Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 20182019

For the transition period from ___________to ____________

Commission File Number 000-55345

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

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

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

(561) 416-0400

(Issuer’sRegistrant’s telephone number)number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class = Trading Symbol(s) = Name of each exchange on which registered

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 endingperiods ended June 30, 2018.2019, September 30, 2019 and March 31, 2020 and it's Annual report on Form 10-K for the year ended December 31, 2019.

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.

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,July 31, 2020, the issuer had 40,954,11539,678,555 shares of common stock issued and outstanding.

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operationsOperations

Zero Gravity Solutions, Inc. (the “Company”) is aan agricultural 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™BAM-FX^® that can boost the nutritional value and enhance the immune system of food crops without the use of Genetic Modification.genetic modification. The Company’s focus is the commercialization of BAM-FX™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. a Florida corporation (“BAM”), which was formed in 2014, and Specialty Agricultural Solutions, Inc. (“SASI”), which was formed in 2018 and began operations in 2019. The Company owns 98% of SASI.

Another subsidiary of the Company, Zero Gravity Life Sciences, Inc., botha Florida corporationscorporation (“ZGLS”), was formed by the Company in 2014. ZGLS is currently inactive.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact the Company’s supply chain, distribution centers, or logistics and other service providers. During the first quarter of 2020, the Company furloughed all employees other than the three executive officers to the COVID-19 impact on its operation capability. Beginning in the second quarter of 2020 the company began to remove certain employees from furlough that are key to ongoing operations. The Company is not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of product occur. To date, the Company has experienced product shipment delays due to import restrictions imposed by countries in which the Company had customer purchase commitments. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. 

Going Concern and Management’s Plans 

These interim unaudited condensed consolidated financial statements are prepared on a going concern basis which contemplates the realization of assets and settlements of liabilities and commitments in the normal course of business.

The Company has a working capital deficiency as of March 31, 2018,2019, and a net loss from operations and negative cash flows from operating activities for the quarterthree months then ended. At March 31, 2018,2019, the Company had an approximate cash balance of $44,000,$3,000 and a working capital deficiency of approximately $(1,186,000),$(4,364,000) and had anet loss from operations of approximately $(1,577,000)$(1,231,000), and negative cash flows from operating activities of approximately $(1,057,000)$(643,000) for the quarter then ended.three months ended March 31, 2019. 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 unauditedinterim, condensed consolidated unaudited 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, 2018,2019; 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. TheThese interim 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 effortefforts must be devoted to those distributors to insureensure the product is properly utilized and validated by end users. To fund these capital needs, the Company has and continues to raise capital through a private placement offeringsoffering in connection with its investment banker and through its internal efforts, as well as raising funds through issuances of debt. Subsequent to March 31, 2018,2019, the Company has raised approximately $2,350,000 in debt financing and approximately $745,000 through the sale of common stock$3,824,000 (Note 7). If the Company does not obtain additional capital, the Company would potentiallywill 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, 20182019

(Unaudited)

Interim Financial Statements

Basis of Presentation

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, 20182019 and 2017,2018, our cash flows for the three months ended March 31, 20182019 and 2017,2018, and our financial position as of March 31, 20182019 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 audited consolidated financial statements have been condensed or omitted from these interim unaudited condensed 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 Annual Report on Form 10-K for the periodyear ended December 31, 20172018 as filed with the SEC on August 13, 2018.October 17, 2019. The December 31, 20172018 balance sheet is derived from those statements.

Use of Estimates

The preparation of theaccompanying unaudited condensed consolidated financial statements have been prepared in conformityaccordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported amounts in the consolidated financial statements. Actual results could differ from those estimates.statements and accompanying notes. 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 derivative liabilities, valuation of stock-based compensation and the valuation allowance on deferred tax assets. Actual results could differ from those estimates.

Segment Reporting

The Company views its operations and manages its business as one reportable segment. As a result, the interim unaudited condensed 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 interim unaudited condensed consolidated financial statements include the accounts of Zero Gravity Solutions, Inc. and its wholly-ownedmajority-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 2019 and 2017.December 31, 2018.

