UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
NATURALSHRIMP INCORPORATED
(Exact
name of registrant as specified in its charter)
Nevada
|
|
0900
|
|
74-3262176
|
(State
of Incorporation)
|
|
(Primary
Standard Industrial Classification
Number)
|
|
(IRS
Employer Identification
Number)
|
5080 Spectrum Drive, Suite 1000
Addison, Texas 75001
(Address,
including zip code, and telephone number, including area
code,
of
registrant’s principal executive offices)
Please
send copies of all communications to:
Lucosky Brookman LLP
101 Wood Avenue South, 5th Floor
Woodbridge, New Jersey 08830
Tel. No.: (732) 395-4400
Fax No.: (732) 395-4401
(Address,
including zip code, and telephone, including area
code)
Approximate
date of proposed sale to the public: From time to time after the effective date of
this registration statement.
If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this
Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
|
[ ]
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
Smaller
reporting company
|
[X]
|
(do not
check if a smaller reporting company)
|
Emerging
Growth Company
|
[ ]
|
CALCULATION OF REGISTRATION FEE
Title of Each
Class of securities to be
registered
|
Number of shares
of common stock to
be registered (1)
|
Proposed
Maximum
Offering
Price Per
Share
(2)
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount of
Registration
Fee
(3)
|
|
|
|
|
|
Common
Stock
|
20,000,000
|
$0.016
|
$320,000
|
$40.00
|
(1)
In
accordance with Rule 416(a), this registration statement shall also
cover an indeterminate number of shares that may be issued and
resold resulting from stock splits, stock dividends or similar
transactions.
(2)
Based
on the reported closing price for our common stock on August 27,
2018 of $0.016. The shares offered, hereunder, may be sold by the
selling stockholder from time to time in the open market, through
privately negotiated transactions, or a combination of these
methods at market prices prevailing at the time of sale or at
negotiated prices.
(3)
The fee
is calculated by multiplying the aggregate offering amount by
..00012450, pursuant to Section 6(b) of the Securities Act of
1933.
The registrant hereby may amend this registration statement on such
date or dates as may be necessary to delay our effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall, thereafter, become
effective in accordance with Section 8(a) of the Securities Act of
1933, or until the registration statement shall become effective on
such date as the Commission, acting pursuant to Section 8(a) may
determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER____,
2018
The information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
NaturalShrimp Incorporated
20,000,000 Common Shares
The selling stockholder identified in this prospectus may offer an
indeterminate number of shares of its common stock, which will
consist of up to 20,000,000 shares of common stock to be sold by
GHS Investments LLC (“GHS”) pursuant to an Equity
Financing Agreement (the “Financing Agreement”) dated
August 21, 2018. If issued presently, the 20,000,000 shares of
common stock registered for resale by GHS would represent
12.7522.97% of our issued and
outstanding shares of common stock as of September 67, 2018.
Additionally, the 20,000,000 shares of our common stock registered
for resale herein would represent approximately 30% of the
Company’s public float.
The
selling stockholder may sell all or a portion of the shares being
offered pursuant to this prospectus at fixed prices and prevailing
market prices at the time of sale, at varying prices, or at
negotiated prices.
We will
not receive any proceeds from the sale of the shares of our common
stock by GHS. However, we will receive proceeds from our initial
sale of shares to GHS pursuant to the Financing Agreement. We will
sell shares to GHS at a price equal to 80% of the lowest closing
price of our common stock during the ten (10) consecutive trading
day period beginning on the date on which we deliver a put notice
to GHS (the “Market Price”). There will be a minimum of
ten (10) trading days between purchases.
GHS is
an underwriter within the meaning of the Securities Act of 1933,
and any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the
meaning of the Securities Act of 1933 in connection with such
sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act of 1933.
Our
common stock is traded on OTC Markets under the symbol
“SHMP”. On August 27, 2018, the reported closing price
for our common stock was $0.016 per share.
Prior
to this offering, there has been a very limited market for our
securities. While our common stock is on the OTC Markets, there has
been negligible trading volume. There is no guarantee that an
active trading market will develop in our securities.
This offering is highly speculative and these securities involve a
high degree of risk and should be considered only by persons who
can afford the loss of their entire investment. See “Risk
Factors” beginning on page [●]. Neither the Securities
and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
The
date of this prospectus is September __, 2018.
Table of Contents
The
following table of contents has been designed to help you find
information contained in this prospectus. We encourage you to read
the entire prospectus.
Prospectus
Summary
|
1
|
Summary
Consolidated Financial Information
|
8
|
Risk
Factors
|
11
|
Cautionary
Note Regarding Forward-Looking Statements
|
22
|
Use of
Proceeds
|
23
|
Determination
of Offering Price
|
23
|
Selling
Stockholders
|
24
|
Plan
of Distribution
|
26
|
Interests
of Named Experts and Counsel
|
30
|
Market
for Our Common Stock and Related Stockholder Matters
|
39
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
40
|
Directors,
Executive Officers and Key Employees
|
62
|
Executive
Compensation
|
66
|
Security
Ownership of Certain Beneficial Owners and Management
|
68
|
Index
to Consolidated Financial Statements
|
F-1
|
You may only rely on the information contained in this prospectus
or that we have referred you to. We have not authorized any person
to give you any supplemental information or to make any
representations for us. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities
other than the Common Stock offered by this prospectus. This
prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any Common Stock in any circumstances in which
such offer or solicitation is unlawful. Neither the delivery of
this prospectus nor any sale made in connection with this
prospectus shall, under any circumstances, create any implication
that there has been no change in our affairs since the date of this
prospectus is correct as of any time after its date. You should not
rely upon any information about our company that is not contained
in this prospectus. Information contained in this prospectus may
become stale. You should not assume the information contained in
this prospectus or any prospectus supplement is accurate as of any
date other than their respective dates, regardless of the time of
delivery of this prospectus, any prospectus supplement or of any
sale of the shares. Our business, financial condition, results of
operations, and prospects may have changed since those dates. The
selling stockholders are offering to sell and seeking offers to buy
shares of our common stock only in jurisdictions where offers and
sales are permitted.
In this
prospectus, “NaturalShrimp” the “Company,”
“we,” “us,” and “our” refer to
NaturalShrimp Incorporated, a Nevada corporation, and the
Company’s wholly-owned subsidiaries: NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and Natural Aquatic
Systems, Inc.
PROSPECTUS SUMMARY
You
should carefully read all information in the prospectus, including
the financial statements and their explanatory notes under the
Financial Statements prior to making an investment
decision.
