Delaware
(State
or other jurisdiction of
incorporation or
organization)
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90-0821083
(I.R.S.
Employer Identification No.)
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Large accelerated
filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
(Do not check if a
smaller reporting company)
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☐
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Smaller reporting
company
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☑
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Emerging growth
company
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☐
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Page
Number
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PART I FINANCIAL INFORMATION
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|
ITEM
1 Financial Statements (unaudited except as
noted)
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3
|
Consolidated
Balance Sheets as of March 31, 2018 and December 31, 2017
(audited)
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3
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Consolidated
Statements of Operations for the three months ended March 31, 2018
and 2017
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4
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Consolidated
Statements of Cash Flows for the three months ended March 31, 2018
and 2017
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5
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Notes
to the Consolidated Financial Statements
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6
|
ITEM
2 Management’s Discussion and Analysis of
Financial Condition and Results of Operation
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17
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ITEM
3 Quantitative and Qualitative Disclosures About
Market Risk
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32
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ITEM
4 Controls and Procedures
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32
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PART II OTHER INFORMATION
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ITEM
1 Legal Proceedings
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33
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ITEM
IA Risk Factors
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33
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ITEM
2 Unregistered Sales of Equity Securities and Use
of Proceeds
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41
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ITEM
3 Defaults Upon Senior Securities
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42
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ITEM
4 Mine Safety Disclosures
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42
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ITEM
5 Other information
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42
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ITEM
6 Exhibits
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43
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SIGNATURES
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44
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Three Months
Ended,
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|
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March
31,
2018
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March
31,
2017
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|
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NET
REVENUE
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$
708,936
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$
467,565
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COST OF GOODS
SOLD
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632,517
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452,082
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GROSS
PROFIT
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76,419
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15,483
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GENERAL AND
ADMINISTRATIVE EXPENSES
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1,179,457
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413,262
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OPERATING
LOSS
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(1,103,038
)
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(397,779
)
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|
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OTHER INCOME
(EXPENSE):
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Change in fair
value of derivative
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2,358,444
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1,790,814
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Interest expense,
net
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(388,304
)
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(202,784
)
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Loss on debt
conversions
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(5,108,977
)
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(1,367,400
)
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Total other (expense)
income
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(3,138,837
)
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220,630
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|
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(LOSS) BEFORE
INCOME TAXES
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(4,241,875
)
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(177,149
)
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Income taxes -
current benefit
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-
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-
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NET
(LOSS)
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$
(4,241,875
)
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$
(177,149
)
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Basic and diluted
(loss) per share
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$
(0.00
)
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$
(0.00
)
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Weighted average
shares of common stock outstanding- basic and diluted
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2,708,232,869
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1,825,906,568
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Three Months
Ended,
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March
31,
2018
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March
31,
2017
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CASH FLOWS FROM
OPERATING ACTIVITIES:
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Net
loss
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$
(4,241,875
)
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$
(177,149
)
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Adjustments to
reconcile net loss to net cash (used in)
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operating
activities
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Depreciation
and amortization
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10,814
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1,890
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Stock
based compensation
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54,648
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48,583
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Common
stock issued for services
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153,206
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15,000
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Amortization
of debt discount
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249,329
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61,610
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Change
in fair value of derivative liability
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(2,358,444
)
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(1,790,814
)
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Accrued
interest on convertible notes payable
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32,827
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113,045
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Loss on debt
conversions
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5,108,977
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1,367,400
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Changes in
operating assets and liabilities:
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Inventory
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(68,312
)
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(41
)
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Accounts
payable
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245,845
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(150,782
)
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Accrued
expenses
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(115,986
)
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(22,325
)
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Deferred
revenue
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93,491
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(27,995
)
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CASH (USED
IN) OPERATING ACTIVITIES
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(835,480
)
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(561,578
)
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CASH FLOWS FROM
INVESTING ACTIVITIES:
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Investment in
purchased assets
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(250,000
)
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-
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NET CASH (USED IN)
INVESTING ACTIVITIES:
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(250,000
)
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-
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CASH FLOWS FROM
FINANCING ACTIVITIES:
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Cash provided from
Convertible Promissory Note with Chicago Venture Partners,
L.P.
