Zero Gravity Solutions, Inc. - Quarter Report: 2018 March (Form 10-Q)

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

☒

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

 

For the quarterly period ended March 31, 2018

 

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

 

For the transition period from ___________to ____________

 

Commission File Number 000-55345

 

ZERO GRAVITY SOLUTIONS, INC.
(Exact name of business as specified in its charter)

 

NEVADA	46-1779352
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

190 NW SPANISH RIVER BOULEVARD, SUITE 101, BOCA RATON, FLORIDA 33431

(Address, including zip code, of principal executive offices)

 

(561) 416-0400

(Issuer’s telephone number)

 

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 ☐ No ☒ The Company has not filed its Quarterly Report on Form 10-Q for the quarterly period ending June 30, 2018.

  

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 ☐ No ☒ See above

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)
		Smaller reporting company	☒
		Emerging growth company	☐

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of October 30, 2018, the issuer had 40,954,115 shares of common stock issued and outstanding.

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION	2
Item 1. Condensed Consolidated Financial Statements (unaudited)	2
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017	2
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and March 31, 2017 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and March 31, 2017 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative & Qualitative Disclosures about Market Risks	24
Item 4. Controls and Procedures	24
PART II OTHER INFORMATION	25
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults upon Senior Securities	25
Item 5. Other Information	25
Item 6. Exhibits	25

 

 

 

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		March 31, 2018				December 31, 2017
			(unaudited)
ASSETS
CURRENT ASSETS
Cash		$	44,423			$	13,862
Accounts receivable, net			563				1,393
Prepaid expenses			167,288				216,139
Inventory			68,193				68,643
Total current assets			280,467				300,037
Property and equipment - net			98,011				104,590
OTHER ASSETS
Deposits			4,817				4,617
Intellectual property			11,086				11,458
Advance on future royalties - related parties, net			-				319,441
Total other assets			15,903				335,516
TOTAL ASSETS		$	394,381			$	740,143
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and other payables		$	659,139			$	693,695
Accounts payable, related party			82,500				80,097
Accrued interest			7,083				2,500
Accrued interest, related party			50,544				32,250
Deferred compensation, related party			12,500				12,500
Convertible Note payable - related party			500,000				500,000
Note payable			154,822				204,419
Total liabilities (all current)			1,466,588				1,525,461
LONG TERM LIABILITIES
Note payable, net of discount of $22,340 and $18,218			277,660				181,782
Notes payable, related parties, net of discount of $168,306 and $97,796			1,831,694				1,002,204
Total long-term liabilities			2,109,354				1,183,986
Total Liabilities			3,575,942				2,709,447
Commitments (Note 4)
STOCKHOLDERS' DEFICIT
Common stock; 100,000,000 shares authorized, at $0.001 par value, 40,705,731 and 40,650,397 shares issued and outstanding, at March 31, 2018 and December 31, 2017, respectively			40,706				40,650
Additional paid-in capital			22,334,630				21,970,266
Accumulated deficit			(25,556,897	)			(23,980,220	)
Total stockholders' deficit			(3,181,561	)			(1,969,304	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	394,381			$	740,143

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		Three months Ended March 31,
		2018				2017
REVENUE
Sale of Goods		$	3,470			$	255
Total Revenue			3,470				255
COST OF REVENUE
Cost of Goods Sold			377				21
Royalty Expense			173				13
Total Cost of Revenue			550				34
GROSS PROFIT			2,920				221
OPERATING EXPENSES
General and administrative			1,409,696				2,705,198
Research and development			84,817				76,381
Total operating expenses			1,494,513				2,781,579
LOSS FROM OPERATIONS			(1,491,593	)			(2,781,358	)
OTHER INCOME (EXPENSE)
Interest expense			(61,099	)			(13,946	)
Accretion of debt discount			(23,642	)			-
Loss on disposal of asset			(343	)			-
Total other income (expense)			(85,084	)			(13,946	)
NET LOSS		$	(1,576,677	)		$	(2,795,304	)
NET LOSS PER SHARE - BASIC AND DILUTED		$	(0.04	)		$	(0.07	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED			40,671,851				40,042,764

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		Three months Ended
		March 31,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(1,576,677	)		$	(2,795,304	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			6,235				6,107
Amortization expense			372				138
Bad debt expense			4,060				-
Common stock issued for services			-				150,000
Warrants issued for services			57,570				283,039
Stock options issued as compensation			71,254				76,644
Loss on disposal of asset			343				-
Advance on future royalties - related parties reserve			123,560				-
Impairment expense			203,208				-
Amortization of debt discounts			23,642				-
Warrant modification expense			-				926,885
Changes in operating assets and liabilities:
Accounts receivable, trade			(3,230	)			92,670
Prepaid expenses			48,851				60,110
Advance on future royalties - related parties			(7,327	)			(21,992	)
Inventory			450				(47,394	)
Deposit			(200	)			(200	)
Accounts payable, related party			2,403				-
Accounts payable and other payables			(34,556	)			(2,114	)
Accrued interest, related party			18,294				-
Accrued interest			4,584				-
Net cash used in operating activities			(1,057,164	)			(1,271,411	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable			(49,597	)			(65,118	)
Payments of notes payable - related party			(100,000	)			-
Proceeds from exercise of warrants – related party			-				1,185,000
Payment of offering costs - related party			(27,000	)			(33,750	)
Proceeds of notes payable			100,000				-
Proceeds of notes payable – related party			1,000,000				-
Proceeds from sale of common stock			166,002				688,500
Payment of offering costs			(1,680	)			(53,400	)
Net cash provided by financing activities			1,087,725				1,721,232
NET INCREASE IN CASH			30,561				449,821
CASH AT BEGINNING OF PERIOD			13,862				232,394
CASH AT END OF PERIOD		$	44,423			$	682,215
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Income Taxes		$	-			$	-
Interest		$	61,099			$	13,946
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Warrants issued as equity direct offering costs		$	377			$	22,970
Warrants issued as debt discount		$	71,274			$	-

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NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of operations

 

Zero Gravity Solutions, Inc. (the “Company”) is a biotechnology company focused on commercializing technology derived from and designed for spaceflight with significant applications on Earth. These technologies are focused on improving world agriculture by providing valuable solutions to challenges facing humanity including threats to world agriculture and the ability to feed the world’s rapidly growing population.

 

The Company owns proprietary technology for its initial commercial product, BAM-FX™ that can boost the nutritional value and enhance the immune system of food crops without the use of Genetic Modification. The Company’s focus is the commercialization of BAM-FX™ in both domestic and international markets. The Company’s headquarters are located in Boca Raton Florida. 

 

The Company operates through two wholly owned subsidiaries: BAM Agricultural Solutions, Inc. and Zero Gravity Life Sciences, Inc., both Florida corporations formed by the Company in 2014.

 

Going Concern and Management’s Plans 

 

The Company has a working capital deficiency as of March 31, 2018, and a loss from operations and negative cash flows from operating activities for the quarter then ended. At March 31, 2018, the Company had an approximate cash balance of $44,000, and a working capital deficiency of approximately $(1,186,000), and had a loss from operations of approximately $(1,577,000), and negative cash flows from operating activities of approximately $(1,057,000) for the quarter then ended. To date, the Company has relied on equity financing and has entered into related and non-related party promissory notes to fund its operations. The Company has also issued stock-based compensation in exchange for services. Although the Company intends to raise additional capital, the Company expects to continue to incur losses from operations and have negative cash flows from operating activities for the near-term and these losses could be significant as product development, regulatory, contract research, and technical marketing personnel related expenses are incurred. Management has evaluated its ability to continue as a going concern for the next twelve months from the issuance of these March 31, 2018 unaudited condensed consolidated financial statements, and has determined that there is substantial doubt as to its ability to continue as a going concern. The Company has satisfied its obligations using cash from successful capital raising efforts through March 31, 2018, however there are no assurances that such successful efforts will continue for up to a year after these unaudited condensed consolidated financial statements are issued. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. The Company has executed product distribution agreements with domestic and international commercial agricultural distributors and generated initial product orders. Additional technical and marketing effort must be devoted to those distributors to insure the product is properly utilized and validated by end users. To fund these capital needs, the Company has and continues to raise capital through private placement offerings in connection with its investment banker and through its internal efforts, as well as raising funds through issuances of debt. Subsequent to March 31, 2018, the Company has raised approximately $2,350,000 in debt financing and approximately $745,000 through the sale of common stock (Note 7). If the Company does not obtain additional capital, the Company would potentially be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs and expense levels. 

 

Management’s strategic plans include the following:

●	Continuing to advance commercialization of the Company’s principal product, BAM-FX™ in both domestic and international markets;
●	Pursuing additional capital raising opportunities;
●	Continuing to explore and execute prospective partnering or distribution opportunities; and
●	Identifying unique market opportunities that represent potential positive cash flow.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

Interim Financial Statements

 

The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three months ended March 31, 2018 and 2017, our cash flows for the three months ended March 31, 2018 and 2017, and our financial position as of March 31, 2018 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

 

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Report on Form 10-K for the period ended December 31, 2017 as filed with the SEC on August 13, 2018. The December 31, 2017 balance sheet is derived from those statements.