This summary highlights selected information appearing elsewhere in
this prospectus. While this summary highlights what we consider to
be important information about us, you should carefully read this
entire prospectus before investing in our Common Stock, especially
the risks and other information we discuss under the headings
“Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operation”
and our consolidated financial statements and related notes
beginning on page F-1. Our fiscal year end is March 31 and our
fiscal years ended March 31, 2017 and 2018 are sometimes referred
to herein as fiscal years 2017 and 2018, respectively. Some of the
statements made in this prospectus discuss future events and
developments, including our future strategy and our ability to
generate revenue, income and cash flow. These forward-looking
statements involve risks and uncertainties which could cause actual
results to differ materially from those contemplated in these
forward-looking statements. See “Cautionary Note Regarding
Forward-Looking Statements”. Unless otherwise indicated or
the context requires otherwise, the words “we,”
“us,” “our”, the “Company” or
“our Company” or “NaturalShrimp” refer to
NaturalShrimp Incorporated., a Nevada corporation, and each of our
subsidiaries.
When
used in this prospectus the following terms have the following
meanings related to our subsidiaries.
●
“NSC” refers to NaturalShrimp Corporation a company
organized under the laws of the state of Delaware.
●
“NS Global” refers to NaturalShrimp Global, Inc. a
company organized under the laws of the state of
Delaware.
●
“NAS” refers to Natural Aquatic Systems, Inc. a company
organized under the laws of the state of Texas.
Corporate History
We were incorporated in the State of Nevada on July 3, 2008 under
the name “Multiplayer Online Dragon, Inc.” Effective
November 5, 2010, we effected an 8 for 1 forward stock split,
increasing the issued and outstanding shares of our common stock
from 12,000,000 shares to 96,000,000 shares. On October 29, 2014,
we effected a 1 for 10 reverse stock split, decreasing the issued
and outstanding shares of our common stock from 97,000,000 to
9,700,000.
On November 26, 2014, we entered into an Asset Purchase Agreement
(the “Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation
(“NSC”), a Delaware corporation, and NaturalShrimp
Global, Inc. (“NS Global”), a Delaware corporation, and
certain real property located outside of San Antonio, Texas (the
“Assets”).
On January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In connection with our receipt of approval from the Financial
Industry Regulatory Authority (“FINRA”), effective
March 3, 2015, we amended our Articles of Incorporation to change
our name to “NaturalShrimp Incorporated.”
Business Overview
We are a biotechnology company and have developed a proprietary
technology that allows us to grow Pacific White shrimp (Litopenaeus
vannamei, formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS Global, one of our wholly-owned subsidiaries, owns less than 1%
of NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway, was
responsible for the construction cost of its facility and operating
capital.
The first facility built in Spain for NaturalShrimp International
A.S. is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas.
The Company has three wholly-owned subsidiaries, including NSC, NS
Global and NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology.” Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology.” We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
In 2001, we began research and development of a high density,
natural aquaculture system that is not dependent on ocean water to
provide quality, fresh shrimp every week, fifty-two weeks a year.
The initial NaturalShrimp system was successful, but the Company
determined that it would not be economically feasible due to high
operating costs. Over the next several years, using the knowledge
we gained from developing the first system, we developed a shrimp
production system that eliminated the high costs associated with
the previous system. We have continued to refine this technology,
eliminating bacteria and other problems that affect enclosed
systems, and now have a successful shrimp growing process. We have
produced thousands of pounds of shrimp over the last few years in
order to develop a design that will consistently produce quality
shrimp that grow to a large size at a specific rate of growth. This
included experimenting with various types of natural live and
synthesized feed supplies before selecting the most appropriate
nutritious and reliable combination. It also included utilizing
monitoring and control automation equipment to minimize labor costs
and to provide the necessary oversight for proper regulation of the
shrimp environment. However, there were further enhancements needed
to our process and technology in order to begin production of
shrimp on a commercially viable scale and to generate
revenues.
Our
current system consists of a reception tank where the shrimp are
acclimated, then moved to a larger grow-out tank for the rest of
the twenty-four week cycle. During 2016, we engaged in additional
engineering projects with third parties to further enhance our
indoor production capabilities. For example, through our
relationship with Trane, Inc., a division of Ingersoll-Rand Plc
(“Trane”), Trane has provided a detailed audit to use
data to build and verify the capabilities of then initial Phase 1
prototype of a Trane-proposed three tank system at our La Coste,
Texas facility. The Company contracted F&T Water Solutions and
RGA Labs, Inc. (“RGA Labs”) to complete final
engineering and building of the initial patent-pending modified
Electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. The design will present a viable pathway to begin
generating revenue and producing shrimp on a commercially viable
scale. The design is completed and was installed in early June 2018
by RGA Labs, and final financing for the system is expected to be
provided by one of the Company’s existing intuitional
investors. The first post larvae (PL) arrived from the hatchery at
the end of June 2018, and the Company expects it will take
approximately six to nine months to begin producing and shipping
shrimp.
Overview of Industry
Shrimp is a well-known and globally-consumed commodity,
constituting one of the most important types of seafood and a
staple protein source for much of the world. According to the USDA
Foreign Agricultural Service, the world consumes approximately 9
billion pounds of shrimp annually with over 1.7 billion pounds
consumed in the United States alone. Approximately 65% of the
global supply of shrimp is caught by ocean trawlers and the other
35% is produced by open-air shrimp farms, mostly in developing
countries.
Shrimp boats catch shrimp through the use of large, boat-towed
nets. These nets are quite toxic to the undersea environment as
they disturb and destroy ocean-bottom ecosystems; these nets also
catch a variety of non-shrimp sea life, which is typically killed
and discarded as part of the shrimp harvesting process.
Additionally, the world’s oceans can only supply a finite
amount of shrimp each year, and in fact, single-boat shrimp yields
have fallen by approximately 20% since 2010 and continue to
decrease. The shrimping industry’s answer to this problem has
been to deploy more (and larger) boats that deploy ever-larger
nets, which has in the short-term been successful at maintaining
global shrimp yields. However, this benefit cannot continue
forever, as eventually global demand has the potential of
outstripping the oceans’ ability to maintain the natural
ecosystem’s balance, resulting in a permanent decline in
yields. When taken in light of global population growth and the
ever-increasing demand for nutrient-rich foods such as shrimp, this
is clearly an unsustainable production paradigm.
Shrimp farming, known in the industry as “aquaculture,”
has ostensibly stepped in to fill this demand/supply imbalance.
Shrimp farming is typically done in open-air lagoons and man-made
shrimp ponds connected to the open ocean. Because these ponds
constantly exchange water with the adjacent sea, the farmers are
able to maintain the water chemistry that allows the shrimp to
prosper. However, this method of cultivating shrimp also carries
severe ecological peril. First of all, most shrimp farming is
primarily conducted in developing countries, where poor shrimp
farmers have little regard for the global ecosystem. Because of
this, these farmers use large quantities of antibiotics and other
chemicals that maximize each farm’s chance of producing a
crop, putting the entire system at risk. For example, a viral
infection that crops up in one farm can spread to all nearby farms,
quite literally wiping out an entire region’s production. In
1999, the White Spot virus invaded shrimp farms in at least five
Latin American countries: Honduras, Nicaragua, Guatemala, Panama
and Ecuador and in 2013-14 EMS (Early Mortality Syndrome) wiped out
most of the Asia Pacific region and Mexico. Secondly, there is also
a finite amount of coastline that can be used for shrimp production
– eventually shrimp farms that are dependent on the open
ocean will have nowhere to expand. Again, this is an ecologically
damaging and ultimately unsustainable system for producing
shrimp.