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525,000
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2,059,401
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Share issuances to
St. George Investments LLC
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1,100,000
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-
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Cash payoff to TCA
Global Credit Master Fund, LP
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-
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(1,515,901
)
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NET CASH PROVIDED
BY FINANCING ACTIVITIES
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1,625,000
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543,500
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NET INCREASE IN
CASH AND CASH EQUIVALENTS
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539,520
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(18,078
)
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CASH AND CASH
EQUIVALENTS, beginning of period
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69,191
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103,070
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CASH AND CASH
EQUIVALENTS, end of period
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$
608,710
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$
84,992
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Supplemental
disclosures of cash flow information:
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Interest
paid
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$
-
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$
-
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Taxes
paid
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$
-
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$
-
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Non-cash investing
and financing activities:
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Shares issued for
convertible note and interest conversion
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$
2,468,590
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$
1,544,044
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Common shares
issued for accounts payable
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$
18,000
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$
127,148
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March 31,
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December 31,
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2018
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2017
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Raw
materials
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$
178,311
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$
110,000
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Finished
goods
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375,679
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375,678
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Inventory
reserve
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(20,000
)
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(20,000
)
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Total
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$
533,990
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$
465,678
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Balance
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Accrued
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Debt
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As of
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Principal
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Interest
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Discount
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March 31, 2018
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10% OID Convertible
Promissory Note with Chicago Venture Partners, L.P.
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$
1,748,023
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$
115,059
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$
(546,734
)
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$
1,316,348
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7%
Convertible note ($850,000)
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270,787
|
987
|
-
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271,774
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$
2,018,810
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$
116,046
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$
(546,734
)
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$
1,588,122
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Weighted
Average
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Options
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Exercise
Price
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$
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Outstanding as of
December 31, 2015
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29,020,000
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$
0.03
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$
811,000
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Granted
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-
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-
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-
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Exercised
|
-
|
-
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-
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Forfeitures
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(17,010,000
)
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(0.041
)
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(690,500
)
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Outstanding as of
December 31, 2016
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12,010,000
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0.01
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120,500
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Granted
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44,000,000
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0.006
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280,000
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Exercised
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-
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-
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-
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Forfeitures
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(10,000
)
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(0.050
)
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(500
)
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Outstanding as of
December 31, 2017
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56,000,000
|
0.007
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400,000
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Granted
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3,000,000
|
0.020
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60,000
|
Exercised
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-
|
-
|
-
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Forfeitures
|
-
|
-
|
-
|
Outstanding as of
March 31, 2018
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59,000,000
|
$
0.008
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$
460,000
|
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Weighted
|
Weighted
|
|
Weighted
|
|
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Average
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Average
|
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Average
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Range of
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Number
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Remaining Life
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Exercise Price
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Number
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Exercise Price
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Exercise Prices
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Outstanding
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In Years
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Exerciseable
|
Exerciseable
|
Exerciseable
|
$
0.006
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32,000,000
|
4.50
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$
0.006
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13,666,667
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$
0.006
|
0.007
|
10,000,000
|
4.50
|
0.007
|
1,666,666
|
0.007
|
0.009
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2,000,000
|
2.25
|
0.009
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500,000
|
0.009
|
0.010
|
12,000,000
|
1.63
|
0.010
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12,000,000
|
0.010
|
0.020
|
3,000,000
|
5.00
|
0.020
|
-
|
|
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59,000,000
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3.87
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$
0.008
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27,833,333
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$
0.008
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Years Ended March
31,
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Total
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2019
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$
278,683
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2020
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169,242
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2021
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58,422
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2022
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-
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2023
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-
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Beyond
|
-
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Total
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$
506,347
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Less
Than
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|
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Greater
Than
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Contractual
Cash Obligations
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Total
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1
Year
|
1-3
Years
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3-5
Years
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5
Years
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Operating
leases
|
$
506,347
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$
278,683
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$
169,242
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$
58,422
|
$
-
|
Convertible notes
payable
|
1,558,122
|
1,558,122
|
-
|
-
|
-
|
Capital
expenditures
|
300,000
|
100,000
|
100,000
|
100,000
|
-
|
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$
2,364,469
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$
1,936,805
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$
269,242
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$
158,422
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$
-
|
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●
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expand
our products effectively or efficiently or in a timely
manner;
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●
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allocate
our human resources optimally;
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●
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meet
our capital needs;
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●
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identify
and hire qualified employees or retain valued employees;
or
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●
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incorporate
effectively the components of any business or product line that we
may acquire in our effort to achieve growth.
