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 )

 

 
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Future Amortization

 

The future amortization associated with the intangible assets acquired in the above mentioned and prior acquisitions is as follows:

 

For the years ended September 30,

 

Amortization

 

2017

 

$ 33,908

 

2018

 

 

135,630

 

2019

 

 

135,630

 

2020

 

 

135,630

 

2021

 

 

93,455

 

Thereafter

 

 

3,955

 

Total

 

$ 538,208

 

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

Through September 30, 2016, the Company received loans from its Chief Operating Officer totaling $96,000. Through September 30, 2016, the Company made repayments totaling $4,295. There were repayments totaling $7,500 made during the nine months ended June 30, 2017. There was $84,205 and $91,705 due as of June 30, 2017 and September 30, 2016, 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 nine months ended June 30, 2017 and 2016, the Company incurred total expenses of $7,858 and $14,000 and $35,530 and $48,006 for management advisory 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, 2017 or September 30, 2016.

 

During the nine months ended June 30, 2017, the Company received loans from its Chief Executive Officer totaling $80,100 and made repayments totaling $75,650. The loans are non-interest bearing and due on demand. There was $4,450 due as of June 30, 2017.

 

During the nine months ended June 30, 2017 the Company made repayments to Eric Ezrine, a shareholder of CR Labs, on an outstanding note payable totaling $10,708. The loans carry an interest rate of 0% per annum. There was $2,560 and $13,269 due as of June 30, 2017 and September 30, 2016, respectively. 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 during the nine months ended June 30, 2017. There was $26,450 and $44,500 accrued as of June 30, 2017 and September 30, 2016.

 

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. During the nine months ended June 30, 2017, the Company repaid $36,808 to Sara Lausmann, Vice President Client Services. The total amount owed is $700,776 and $737,584 as of June 30, 2017 and September 30, 2016, respectively. As of June 30, 2017 and September 30, 2016, $100,776 and $137,584 and $600,000 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 and $13,521 due as of June 30, 2017 and September 30, 2016, respectively.

 

On June 1, 2016, the company 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 months ended June 30, 2017, the Company repaid $50,000 to Anthony Smith, our Chief Science Officer. The note carries interest at a rate of 5% per annum. There was $261,000 and $311,000 of principal due as of June 30, 2017 and September 30, 2016 and $15,556 and $5,155 of accrued interest due as of June 30, 2017 and September 30, 2016, 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 months ended June 30, 2017, the Company made repayments totaling $24,100. There was a total of $169,412 due as of June 30, 2017 of which $100,000 is current and $69,412 is long term.

 

On October 19, 2016, 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 and $14,364 of accrued interest due as of June 30, 2017.

 

On November 1, 2016, the Company entered into a $50,000 note payable to Green Style Consulting, LLC as part of the asset purchase agreement. 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 nine months ended June 30, 2017, the Company made repayments of $8,000. There was $42,000 of principal and $1,532 of accrued interest due as of June 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 nine months ended June 30, 2017, the Company made repayments totaling $7,000. There was $9,200 and $16,200 due as of June 30, 2017 and September 30, 2016, respectively.

 

 
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NOTE 5 – 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.

 

Conversion at the Option of the Holder. From 12 months from the date of issuance, each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert (an “Optional Conversion”) each of its shares of Series A Preferred Stock into fully paid and nonassessable shares of Common Stock at a rate equal to 4.9% of the Common Stock.

 

For a period of 18 months after the Preferred is convertible, the conversion price of the Series A Preferred will be subject to adjustment to prevent dilution in the event that the Company issues additional shares at a purchase price less than the applicable conversion price. The conversion price will be subject to adjustment on a weighted basis that takes into account issuances of additional shares. At the expiration of the antidilution period, the conversion rate in Section VI (A) above shall be equal to a conversion rate equal to 4.9% on the Common Stock. For example, if on the date of expiration of the antidilution clause there are 500,000,000 shares of Common Stock issued and outstanding then each Series A Preferred Stock shall convert at a rate of 13.24 common shares for each 1 Series Preferred Share.

 

The company has evaluated the Series A Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.