Inventory

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

NOTE 2 – PROPERTY AND EQUIPMENT

NOTE 3 – RELATED PARTY NOTES AND TRANSACTIONS

Convertible Note Payable

The following descriptions of convertible notes and notes payable refer to notes issued to related parties of the Company. For a description of convertible notes and notes payable to non-related parties of the Company see Note 5.

Convertible Notes Payable to Related Parties

All of the above notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019.

In July 2015, a member of the Company’s Board of Directors advanced the Company $500,000$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$3.00 per share. The Company calculated the fair value of the warrants at $416,618$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$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$1.25 per share (400,000(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. This note plus the accrued and unpaid interest was subsequently converted into Series A and B Notes. (See Note 7).

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 20182019

(Unaudited)

On June 29, 2018, in connection with its June 2018 Offering (as defined in Note 5), the Company received $1,000,000 from an affiliate of a board member, and in exchange the Company issued (a) an unsecured convertible promissory note dated June 29, 2018, and (b) a two-year warrant dated June 29, 2018 to purchase up to 1,000,000 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 June 28, 2020. The conversion feature allows the holder to convert the debt into common shares at his option at a conversion price of the lower of $3.00 per share or the Company's current offering price. Prepayment of all unpaid principal and interest 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, based on the full principal amount. The warrant is exercisable within 2 years of issuance into shares of the Company’s common stock, at $1.00 per share. The relative fair value of the warrant recorded resulted in debt discount of $414,416 upon execution. The Company also incurred $30,000 of lender fees which was recorded as debt discount. For the three months ended March 31, 2019, accretion of the debt discount was $54,791, included in other expenses on the statements of operations. This note plus the accrued and unpaid interest was subsequently converted into Series A and B Notes. (See Note 7).

On July 2, 2018, in connection with its June 2018 Offering (as defined in Note 5), the Company received $250,000 from a board member, and in exchange the Company issued (a) an unsecured convertible promissory note dated July 2, 2018, and (b) a two-year warrant dated July 2, 2018 to purchase up to 250,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly in cash. This note was subsequently converted into Series A and B Notes (see Note 7). The conversion feature allows the holder to convert the debt into common shares at his option at a conversion price of the lower of $3.00 per share or the Company's current offering price. Prepayment of all unpaid principal and interest 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, based on the full principal amount. The warrant is exercisable within 2 years of issuance into shares of the Company’s common stock, at $1.00 per share. The relative fair value of the warrant recorded resulted in debt discount of $103,613 upon execution. The Company also incurred $7,500 of lender fees which was recorded as debt discount. For the three months ended March 31, 2019, accretion of the debt discount was $13,699, included in other expenses on the statements of operations. This note plus the accrued and unpaid interest was subsequently converted into Series A and B Notes. (See Note 7).

On July 19, 2018, in connection with its June 2018 Offering, (as defined in Note 5), the Company received $250,000, from a member of our Board of Directors, and in exchange the Company issued (a) an unsecured convertible promissory note dated July 19, 2018, and (b) a two-year warrant dated July 19, 2018 to purchase up to 250,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly in cash. This note was subsequently converted into Series A and B Notes (see Note 7). The conversion feature allows the holder to convert the debt into common shares at his option at a conversion price of the lower of $3 per share or the Company's current offering price. Prepayment of all unpaid principal and interest 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, based on the full principal amount. The warrant is exercisable within 2 years of issuance into shares of the Company’s common stock, at $1.00 per share. The relative fair value of the warrant recorded resulted in debt discount of $103,609 upon execution. The Company also incurred $7,500 of lender fees. For the three months ended March 31, 2019, accretion of the debt discount was $14,003, included in other expenses on the statements of operations. This note plus the accrued and unpaid interest was subsequently converted into Series A and B Notes. (See Note 7).

On December 21, 2018, the Company received $100,000 from an affiliate of a member of our Board of Directors, and in exchange the Company issued an unsecured convertible promissory note dated December 21, 2018. 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 December 20, 2020. Prepayment of all unpaid principal and interest 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, based on the full principal amount. This note plus the accrued and unpaid interest was subsequently converted into Series A and B Notes. (See Note 7).

