Overview

Zero Gravity Solutions, Inc., a Nevada corporation (the "Company" or "ZGSI"), is
an agricultural-based biotechnology company focused on commercializing
technology derived from, and designed for, long term spaceflight and planetary
colonization with significant applications to agriculture on earth. The
Company's technology is focused on improving world agriculture by providing
valuable solutions to challenges facing humanity, including climate change
stress and soil degradation threats to agricultural production and the
increasing inability to feed the world's rapidly growing population. The
Company's business model is focused on its primary technology, BAM-FX®, which is
a cost effective, ionic delivery platform and stimulant for plants that promotes
the delivery of minerals and micronutrients systemically. ZGSI is headquartered
in Boca Raton, Florida.



Our business activities are conducted by our wholly-owned subsidiary, BAM
Agricultural Solutions, Inc. ("BAM"), and our 98% owned subsidiary, Specialty
Agricultural Solutions, Inc. ("SASI"). BAM oversees BAM-FX®'s commercial
introduction and business development through product trials and validation with
crop growers and distributors that have established business networks in
agricultural markets, manufacturing, sales and agronomy support. In addition,
BAM manages the introduction of Gardener's Choice®, a ready to use product for
the home and garden retail markets. Gardener's Choice® has been registered for
sale in all domestic states. SASI, which was incorporated in 2018, supports
introducing a commercial product for sale to legal cannabis and hemp grow
operations. Another subsidiary of the Company, Zero Gravity Life Sciences Inc.
("ZGLS"), was originally formed for space research projects, life science
applications of our technology and conducting research on future BAM product
lines. ZGLS is currently inactive.



The Company is focused on revenue generation through the sale of BAM-FX® in
domestic and international agricultural markets. BAM-FX® is licensed in and
registered for sale as a fertilizer application in all fifty (50) domestic
states and has been approved for import and commercial sales in Chile, Paraguay,
Colombia, Brazil, and China. The Company is also pursuing import approval
through proper governmental officials and agencies to begin commercial sales in
Philippines and India. Pursuant to a license and business development agreement
with Agro Space Tech SA de CV de RV, the Company is providing technical
assistance to obtain approval in Mexico. Country specific commercial operations
are only undertaken with a qualified local business partner having existing
in-country business relationships. Our business relationships are formed either
through a license or a distribution agreement.



The Company began domestic product trials on multiple crops in laboratory and
academic settings as well as in field applications on grower/end-user crops
during 2014 and expanded field applications with those and additional trial
participants in subsequent years. These basic trials showed yield, nutritional
value and biomass improvements for crops treated. The Company also noted an
early indication of a curative response to fungal, bacterial, and viral plant
diseases. We continue to use trials to increase our understanding of the mode of
action, application rates and protocols for our product and validate product
efficacy. These trials are critical in both market and product development
efforts. During the past five years, the Company increasingly focused on
obtaining third-party validation, through studies with academic institutions and
in accordance with the Company's Reimbursable Space Act Agreement with the
National Aeronautics and Space Administration Ames Research Center.



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The agricultural industry is known to adopt new technology slowly. The Company
believes that slow adoption and sales results is due to the Company's inability
to sufficiently differentiate its product from other products making similar
claims. Additionally, in a number of row crops, the product, combined with
application costs, has not resulted in sufficient grower return, especially in
those crops whose ex-farm pricing is low. Therefore, the Company targeted high
value crops including grape, avocado, citrus, berry, and hemp and for specific
validation trials during 2019. Based upon BAM-FX®'s performance in these trials,
the Company expects to focus business development efforts in these high value
crops during 2020 and 2021.


During 2017, we began to develop a ready to use, home and garden product,
Gardener's Choice®, for retail markets. Independent third parties successfully
tested Gardener's Choice® for plant performance and consumer safety during 2018.
During the fourth quarter of 2017, the Company showcased the product concept at
a home and garden trade show and generated interest from prospective purchasers.
During 2018, through an independent sales team, the Company introduced
Gardener's Choice® directly to Ace Hardware retailers at their annual trade show
and expanded product introduction to a number of other big box retailers during
2019. We have received positive feedback from retailers. However, we secured
limited purchase commitments during the first and second quarters of 2019, the
time of the year during which retailers purchase and display product for the
outdoor home and garden season.



The Company had limited resources to allocate to business development and
promotion of Gardener's Choice® during the fourth quarter 2018 through May of
2019. We believe that Gardener's Choice® sales were nominal through the second
quarter of 2019 due to it being a new product, a lack of regional focus and the
Company's resource constraints to provide the product support, training and
promotion campaigns required by retailers to generate store product sales during
the spring home and garden season. We were not able differentiate the benefits
of Gardener's Choice® to the consumer at the retail level from other well-known
competitive products and therefore, we did not generate product reorders.