 

The company has evaluated the Series A Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.

 

All 1,840,000 outstanding Series A Convertible Stock was converted into 43,875,285 of common shares during the nine months ended June 30, 2017.

 

The Company has 0 and 1,840,000 shares of Series A Convertible Stock issued and outstanding as June 30, 2017 and September 30, 2016, respectively.

 

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. 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 of 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.

 

 
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In the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward or reverse split.

 

The company has evaluated the Series B Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.

 

The company has evaluated the Series B Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.

 

The Company has 5,000,000 shares of Series B Convertible Stock issued and outstanding as of June 30, 2017 and September 30, 2016.

 

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) 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 of fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 10,000 shares of Common Stock.

 

In the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward or reverse split.

 

The company has evaluated the Series C Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.

 

The company has evaluated the Series C Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.

 

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, 2017 and September 30, 2016.

 

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.

 

 
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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 of fully paid and nonassessable shares of Common Stock; provided, however, that any Optional Conversion must involve the issuance of at least 50,000 shares of Common Stock.

 

In the event of a forward or reverse split, the conversion ratio shall be modified on a pro rata basis to align with the forward or reverse split.

 

The company has evaluated the Series D Preferred Stock in accordance with ASC 815 and has determined their conversion options were for equity and ASC 815 does not apply.

 

The company has evaluated the Series D Preferred Stock in accordance with FASB ASC Subtopic 470-20, and has determined that there is no beneficial conversion feature that must be accounted.

 

During the year ended September 30, 2016, the Company issued 48,000 shares of Series D Preferred Stock for cash proceeds of $48,000. During the nine months ended June 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 the acquisitions as discussed in Note 3.

 

There were 832,500 and 48,000 shares of Series D Convertible Stock issued and outstanding as of June 30, 2017 and September 30, 2016, respectively.

 

Common Stock

 

During the year ended September 30, 2016, the Company issued 6,087,500 common shares valued at $46,473 under its employee equity incentive plan; 401,032,581 common shares for the conversion of $207,367 of outstanding principal on convertible notes payable; 1,468,582 common shares for the conversion of $4,135 of convertible accrued interest and 42,827,010 common shares for services valued at $138,447. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.

 

During the nine months ended June 30, 2017, the Company issued 18,294,900 common shares valued at $307,251 for services; 43,875,285 common shares for the conversion of 1,840,000 shares of Series A Preferred Stock; 7,000,000 common shares for cash proceeds of $70,000; 4,931,250 common shares valued at $133,941 under its employee equity incentive plan; 71,985,755 common shares for the conversion of $530,750 of outstanding principal on convertible notes payable and 3,552,909 for the conversion of $23,227 of convertible accrued interest. All conversions of outstanding principal and accrued interest on convertible notes payable were done so at contractual terms.

 

There were 999,304,367 and 850,064,268 shares of common stock issued and outstanding at June 30, 2017 and September 30, 2016, respectively.

 

 
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NOTE 6 – LOANS PAYABLE

 

The Company had the following loans payable outstanding as of June 30, 2017 and September 30, 2016:

 

 

 

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

 

 

 

 

 

 

 

 

 

 

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

 

 

 

-

 

 

 

 

96,144

 

 

 

77,375

 

Less: current portion of loans payable

 

 

34,113

 

 

 

77,375

 

 

 

 

 

 

 

 

 

 

Long-term portion of loans payable

 

$ 62,031

 

 

$ -

 

 

As of June 30, 2017, and September 30, 2016, the Company accrued interest of $2,944 and $638, respectively.

 

NOTE 7 – CONVERTIBLE DEBT

 

The following table summarizes all convertible notes outstanding as of September 30, 2016:

 

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

 

 

The following table summarizes all convertible notes outstanding as of June 30, 2017:

 

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.

 

 
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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.

 

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. 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% 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 of principal and $685 and $0 of accrued interest due at June 30, 2017 September 30, 2016, respectively.