In both the cases, the current method of shrimp production is
unsustainable. As global populations rise and the demand for shrimp
continues to grow, the current system is bound to fall short.
Shrimp trawling cannot continue to increase production without
completely depleting the oceans’ natural shrimp population.
Trends in per-boat yield confirm that this industry has already
crossed the overfishing threshold, putting the global open-ocean
shrimp population in decline. While open-air shrimp aquaculture may
seem to address this problem, it is also an unsustainable system
that destroys coastal ecological systems and produces shrimp with
very high chemical contamination levels. Closed-system shrimp
farming is clearly a superior alternative, but its unique
challenges have prevented it from becoming a widely-available
alternative – until now.
Of the 1.7 billion pounds of shrimp consumed annually in the United
States, over 1.3 billion pounds are imported – much of this
from developing countries’ shrimp farms. These farms are
typically located in developing countries and use high levels of
antibiotics and pesticides that are not allowed under USDA
regulations. As a result, these shrimp farms produce chemical-laden
shrimp in an ecologically unsustainable way.
Unfortunately, most consumers here in the United States are not
aware of the origin of their store-bought shrimp or worse, that
which they consume in restaurants. This is due to a USDA rule that
states that only bulk-packaged shrimp must state the shrimp’s
country of origin; any “prepared” shrimp, which
includes arrangements sold in grocery stores and seafood markets,
as well as all shrimp served in restaurants, can simply be sold
“as is.” Essentially, this means that most U.S.
consumers may be eating shrimp laden with chemicals and
antibiotics. NaturalShrimp’s product is free of pesticide
chemicals and antibiotics, a fact that we believe is highly
attractive and beneficial in terms of our eventual marketing
success.
Technology
Intensive, Indoor, Closed-System Shrimp Production
Technology
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology”. Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology”. We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
Automated Monitoring and Control System
The Company’s “Automated Monitoring and Control
System” uses individual tank monitors to automatically
control the feeding, oxygenation, and temperature of each of the
facility tanks independently. In addition, a facility computer
running custom software communicates with each of the controllers
and performs additional data acquisition functions that can report
back to a supervisory computer from anywhere in the world. These
computer-automated water controls optimize the growing conditions
for the shrimp as they mature to harvest size, providing a
disease-resistant production environment.
The principal theories behind the Company’s system are
characterized as:
● High-density shrimp production
● Weekly production
● Natural ecology system
● Regional production
● Regional distribution
These principles form the foundation for the Company and our
potential distributors so that consumers can be provided with
continuous volumes of live and fresh shrimp at competitive
prices.
Target Markets and Sales Price
Our goal is to establish production systems and distribution
centers in metropolitan areas of the United States, as well as
international distribution networks through joint venture
partnerships throughout the world. This should allow the Company to
capture a significant portion of world shrimp sales by offering
locally grown, environmentally “green,” naturally
grown, fresh shrimp at competitive wholesale prices.
The United States population is approximately 325 million people
with an annual shrimp consumption of 1.7 billion pounds, of which
less than 400 million pounds are domestically produced. According
to IndexMundi.com, the wholesale price for frozen, commodity grade
shrimp has risen 15% since January 2015 (shell-on headless, 26-30
count; which is comparable to our target growth size). With world
shrimp problems, this price is expected to rise more in the next
few years.
We strive to build a profitable global shrimp production company.
We believe our foundational advantage is that we can deliver fresh,
organically grown, gourmet-grade shrimp, 52 weeks a year to retail
and wholesale buyers in major market areas at competitive, yet
premium prices. By locating regional production and distribution
centers in close proximity to consumer demand, we can provide a
fresh product to customers within 24 hours after harvest, which is
unique in the shrimp industry. We can be the “first to
market” and perhaps “sole weekly provider” of
fresh shrimp and capture as much market share as production
capacity can support.
For those customers that want a frozen product, we may be able to
provide this in the near future and the product will still be
differentiated as a “naturally grown, sustainable
seafood” that will meet the increasing demand of socially
conscious consumers.
Our patent-pending technology and eco-friendly, bio-secure
production processes enable the delivery of a chemical and
antibiotic free, locally grown product that lives up to the
Company’s mantra: “Always Fresh, Always Natural,”
thereby solving the issue of “unsafe” imported
seafood.
Product Description
Nearly all of the shrimp consumed today are shipped frozen. Shrimp
are typically frozen from six to twenty-four months before
consumption. Our system is designed to harvest a different tank
each week, which provides for fresh shrimp throughout the year. We
strive to create a niche market of “Always Fresh, Always
Natural” shrimp. As opposed to many of the foreign shrimp
farms, we can also claim that our product is 100% free of
antibiotics. The ability to grow shrimp locally, year round allows
us to provide this high-end product to specialty grocery stores and
upscale restaurants throughout the world. We rotate the stocking
and harvesting of our tanks each week, which allows for weekly
shrimp harvests. Our product is free of all pollutants and is fed
only all-natural feeds.
The seafood industry lacks a consistent “Source
Verification” method to track seafood products as they move
through countries and customs procedures. With worldwide
overfishing leading to declining shrimp freshness and
sustainability around the world, it is vital for shrimp providers
to be able to realistically identify the source of their product.
We have well-managed, sustainable facilities that are able to track
shrimp from hatchery to plate using environmentally responsible
methods.
Distribution and Marketing
We plan to build these environmentally “green”
production systems near major metropolitan areas of the United
States. Today, we have one pilot production facility in La Coste,
Texas (near San Antonio) and plan to begin construction of a
full-scale production facility in La Coste and plans for Nevada and
New York. Over the next five years, our plan is to increase
construction of new facilities each year. In the fifth year, we
plan for a new system to be completed each month, expanding first
into the largest shrimp consumption markets of the United
States.
Harvesting, Packaging and Shipment
Each location is projected to include production,
harvesting/processing and a general shipping and receiving area, in
addition to warehousing space for storage of necessary supplies and
products required to grow, harvest, package and otherwise make
ready for delivery, a fresh shrimp crop on a weekly basis to
consumers in each individual market area within 24 hours following
harvest.
The seafood industry lacks a consistent source verification method
to track seafood products as they move through countries and
customs procedures. With worldwide overfishing leading to declining
shrimp freshness and sustainability around the world, it is vital
for shrimp providers to be able to realistically identify the
source of their product. Our future facilities will be designed to
track shrimp from hatchery to plate using environmentally
responsible methods.