During the second quarter 2019, the Company hired a Vice President of Business
Development and added two independent commissioned sales representatives to
promote and sell BAM-FX® to growers in the Midwest and southern states. The
Company's objectives were to build brand name recognition while demonstrating
BAM-FX® crop benefits and develop grower relationships into purchase
commitments. The program consisted of three steps: (i) apply BAM-FX® on select
acreage; (ii) quantify results at harvest; and (iii) based on performance,
request reimbursement for the product used with a commitment to purchase during
the next planting cycle. Growers in Colorado, Kansas, Illinois, and Texas
participated.



Anecdotal results of in-field trails, which became available in the later part
of the third and into the fourth quarter of 2019, were mixed or inconclusive.
The program started late and therefore, we missed early crop applications, which
we believe would have been more beneficial for the crop during the growing
season. Abnormal wet weather conditions and flooding in Illinois led to the U.S.
Department of Agriculture designating 102 counties as primary disaster areas on
August 14, 2019.  A number of Illinois growers declined or discontinued trials
due to poor weather conditions and continued prior farming practices with which
they were comfortable. The Company saw positive results in a Colorado corn
trial. However, hail damaged both control and trial plots mid-season and
therefore, yield results were compromised. The Company analyzed the growers'
soil as part of the program and found nutrient deficiencies, specifically in
Texas, that the growers decided not to address, thereby negatively impacting
yields on both control and trial crops. Due to the expense of monitoring the
growers' progress, the Company did not have the personnel or financial resources
to monitor and provide guidance to the growers during the growing season.
Although the Company received interest from a number of growers to continue
trials in the next growing cycle, the Company generated nominal program sales.

To support commercialization and sales, the Company employs or contracts certified crop advisors and agronomists for the technical requirements of product introduction and applications domestically and internationally.





The Company continues to develop technical relationships to validate the science
incorporated in BAM-FX® and identify additional commercial markets and licensing
opportunities for the product. The majority of this work was performed during
2019 by Iowa State University on the efficacy of a granular product and new
product formulations, Colusa County Farms on tomato and Nurture Earth Research
and Development Pvt. Ltd. in India to identify scientific bio-markers showing
product efficacy and application timing. We received results of third party
tests during the first quarter of 2020.



Results of trials on our dry formulation showed a combination of yield
improvement and the plant's ability to cope with diseases. Two trials were
conducted in India, both in pomegranate. The first trial was conducted in
February and March of 2019 on fifteen trees in an orchard of 550 trees infected
with bacterial blight. Bacterial blight can reduce yields up to 90%. There is no
known cure for bacterial blight. After two foliar applications of our dry
formulation diluted in water, the treated trees began to shed damaged foliage,
grow new leaves, and produce undamaged fruit. The trees showed signs of recovery
and fruit damage was controlled. The second trial, also conducted in India,
compared yields against a control group. 3,500 trees were treated with foliar
applications in April and May 2019 against a control group of 500 trees. Treated
trees compared to non-treated trees produced a 27% increase in yield at harvest.



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During April and May 2019, the Company treated, with a foliar application,
fifteen olive trees in California that were infected with Xylella fastidiosa.
Xylella is a plant pathogen. Infected trees become less productive and decline
progressively. Tree leaf and tissue samples were collected prior to and
subsequent to the foliar application and submitted to an independent third party
laboratory for analysis. The laboratory report showed no Xylella was present in
the tissue samples taken from the treated trees.



Based on the data from these trials and previous positive results, including
pigeon pea germination trials, the Company filed a provisional patent
application with the United States Patent and Trademark Office ("USPTO") on
August 28, 2019, titled Plant Priming Compositions and Methods of Use Thereof,
U.S. Patent Application Number 62/893,028. The provisional patent application
establishes a starting point in the intellectual property protection process
with the USPTO. The Company subsequently submitted its full patent application
and was notified by the USPTO on August 28, 2020 that the patent application was
received.



The Company's product development plan for the remainder of 2019 included
refining our analysis of plant bio-markers to identify those bio-markers that
show that our product has induced priming and testing the efficacy of a granular
form of BAM-FX®.



Priming is a natural defense response of a plant to a stress caused by insects
or pathogens. Our trials have shown our product elicits a priming response,
enabling a plant to prepare itself against insect or pathogen stresses. We
believe the identification of these bio-markers will provide us a precise tool
for optimal product application timing and dosage.



The Company manufactures its product in a manufacturing facility in Okeechobee,
Florida. Manufacturing is conducted on an as-needed batch process. The Company
continually performs regulatory and process efficiency reviews of manufacturing
operations. Our manufacturing plant manager is an experienced biochemical
engineer. We have made limited quantities of granular product using a batch
process for research purposes and plan to identify equipment and manufacturing
requirements for commercial scale operations when testing and registration
requirements for the granular product are complete. Given adequate resources, we
believe testing and registration could be completed during the second quarter of
2021.



Although we have started and realized nominal product sales, we anticipate that
in the near term, ongoing expenses, including product development, manufacturing
process improvement, corporate administration and technical product support,
will be funded primarily by proceeds from sales of our securities and issuance
of debt.



We have generated nominal sales from our operations thus far. We believe with
the financial ability to promote and market, in addition to easing COVID-19
commerce restrictions, product sales could begin during the first quarter of
2021 primarily from direct sales to end users and international distributor
purchases.



We cannot, however, guarantee we will be successful in generating significant
sales or in the execution of our business strategy. Our business is subject to
risks inherent in the establishment of a new business enterprise, including the
financial risks associated with the limited capital resources currently
available to us for the implementation of our business strategies. To become
profitable and competitive, we must raise additional capital to execute our
business plan and realize revenues expected.



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 three
executive officers due 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.



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Critical Accounting Policies and Estimates





Our discussion and analysis of our unaudited consolidated financial condition
and unaudited consolidated results of operations are based on our Consolidated
Financial Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
unaudited condensed consolidated financial statements requires us to make
estimates and assumptions that affect the amounts reported in our condensed
consolidated financial statements and accompanying notes. Note 2:  Summary of
Significant Accounting Policies in our unaudited condensed consolidated
financial statements contains a description of the accounting policies used in
the preparation of our unaudited condensed consolidated financial statements as
well as the consideration of recently issued accounting standards and the
estimated impact these standards will have on our unaudited condensed
consolidated financial statements. We evaluate our estimates on an ongoing
basis. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances. Actual
amounts could differ significantly from these estimates under different
assumptions and conditions.



We define a critical accounting policy or estimate as one that is both important
to our consolidated financial condition and consolidated results of operations
and requires us to make difficult, subjective, or complex judgments or estimates
about matters that are uncertain. We believe that the following are the critical
accounting policies and estimates used in the preparation of our unaudited
condensed Consolidated Financial Statements. In addition, there are other items
within our unaudited condensed Consolidated Financial Statements that require
estimates but are not deemed critical as defined in this paragraph.



Accounting for Derivatives



The Company evaluates its convertible instruments, options, warrants or other
contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for under ASC Topic
815, "Derivatives and Hedging." The result of this accounting treatment is that
the fair value of the derivative is marked-to-market each balance sheet date and
recorded as a liability. In the event that the fair value is recorded as a
liability, the change in fair value is recorded in the statement of operations
as other income (expense). Upon conversion of a note where the embedded
conversion option has been bifurcated and accounted for as a derivative
liability, the Company records the shares at fair value, relieves all related
notes, derivatives, and debt discounts, and recognizes a net gain or loss on
extinguishment.  Equity instruments that are initially classified as equity that
become subject to reclassification under ASC Topic 815 are reclassified to
liabilities at the fair value of the instrument on the reclassification date.



The company has adopted FASB ASU 2017-11, which simplifies the accounting for
certain equity-linked financial instruments and embedded features with down
round features that reduce the exercise price when the pricing of a future round
of financing is lower. This allows the company to treat such instruments or
their embedded features as equity instead of considering them as a derivative.
If such a feature is triggered the value is measured pre-trigger and
post-trigger. The difference in these two measurements is treated as a dividend,
reducing income. The value recognized as a dividend is not subsequently
remeasured, but in instances where the feature is triggered multiple times each
instance is recognized.



Revenue Recognition



In accordance with ASC 606 we consider persuasive evidence of an arrangement to
be a signed agreement, a binding contract with the customer or other similar
documentation reflecting the terms and conditions under which products are
sold. 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. This
recognition generally occurs when the product is shipped to or received by the
customer.



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Going Concern



We adopted FASB ASU No. 2014-15, Presentation of Financial Statements- Going
Concern, during the first quarter of 2016. This standard defines management's
responsibility to evaluate conditions or events as related to uncertainties that
raise substantial doubt about our ability to continue as a going concern and to
provide related footnote disclosures, as applicable. Management's estimates and
assumptions, used in the evaluation of our ability to meet our obligations as
they become due within one year after the date our financial statements are
issued, are based on the facts and circumstances at such date and are subject to
a material and high level of subjectivity and uncertainty due to the matters
themselves being uncertain and subject to modification. The effect of any
individual or aggregate changes in the estimates and assumptions, or the facts
and circumstances, could be material to the financial statements. We have
concluded that there is substantial doubt about our ability to continue as a
going concern. The accompanying condensed consolidated financial statements have
been prepared assuming we will continue as a going concern, but do not include
any adjustments that might result if we were unable to do so.

Employee Stock-Based Compensation and Share-Based payment to non-employees





We measure employee and non-employee compensation expense for all stock-based
awards at fair value on the date of grant and recognize compensation expense
over the service period for awards expected to vest.