On February 8, 2019 and March 22, 2019, the Company received $325,000 and $100,000, respectively, from an affiliate of a board member. In exchange, the Company issued an unsecured convertible promissory note dated February 8, 2019 and March 22, 2019. Both notes were due May 1, 2019 and bore interest at a rate of twelve percent (12%) per annum. These notes plus the accrued and unpaid interest were subsequently converted into the Series A and B Notes. (See Note 7)

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

Notes Payable to Related Parties

Notes payable outstanding at March 31, 2019 consist of the following:

All of the above notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019.

In August 2017, the Company issued an unsecured promissory note to its then 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 payablewas paid in full plus all unpaid interest byduring August 2019. In connection with the note, the Company issued a five-year warrantswarrant 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, 2018,2019, 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 a five-year warrantswarrant 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, 2018,2019, 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, 2018,2019, accretion of the debt discount was $6,193, included in other expenses on the statements of operations. AMr. Alex Boies, 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. AMr. Alex Boies, 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, 2018,2019, accretion of the debt discount and lender fees was $5,678,$7,016, included in other expenses on the statements of operations.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

On or about March 8, 2018, the Company received $200,000 from an accredited investor andMichael T. Smith, a 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, 2018,2019, accretion of the debt discount and lender fees was $555,$2,500, included in other expenses on the statements of operations.

On or about March 12,May 2, 2018, the Company received $200,000$300,001 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,Michael T. Smith, a member of our Board of Directors, has no financial interestand in or control over BPIexchange the Company issued (a) an unsecured promissory note dated May 2, 2018, and does not otherwise have any beneficial ownership in any securities owned by BPI, but BPI is owned by(b) a family memberwarrant dated May 2, 2018 to purchase up to 30,000 shares of Alex Boies.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 thereof quarterly in cash. The note is payable in full by the Company, plus all unpaid interest thereon, by March 11,May 1, 2020. The note contains a contingent conversion feature that allows the value of the note to be converted at $3 per share or such lower price at which the Company has issued stock subsequent to May 2, 2018, if any part of the principle balance is paid. The intrinsic value of contingent conversion will be determined and recognized when the contingency occurs. Prepayment of all unpaid principal due on the noteand interest 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’sfull principal balance as of the origination date.amount. The note contains customary provisions for events of default and acceleration of sums due. The warrants arewarrant 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 $14,279$21,452 upon execution. The Company also incurred $6,000 in$9,000 of lender fees.fees which was recorded as debt discount. For the three months ended March 31, 2018,2019, accretion of the debt discount and lender fees was $498,$3,754, included in other expenses on the statements of operations. This

During January 2019, the Company received $100,000 from Michael T. Smith a member of our Board of Directors, and in exchange the Company issued an unsecured promissory note further providesdated January 2019. 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 April 18, 2019. The note contains a contingent conversion feature that within 30 daysallows the value 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 stockbe converted at the lesser of $3.00$3 per share or the lowestsuch lower price per share of any sale byat which the Company has issued stock subsequent to May 2, 2019, if any part of its common stock occurring between the principle balance is paid. No beneficial conversion feature existed at the issuance 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. 

note.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 20182019

(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 Directorformer director of the Company. The agreement hashad a term of 25 years, requiresrequired 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™BAM-FX^® product, and also a minimum monthly payment of $2,500$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 monthsyear ended MarchDecember 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.expenses.

Sales subject to the royalty agreement were $0 and $3,470 for the three months ended March 31, 2019 and 2018, respectively.

On April 29,2019, the royalty agreement was terminated.

Rent

During 2017, the Company entered into a rental agreement for the rent of a laboratory space for $10,000 per month (See Note 4). Raveendran Pottathil, our Chief Technology Officer is an officer of the company that is the primary lessee of the laboratory.

Consulting Agreement

In March 2015, the Company entered into a consulting agreement with a former Director.director. The agreement had a term of six months and required payments of $200,000$200,000 of which $200,000$200,000 was recorded as a component of general and administrative expense in the 2015statement of operations.operations for the year ended December 31, 2015. An obligation of $75,000$65,000, related to the consulting agreement, was payable to the former Directordirector and is included in accounts payable at March 31, 2018 2019 and December 31, 2017.2018.