Go to Market Strategy and Execution
Our strategy is to develop regional production and distribution
centers near major metropolitan areas throughout the United States
and internationally. Today, we have 53,000 sq. ft. of R&D
facilities, which includes, a pilot production system,
greenhouse/reservoirs and utility buildings in La Coste, TX (near
San Antonio). We intend to begin construction of a new
free-standing facility with the next generation shrimp production
system in place on the property in 2018.
The reasoning behind building additional shrimp production systems
in La Coste is availability of trained production personnel, our
research and development team, and an opportunity to develop the
footprint and model for additional facilities. Our current plan is
to develop six regional production and distribution centers near
major markets starting in 2019, adding one system per month in a
selected production center, depending on market
demand.
We have sold product to restaurants up to $12.00 per pound and to
retail consumers at $16.50 to $21.00 per pound, depending on size,
which helps to validate our pricing strategy. Additionally, from
2011 to 2013, we had two successful North Texas test markets which
distributed thousands of pounds of fresh product to customers
within 24 hours following harvest. The fresh product was priced
from $8.40 to $12.00 per pound wholesale, heads on, net price to
the Company.
Competition
There are a number of companies conducting research and development
projects in their attempt to develop closed-system technologies in
the U.S., some with reported production and sales. Florida Organic
Aquaculture uses a Bio-Floc Raceway System to intensify shrimp
growth, while Marvesta Shrimp Farms tanks in water from the
Atlantic to use in their indoor system. Since these are
privately-held companies, it is not possible to know, with
certainty, their state of technical development, production
capacity, need for water exchange, location requirements, financial
status and other matters. To the best of our knowledge, none are
producing significant quantities of shrimp relative to their local
markets, and such fresh shrimp sales are likely confined to an area
near the production facility.
Additionally, any new competitor would face significant barriers
for entry into the market and would likely need years of research
and development to develop the proprietary technology necessary to
produce similar shrimp at a commercially viable level. We believe
our technology and business model sets us apart from any current
competition. It is possible that additional competitors will arise
in the future, but with the size and growth of the worldwide shrimp
market, many competitors could co-exist and thrive in the fresh
shrimp industry.
Intellectual Property
We intend to take appropriate steps to protect our intellectual
property. We have registered the trademark
“NATURALSHRIMP” which has been approved and was
published in the Official Gazette on June 5, 2012. There are
potential technical processes for which the Company may be able to
file a patent. However, there are no assurances that such
applications, if filed, would be issued and no right of enforcement
is granted to a patent application. Therefore, the Company has
filed a provisional patent with the U.S. Patent Office and plans to
use a variety of other methods, including copyright registrations
as appropriate, trade secret protection, and confidentiality and
non-compete agreements to protect its intellectual property
portfolio.
Government Approvals and Regulations
We are subject to government regulation and require certain
licenses. The following list includes regulations to which we are
subject and/or the permits and licenses we currently
hold:
●
Texas
Parks and Wildlife Department (TPWD) - “Exotic species
permit” to raise exotic shrimp (non-native to Texas). The La
Coste facility is north of the coastal shrimp exclusion zone (east
and south of H-35, where it intersects Hwy 21 down to Laredo) and
therefore outside of TPWD’s major area of concern for exotic
shrimp. Currently Active - Expires December 31, 2018.
●
Texas
Department of Agriculture (TDA) - “Aquaculture License”
for aquaculture production facilities. License to “operate a
fish farm or cultured fish processing plant.” Currently
Active – Expires June 30, 2018.
●
Texas
Commission on Environmental Quality (TCEQ) - Regulates facility
wastewater discharge. According to the TCEQ permit classification
system, we are rated Level 1 – Recirculation system with no
discharge. Currently Active – No expiration.
●
San
Antonio River Authority - No permit required, but has some
authority over any effluent water that could impact surface and
ground waters.
●
OSHA
- No permit required but has right to inspect
facility.
●
HACCP
(Hazard Analysis and Critical Control Point) - Not needed unless we
process shrimp on site. Training and preparation of HACCP plans
remain to be completed. There are multiple HACCP plans listed at
http://seafood.ucdavis.edu/haccp/Plans.htm and other web sites that
can be used as examples.
●
Texas
Department of State Health Services - Food manufacturer license #
1011080.
●
Aquaculture
Certification Council (ACC) and Best Aquaculture Practices (BAP) -
Provide shrimp production certification for shrimp marketing
purposes to mainly well-established vendors. ACC and BAP
certifications require extensive record keeping. No license is
required at this time.
We are subject to certain regulations regarding the need for field
employees to be certified. We strictly adhere to these regulations.
The cost of certification is an accepted part of expenses.
Regulations may change and become a cost burden, but compliance and
safety are our main concern.
Market Advantages and Corporate Drivers
The following are what we consider to be our advantages in the
marketplace:
●
Early-mover
Advantage: Commercialized technology in a large growing market with
no significant competition yet identified. Most are early stage
start-ups or early stage companies with limited production and
distribution.
●
Farm-to-Market:
This has significant advantages including reduced transportation
costs and a product that is more attractive to local
consumers.
●
Bio-secured
Building: Our process is a re-circulating, highly-filtered water
technology in an indoor-regulated environment. External pathogens
are excluded.
●
Eco-friendly
“Green” Technology: Our closed-loop, re-circulating
system has no ocean water exchange requirements, does not use
chemical or antibiotics and therefore is sustainable, eco-friendly,
environmentally sound and produces a superior quality shrimp that
is totally natural.
●
Availability
of Weekly Fresh Shrimp: Assures consumers of optimal freshness,
taste, and texture of product which will command premium
prices.
●
Sustainability:
Our naturally grown product does not deplete wild supplies, has no
by-catch kill of marine life, does not damage sensitive ecological
environments and avoids potential risks of imported
seafood.
Subsidiaries
The Company has three wholly-owned subsidiaries including
NaturalShrimp Corporation, NaturalShrimp Global, Inc. and Natural
Aquatic Systems, Inc.
Employees
As of September 7, 2018, we had five full-time
employees. We intend to hire additional staff and to engage
consultants in general administration on an as-needed basis. We
also intend to engage experts in general business to advise us in
various capacities. None
of our employees are covered by a collective bargaining agreement,
nor are they represented by a labor union. We have not experienced
any work stoppages, and we consider relations with our employees to
be good.