 

Noteholder 2

 

On May 23, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $45,000 resulting in cash proceeds to the Company of $45,000 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. 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% of the lowest trade price of the Company's common stock for the ten 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 nine months ended June 30, 2017, the noteholder elected to convert all outstanding principal and interest due in exchange for a total of 3,334,387 common shares. There was $0 and $45,000 of principal and $0 and $1,282 of accrued interest due at June 30, 2017 and September 30, 2016, respectively.

 

 
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Noteholder 3

 

On March 21, 2016, the Company sold and issued a Convertible Promissory Note to an unrelated party, for the principal amount of $27,500 of which $2,500 was an original issue discount 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 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, 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% 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 of principal and $685 and $0 of accrued interest due at June 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.

 

 
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NOTE 8 – DERIVATIVE LIABILITY

 

As of June 30, 2017, and September 30, 2016 the Company had a $263,143 and $775,246 derivative liability balance on the balance sheets and recorded a gain from derivative liability fair value adjustments of $156,892 and loss of $203,696 during the three months ended June 30, 2017 and 2016, respectively and losses of $34,386 and $238,038 during the nine months ended June 30, 2017. 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.

 

 
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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. 

 

 
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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.

 

 
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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, 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 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 being recognized as a loss on derivative fair value measurement.

 

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 $107,669 and recorded a $52,198 gain from change in fair value of derivative liabilities 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 118%, (3) risk-free interest rate of 1.14%, (4) expected life of 0..67 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 $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, 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 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 being recognized as a loss on derivative fair value measurement.

 

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 $107,669 and recorded a $52,198 gain from change in fair value of derivative liabilities 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 118%, (3) risk-free interest rate of 1.14%, (4) expected life of 0.67 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 $50,000 Convertible Promissory Notes to an unrelated party that matures on August 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 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 upon the note becoming convertible on February 23, 2017 was $40,037 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $40,037 which was up to the face value of the convertible note.

 

 
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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 $16,319 loss from change in fair value and write off of derivatives of $56,356 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 70%, (3) risk-free interest rate of .82%, (4) expected life of 0.33 of a year, and (5) estimated fair value of the Company’s common stock of $0.0212 per share. 

 

The following table summarizes the derivative liabilities included in the balance sheet at September 30, 2016:

 

Fair Value of Embedded Derivative Liabilities:

 

 

 

Balance, September 30, 2015

 

$ 200,460

 

Initial measurement of derivative liabilities

 

 

634,862

 

Change in fair market value

 

 

1,014,678

 

Write off due to conversion

 

 

(1,074,754 )

Balance, September 30, 2016

 

$ 775,246

 

 

The following table summarizes the derivative liabilities included in the balance sheet at June 30, 2017:

 

Fair Value of Embedded Derivative Liabilities:

 

 

 

Balance, September 30, 2016

 

$ 775,246

 

Initial measurement of derivative liabilities

 

 

1,063,577

 

Change in fair market value

 

 

(387,554 )

Write off due to conversion

 

 

(1,188,126 )

Balance, June 30, 2017

 

$ 263,143

 

 

The following table summarizes the loss on derivative liability included in the income statement for the nine months ended June 30, 2017 and 2016, respectively.

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Day one loss due to derivatives on convertible debt

 

$ 421,940

 

 

$ 170,637

 

Change in fair value of derivatives

 

 

(387,554 )

 

 

67,401

 

Total derivative expense (gain)

 

$ 34,386

 

 

$ 238,038

 

 

NOTE 9 – 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.

 

Advisory

 

The Company provides advisory, licensing and compliance services to the cannabis industry under its brand Signal Bay Research. Advisory clients are located in states that have state regulated medical and/or recreational programs. Signal Bay Research assists these companies with license applications, business planning, state compliance and ongoing operational support.

 

 
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Testing Services

 

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.

 

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

 

 

NOTE 10 – STOCK OPTIONS AND WARRANTS

 

The following table summarizes all stock option and warrant activity for the nine months ended June 30, 2017:

 

 

 

Shares

 

 

Weighted-

Average

Exercise Price

Per Share

 

Outstanding, September 30, 2016

 

 

31,500,000

 

 

$ 0.004

 

Granted

 

 

4,000,000

 

 

 

0.013

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

(1,000,000 )

 

 

0.004

 

Expired

 

 

-

 

 

 

-

 

Outstanding, June 30, 2017

 

 

34,500,000

 

 

$ 0.005

 

 

 
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The following table discloses information regarding outstanding and exercisable options and warrants at June 30, 2017:

 

 

 

 

Outstanding

 

 

Exercisable

 

Exercise Prices

 

 

Number of Option Shares

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining Life (Years)

 

 

Number of Option Shares

 

 

Weighted Average

Exercise Price

 

$

0.004

 

 

 

30,500,000

 

 

$ 0.004

 

 

 

4.13

 

 

 

7,625,000

 

 

$ 0.004

 

$

0.013

 

 

 

4,000,000

 

 

 

0.013

 

 

 

4.31

 

 

 

-

 

 

 

0.013

 

Total

 

 

 

34,500,000

 

 

$ 0.005

 

 

 

4.15

 

 

 

7,625,000

 

 

$ 0.004

 

 

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:

 

 

June 30,
2017

 

Expected term of options granted

 

5 years

 

Expected volatility

 

409 - 425

%

Risk-free interest rate

 

1.14 – 1.24

%

Expected dividend yield

 

0

%

 

The Company recognized stock option expense of $63,917 and $0 during the nine months ended June 30, 2017 and 2016 and $14,133 and $0 during the three months ended June 30, 2017 and 2016, respectively. There was $106,208 of unrecognized stock based compensation expense as of June 30, 2017.

 

NOTE 11 – SUBSEQUENT EVENTS

 

Long Term Lease Agreement

 

On July 18, 2017, the Company entered into a lease for office and lab space in Costa Mesa, California. The lease is effective August 1, 2017 and terminates on July 31, 2022 and requires monthly rental payments of $6,743 from August 2017 to January 2018 then monthly rental payments of $11,841 from February 2018 to July 2022.

 

Convertible Notes Payable

 

On July 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 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 July 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 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.

  

 
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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.

 

 
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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.

 

Business of Registrant

 

Signal Bay, Inc., a Colorado corporation and its subsidiaries (“Signal Bay”, the “Company”, the "Registrant", “we”, “our”, or “us”) provide advisory, management and analytical testing services to the emerging legalized cannabis industry. Our three business units are described below:

 

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 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. 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.

 

Signal Bay Research provides industry research, business 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 licensed cannabis businesses. Signal Bay Services was engaged in a Management Services Agreement with Libra Wellness Center, LLC, a licensed cannabis production and processing establishment, to operate their marijuana processing facility in North Las Vegas, Nevada.

 

 
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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

 

Nine Months Ended June 30, 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 %

 

 
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Revenues for the nine months ended June 30, 2017 were $2,278,397 compared to $391,978 for the nine months ended June 30, 2016. The increase in revenues during the nine months ended June 30, 2017 is the result of 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.

 

Cost of revenues for the nine months ended June 30, 2017 were $1,858,343 compared to $415,483 for the nine months ended June 30, 2016. The increase in the cost of revenues during the nine months ended June 30, 2017 is the result of the increased direct costs associated with providing testing services, increased costs of revenue associated with performing additional testing services and hiring additional consultants to support the increased advisory services. Gross profit for the nine months ended June 30, 2017 was $420,054 compared to a gross loss of $23,505 during the nine 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.

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Selling, general and administrative

 

$ 1,478,007

 

 

$ 326,601

 

 

$ 1,151,406

 

 

 

65 %

 

 

83 %

Depreciation and amortization

 

 

114,793

 

 

 

56,732

 

 

 

58,061

 

 

 

5 %

 

 

14 %

 

 

$ 1,592,800

 

 

$ 383,333

 

 

$ 1,209,467

 

 

 

70 %

 

 

98 %

 

Total operating expenses during the nine months ended June 30, 2017 were $1,592,800 compared to $383,333 during the nine months ended June 30, 2016. The Company experienced an increase of $1,209,467 or 316% in selling, general and administrative expenses during the nine months ended June 30, 2017 compared to the nine months ended June 30, 2016 due to increased business size due to acquisitions and organic growth that has occurred during the period of April 1, 2016 to October 1, 2016. There was an increase of $58,061 in depreciation and amortization which was driven by the amortization of intangible assets associated with the acquisitions completed during the period from April 1, 2016 to December 31, 2016.