We use the Black-Scholes option-pricing model to determine the fair value for
stock option awards and recognize compensation expense on a straight-line basis
over the awards' vesting periods for employees and over the service period for
non-employees. Determining the fair value of stock-based awards at the grant
date requires judgment. The determination of the grant date fair value of
options using an option-pricing model is affected by our estimated common stock
fair value as well as assumptions regarding a number of other complex and
subjective variables. If any of the assumptions used in the Black-Scholes model
changes significantly, stock-based compensation for future awards may differ
materially compared with the awards granted previously. In valuing our options,
we make assumptions about risk-free interest rates, dividend yields, volatility,
and weighted-average expected lives, including estimated forfeiture rates, of
the options.



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 (discounted cash flow).



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The Black-Scholes option-pricing model requires the use of highly subjective

and complex assumptions, including the expected term and the price volatility

of the underlying stock, which determine the fair value of stock-based awards.


  These assumptions include:

? Risk-free rate. Risk-free interest rates are derived from U.S. Treasury

securities as of the option grant date.

? Expected dividend yields. Expected dividend yields are based on our historical

dividend payments, which have been zero to date.

? Volatility. Because we have a limited trading history as a public company, we

estimate volatility of our share price based on a combination of the published

historical volatilities of comparable publicly traded companies in our

vertical markets and the historical volatility of our common stock.

? Expected term. We estimate the weighted-average expected life of the options


  as 5 years.

? Forfeiture rate. Forfeiture rates are estimated using historical actual

forfeiture trends as well as our judgment of future forfeitures. These rates

are evaluated at least annually and any change in compensation expense is

recognized in the period of the change. The estimation of stock awards that

will ultimately vest requires judgment and, to the extent actual results or

updated estimates differ from our current estimates, such amounts will be

recorded as a cumulative adjustment in the period in which the estimates are

revised. We consider many factors when estimating expected forfeitures,

including the types of awards and employee class. Actual results, and future


  changes in estimates, may differ substantially from management's current
  estimates.




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Results of Operations



       For the three months ended            June 30,         June 30,
                                               2019             2018           $ Change       % Change

Sales                                      $      4,923     $     29,600     $    (24,668 )       (83.3 )%

Cost of Sales                                     6,327            4,727            1,600          33.8 %

Gross Profit (Loss)                              (1,404 )         24,873          (26,277 )      (105.6 )%
Operating Expenses                            1,051,775        1,177,535

(125,760 ) (10.7 )%



Loss from Operations                         (1,053,179 )     (1,152,662 )

(99,483 ) (8.6 )%



Other Expense, net                           (1,567,049 )       (121,723 )      1,445,326       1,187.4 %
Non-controlling interest                            283               --              283            -- %
Net Loss                                   $ (2,619,945 )   $ (1,274,385 )

$ (1,345,560 ) 105.6 %

Net loss per share - basic and diluted $ (0.07 ) $ (0.03 )

 $      (0.04 )       133.3 %




Sales for the three months ended June 30, 2019 was $4,923, a decrease of $24,668
or 83.3% over $29,600 for the three months ended June 30, 2018. The decrease in
Sales was primarily due to a $22,500 sale to a startup agricultural product
distributor during the three months ended June 30, 2018, which did not reoccur
during the three months ended June 30, 2019 due to changes in their business.
Sales are generated from sales to distributors of agricultural products and to
growers who have completed trials in multiple crop-growing seasons with positive
crop attributes from applying BAM-FX® to their crops. During the three months
ended June 30, 2019, $3,600 of Sales includes the sale of ready to use retail
product, Gardener's Choice®, introduced to a national brand hardware store's
franchisees.



For the three months ended June 30, 2019, Cost of Sales was $6,327, an increase
of $1,600 or 33.8% over $4,727 for the three months ended June 30, 2018. The
increase in Cost of Sales was directly related to a write off of inventory of
$4,003 during the three months ended June 30, 2019. During 2019, the Company
reduced the acid content of its product and discontinued the sale of previously
manufactured product remaining in inventory.



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Operating Expenses for the three months ended June 30, 2019 was $1,051,775, a
decrease of $125,760 or 10.7% over $1,177,535 for the three months ended June
30, 2018. The decrease in Operating Expenses was primarily due to a decrease in
salaries and related employee benefits and payroll tax expense of $228,051
resulting from headcount reductions, a decrease in non-cash equity compensation
paid to consultants, board members and employees of $123,771 and a decrease in
consulting expense of $12,033. These decreases were offset primarily by an
increase in legal fees of $99,909 related to an intellectual property settlement
agreement with our former Chief Science Officer, an increase in research and
development expense of $47,181, an increase in accounting fees for temporary
help of $32,052, an increase in advertising and promotion of $17,794, an
increase in product marketing shipping expense of $12,775 and an increase in web
site expense.