 

Use of Estimates

 

The preparation of the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, inventory reserves and classifications, amortization period and recoverability of intangible assets, valuation of beneficial conversion features in convertible debt, valuation of loss contingencies, valuation of stock-based compensation and the valuation allowance on deferred tax assets.

 

Segment Reporting

 

The Company views its operations and manages its business as one reportable segment. As a result the consolidated financial statements presented within, relate to our principal operating segment.  Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Zero Gravity Solutions, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

For the purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2018 and 2017.

 

Inventory

 

Inventory is valued on a lower of first in, first out (FIFO) cost or net realizable value. Inventory consisted of:

 

 

Property and Equipment

 

Property and equipment is stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Depreciation is computed on a straight-line basis over estimated useful lives. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

Impairment of Long Lived Assets

 

The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.”  This guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

Concentration of Credit Risk

 

The Company believes that its credit risk exposure is limited. The Company has never suffered a loss due to excess balances.

 

Fair Value of Financial Instruments

 

The Company accounts for financial instruments under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

	Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
	Level 3 — assets and liabilities whose significant value drivers are unobservable.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions.  Unobservable inputs require significant management judgment or estimation.  In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.  In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.  Such determination requires significant management judgment. 

 

As the Company's common stock is not traded in an active market, the Company estimates the fair value of its common stock (used in its Black Scholes option pricing model) pursuant to ASC 820. This estimation process maximizes the use of observable inputs, including the quoted price of the Company's common stock in an inactive market, the price of the Company's common stock determined in connection with transactions in the Company's common stock, and an income approach to valuation (a discounted cash flow technique that considers the future cash flows).

 

The carrying amounts of the Company’s accounts receivable and accounts payable approximate fair value due to the relatively short period to maturity for these instruments. The carrying value of the Company’s notes payable approximates fair value due to their short period to maturity and their stated interest rates, combined with historic interest rate levels. 

 

Revenue recognition and accounts receivable

 

We recognize revenues from the sale of agricultural biotechnology products to distributors and customers pursuant to the provisions of ASC 606, “Revenue Recognition”.

 

Revenues for agricultural chemical products are recognized when title to the products is transferred which may be upon shipment to the customer or receipt by the customer of the product. We recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services.

 

When amounts are billed to customers for shipping and handling fees they are included in net sales, and the related costs incurred by the company for the delivery of invoiced goods are classified as cost of goods sold in our Statements of Operations.

 

The Company determined that no reserve for estimated product returns and allowances was necessary during the three months ended March 31, 2018 and 2017. Determination of the reserve for estimated product returns and allowances is based on management's analyses and judgments regarding certain conditions. Should future changes in conditions prove management's conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be materially affected. 

 

At March 31, 2018, two customers accounted for 100% of total accounts receivable. Each of these customers represented 85.8%, and 14.2%, respectively. During the period ended March 31, 2018, two customers accounted for 100% of net sales 75% and 25% respectively. 0% of sales for the quarter were to customers outside of the U.S.

 

At December 31, 2017, three customers accounted for 100% of total accounts receivable. Each of these three customers represented 46.5%, 34.9% and 18.6%, respectively. During the period ended March 31, 2017, one customer accounted for 22.8% of net sales.

 

The Company extends credit to customers generally without requiring collateral. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company records an allowance for doubtful accounts when it is probable that the accounts receivable balance will not be collected. When estimating the allowance, the Company takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, and the industry and size of its clients. The allowance for doubtful accounts as of March 31, 2018 and December 31, 2017 was $0 and $32,663, respectively.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

Cost of sales

 

Cost of sales is comprised of material costs, invoiced shipping costs and royalty expense.  

 

Warrants

 

The Company recognizes the cost of warrants issued with debt as debt discount in the consolidated financial statements which is recorded at the warrants relative fair value which is measured based on the grant date fair value of the award. The Company estimates the fair value of each warrant at the grant date by using the Black-Scholes option pricing model.

 

Stock based compensation

 

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the consolidated financial statements which is measured based on the grant date fair value of the award. Stock based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model.

  

Costs equal to these fair values are recognized ratably over the requisite service period based on the number of awards that are expected to vest, or in the period of grant for awards that vest immediately and have no future service condition. The expense resulting from employee and share-based payments is recorded in general and administrative expense in 2018 and 2017.

 

The Company also grants share-based compensation awards to non-employees for service provided to the Company. The Company measures and recognizes the fair value of such transactions based on the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

 

Loss per Share

 

Loss per share is calculated by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period. Diluted earnings loss per share is calculated by dividing the Company’s net income (loss) by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity instruments. The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding warrants, stock options and convertible debt are not considered in the calculation as the impact of the potential common shares (totaling 13,550,332, shares and 14,044,842 shares for the periods ended March 31, 2018 and December 31, 2017, respectively), would be to decrease net loss per share.

 

Research and Development

 

Research and development costs are charged to expense as incurred.

 

Warranty Expense

 

The Company's distribution agreements provide for a warranty on products sold. As sales under such distribution agreements have been nominal through 2018 and 2017, there has been no warranty expense in 2018 or 2017. A provision for estimated future warranty costs is to be recorded as cost of sales when products are shipped, and warranty costs are to be based on historical trends in warranty charges as a percentage of gross product shipments. A resulting accrual is to be reviewed regularly, and periodically adjusted to reflect changes in warranty cost estimates.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

The Company does not have an accrual for uncertain tax positions as of March 31, 2018 and December 31, 2017.  The Company files corporate income tax returns with the Internal Revenue Service and the States where the Company determines it is required to do so.  The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At March 31, 2018, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the periods ended March 31, 2018 or 2017. 

 

Reclassifications

 

Certain amounts in the December 31, 2017 balance sheet have been reclassified from accounts payable, related party to accrued interest, related party to conform to the March 31, 2018 presentation.  This reclassification had no effect on current liabilities in either period presented.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, “Revenue from Contracts with Customers” which has been further clarified and amended. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statement of Financial Position. The standard is effective for fiscal years, and interim periods within those years, beginning after Dec. 15, 2017. The Company has finalized its assessment of ASC 606 and determined there will be no material effect on our financial position and results of operations. The timing and amount of revenue recognized based on the new standard is consistent with the revenue recognition policy under previous guidance, however, certain additional financial statement disclosures will be required beginning with 2018 reporting, including additional disaggregated view of revenue. We have adopted the new standard effective January 1, 2018, using the modified retrospective transition method.

 

In March 2016, the FASB issued ASU No. 2016-02, Leases. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016- 02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company has not finalized the analysis to determine the effect of the standard, but believes that it will not have a material impact on the statement of operations.

 

 

  

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This guidance is applicable to the Company’s fiscal year beginning January 1, 2019. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

 

In July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.  Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features in ASC 470-20.  For the Company, ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts ASU 2017-11 in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period in either of the following ways: 1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the first fiscal year and interim period(s) in which ASU 2017-11 is effective or 2. Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

 

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

 

Depreciation expense for the period ended March 31, 2018 and 2017 was $6,235 and $6,107, respectively

 

 

NOTE 3 – RELATED PARTY NOTES AND TRANSACTIONS

 

Convertible Note Payable

  

In July 2015, member of the Company’s Board of Directors advanced the Company $500,000 under a note payable for working capital purposes. The unsecured note payable bears interest at 8.5% per annum, is payable quarterly, and was originally due in July 2016. In connection with the note, the Company issued warrants to purchase 350,000 shares of the Company’s common stock at an exercise price of $3 per share. The Company calculated the fair value of the warrants at $416,618 utilizing the Black-Scholes Model with the following assumptions: expected dividends of 0%, volatility of 184.2%, risk free interest rate of 1.66% and expected life of 5 years. The relative fair value of the debt and warrants was recorded resulting in a debt discount of $227,258 upon execution of the agreement. In July 2016, the maturity date of the note was extended to July 2017, and a conversion feature was added. The conversion feature allows the holder to convert the debt into common shares at his option at a conversion price of $1.25 per share (400,000 shares). The addition of the conversion feature represented a substantial modification to the debt instrument but the modification was determined to not be material. During 2017, $42,500 was recorded as interest expense and $10,625 was included in payables at December 31, 2017. During 2017, the maturity date of the note was extended to July 2018 and then extended again in 2018 to July 2019. For the three months ended March 31, 2017 and 2018, the Company recorded interest expense of $10,389 and $10,625 respectively on the note and it is recorded in accrued interest - related party. The note is included in the current liabilities section of the unaudited consolidated balance sheets.

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

 

In August 2017, the Company issued an unsecured promissory note to its in-house corporate counsel in the principal face amount of $100,000.  The promissory note bears interest at a rate of 10.0%, per annum, payable quarterly. The promissory note is payable in full plus all unpaid interest by August 2019. In connection with the note, the Company issued five-year warrants to purchase up to 10,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrants recorded resulted in debt discount of $10,435 upon execution of the promissory note. For the period ended March 31, 2018, accretion of the debt discount was $1,287, included in other expenses on the statements of operations.

 

In September 2017, the Company issued an unsecured promissory note to a member of its Board of Directors in the principal face amount of $500,000.  The promissory note bears interest at a rate of 10.0%, per annum, payable quarterly. The note is payable in full plus all unpaid interest by September 2019. In connection with the note, the Company issued five-year warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrants recorded resulted in debt discount of $52,166 upon execution of the note. For the three months ended March 31, 2018, accretion of the debt discount was $6,431, included in other expenses on the statements of operations.

 

In October 2017, the Company issued to Rio Vista Investments, LLC, a Nevada limited liability company (“Rio Vista”), (i) an unsecured note in the principal face amount of $500,000 and (ii) a warrant to purchase up to 50,000 shares of the Company’s common stock. The note issued to Rio Vista bears interest at the rate of ten percent (10%) per annum, such interest being payable by the Company to Rio Vista quarterly in cash. The note is payable in full by the Company, plus all unpaid interest, by October 26, 2019. Prepayment of all unpaid principal and interest may be made by the Company prior to the date of maturity without penalty or premium. Additionally, the Company issued to Rio Vista a five-year warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $50,229 upon execution of the promissory note.  For the three months ended March 31, 2018, accretion of the debt discount was $6,193, included in other expenses on the statements of operations. A member of the Company’s Board of Directors is a beneficiary of certain trusts that own Rio Vista.

 

In January 2018, the Company issued an unsecured note to its in-house corporate counsel in the principal face amount of $100,000.  The note bears interest at a rate of 10.0%, per annum, payable quarterly. The promissory note was paid during the three month period ended March 31, 2018. In connection with the note, the Company issued five-year warrants to purchase up to 5,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrants recorded resulted in debt discount of $3,831 upon execution of the note. For the period ended March 31, 2018, accretion of the debt discount was $3,831, included in other expenses on the statements of operations.

 

On or about January 17, 2018, the Company received $500,000 from an accredited investor, and in exchange the Company issued to the investor (a) an unsecured note dated January 16, 2018, maturing on October 26, 2019, in the principal face amount of $500,000, and (b) a warrant dated January 18, 2018 to purchase up to 50,000 shares of the Company’s common stock. A member of the Company’s Board of Directors is a beneficiary of certain trusts that own Rio Vista, the holder of this note and warrant. The note bears interest at the rate of ten percent (10%) per annum, such interest being payable by the Company to the holder thereof quarterly in cash. The note is payable in full by the Company, plus all unpaid interest thereon, by October 26, 2019. Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the date of maturity, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest under such note, based on the full principal amount. In addition to the foregoing, the Company must repay the note to Rio Vista Investments, LLC within 30 days of the date the Company possesses an amount of cash equal to the outstanding balance of principal and interest due under the note plus an amount reasonably anticipated to be necessary to operate the Company over the succeeding 6 months. The warrant is exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the note and warrant recorded resulted in debt discount of $35,590 upon execution.  The Company also incurred $15,000 in lender fees. For the three months ended March 31, 2018, accretion of the debt discount and lender fees was $5,678, included in other expenses on the statements of operations.

 

On or about March 8, 2018, the Company received $200,000 from an accredited investor and member of our Board of Directors, and in exchange the Company issued (a) an unsecured promissory note dated March 8, 2018 and (b) a warrant dated March 9, 2018 to purchase up to 20,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, such interest being payable by the Company to the holder quarterly in cash. The note is payable in full by the Company, plus all unpaid interest thereon, by March 7, 2020. Prepayment of all unpaid principal due on the note may be made by the Company prior to the note’s maturity date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest due under the note, based on the note’s principal balance as of the origination date. The note contains customary provisions for events of default and acceleration of sums due. The warrant is exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the note and warrant recorded resulted in debt discount of $14,281 upon execution.  The Company also incurred $6,000 in lender fees. For the three months ended March 31, 2018, accretion of the debt discount and lender fees was $555, included in other expenses on the statements of operations.

 

On or about March 12, 2018, the Company received $200,000 from Boies Partners, Inc. (“BPI”), an accredited investor, and in exchange the Company issued to BPI (a) an unsecured promissory note dated March 12, 2018, and (b) a warrant dated March 12, 2018 to purchase up to 20,000 shares of the Company’s common stock. Alex Boies, a member of our Board of Directors, has no financial interest in or control over BPI and does not otherwise have any beneficial ownership in any securities owned by BPI, but BPI is owned by a family member of Alex Boies. The note bears interest at the rate of ten percent (10%) per annum, such interest being payable by the Company to the holder thereof quarterly in cash. The note is payable in full by the Company, plus all unpaid interest thereon, by March 11, 2020. Prepayment of all unpaid principal due on the note may be made by the Company prior to the note’s maturity date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest due under the note, based on the note’s principal balance as of the origination date. The note contains customary provisions for events of default and acceleration of sums due. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the note and warrant recorded resulted in debt discount of $14,279 upon execution.  The Company also incurred $6,000 in lender fees. For the three months ended March 31, 2018, accretion of the debt discount and lender fees was $498, included in other expenses on the statements of operations. This note further provides that within 30 days of receipt of payment of any amount principal outstanding under the note, (the "Conversion Window") the note holder shall have the right to convert any portion of such payment into the Company’s common stock at the lesser of $3.00 per share or the lowest price per share of any sale by the Company of its common stock occurring between the date of the note and the end of the Conversion Window. This note was subsequently repaid during the quarter ended June 30, 2018. The warrant is exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. 