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-yeartwo-year lease for its production facility and warehouse in Okeechobee, which began September 1, 2016 and will expire expired August 31, 2018. This lease was extended through December 31, 2019 and then again through August 31, 2020. We are currently month to month on this lease. Lease expense was $54,325$55,967 and $6,942$54,325 for the periodsthree months ended March 31, 2018 2019 and 2017,2018, 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(together the “Lichtinger Group”) entered into a License and Business Development Agreement Mexico, effective as of February 13, 2018 (the(the “Agreement”). Following consummation of the Agreement, the Lichtinger Group began to formformed a company in Mexico, Agro Space Tech SA de CV de RV (“Agro Space”), to which BAM will receivewas allocated a twenty percent (20%(20%) equity ownership interest. The Lichtinger Group will contribute up to $500,000$500,000 in capital into Agro Space, with BAM having no initial capital requirement. If Agro Space requires more than the initial $500,000$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) (5) years following the successful completion of specified local trials.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

In addition to BAM receiving an ownership interest in Agro Space, Zero Gravity Solutions, Inc. ("Company")the Company received $100,000 from the Lichtinger Group following the execution of the Agreement, to purchase shares of the CompanyCompany’s common stock 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 periodperiods ended March 31, 2019 and 2018, and 2017, $0 and $29,610 respectively, wasthere have been no amounts expensed to research and development expense pursuant to the SAA.

NOTE 5 – CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

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 (See Note 3), 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 the Company's common stock at an exercise price of $1.00 per share (the “June 2018 Offering Warrants”). The June 2018 Offering terminated on July 31, 2018, and consisted of one or more closings.

The following descriptions of convertible notes and notes payable refer to notes issued to non-related parties of the Company. For a description of convertible notes and notes payable to related parties of the Company, see Note 3.

All of the above July 2018 notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019.

The Company hasreceived, in the aggregate, $550,000 from seven current shareholders and issued June 2018 Offering Notes of $550,000 in exchange therefore, and June 2018 Offering Warrants to purchase, in the aggregate, up to 550,000 shares of the Company’s common stock. The relative fair value of the warrants of $228,049 and offering costs of $16,500 were recorded as debt discounts and are accreted over the term of the note. Pursuant to the June 2018 Offering, in the aggregate, the Company issued June 2018 Offering Notes having an aggregate principal balance of $2,050,000, and June 2018 Offering two year warrants to purchase up to 2,050,000 shares of the Company’s common stock exercisable at $1.00 per share. The notes can be converted at the holders’ option at $3.00 per share, unless the Company issues shares at a subsequent lower price, then the notes convert at that subsequent lower price. See Note 3 for $1,500,000 of June 2018 Offering Notes received by related parties. All June 2018 Offering Warrants issued were accounted for at their relative fair value of $853,518.  These values along with the related offering costs of $61,500, are recorded as debt discounts and are accreted over the term of the note.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

On or about December 11, 2018, the Company and an accredited investor, Crossover Capital Fund I, LLC (the “Investor”), entered into a Securities Purchase Agreement, pursuant to which the Investor agreed to invest $125,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company (the “First Note”) having an aggregate principal amount of $136,000 which is convertible into common stock of the Company the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding note payable for financing corporate insurance premiums. The originaland unpaid principle value was $223,707. The note carries a rate ofamount and accrued and unpaid interest of 7.5%the First Note into fully paid and non-assessable shares of common stock as such, and the conversion price shall be the lesser of $3.00 or 65% multiplied by the market price) and (b) a Common Stock Purchase Warrant to purchase up to 100,000 shares of common stock. The First Note carried an original issue discount of $11,000.

On or about January 14, 2019, the Company and the Investor, entered into a Securities Purchase Agreement, pursuant to which the Investor agreed to invest $82,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company (the “Second Note”) having an aggregate principal amount of $94,500 plus a penalty in the amount of $10,000 for a total of $104,500, which is dueconvertible into common stock, the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding and unpaid principle amount and accrued and unpaid interest of this the Second Note into fully paid and non-assessable shares of common stock as such, and the conversion price shall be the lesser of $3.00 or 65% multiplied by the market price) and (b) a Common Stock Purchase Warrant to purchase up to 100,000 shares of common stock. The Second Note carried an original issue discount of $12,500 plus $2,000 of legal fees and the remaining initial discount was $56,002 for the relative fair value of the warrants and $23,998 related to the embedded conversion option derivative liability.