Website
Our
corporate website address is
http://www.naturalshrimp.com
GHS Equity Financing Agreement and Registration Rights
Agreement
Summary of the Offering
Shares
currently outstanding (1):
|
|
87,056,880
|
|
|
|
Shares
being offered:
|
|
20,000,000
|
|
|
|
Shares
to
|
|
|
Shares
to Offering Price per share:
|
|
The
selling stockholders may sell all or a portion of the shares being
offered pursuant to this prospectus at fixed prices and prevailing
market prices at the time of sale, at varying prices or at
negotiated prices.
|
|
|
|
Use of
Proceeds:
|
|
We will
not receive any proceeds from the sale of the shares of our common
stock by the selling stockholder.
|
|
|
|
Trading
Symbol:
|
|
SHMP
|
|
|
|
Risk
Factors:
|
|
See
“Risk Factors” beginning on page [●] herein and the other information in this
prospectus for a discussion of the factors you should consider
before deciding to invest in shares of our common
stock.
|
(1)
The
number of shares of our Common Stock outstanding prior to and to be
outstanding immediately after this offering, as set forth in the
table above, is based on 87,056,880 shares outstanding as of
September 7, 2018, and
excluding 20,000,000 shares of Common Stock issuable in this
offering
SUMMARY CONSOLIDATED
FINANCIAL INFORMATION
The following summary consolidated statements of operations data
for the fiscal years ended March 31, 2018 and 2017 have been
derived from our audited consolidated financial statements included
elsewhere in this prospectus. Additionally, the three months ended
June 30, 2018 and 2017 have been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. The summary consolidated balance sheet data as of June
30, 2018 are derived from our consolidated financial statements
that are included elsewhere in this prospectus. The historical
financial data presented below is not necessarily indicative of our
financial results in future periods, and the results for the
quarter ended June 30, 2018 is not necessarily indicative of our
operating results to be expected for the full fiscal year ending
March 31, 2019 or any other period. You should read the summary
consolidated financial data in conjunction with those financial
statements and the accompanying notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.” Our consolidated financial statements are
prepared and presented in accordance with United States generally
accepted accounting principles, or U.S. GAAP. Our consolidated
financial statements have been prepared on a basis consistent with
our audited financial statements and include all adjustments,
consisting of normal and recurring adjustments that we consider
necessary for a fair presentation of the financial position and
results of operations as of and for such periods.
NATURALSHRIMP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
For the Three months ended
|
|
|
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
20,985
|
7,289
|
General
and administrative
|
223,025
|
398,935
|
Depreciation
and amortization
|
17,726
|
17,725
|
|
|
|
Total
operating expenses
|
261,736
|
423,949
|
|
|
|
Net
Operating loss before other income (expense)
|
(261,736)
|
(423,949)
|
|
|
|
Other
income (expense):
|
|
|
Interest
expense
|
(68,219)
|
(40,355)
|
Amortization
of debt discount
|
(343,454)
|
(13,333)
|
Financing
costs
|
(608,699)
|
-
|
Change
in fair value of derivative liability
|
232,000
|
35,000
|
Change
in fair value of warrant liability
|
(47,000)
|
3,000
|
|
|
|
Total
other income (expense)
|
(835,372)
|
(15,688)
|
|
|
|
Loss
before income taxes
|
(1,097,108)
|
(439,637)
|
|
|
|
Provision
for income taxes
|
-
|
-
|
|
|
|
Net
loss
|
$(1,097,108)
|
$(439,637)
|
|
|
|
|
|
|
Loss
per share - Basic
|
$(0.01)
|
$(0.00)
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
112,720,679
|
92,473,133
|
|
|
|
The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
NATURALSHRIMP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
27,789
|
70,930
|
|
|
|
General
and administrative
|
1,085,499
|
909,182
|
Depreciation
and amortization
|
70,894
|
60,459
|
|
|
|
Total
operating expenses
|
1,184,182
|
1,040,571
|
|
|
|
Net
Operating (loss) before other income (expense)
|
(1,184,182)
|
(1,040,571)
|
|
|
|
Other
income (expense):
|
|
|
Interest
expense
|
(171,065)
|
(174,335)
|
Amortization
of debt discount
|
(775,091)
|
(295,000)
|
Financing
costs
|
(1,310,751)
|
(164,000)
|
Change
in fair value of derivative liability
|
(1,600,000)
|
11,000
|
Change
in fair value of warrant liability
|
(244,000)
|
4,000
|
Gain
on extinguishment of debt, related party
|
-
|
2,339,353
|
Debt
settlement expense
|
-
|
(566,129)
|
|
|
|
Total
other income (expense)
|
(4,100,907)
|
1,154,889
|
|
|
|
Loss
before income taxes
|
(5,285,089)
|
114,318
|
|
|
|
Provision
for income taxes
|
-
|
38,868
|
|
|
|
Benefit
of Net operating loss
|
|
(38,868)
|
|
|
|
Net
income/(loss)
|
$(5,285,089)
|
$114,318
|
|
|
|
|
|
|
EARNINGS
PER SHARE (Basic)
|
$(0.05)
|
$0.00
|
|
|
|
EARNINGS
PER SHARE (Diluted)
|
$(0.00)
|
$0.00
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING (Basic)
|
97,656,095
|
90,025,445
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING (Diluted)
|
97,656,095
|
90,070,074
|
The
accompanying notes are an integral part of these consolidated
financial statements.
RISK FACTORS
This investment has a high degree of risk. Before you invest you
should carefully consider the risks and uncertainties described
below and the other information in this prospectus. If any of the
following risks actually occur, our business, operating results and
financial condition could be harmed and the value of our stock
could go down. This means you could lose all or a part of your
investment. You
should carefully consider the risks described below together with
all of the other information included in our public filings before
making an investment decision with regard to our securities. The
statements contained in or incorporated into this document that are
not historic facts are forward-looking statements that are subject
to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by
forward-looking statements. If any of the following events
described in these risk factors actually occur, our business,
financial condition or results of operations could be harmed. In
that case, the trading price of our common stock could decline, and
you may lose all or part of your investment. Moreover, additional
risks not presently known to us or that we currently deem less
significant also may impact our business, financial condition or
results of operations, perhaps materially. For additional
information regarding risk factors, see “Forward-Looking
Statements.”
Special Information Regarding Forward-Looking
Statements
The information herein contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth
in this report. Although management believes that the assumptions
made and expectations reflected in the forward-looking statements
are reasonable, there is no assurance that the underlying
assumptions will, in fact, prove to be correct or that actual
results will not be different from expectations expressed in this
report.
We
desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
This filing contains a number of forward-looking statements that
reflect management’s current views and expectations with
respect to our business, strategies, products, future results and
events, and financial performance. All statements made in this
filing other than statements of historical fact, including
statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the
future, including statements related to our technology, market
expectations, future revenues, financing alternatives, statements
expressing general optimism about future operating results, and
non-historical information, are forward looking statements. In
particular, the words “believe,” “expect,”
“intend,” “anticipate,”
“estimate,” “may,” variations of such
words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and
their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below.
Our actual results, performance or achievements could differ
materially from historical results as well as those expressed in,
anticipated, or implied by these forward-looking statements. We do
not undertake any obligation to revise these forward-looking
statements to reflect any future events or
circumstances.
Readers
should not place undue reliance on these forward-looking
statements, which are based on management’s current
expectations and projections about future events, are not
guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below),
and apply only as of the date of this filing. Our actual results,
performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be
discussed in this Form S-1 Registration and in the press releases
and other communications to shareholders issued by us from time to
time which attempt to advise interested parties of the risks and
factors which may affect our business. We undertake no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise. For additional information regarding forward-looking
statements, see “Forward-Looking
Statements.”