 

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

Royalty Agreement

 

In 2013, the Company entered into a royalty agreement, which was amended in 2015, with a key employee and principal stockholder of the Company and a current Director of the Company. The agreement has a term of 25 years, requires payments of royalties equal to 5% of gross sales of products derived from certain patents held or licensed by the Company, including the BAM-FX™ product, and also a minimum monthly payment of $2,500 to be offset against future royalty obligations of the Company. In addition certain other costs the Company made that were necessary for the maintenance and protection of the Company’s rights in the underlying patents were applied against future royalty obligations of the Company.

 

Sales subject to the royalty agreement were $3,470 and $255 for the periods ended March 31, 2018 and 2017, respectively. As of March 31, 2018, and December 31, 2017, $0 and $319,441 of prepaid royalties, respectively, are available to be offset against future royalty obligations. Management recorded an allowance for collectability of $123,560 during the three months ended March 31, 2018. 

 

Included in advance of future royalties was $203,208 in legal fees relating to patent defense.  During the three months ended March 31, 2018, this amount was reclassified to an intangible asset patent defense fees and was determined to be impaired and charged to general and administrative expense.

 

Consulting Agreement

 

In March 2015, the Company entered into a consulting agreement with a former Director. The agreement had a term of six months and required payments of $200,000 of which $200,000 was recorded as a component of general and administrative expense in the 2015 statement of operations. An obligation of $75,000 was payable to the former Director and is included in accounts payable at March 31, 2018 and December 31, 2017.

 

 

NOTE 4 – COMMITMENTS

 

Lease Commitments

 

The Company leases its office, building and laboratory space under short term leases. These leases are renewable either monthly or annually. The Company also has a two-year lease for its warehouse in Okeechobee, which began September 1, 2016 and will expire August 31, 2018. Lease expense was $54,325 and $6,942 for the periods ended March 31, 2018 and 2017, respectively.

 

License and Business Development Agreement

 

On February 20, 2018, BAM Agricultural Solutions, Inc. (“BAM”), a wholly-owned subsidiary of the Company, and Pedro Lichtinger Waisman, Isaac Lichtinger Waisman and Victor Lichtinger Waisman (the “Lichtinger Group”) entered into a License and Business Development Agreement Mexico, effective as of February 13, 2018 (the “Agreement”). Following consummation of the Agreement, the Lichtinger Group began to form a company in Mexico, Agro Space Tech SA de CV de RV (“Agro Space”), to which BAM will receive a twenty percent (20%) equity ownership interest. The Lichtinger Group will contribute up to $500,000 in capital into Agro Space, with BAM having no initial capital requirement. If Agro Space requires more than the initial $500,000 capital contribution, BAM will have a right to contribute capital pro rata and maintain its ownership percentage. As of March 31, 2018 the formation of Agro Space has not been completed and the investment has not been made.

 

The Agreement provides Agro Space with the exclusive right to import, package, sell and distribute BAM’s product lines and promote its brand, as well as other “white label” brands as they are introduced, in the Mexican markets, and a limited manufacturing right to modify the presentation of BAM’s products and dilute such products, all during the term of the Agreement. BAM will retain the right to all of its intellectual property, including any materials produced in connection with the Agreement and BAM’s products, and Agro Space will have a royalty-free right to reproduce, translate, summarize or otherwise use such materials for the sole purpose of performing pursuant to the Agreement. The exclusivity of the rights licensed to Agro Space are conditioned upon (i) Agro Space meeting specified revenue targets beginning on the third anniversary following the successful completion of specified local trials through the tenth anniversary thereof; and (ii) the ability for Agro Space to expand the business to target and add a specified number of crops during each of the five (5) years following the successful completion of specified local trials.

 

In addition to BAM receiving an ownership interest in Agro Space, Zero Gravity Solutions, Inc. ("Company") received $100,000 from the Lichtinger Group following the execution of the Agreement, to purchase shares of the Company pursuant to the Company’s 2016 private offering of shares of its common stock for $3.00 per share. The Agreement further provides that Agro Space will pay to BAM up to $900,000, in the aggregate, upon reaching specified milestones based on completing government/academic trials and revenue hurdles.

 

Research Commitment

 

In January 2016, the Company entered into a Reimbursable Space Act Agreement (the “SAA”) with the National Aeronautics and Space Administration Ames Research Center (“NASA ARC”).  Pursuant to the SAA, NASA ARC will evaluate the Company’s nutrient delivery system for commercial agriculture and NASA applications and the potential development of new agricultural technologies and products.  The Company provides funding and reimbursement for the costs incurred by NASA ARC under the SAA, and owns any resulting intellectual property created pursuant to the SAA.  The Company paid NASA ARC a total of $373,750 in fiscal 2016, which served as reimbursement for NASA ARC’s estimated expenses to carry out its first-year responsibilities pursuant to the SAA.  The SAA remains in effect until the earlier of completion of all obligations contemplated in the SAA or five years from the date of agreement. For the period ended March 31, 2018 and 2017, $0 and $29,610 respectively, was expensed to research and development expense pursuant to the SAA.

 

 

NOTE 5 – NOTES PAYABLE

 

The Company has an outstanding note payable for financing corporate insurance premiums. The original principle value was $223,707. The note carries a rate of interest of 7.5% and is due in November 2018. The note calls for eleven payments of $19,353. The balance at March 31, 2018 was $154,822.

 

 

 

In December 2017, the Company received $200,000 from an investor, and in exchange the Company issued the investor (a) an unsecured promissory note dated December 14, 2017, maturing on December 13, 2019, in the principal face amount of $200,000, and (b) a warrant dated December 18, 2017 to purchase up to 50,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly. The note is repayable in full by the Company, plus all unpaid interest thereon, by the maturity date. Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the maturity date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest under the note, based on the full principal amount. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in a debt discount of $18,652 upon execution of the promissory note. For the period ended March 31, 2018, accretion of the debt discount was $2,300, included in other expenses on the statements of operations.

 

On or about January 18, 2018, the Company received $100,000 from an accredited investor, and in exchange the Company issued to the investor (a) an unsecured promissory note dated January 19, 2018, maturing on January 18, 2020, in the principal face amount of $100,000, and (b) a warrant dated January 19, 2018 to purchase up to 10,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly. The note is repayable in full by the Company, plus all unpaid interest thereon, by the maturity date (the “Maturity Date”). Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the Maturity Date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest under the note, based on the full principal amount. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in a debt discount of $7,124 upon execution of the promissory note. For the period ended March 31, 2018, accretion of the debt discount was $703, included in other expenses on the statements of operations.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

 

NOTE 6 – EQUITY

 

2018 transactions:

 

Common Stock

 

Private placement offerings

 

During 2016, the Company commenced a private offering of up to $10,000,000 of the Company’s securities for $3.00 per share of common stock. Pursuant to the 2016 offering, the Company sold 55,334 shares of common stock during the period ended March 31, 2018. Gross proceeds from the offering were $166,002, with offering costs of $1,680. In connection with the offering, the Company issued fully vested, non-forfeitable warrants to purchase up to490 shares of common stock with an exercise price of $3.00 per share to the placement agent. These warrants are netted in additional paid in capital as non-cash offering costs of the placement of $377.

 

Warrants

 

Warrants issued for services

 

During the period ended March 31, 2018, the Company issued fully vested, non-forfeitable five-year warrants to purchase up to 75,000 common shares at an exercise price of $3.00 per common share to consultants for services rendered. The value of those services was $57,570, which was recorded as general and administrative expense.

  

Warrants issued with debt

 

In connection with the issuance of a $100,000 unsecured promissory note dated January 18, 2018, the Company issued a warrant dated January 19, 2018 to purchase up to 10,000 shares of the Company’s common stock. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in debt discount of $7,124 upon execution of the promissory note. 

 

Warrants issued with debt – related party

 

In January 2018, the Company issued to its in-house counsel, in connection with the issuance of an unsecured promissory note in the principal face amount of $100,000, a five-year warrant to purchase up to 5,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the warrant recorded was $3,831 upon execution of the promissory note. 

 

In January 2018, the Company issued to Rio Vista a five-year warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $3.00 per share in connection with a $500,000 unsecured promissory note to its in-house corporate counsel. The relative fair value of the debt and warrants recorded resulted in debt discount of $35,590 upon execution of the promissory note. 

In March 2018, in connection with issuance of a $200,000 unsecured promissory note to a member of its Board of Directors, the Company issued five-year warrant to purchase up to 20,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $14,281 upon execution of the promissory note. 

 

In March 2018, in connection with issuance of a $200,000 unsecured promissory note to an accredited investor, the Company issued five-year warrant to purchase up to 20,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $14,279 upon execution of the promissory note. 

 

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

The following is a summary of the Company’s warrant activity for the year ended March 31, 2018:

 

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s stock price on March 31, 2018 and the exercise price, multiplied by the number of in-the-money warrants) that would have been received by the warrant holders, had all warrant holders been able to, and in fact had, exercised their warrants on March 31, 2018.

 

Stock incentive plan options

 

In November 2015, the Company adopted its 2015 Equity Incentive Plan. The Plan provides stock based compensation to employees, directors and consultants, as more fully described in the Plan. The Company has reserved 4,000,000 shares under the Plan. During the three months ended March 31, 2018 the Company granted options to purchase up to 25,000 shares of common stock, to an employee with an exercise price of $1.25 per share and a term of 10 years. The estimated fair value of $19,208 of the grants for the three months ended March 31, 2108 was based upon the following management assumptions: For the period March 31, 2018, expected dividends of $0, volatility of 101.7% based on comparative volatility, risk free interest rates of 2.58%, and expected term of the options of 5 years.

 

The Company recognizes compensation expense for stock option grants based on the fair value at the date of grant using the Black-Scholes option pricing model. As the Company does not currently have reliably determined historic stock prices, the Company uses management estimates of stock value. The Company uses historical data, among other factors, to estimate the expected option life and the expected forfeiture rate. The Company estimates expected term considering factors such as historical exercise patterns and the recipients of the options granted. The risk-free rate is based on the United States Treasury Department yield curve in effect at the time of grant for the expected life of the option. The Company assumes an expected dividend yield of zero for all periods.  For employee, consultant and director stock based compensation, the Company used management's fair value estimates of $1.21 for the period March 31, 2018.

 

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

The Company has elected to account for forfeitures as they occur.

 

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s stock price on March 31, 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders, had all option holders been able to, and in fact had, exercised their options on March 31, 2018.

 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

March 31, 2018

(Unaudited)

 

 

NOTE 7 – SUBSEQUENT EVENTS

 

On May 2, 2018, the Company received $300,001 from an accredited investor and member of our Board of Directors, and in exchange the Company issued (a) an unsecured promissory note dated May 2, 2018, and (b) a warrant dated May 2, 2018 to purchase up to 30,000 shares of the Company’s common stock.  The note bears interest at the rate of ten percent (10%) per annum, payable quarterly in cash. The note is payable in full plus all unpaid interest thereon, by May 1, 2020. Prepayment of all unpaid principal and interest may be made by the Company prior to the date of maturity, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest, based on the full principal amount. 

 

On April 24, 2018 the Company repaid its $200,000 debt obligation to Boies Partners, Inc. (See note 3)

 

Effective on June 28, 2018, the Company terminated its private offering of up to $10,000,000 of its securities, consisting of up to 3,333,333 shares of its common stock at $3.00 per share, which was initiated in October 2016. Subsequent to March 31, 2018, the Company issued 248,384 shares of common stock pursuant to the 2016 private offering.  Gross proceeds from the subsequent shares were $745,151, with offering costs of $24,000, and warrants issued to the placement agent to purchase up to 7,000 shares of common stock.

 

On June 29, 2018, the Company initiated a new private offering of its securities (the “June 2018 Offering”) to certain prospective accredited investors, including certain members of the Board of Directors and/or their respective affiliates, consisting of up to $2,000,000 of 10% secured convertible promissory notes (the “June 2018 Offering Notes”), and two-year warrants to purchase up to 2,000,000 shares of Common Stock at an exercise price of $1.00 per share (the “June 2018 Offering Warrants”). The offering terminated on July 31, 2018, and consisted of one or more closings.

 

On June 29, 2018, the Company received $1,000,000 from an affiliate of a member of our Board of Directors pursuant to the June 2018 Offering, and the Company issued a June 2018 Offering Note in exchange therefore, with a maturity date of June 28, 2020, and June 2018 Offering Warrants.  A second member of our Board of Directors provided additional funding of $250,000 on July 2, 2018 and an additional $250,000 on July 17, 2018, and the Company issued a June 2018 Offering Note in exchange therefore, with maturity dates of July 2, 2020 and July 17, 2020, respectively, and June 2018 Offering Warrants. In addition, the Company received, in the aggregate, $550,000 from seven other current shareholders, and issued June 2018 Offering Notes in exchange therefore, and June 2018 Offering Warrants.  Pursuant to the June 2018 Offering, the Company issued June 2018 Offering Notes having an aggregate principal balance of  $2,050,000, and June 2018 Offering Warrants to purchase, in the aggregate, up to 2,050,000 share of the Company’s common stock.

 

Subsequent to March 31, 2018, the Company issued fully vested, non-forfeitable five - year warrants to purchase 165,000 common shares at an exercise price of $3.00 per common share to consultants for services rendered

 

 

 

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There were no changes in internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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