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





Overview

We operate as a Colorado corporation and through our subsidiaries which provide analytical testing and advisory services to the emerging legalized cannabis industry.

Our active subsidiaries as of June 30, 2020, are as follows:





                                               State of
 Trade Name (dba)        Company Name        Incorporation     Ownership %       Acquisition Month
                     Smith Scientific
EVIO Labs Medford    Industries, LLC        Oregon                       80 %      June 2016
                     Greenhaus Analytical
EVIO Labs Portland   Labs                   Oregon                      100 %      October 2016
EVIO Labs MA         Viridis Analytics      Massachusetts               100 %      August 2017
EVIO Labs Berkeley   C3 Labs, LLC           California                   90 %      January 2018
Keystone Labs        Keystone Labs, Inc.    Ontario, Canada              50 %      May 2018

In addition to the wholly-owned subsidiaries, the Company has entered into license agreements with independent testing laboratories in Florida and Colorado. Under the terms of the agreements, the independent laboratories are granted non-transferable and non-exclusive rights to use the Company's trademarks and trade name.





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.





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The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

In the coming year, the Company's foreseeable cash requirements will relate to the continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

Historically, it has mostly relied upon private offerings and 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.

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.





                             RESULTS OF OPERATIONS

Three Months Ended June 30, 2020, compared to Three Months Ended June 30, 2019





COVID-19

On March 11, 2020, the World Health Organization ("WHO") declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.

COVID-19 and the US's response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.





Revenues

For the three months ended June 30, 2020, we generated revenues of $603,192 compared to $1,098,310 for the three months ended June 30, 2019, an increase of $(495,118) or approximately -45%. The decrease was due primarily to decreased testing sales in Oregon and California.





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Gross Profit

For the three months ended June 30, 2020, the gross loss was $(140,075) compared to a gross loss of $(11,753) for the three months ended June 30, 2019 resulting in an increase in losses of $128,322. The increase in losses was primarily attributed to decreased sales in Oregon and decreased operating costs across all labs.





Operating Expenses

For the three months ended June 30, 2020, total operating expenses were $165,780 compared to $1,566,830 for the three months ended June 30, 2019, a decrease of $1,401,050. The decrease is primarily attributed to a decrease in sales, general and administrative expenses.





Other (Expense)

For the three months ended June 30, 2020, other expense, net was $1,095,507, compared to other income, net of $210,783 for the three months ended June 30, 2019. The decrease in other income, net of $1,306,290 was primarily attributable to a decrease in the change in the fair market value of derivative liabilities of $756,638 and an increase in interest expense of $368,396 due to an increase in convertible debt.





Net Loss

Net loss during the three months ended June 30, 2020, was $1,401,362, compared to a net loss of $1,370,535 during the three months ended June 30, 2019. The increase of $30,827 in net loss is the result of a decrease in gross margin and a increase in other expenses, net.

Liquidity and Capital Resources

During the nine months ended June 30, 2020, the Company used $757,777 in cash from operating activities compared to cash used in operating activities of $2,356,864 for the six months ended June 30, 2019. The improvement of $1,599,087 is primarily attributable to a reduction in operating losses as compared to 2019.

During the nine months ended June 30, 2020, the Company used $39,206 in investing activities compared to $92,548 used in investing activities during the same period ended June 30, 2019. The reduction of $53,342 is attributable to a decrease in the purchase of fixed assets

During the nine months ended June 30, 2020, net cash from financing activities was $734,823 compared to $2,423,814 during the same nine month period ended June 30, 2019. The decrease in the 2019 period is primarily attributable a decrease in proceeds from the issuance of common stock, convertible debentures, and convertible notes, while the company increased its repayments of capital leases and loans.





Dividends

The Company has never declared dividends.

Critical Accounting Policies and Estimates.

Our Critical Accounting Policies can be found in Note 1. ORGANIZATION, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES to our consolidated financial statements.





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Our Website.

Our website can be found at www.eviolabs.com.

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