On or about March 2019, a shareholder loaned the Company $50,000 and in November 2018. exchange was issued 1,000 shares of the Company’s common stock for each week outstanding. The note callsloan was outstanding for eleven paymentsjust over two weeks so 2,000 shares of $19,353. The balance at the Company's common stock in total were issued and $3,608 was recorded as debt discount and amortization to interest expense as of March 31, 2018 was $154,822.2019.. (See Note 6)

Fair Value Measurements – Derivative Liability – December 2018 and January 2019 convertible notes payable to non-related party –discussed above

Embedded Conversion Option Derivatives

Due to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option derivative instruments at the original note inception dates using the Monte Carlo option pricing model using the share prices of the Company’s stock on the dates of valuation and using the following ranges for volatility, expected term and the risk-free interest rate at each respective valuation date, no dividend has been assumed for any of the periods:

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

Fair value measures

The accounting guidance for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements.  Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.  The accounting guidance established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.  An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Assets and liabilities measured at fair value on a recurring and non-recurring basis consisted of the following at March 31, 2019:

The following is a summary of activity of Level 3 liabilities for the periods ended March 31, 2019:

Changes in fair value of the embedded conversion option liability are included in other income (expense) in the accompanying consolidated statements of operations.

All of the above notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019 (See Note 7).

In December 2017, the Company received $200,000$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,$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%(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$3.00 per share. The relative fair value of the debt and warrants recorded resulted in a debt discount of $18,652$18,652 upon execution of the promissory note. For the periodthree months ended March 31, 2019 and 2018, accretion of the debt discount was $2,300,$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%(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”).date. Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the Maturity Date,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 a debt discount of $7,124 upon execution of the promissory note.

Warrants issued with debt – related party

In JanuaryFor the three months ended March 31, 2019 and 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 valueaccretion of the debt discount was $878 and warrants recorded resulted$703, respectively, included in debt discountother expenses on the statements of $35,590 upon execution ofoperations. This note plus the promissory note. 

In March 2018, in connection with issuance ofaccrued and unpaid interest was subsequently converted into 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. Series A Note. (See Note 7).

InThe Company has an outstanding note payable for financing corporate insurance premiums. The note carries a rate of interest of 8.75% and is due in November 2019. The note calls for eleven payments of $21,254. The balance at March 31, 2019 and December 31, 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 debtwas $168,819 and warrant recorded resulted in debt discount of $14,279 upon execution of the promissory note. 

$223,482, respectively.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 20182019

(Unaudited)

NOTE 6 – EQUITY

Common Stock

Stock issued for services

During the three months ended March 31, 2019, the Company issued 45,000 shares of the Company’s common stock for services. These shares were valued at $79,950 based upon the current stock price at the time of issue.

Stock issued for loan costs

During the three months ended March 31, 2019 the Company issued 2,000 shares of the Company’s common stock as loan costs valued at $3,608.

Warrants

Warrants cashless exercise

During the three months ended March 31, 2019, three former employees exercised 475,500 of their warrants in a cashless exercise resulting in the issuance of 306,195 of the Company’s common shares.

Warrants issued for services

During the period ended March 31, 2019, 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. Additionally, the Company recorded $55,081 of expense related to prior warrants issued for services.

Warrants issued with debt

On or about January 14, 2019, the Company and Crossover Capital Fund I, LLC., also referred to herein as the “Investor”, entered into a Securities Purchase Agreement, pursuant to which the Investor agreed to invest $80,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company also referred herein as the “Second Note”, having an aggregate principal amount of $94,500 plus a penalty of $10,000 for a total of $104,500. This note is convertible into common stock and the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding and unpaid principle amount and accrued and unpaid interest of the Second Note into fully paid and non-assessable shares of common stock. The conversion price shall be the lesser of $3.00 or 65% multiplied by the market price. (b) a Common Stock Purchase Warrant to purchase up to 100,000 shares of common stock at an exercise price of $1.75. The Second Note carried an original issue discount of $14,500 plus there were $2,000 of legal fees and the remaining initial discount was $56,002 for the relative fair value of the warrants and $23,998 related to the embedded conversion option derivative liability.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

The following is a summary of the Company’s warrant activity for the yearthree months ended March 31, 2018:2019: