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 December 31, 2019, 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 December 31, 2019, compared to Three Months Ended December 31, 2018





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 December 31, 2019, we generated revenues of $1,332,956 compared to $1,187,238 for the three months ended December 30, 2018, an increase of $145,758 or approximately 12.3%. The increase was due primarily to increased testing sales in Oregon, partially offset by decreased testing revenue in California. California revenues decreased due to increased regulatory requirements which necessitated changes in instrumentation and associated methods for pesticide testing.





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Gross Profit

For the three months ended December 31, 2019, the gross profit margin was $130,642 compared to a gross loss of $(117,190) for the three months ended December 2018 an increase of $247,832. The increase was primarily attributed to increased revenue and decreased operating costs in Oregon and Massachusetts.





Operating Expenses

For the three months ended December 31, 2019, total operating expenses were $1,296,153 compared to $1,555,506 for the three months ended December 31, 2018, a decrease of $259,353. The decrease is primarily attributable to consolidated operations in Oregon, and lower operating expenses in Massachusetts.





Other (Expense)

For the three months ended December 30, 2019, other expense, net was $1,138,817, compared to other expense, net of $976,345 for the three months ended December 31, 2018. The increase in other income, net of $162,472, was primarily attributable to a decrease of interest expense of $202,007, offset by a reduction in the gain on the change in the fair market value of derivative liabilities of $432,595.





Net Loss

Net loss during the three months ended December 31, 2019, was $1,684,109, compared to a net loss of $2,596,659 during the three months ended December 31, 2018. The reduction of $912,550 in net loss is the result of an increase in gross margin, a reduction in operating expenses, and a reduction in other expenses, net.

Liquidity and Capital Resources

During the three months ended December 2019, the Company provided $121,657 in cash from operating activities compared to cash used in operating activities of $(247,720) for the three months ended December 31, 2018. The improvement of $369,377 is primarily attributable to a reduction in operating losses in 2019.

During the three months ended December 31, 2019, the Company used $33,124 in investing activities compared to $554,731 used in investing activities during the same period ended December 31, 2018. The reduction of $521,607 is attributable to a decrease in the purchase of fixed assets

During the three months ended December 31, 2019, net cash from financing activities was $111,804 compared to $933,876 during the same three month period ended December 31, 2018. The decrease in the 2019 period is primarily attributable a decrease in proceeds from the sale convertible notes of $910,413 and the sale of common stock of $103,000 in the 2018 period; compared to the sale of $204,407 in convertible notes and $-0- in common stock, respectively, during the 2019 period.





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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