Risks Related to Our Business
Risks Related to Our Business and Industry
The market for our product may be limited, and as a result our
business may be adversely affected.
The
feasibility of marketing our product has been assumed to this point
and there can be no assurance that such assumptions are correct. It
is possible that the costs of development and implementation of our
shrimp production technology may be too expensive to market our
shrimp at a competitive price. It is likewise possible that
competing technologies will be introduced into the marketplace
before or after the introduction of our product to the market,
which may affect our ability to market our product at a competitive
price.
Furthermore,
there can be no assurance that the prices we determine to charge
for our product will be commercially acceptable or that the prices
that may be dictated by the market will be sufficient to provide to
us sufficient revenues to profitably operate and provide a
financial return to our investors.
Our business and operations are affected by the volatility of
prices for shrimp.
Our
business, prospects, revenues, profitability and future growth are
highly dependent upon the prices of and demand for shrimp. Our
ability to borrow and to obtain additional capital on attractive
terms is also substantially dependent upon shrimp prices. These
prices have been and are likely to continue to be extremely
volatile for seasonal, cyclical and other reasons. Any substantial
or extended decline in the price of shrimp will have a material
adverse effect on our financing capacity and our prospects for
commencing and sustaining any economic commercial production. In
addition, increased availability of imported shrimp can affect our
business by lowering commodity prices. This could reduce the value
of inventories, held both by us and by our customers, and cause
many of our customers to reduce their orders for new products until
they can dispose of their higher cost inventories.
Market demand for our products may decrease.
We face
competition from other producers of seafood as well as from other
protein sources, such as pork, beef and poultry. The bases on which
we expect to compete include, but may not be limited
to:
●
price;
●
product quality;
●
brand identification; and
●
customer service.
Demand
for our products will be affected by our competitors’
promotional spending. We may be unable to compete successfully on
any or all of these bases in the future, which may have a material
adverse effect on our revenues and results of
operations.
Moreover,
although historically the logistics and perishability of seafood
has led to regionalized competition, the market for fresh and
frozen seafood is becoming increasingly globalized as a result of
improved delivery logistics and improved preservation of the
products. Increased competition, consolidation, and overcapacity
may lead to lower product pricing of competing products that could
reduce demand for our products and have a material adverse effect
on our revenues and results of operations.
Competition
and unforeseen limited sources of supplies in the industry may
result in occasional spot shortages of equipment, supplies and
materials. In particular, we may experience possible unavailability
of post-larvae and materials and services used in our shrimp
production facilities. Such unavailability could result in
increased costs and delays to our operations. If we cannot find the
products, equipment, supplies and materials that we need on a
timely basis, we may have to suspend our production plans until we
find the products, equipment and materials that we
need.
If we lose our key management and technical personnel, our business
may be adversely affected.
In
carrying out our operations, we will rely upon a small group of key
management and technical personnel including our Chief Executive
Officer, Chairman of the Board and President and Chief Financial
Officer. We do not currently maintain any key man insurance. An
unexpected partial or total loss of the services of these key
individuals could be detrimental to our business.
Our expansion plans for our shrimp production facilities reflects
our current intent and is subject to change.
Our
current plans regarding expansion of our shrimp production
facilities are subject to change. Whether we ultimately undertake
our expansion plans will depend on the following factors, among
others:
●
availability and
cost of capital;
●
current and future
shrimp prices;
●
costs and
availability of post-larvae shrimp, equipment, supplies and
personnel necessary to conduct these operations;
●
success or failure
of system design and activities in similar areas;
●
changes in the
estimates of the costs to complete production facilities;
and
●
decisions of
operators and future joint venture partners.
We will
continue to gather data about our production facilities, and it is
possible that additional information may cause us to alter our
schedule or determine that a certain facility should not be pursued
at all.
Our product is subject to regulatory approvals and if we fail to
obtain such approvals, our business may be adversely
affected.
Most of
the jurisdictions in which we operate will require us to obtain a
license for each facility owned and operated in that jurisdiction.
We have obtained and currently hold a license to own and operate
each of our facilities where a license is required. In order to
maintain the licenses, we have to operate our current farms and, if
we pursue acquisitions or construction of new farms, we will need
to obtain additional licenses to operate those farms, where
required. We are also exposed to dilution of the value of our
licenses where a government issues new licenses to fish farmers
other than us, thereby reducing the current value of our fish
farming licenses. Governments may change the way licenses are
distributed or otherwise dilute or invalidate our licenses. If we
are unable to maintain or obtain new fish farming licenses or if
new licensing regulations dilute the value of our licenses, this
may have a material adverse effect on our business.
It is
possible that regulatory authorities could make changes in
regulatory rules and policies and we would not be able to market or
commercialize our product in the intended manner and/or the changes
could adversely impact the realization of our technology or market
potential.
Failure to ensure food safety and compliance with food safety
standards could result in serious adverse consequences for
us.
As our
end products are for human consumption, food safety issues (both
actual and perceived) may have a negative impact on the reputation
of and demand for our products. In addition to the need to comply
with relevant food safety regulations, it is of critical importance
that our products are safe and perceived as safe and healthy in all
relevant markets.
Our
products may be subject to contamination by food-borne pathogens,
such as Listeria monocytogenes, Clostridia, Salmonella and E. Coli
or contaminants. These pathogens and substances are found in the
environment; therefore, there is a risk that one or more of these
organisms and pathogens can be introduced into our products as a
result of improper handling, poor processing hygiene or
cross-contamination by us, the ultimate consumer or any
intermediary. We have little, if any, control over handling
procedures once we ship our products for distribution. Furthermore,
we may not be able to prevent contamination of our shrimp by
pollutants such as polychlorinated biphenyls, or PCBs, dioxins or
heavy metals.
An
inadvertent shipment of contaminated products may be a violation of
law and may lead to product liability claims, product recalls
(which may not entirely mitigate the risk of product liability
claims), increased scrutiny and penalties, including injunctive
relief and plant closings, by regulatory agencies, and adverse
publicity.
Increased
quality demands from authorities in the future relating to food
safety may have a material adverse effect on our business,
financial condition, results of operations or cash flow.
Legislation and guidelines with tougher requirements are expected
and may imply higher costs for the food industry. In particular,
the ability to trace products through all stages of development,
certification and documentation is becoming increasingly required
under food safety regulations. Further, limitations on additives
and use of medical products in the farmed shrimp industry may be
imposed, which could result in higher costs for us.
The
food industry, in general, experiences high levels of customer
awareness with respect to food safety and product quality,
information and traceability. We may fail to meet new and exacting
customer requirements, which could reduce demand for our
products.
Our success is dependent upon our ability to commercialize our
shrimp production technology.