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●
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Halting
of trading by the SEC or FINRA.
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●
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Announcements
by us regarding liquidity, legal proceedings, significant
acquisitions, equity investments and divestitures, strategic
relationships, addition or loss of significant customers and
contracts, capital expenditure commitments, loan, note payable and
agreement defaults, loss of our subsidiaries and impairment of
assets,
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●
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Issuance
of convertible or equity securities for general or merger and
acquisition purposes,
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●
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Issuance
or repayment of debt, accounts payable or convertible debt for
general or merger and acquisition purposes,
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●
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Sale of
a significant number of shares of our common stock by
shareholders,
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●
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General
market and economic conditions,
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●
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Quarterly
variations in our operating results,
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●
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Investor
relation activities,
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●
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Announcements
of technological innovations,
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●
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New
product introductions by us or our competitors,
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●
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Competitive
activities, and
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●
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Additions
or departures of key personnel.
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Exhibit No.
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Description
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Certificate of Incorporation. Filed as an exhibit to the
Company’s Form 10-SB General Form for Registration of
Securities of Small Business Issuers filed with the SEC on December
7, 2007, and hereby incorporated by reference.
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Amended and Restated Bylaws. Filed as an exhibit to the
Company’s Form 8-K filed with the SEC on June 9, 2014, and
hereby incorporated by reference.
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Second Amended and Restated Bylaws of GrowLife, Inc. dated October
16, 2015. Filed as an exhibit to the Company’s Form 8-K and
filed with the SEC on October 26, 2015, and hereby incorporated by
reference.
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Certificate of Designation for Series B Preferred Stock. Filed as
an exhibit to the Company’s Form 8-K and filed with the SEC
on October 29, 2015, and hereby incorporated by
reference.
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Certificate of Designation for Series C Preferred Stock. Filed as
an exhibit to the Company’s Form 8-K and filed with the SEC
on October 29, 2015, and hereby incorporated by
reference.
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GrowLife, Inc. 2011 Stock Incentive Plan filed as an exhibit to the
Company’s Registration Statement on Form S-1 filed with the
SEC on June 8, 2011, and hereby incorporated by
reference.
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Compilation of
Securities Purchase Agreement and
Warrant to Purchase Common Stock dated February 9, 2018, entered
into by and between GrowLife, Inc. and St. George Investments LLC.
Filed as an exhibit to the Company’s Form 8-K and filed with
the SEC on February 15, 2018, and hereby incorporated by
reference.
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First Addendum to Asset Purchase Agreement and Employment Agreement
dated February 18, 2018 amongst Growlife, Inc. and David Reichwein,
GIP International Ltd and DPR International LLC. (filed
herewith).
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Second Amendment to Forglen LLC 7% Convertible Promissory Note.
Filed as an exhibit to the Company’s Form 8-K and filed with
the SEC on March 16, 2018, and hereby incorporated by
reference.
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Common Stock Purchase Agreement dated March 20, 2018 entered into
by and between GrowLife, Inc. and St. George Investments LLC. Filed
as an exhibit to the Company’s Form 8-K and filed with the
SEC on March 23, 2018, and hereby incorporated by
reference.
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Certification of Principal Executive Officer Pursuant to Rule
13a-14 Filed herewith.
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Certification of Principal Financial Officer Pursuant to Rule
13a-14 Filed herewith.
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CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
Filed herewith.
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CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
Filed herewith.
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema Document
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB*
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XBRL Taxonomy Extension Labels Linkbase Document
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document
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Date: May 1, 2018
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By:
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/s/ Marco Hegyi
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Marco Hegyi
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Chief Executive Officer and President
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(Principal Executive Officer)
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Date: May 1, 2018
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By:
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/s/ Mark Scott
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Mark Scott
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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