Other Expense, net for the three months ended June 30, 2019 was $1,567,049, an
increase of $1,445,326 or 1,187.4% over $121,723 for the three months ended June
30, 2018. The increase in Other Expense was primarily due to an increase in
accretion of debt discount of $1,287,548 from $49,320 for the three months ended
June 30, 2018 to $1,336,868 for the three months ended June 30, 2019. Accretion
of debt discount was due to the Company's debt restructuring whereby certain
debt and accrued interest as of April 30, 2019 was exchanged for Series A Notes
and for certain participating Series A Noteholders, the issuance of Series B
Notes for additional capital. Accretion of debt discount attributed to the
retired debt was $840,320. In addition, interest expense increased by $172,778
due to an increase in the Company's debt with higher interest rate terms.



Net Loss for the three months ended June 30, 2019 was $2,619,945, an increase of
$1,345,560 or 105.6% over $1,274,385 for the three months ended June 20, 2018.
The increase in Net Loss was primarily due to an increase in Other Expense for
the three months ended June 30, 2019 of $1,445,326 offset by a decrease
in Operating Expenses for the three months ended June 30, 2019 of $125,760.



Results of Operations



        For the six months ended             June 30,         June 30,
                                               2019             2018          $ Change        % Change

Sales                                      $     49,418     $     33,070     $    16,348           49.4 %

Cost of Sales                                    33,640            5,277          28,363          537.5 %

Gross Profit                                     15,778           27,793         (12,015 )        (43.2 )%
Operating Expenses                            1,939,558        2,672,048        (732,490 )        (27.4 )%

Loss from Operations                         (1,923,780 )     (2,644,255 )       720,475          (27.2 )%

Other Income / (Expense)                     (1,927,536 )       (206,807 )

1,720,729 832.0 %



Non-controlling interest                           (555 )             --            (555 )           -- %

Net Loss                                   $ (3,850,761 )   $ (2,851,062 )   $  (999,699 )         35.1 %

Net loss per share - basic and diluted $ (0.10 ) $ (0.07 )

 $     (0.03 )         42.9 %




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Sales for the six months ended June 30, 2019 was $49,418, an increase of $16,348
or 49.4% over $33,070 for the six months ended June 30, 2018. The increase in
Sales was due to a sale of product for specialty crop markets during the six
months ended June 30, 2019 of $44,495 which was offset by a decrease of $22,500
from a sale to a startup agricultural product distributor during the six months
ended June 30, 2018, which did not reoccur during the six months ended June 30,
2019 due to changes in their business. Sales are generated from sales to
distributors of agricultural products and to growers who have completed trials
in multiple crop-growing seasons with positive crop attributes from applying
BAM-FX® to their crops. During the six months ended June 30, 2019, $3,600 of
sales includes first time sales of ready to use retail product, Gardener's
Choice®, introduced to a national brand hardware store's franchisees.



For the six months ended June 30, 2019, Cost of Sales was $33,640, an increase
of $28,363 or 537.5% over $5,277 for the six months ended June 30, 2020. The
increase in Cost of Sales was directly related to our increase in Sales for the
six months ended June 30, 2019 over 2018 and a write off of inventory of $10,286
during the six months ended June 30, 2019. During 2019, the Company reduced the
acid content of its product and discontinued the sale of previously manufactured
product remaining in inventory.



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Operating Expenses for the six months ended June 30, 2019 was $1,939,558, a
decrease of $732,490 or 27.4% over $2,672,048 for the six months ended June 30,
2018. The decrease in Operating Expenses was primarily due to a decrease in
salaries and related employee benefits and payroll tax expense of $424,840 due
to a reduction in headcount, a decrease of $250,107 in non-recurring impairment
expense, a decrease of $148,959 in non-cash equity compensation paid to
consultants, board members and employees, a decrease in non-recurring impairment
of royalty advances of $129,580, a decrease in research and development expense
of $36,489 and a decrease in consulting expense of $21,095. These decreases were
primarily offset by an increase in legal fees related to an intellectual
property settlement with our former Chief Science Office of $61,868, an increase
in temporary help expense of $57,849, an increase in advertising and promotion
expense of $49,641, an increase in audit fees of $23,878, an increase in product
shipping expense for business development purposes of $20,580 and an increase in
commission expense of $13,171.



Other Expense for the six months ended June 30, 2019 was $1,927,536, an increase
of $1,720,729 or 832% over $206,807 for the six months ended June 30, 2018. The
increase in Other Expense was primarily due to an increase in accretion of debt
discount of $1,461,241 from $72,962 for the six months ended June 30, 2018 to
$1,534,203 for the six months ended June 30, 2019. Accretion of debt discount
was due to the Company's debt restructuring whereby certain debt and accrued
interest as of April 30, 2019 was exchanged for Series A Notes and for certain
participating Series A Noteholders, the issuance of Series B Notes for
additional capital. Accretion of debt discount attributed to the retired debt
was $840,320. In addition, interest expense increased by $246,831 due to an
increase in the Company's debt with higher interest rate terms.