We plan
to commence limited commercial operations in six to nine months
after the first post larvae (PL) arrive from the hatchery by the
end of June 2018 to begin producing and shipping shrimp. Until
then, we will have been engaged principally in the research and
development of the NaturalShrimp technology. Therefore, we have a
limited operating history upon which an evaluation of our prospects
can be made. Our prospects must be considered in light of the risk,
uncertainties, expenses, delays and difficulties associated with
the establishment of a new business in the evolving food industry,
as well as those risks encountered in the shift from development to
commercialization of new technology and products or services based
upon such technology.
We have
developed our first commercial system that employs the
NaturalShrimp technology but additional work is required to
incorporate that technology into a system capable of accommodating
thousands of customers, which is the minimum capability we believe
is necessary to compete in the marketplace.
Our shrimp production technology may not operate as
intended.
Although
we have successfully tested our NaturalShrimp technology, our
approach, which is still fairly new in the industry, may not
operate as intended or may be subject to other factors that we have
not yet considered. These may include the impact of new pathogens
or other biological risks, low oxygen levels, algal blooms,
fluctuating seawater temperatures, predation or escapes. Any of the
foregoing may result in physical deformities to our shrimp or
affect our ability to increase shrimp production, which may have a
material adverse effect on our operations.
Our success is dependent upon our ability to protect our
intellectual property.
Our
success will depend in part on our ability to obtain and enforce
protection for our intellectual property in the United States and
other countries. It is possible that our intellectual property
protection could fail. It is possible that the claims for patents
or other intellectual property protections could be denied or
invalidated or that our protections will not be sufficiently broad
to protect our technology. It is also possible that our
intellectual property will not provide protection against
competitive products, or will not otherwise be commercially
viable.
Our
commercial success will depend in part on our ability to
commercialize our shrimp production without infringing on patents
or proprietary rights of others. We cannot guarantee that other
companies or individuals have not or will not independently develop
substantially equivalent proprietary rights or that other parties
have not or will not be issued patents that may prevent the sale of
our products or require licensing and the payment of significant
fees or royalties in order for us to be able to carry on our
business.
As the owner of real estate, we are subject to risks under
environmental laws, the cost of compliance with which and any
violation of which could materially adversely affect
us.
Our
operating expenses could be higher than anticipated due to the cost
of complying with existing and future laws and regulations. Various
environmental laws may impose liability on the current or prior
owner or operator of real property for removal or remediation of
hazardous or toxic substances. Current or prior owners or operators
may also be liable for government fines and damages for injuries to
persons, natural resources and adjacent property. These
environmental laws often impose liability whether or not the owner
or operator knew of, or was responsible for, the presence or
disposal of the hazardous or toxic substances. The cost of
complying with environmental laws could materially adversely affect
our results of operations, and such costs could exceed the value of
our facility. In addition, the presence of hazardous or toxic
substances, or the failure to properly manage, dispose of or
remediate such substances, may adversely affect our ability to use,
sell or rent our property or to borrow using our property as
collateral which, in turn, could reduce our revenue and our
financing ability. We have not engaged independent environmental
consultants to assess the likelihood of any environmental
contamination or liabilities and have not obtained a Phase I
environmental assessment on our property. However, even if we did
obtain a Phase I environmental assessment report, such reports are
limited in scope and may not reveal all existing material
environmental contamination.
Risks Related to Financing Our Business
Our independent registered public accounting firm has issued its
audit opinion on our consolidated financial statements appearing in
our annual report on Form 10-K, including an explanatory paragraph
as to substantial doubt with the respect to our ability to continue
as a going concern.
The
accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, assuming we will continue as a going
concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. For
the year ended March 31, 2018, we had a net loss of approximately
$5,285,000. At March 31, 2018, we had an accumulated deficit of
approximately $34,013,000 and a working capital deficit of
approximately $6,764,000. These factors raise substantial doubt
about our ability to continue as a going concern, within one year
from the issuance date of this filing. Our ability to continue as a
going concern is dependent on our ability to raise the required
additional capital or debt financing to meet short and long-term
operating requirements. We may also encounter business endeavors
that require significant cash commitments or unanticipated problems
or expenses that could result in a requirement for additional cash.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our
current shareholders could be reduced, and such securities might
have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or
at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict our operations. If we are
unable to obtain the necessary capital, we may have to cease
operations.
Expansion of our operations will require significant capital
expenditures for which we may be unable to obtain sufficient
financing.
Our
need for additional capital may adversely affect our financial
condition. We have no sustained history of earnings and have
operated at a loss since we commenced business. We have relied, and
continue to rely, on external sources of financing to meet our
capital requirements, to continue developing our proprietary
technology, to build our production facilities, and to otherwise
implement our corporate development and investment
strategies.
We plan
to obtain the future funding that we will need through the debt and
equity markets but there can be no assurance that we will be able
to obtain additional funding when it is required. If we fail to
obtain the funding that we need when it is required, we may have to
forego or delay potentially valuable opportunities to build shrimp
production facilities or default on existing funding commitments to
third parties. Our limited operating history may make it difficult
to obtain future financing.
Our ability to generate positive cash flows is
uncertain.
To
develop and expand our business, we will need to make significant
up-front investments in our manufacturing capacity and incur
research and development, sales and marketing and general and
administrative expenses. In addition, our growth will require a
significant investment in working capital. Our business will
require significant amounts of working capital to meet our
production requirements and support our growth.
We
cannot provide any assurance that we will be able to raise the
capital necessary to meet these requirements. If adequate funds are
not available or are not available on satisfactory terms, we may be
required to significantly curtail our operations and may not be
able to fund our current production requirements - let alone fund
expansion, take advantage of unanticipated acquisition
opportunities, develop or enhance our products, or respond to
competitive pressures. Any failure to obtain such additional
financing could have a material adverse effect on our business,
results of operations and financial condition.
Because we may never have net income from our operations, our
business may fail.
We have
no history of revenues and profitability from operations. There can
be no assurance that we will ever operate profitably. Our success
is significantly dependent on uncertain events, including
successful development of our technology, establishing satisfactory
manufacturing arrangements and processes, and distributing and
selling our products.
Before
receiving revenues from sales to customers of our products, we
anticipate that we will incur increased operating expenses without
realizing any revenues. We therefore expect to incur significant
losses. If we are unable to generate significant revenues from
sales of our products, we will not be able to earn profits or
continue operations. We can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are
unsuccessful in addressing these risks, our business will fail and
investors may lose all of their investment in our
Company.
We need to raise additional funds and such funds may not be
available on acceptable terms or at all.
We may
consider issuing additional debt or equity securities in the future
to fund our business plan, for potential acquisitions or
investments, or for general corporate purposes. If we issue equity
or convertible debt securities to raise additional funds, our
existing stockholders may experience dilution, and the new equity
or debt securities may have rights, preferences and privileges
senior to those of our existing stockholders. If we incur
additional debt, it may increase our leverage relative to our
earnings or to our equity capitalization, requiring us to pay
additional interest expenses. We may not be able to obtain
financing on favorable terms, or at all, in which case, we may not
be able to develop or enhance our products, execute our business
plan, take advantage of future opportunities or respond to
competitive pressures.