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Interest expense

 

$ (649,288 )

 

$ (185,372 )

 

$ (463,916 )

 

 

-28 %

 

 

-47 %

Other income

 

 

105

 

 

 

-

 

 

 

105

 

 

 

0 %

 

 

0 %

Loss on disposal of asset

 

 

-

 

 

 

(720 )

 

 

720

 

 

 

0 %

 

 

0 %

Loss on change in fair market value of derivative liabilities

 

 

(34,386 )

 

 

(238,038 )

 

 

203,652

 

 

 

-2 %

 

 

-61 %

 

 

$ (683,569 )

 

$ (424,130 )

 

$ (259,439 )

 

 

-30 %

 

 

-108 %

 

Total other income (expense) was a net expense of $683,569 during the nine months ended June 30, 2017 compared to a net expense of $424,130 during the nine months ended June 30, 2016. The increase in net expense of $259,544 is from the increase in interest expense from the recognition of debt discounts associated with convertible notes payable offset by decreased losses recognized from the change in the fair market value of derivative liabilities.

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Net loss

 

$ (1,856,315 )

 

$ (830,968 )

 

$ (1,025,347 )

 

 

-81 %

 

 

-212 %

 

 Net loss during the nine months ended June 30, 2017 was $1,856,315 compared to $830,968 during the nine months ended June 30, 2017. The increase in net loss is directed from the increase in other expenses partially offset by an increase in revenues as described above.

 

Three Months Ended June 30, 2017 and 2016

 

Revenues and Costs of Revenues

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Testing services

 

$ 767,873

 

 

$ 83,709

 

 

$ 684,164

 

 

 

99 %

 

 

72 %

Consulting services

 

 

9,345

 

 

 

32,939

 

 

 

(23,594 )

 

 

1 %

 

 

28 %

Total revenue

 

$ 777,218

 

 

$ 116,648

 

 

$ 660,570

 

 

 

100 %

 

 

100 %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Testing services

 

$ 592,273

 

 

$ 101,392

 

 

 

490,881

 

 

 

76 %

 

 

87 %

Consulting services

 

 

33,373

 

 

 

22,533

 

 

 

10,840

 

 

 

4 %

 

 

19 %

Depreciation and amortization

 

 

28,618

 

 

 

7,659

 

 

 

20,959

 

 

 

4 %

 

 

7 %

Total cost of revenue

 

 

654,264

 

 

 

131,584

 

 

 

522,680

 

 

 

84 %

 

 

113 %

 

 
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Revenues for the three months ended June 30, 2017 were $777,218 compared to $116,648 for the three months ended June 30, 2016. The increase in revenues during the three months ended June 30, 2017 is the result of increased testing services resulting from acquisitions completed after the three months ended March 31, 2016, partially offset by decreased advisory services performed in the current period as compared to the prior period.

 

Cost of revenues for the three months ended June 30, 2017 were $654,264 compared to $131,584 for the three months ended June 30, 2016. The increase in the cost of revenues during the three months ended June 30, 2017 is the result of the increased direct costs associated with providing testing services and increased costs of revenue associated with performing additional testing. Gross profit for the three months ended June 30, 2017 was $122,954 compared to a gross loss of $14,936 during the three 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.

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Selling, general and administrative

 

$ 582,113

 

 

$ 118,513

 

 

$ 463,600

 

 

 

75 %

 

 

102 %

Depreciation and amortization

 

 

40,413

 

 

 

39,322

 

 

 

1,091

 

 

 

5 %

 

 

34 %

 

 

$ 622,526

 

 

$ 157,835

 

 

$ 464,691

 

 

 

80 %

 

 

136 %

 

Total operating expenses during the three months ended June 30, 2017 were $622,526 compared to $157,835 during the three months ended June 30, 2016. The Company experienced an increase of $464,691 or 2894% in selling, general and administrative expenses during the three months ended June 30, 2017 compared to the three months ended June 30, 2016 due to increased business size due to acquisitions and organic growth that has occurred during the period of April 1, 2016 to October 1, 2016. There was an increase of $1,091 in depreciation and amortization which was driven by the amortization of intangible assets associated with the acquisitions completed during the period from April 1, 2016 to December 31, 2016.