Net Loss for the six months ended June 30, 2019 was $3,850,761, an increase of
$999,699 or 35.1% over $2,851,062 for the six months ended June 30, 2018. The
increase in Net Loss was primarily due to an increase in Other Income/(Expense)
of $1,720,729 offset by a decrease in Operating Expenses for the six months
ended June 30, 2019 of $732,490.



Use of Cash

Net Cash Used in Operating Activities





Net cash used in operating activities for the six months ended June 30, 2019 was
approximately $1,989,000, an increase of approximately $157,000, or 8.5%, from
approximately $1,832,000 for the six months ended June 30, 2018. The increase in
net cash used in operating activities was primarily due to an increase in net
loss of approximately $1,000,000, an increase in inventory of approximately
$158,000, a decrease in prepaid and other of approximately $57,000 due to
non-cash equity based compensation expense of which approximately $99,000 was
issued with the expense deferred to future periods, a decrease in impairment
loss of approximately $193,000, a decrease in advances on future royalties to
related parties reserve of approximately $130,000 and a decrease in non-cash
equity based compensation expense of approximately $221,000. The increase in net
cash used in operating activities for the six months ended June 30, 2019 was
primarily offset by an increase in amortization of debt discounts related to
various notes and convertible notes of approximately $1,461,000.



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Net Cash Provided by Financing Activities





Net cash provided by financing activities for the six months ended June 30, 2019
was approximately $3,728,000, an increase of approximately $916,000, or 32.6%,
over approximately $2,812,000 for the six months ended June 30, 2018. The
increase in net cash provided by financing activities was due primarily to an
increase in proceeds from issuance of Series B Notes, 12% convertible notes
payable to related parties of approximately $2,300,000, an increase in proceeds
from issuance of Series B Notes, 12% convertible notes payable of approximately
$763,000, a decrease in repayments of notes payable to related party of
approximately $300,000 and an increase in proceeds from convertible notes
payable of approximately $95,000. The increase in cash provided by financing
activities for the six months ended June 30, 2019 was offset by a decrease in
notes payable - related party of approximately $1,411,000, a decrease in
proceeds from sale of common stock of approximately $911,000, a decrease in
proceeds from notes payable of $150,000 and an increase in repayments of notes
payable of $50,000.

Liquidity and Capital Resources





The Company expects to incur significant expenses and operating losses for the
foreseeable future. Specifically, we estimate that the costs associated with the
execution of our 2019 and 2020 business plans may exceed $300,000 per month.
This expense rate is primarily due to: an increase in costs of additional
technical personnel, personnel-related costs; promotional expenses to develop
markets for domestic and international sales of our product, BAM-FX®, our retail
product, Gardener's Choice®, and our cannabis market product introduction;
improvements to our manufacturing facility and processes; research and product
development related expense for expansion of our product line, patent
application filing costs, and development of commercial priming and granular
products; and interest expense. The Company has evaluated its ability to
continue as a going concern for the next twelve months from the issue date of
the June 30, 2019 consolidated financial statements. There is substantial doubt
about the Company's ability to continue as a going concern as we do not
currently have the funding necessary to support the projected operating costs we
expect to be needed to operate the business. The Company is active in
its fundraising, and subsequent to June 30, 2019, the Company has raised
approximately $1,837,000.



We filed a registration statement on Form 10 with the SEC that became effective
in February 2015, which requires us to operate as a fully reporting public
company. We expect to continue to incur additional personnel and professional
costs associated with operating as a fully reporting public company.
Accordingly, we have acknowledged the need to obtain additional funding to
operate the Company and have continued to raise funds through a private
offering.



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Adequate additional financing may not be realized from our private offering or
otherwise may not be available to us on acceptable terms, or at all. If we are
unable to raise capital when needed or on attractive terms, we would be forced
to delay, reduce or eliminate our research and development programs or any
future commercialization efforts. We will need to generate significant revenues
to achieve profitability, and we may never do so.



Cash on Hand

As of June 30, 2019, the Company had a cash balance of approximately $1,783,000 compared to a cash balance of approximately $44,000 as of December 31, 2018.





Total assets were approximately $2,375,000 and $552,000 at June 30, 2019 and
December 31, 2018, respectively. Working capital (deficit) was $833,000 and
$(2,691,000) at June 30, 2019 and December 31, 2018, respectively. The increase
in working capital of $3,525,000 during the period was primarily due to cash
used in operating activities of approximately $1,989,000 offset by cash provided
by financing activities of approximately $3,728,000 and restructuring of current
notes payable in which the notes were converted to Series A and Series B
secured, convertible long term notes payable. Total stockholders' deficit
decreased by approximately $4,450,000 to $(646,000) at June 30, 2019 from
$(5,096,000) at December 31, 2018.

Cash on hand as of November 25, 2020, was approximately $5,000.





Outlook

Required Capital Going Forward



Due to the fact that our product, BAM-FX®, is new in the competitive
agricultural markets, it is difficult to accurately predict revenues and cash
flow at this time. For us to successfully introduce our home and garden retail
product, Gardener's Choice®, we will need to commit ongoing financial resources
before realizing revenues and cash flow. We required additional funding to cover
2019 expenses and we will need additional funding in 2020.



On or about May 11, 2019, the Company entered into an Exchange and Release
Agreement (each, an "Exchange Agreement"), with certain holders of the
Company's Promissory Notes (each, an "Old Note"), including certain members of
the Board of Directors and/or their respective affiliates, pursuant to which,
among other things, the holders thereof agreed to exchange all or part of the
amounts owed under their Old Notes for new 10% Series A Secured Convertible
Promissory Notes (each, a "Series A Note"). The face value of a Series A Note is
equal to the principal face amount of an Old Note plus all interest due or
accrued under the Old Note through March 31, 2019.



Furthermore, pursuant to each Exchange Agreement, in connection with any such
exchange, the holder of an Old Note may, in their sole discretion, also exchange
any warrant that such note holder received in connection with the issuance of
the Old Notes for a new warrant to purchase shares of common stock (an "Exchange
Warrant").



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Such transactions contemplated by the Exchange Agreements are referred to herein
as the "Refinancing". The Company conducted the Refinancing in reliance upon the
exemptions provided in the Securities Act, including Regulation D, Rule 506(b).



Furthermore, each Exchange Agreement provides that the holder of an Old Note
may, in their sole discretion, also subscribe for a 12% Series B Secured
Convertible Promissory Note (a "Series B Note") and be allowed to pay up to
one-half of the subscription price of the Series B Note with amounts owed under
the Old Note.



In accordance with the terms of the Exchange Agreements and in reliance upon the
exemptions provided in the Securities Act, including Regulation D, Rule 506(b),
the Company initiated a new private offering of its securities to certain
prospective accredited investors and holders of Old Notes, and entered into
Subscription Agreements (each, a "Subscription Agreement") with certain of such
noteholders, including certain members of the Board of Directors and/or their
respective affiliates, pursuant to which, among other things, such noteholders
subscribed to purchase Series B Notes and warrants to purchase shares of common
stock (each, a "Purchase Warrant").



The transactions contemplated by the Subscription Agreements are referred to
herein as the "Offering". Aggregate gross proceeds in connections with the
Offering were approximately $3,062,000, and proceeds net of commission were
approximately $2,962,000. Commissions were paid in connection with the Offering
equal to 3% of the principal thereof, totaling approximately $100,000 in the
aggregate. The Company intends to use the proceeds from the Offering to fund
working capital requirements.



The Series A Notes and Series B Notes shall collectively be referred to herein
as the "Offering Notes". The Exchange Warrants and Purchase Warrants shall
collectively be referred to herein as the "Offering Warrants". The Offering
Notes were made on substantially the same terms, except as noted. The Offering
Warrants were made on substantially the same terms, except as noted.



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The Series A Notes bear interest at the rate of ten percent (10%) per annum and
the Series B Notes bear interest at the rate of twelve percent (12%) per annum,
in each case, with such interest being payable by the Company in cash to the
holders thereof beginning nine (9) months and fifteen (15) days from the
issuance date of such Offering Note with interest payments due on the fifteenth
(15th) day of each month thereafter. The Offering Notes shall be repaid in full
by the Company, plus all unpaid interest thereon, by thirty-six (36) months from
the date of issuance upon the tender of such Offering Note (the "Maturity
Date"). Prepayment of all unpaid principal and interest on each such Offering
Note may be made by the Company prior to the Maturity Date at any time without
penalty or premium upon forty-five (45) days' prior written notice to the holder
of such Offering Note (a "Prepayment Notice"); provided, however, that a holder
of a Series B Note may not receive a Prepayment Notice prior to the repayment of
the principal and interest owing under any Old Note or Series A Note. The
Offering Notes are secured by the assets of the Company and its subsidiaries,
with the priority of the Series A Notes being subordinated to that of the Series
B Notes. Furthermore, in additional to terms customarily included in such
instruments, each holder of an Offering Note is entitled to convert the unpaid
principal and interest due and owing under such Offering Note into common stock
at any time prior to the earlier of (a) October 1, 2021 or (b) thirty (30) days
following a Prepayment Notice. The conversion price under a Series A Note is two
dollars ($2.00) per share and the conversion price under a Series B Note is one
dollar ($1.00) per share.