 

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 %

 

Total other income (expense) was a net expense of $70,882 during the three months ended June 30, 2017 compared to a net expense of $248,093 during the three months ended June 30, 2016. The decrease in net expense of $177,211 is from the decrease in the loss on fair market value of derivatives of $360,588 partially offset increases in interest expense from the recognition of debt discounts associated with convertible notes payable.

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

Net loss

 

$ (570,454 )

 

$ (420,864 )

 

$ (149,590 )

 

 

-73 %

 

 

-361 %

 

Net loss during the three months ended June 30, 2017 was $570,454 compared to $420,864 during the three months ended June 30, 2016. The increase in net loss is directed from the increase in other expenses partially offset by an increase in revenues as described above.

 

 
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Liquidity and Capital Resources

 

The Company had cash on hand of $149,983 as of June 30, 2017, current assets of $466,318 and current liabilities of $1,624,136 creating a working capital deficit of $1,157,818. Current assets consisted of cash totaling $149,983, accounts receivable of $145,893 and prepaid expenses totaling $170,442. Current liabilities consisted of accounts payable and accrued liabilities of $571,233, client deposits of $77,627, current portions of capital lease obligations of $36,016, convertible notes payable net of discounts of $324,799, interest payable of $91,014, derivative liabilities of $263,143, current portions of notes payable of $34,113 and current portions of related party payables of $226,191.

 

The Company used $429,132 of cash in operating activities which consisted of a net loss of $1,856,315 non-cash losses of $1,134,617 and changes in working capital of $292,566.

 

Net cash used in investing activities total $55,656 during the nine months ended June 30, 2017. The Company paid net cash of $6,930 in asset purchases and acquisitions and paid $48,726 for the purchase of equipment.

 

During the nine months ended June 30, 2017, the Company generated cash of $577,285 from financing activities. The Company received $114,500 of cash from the sale of series D preferred stock, $640,000 in cash from convertible notes payable, repayments of notes payable of $56,396, repayments of capital leases of $10,152, proceeds from the sale of common stock of $70,000 and net repayments on related party notes payable of $180,667.

 

Dividends

 

The Company declared $0 of dividends during the nine months ended June 30, 2017 and 2016.

 

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:

 

Signal Bay recognizes revenue from the sale of services in accordance with ASC 605. Revenue will be recognized only when all of the following criteria have been met:

 

 

* Persuasive evidence of an arrangement exists;

 

* Delivery has occurred or services have been rendered.

 

* The price is fixed or determinable; and

 

* Collectability is reasonably assured.

 

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 Bay 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.

 

 
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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.

 

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 - $60,000 to pay for our accounting and audit requirements.

 

Off-balance sheet arrangements

 

We have no 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 websites can be found at www.signalbay.com and www.eviolabs.com.

 

 
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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:

 

 

1.

No independent directors;

 

2.

No segregation of duties;

 

3.

No audit committee; and

 

4.

Ineffective controls over financial reporting.

 

As of June 30, 2017, the Company has not taken any remediation actions to address these weaknesses 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.

 

This 10-Q 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.

 

Management’s Report on Internal Control Over Financial Reporting

 

Changes in Internal Control Over Financial Reporting

 

We need to 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.

 

 
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PART II -- OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

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.

 

ITEM 5. OTHER INFORMATION

 

There was no other information during the quarter ended June 30, 2017, which was not previously disclosed in our filings during that period.

 

 
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ITEM 6. EXHIBITS

 

31.1

 

Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2

 

Certifications pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1

 

Certifications pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2

 

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

 

 
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SIGNATURES

 

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.

 

 

SIGNAL BAY, INC.

 

By:

/s/ William Waldrop

 

William Waldrop

 

Chief Executive Officer

 

 

By:

/s/ Christian Carnell

 

Christian Carnell

 

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.

 

 

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

 

 

35