Each (i) Exchange Warrant may be exercised by the holder thereof within three
(3) years of issuance into shares of the common stock at an exercise price equal
to one dollar ($1.00) per share and (ii) Purchase Warrant may be exercised at
any time after issuance and through ninety (90) days after payment in full of
the Offering Note at an exercise price equal to (A) one dollar ($1.00) per share
if the Purchase Warrant is exercised on or before April 1, 2020, and (B) fifty
cents ($0.50) per share if the Purchase Warrant was exercised after April 1,
2020, in each case, by providing to the Company a notice of exercise, payment
and surrender of such Offering Warrant. In addition, the Offering Warrants are
subject to adjustment upon the occurrence of specified events including, but not
limited to, a payment of certain stock dividends, a subdivision or combination
of the Company's outstanding shares of common stock, a reclassification of the
common stock, a consolidation or merger of the Company, a sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
exchange affecting the Company. The Company issued fully vested, non-forfeitable
warrants to purchase 9,499,600 common shares at an exercise price of
$1.00 per share as part of the Offering.



Subsequent to June 30, 2019, the Company issued fully vested, non-forfeitable
warrants to purchase 120,000 common shares at an exercise price of $3.00 per
common share to an employee for services.

Subsequent to June 30, 2019, the Company issued fully vested, non-forfeitable warrants to purchase 358,500 shares of common stock to consultants for services.





Subsequent to June 30, 2019, certain consultants and former employees exercised
warrants in a cashless exercise resulting in the issuance of 146,248 shares of
the Company's common stock.

Subsequent to June 30, 2019, the Company issued 262,500 shares of common stock to advisors and consultants for services.

Subsequent to June 30, 2019, the Company issued 190,000 employee stock options pursuant to its 2015 Equity Incentive Plan.

Subsequent to June 30, 2019, the Company paid $100,000 of related party notes payable and $230,500 of convertible notes payable.


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During October 2019, the Company commenced an offering of up to $5,000,000 of
10% Convertible Secured Promissory Notes (the "Notes") with an initial closing
date of December 31, 2019, which was extended for an additional ninety day
period. The Notes bear interest at a ten percent (10%) annual rate, payable
quarterly in arrears, with the first interest payment due January 15, 2020 and
subsequent interest payments due on the fifteenth (15th) day after the end of
each calendar quarter thereafter. Interest will be paid in shares of the
Company's common stock at $2.00 per share. The Notes mature 2 years from the
closing date. The Notes are convertible into the Company's common stock at $2.00
per share.


Commencing on the one (1) year anniversary of the issuance of the Notes and
ending eleven (11) months thereafter (i.e. one month prior to the maturity
date), the Company may at any time upon thirty (30) days prior written notice
repurchase any or all outstanding Notes without penalty or premium; provided,
that the holder may convert the Note prior to the end of the Notice Period, as
defined in the Note.



The Notes are secured by all assets of the Company and its subsidiaries, and are
subordinate to the security interest granted to holders of the Series A Notes
and Series B Notes previously issued by the Company. The Notes are subject to
certain covenants and other provisions customary for a transaction of this
nature. The Company received $300,000 in proceeds pursuant to the issuance of
Notes and incurred no broker fees.



On May 12, 2020, the Company executed a Payroll Protection Program Term Note,
herein referred to as the "PPP Note", and received proceeds of $278,800. The PPP
Note was issued pursuant to the Coronavirus Aid, Relief, and Economic Securities
Act's,(the CARE's Act's) Paycheck Protection Program. All or a portion of the
PPP Note is eligible to be forgiven if all eligible employee retention criteria
are met and the funds are used for eligible purposes. The Company has not
determined an amount eligible for forgiveness. The PPP Note bears interest at 1%
based on a 360 day calendar year and is due two years from date of issuance with
repayment scheduled monthly beginning in the seventh month following the date of
issuance.



Subsequent to June 30, 2019, the Company commenced an exchange offering of its
10% Series A Convertible Secured Promissory Notes whereby the noteholders could
elect to exchange their existing Series A Notes plus accrued and unpaid interest
at the date of exchange for 12% Series B Convertible Secured Promissory Notes by
agreeing to an additional investment equal to the amount of Series A Notes
exchanged. The Series B Notes have a three-year term and include a conversion
option whereby the noteholder has the option to convert unpaid principal and
interest into the Company's common stock at $1.00 per share. The Company
received gross proceeds of $1,240,430 and paid broker fees of $41,617.

On August 5, 2020, the Company received $18,200 pursuant to a thirty year unsecured promissory note through the U.S. Small Business Administration's Disaster Assistance Program. The note bears interest of 3.75% per annum with repayment beginning in the twelfth month following the date of the note.

Without consideration of any revenue or additional fundraising, at the Company's current rate of expenditure, we expect that our current capital will not be sufficient to cover our future operating costs for twelve months.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

For a discussion of our accounting policies and related items, please see the Notes to the unaudited consolidated Financial Statements, included in Note 2.

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