Our margins fluctuate which leads to further uncertainty in our
profitability model.
While
we will have the potential ability to negotiate prices that benefit
our clients and affect our profitability as it garners market-share
and increases our book of business, margins in the aquaculture
business are fluid, and our margins vary based upon production
volume and the customer. This may lead to continued uncertainty in
margins from quarter to quarter.
Risks Related to Doing Business in Foreign Countries
Our operations in foreign countries are subject to political,
economic, legal and regulatory risks.
The
following aspects of political, economic, legal and regulatory
systems in foreign countries create uncertainty with respect to
many of the legal and business decisions that we make:
●
cancellation or
renegotiation of contracts due to uncertain enforcement and
recognition procedures of judicial decisions;
●
disadvantages of
competing against companies from countries that are not subject to
U.S. laws and regulations, including the Foreign Corrupt Practices
Act;
●
changes in foreign
laws or regulations that adversely impact our
business;
●
changes in tax laws
that adversely impact our business, including, but not limited to,
increases in the tax rates and retroactive tax claims;
●
royalty and license
fee increases;
●
expropriation or
nationalization of property;
●
foreign exchange
controls;
●
import and export
regulations;
●
changes in
environmental controls;
●
risks of loss due
to civil strife, acts of war and insurrection; and
●
other risks arising
out of foreign governmental sovereignty over the areas in which our
operations are conducted.
Consequently,
our development and production activities in foreign countries may
be substantially affected by factors beyond our control, any of
which could materially adversely affect our business, prospects,
financial position and results of operations. Furthermore, in the
event of a dispute arising from our operations in other countries,
we may be subject to the exclusive jurisdiction of courts outside
the United States or may not be successful in subjecting non-U.S.
persons or entities to the jurisdiction of the courts in the United
States, which could adversely affect the outcome of a
dispute.
The cost of complying with governmental regulations in foreign
countries may adversely affect our business
operations.
We may
be subject to various governmental regulations in foreign
countries. These regulations may change depending on prevailing
political or economic conditions. In order to comply with these
regulations, we believe that we may be required to obtain permits
for producing shrimp and file reports concerning our operations.
These regulations affect how we carry on our business, and in order
to comply with them, we may incur increased costs and delay certain
activities pending receipt of requisite permits and approvals. If
we fail to comply with applicable regulations and requirements, we
may become subject to enforcement actions, including orders issued
by regulatory or judicial authorities requiring us to cease or
curtail our operations, or take corrective measures involving
capital expenditures, installation of additional equipment or
remedial actions. We may be required to compensate third parties
for loss or damage suffered by reason of our activities, and may
face civil or criminal fines or penalties imposed for violations of
applicable laws or regulations. Amendments to current laws,
regulations and permits governing our operations and activities
could affect us in a materially adverse way and could force us to
increase expenditures or abandon or delay the development of shrimp
production facilities.
Our international operations will involve the use of foreign
currencies, which will subject us to exchange rate fluctuations and
other currency risks.
Currently,
we have no revenues from international operations. In the future,
however, any revenues and related expenses of our international
operations will likely be generally denominated in local
currencies, which will subject us to exchange rate fluctuations
between such local currencies and the U.S. dollar. These exchange
rate fluctuations will subject us to currency translation risk with
respect to the reported results of our international operations, as
well as to other risks sometimes associated with international
operations. In the future, we could experience fluctuations in
financial results from our operations outside of the United States,
and there can be no assurance we will be able, contractually or
otherwise, to reduce the currency risks associated with our
international operations.
Our insurance coverage may be inadequate to cover all significant
risk exposures.
We will
be exposed to liabilities that are unique to the products we
provide. While we intend to maintain insurance for certain risks,
the amount of our insurance coverage may not be adequate to cover
all claims or liabilities, and we may be forced to bear substantial
costs resulting from risks and uncertainties of our business. It is
also not possible to obtain insurance to protect against all
operational risks and liabilities. The failure to obtain adequate
insurance coverage on terms favorable to us, or at all, could have
a material adverse effect on our business, financial condition and
results of operations. We do not have any business interruption
insurance. Any business disruption or natural disaster could result
in substantial costs and diversion of resources.
Risks Related to Ownership of our Common Stock
We have limited capitalization and may require financing, which may
not be available.
We have
limited capitalization, which increases our vulnerability to
general adverse economic and industry conditions, limits our
flexibility in planning for or reacting to changes in our business
and industry and may place us at a competitive disadvantage to
competitors with sufficient or excess capitalization. If we are
unable to obtain sufficient financing on satisfactory terms and
conditions, we will be forced to curtail or abandon our plans or
operations. Our ability to obtain financing will depend upon a
number of factors, many of which are beyond our
control.
A limited public trading market exists for our common stock, which
makes it more difficult for our stockholders to sell their common
stock in the public markets. Any trading in our shares may have a
significant effect on our stock prices.
Although
our common stock is listed for quotation on the OTC Marketplace, QB
Tier, under the symbol “SHMP”, the trading volume of
our stock is limited and a market may not develop or be sustained.
As a result, any trading price of our common stock may not be an
accurate indicator of the valuation of our common stock. Any
trading in our shares could have a significant effect on our stock
price. If a more liquid public market for our common stock does not
develop, then investors may not be able to resell the shares of our
common stock that they have purchased and may lose all of their
investment. No assurance can be given that an active market will
develop or that a stockholder will ever be able to liquidate its
shares of common stock without considerable delay, if at all. Many
brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to effect a
transaction in our securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling
costs may exceed the selling price. Furthermore, our stock price
may be impacted by factors that are unrelated or disproportionate
to our operating performance. These market fluctuations, as well as
general economic, political and market conditions, such as
recessions, interest rates or international currency fluctuations
may adversely affect the market price and liquidity of our common
stock.
Our stock price may be volatile.
The
market price of our common stock is likely to be highly volatile
and could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the
following:
●
our stock being
held by a small number of persons whose sales (or lack of sales)
could result in positive or negative pricing pressure on the market
price for our common stock;
●
actual or
anticipated variations in our quarterly operating
results;
●
changes in our
earnings estimates;
●
our ability to
obtain adequate working capital financing;
●
changes in market
valuations of similar companies;
●
publication (or
lack of publication) of research reports about us;
●
changes in
applicable laws or regulations, court rulings, enforcement and
legal actions;
●
loss of any
strategic relationships;
●
additions or
departures of key management personnel;
●
actions by our
stockholders (including transactions in our shares);
●
speculation in the
press or investment community;
●
increases in market
interest rates, which may increase our cost of
capital;
●
changes in our
industry;
●
competitive pricing
pressures;
●
our ability to
execute our business plan; and
●
economic and other
external factors.
In
addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market
fluctuations may also materially and adversely affect the market
price of our common stock.
Our stock is categorized as a penny stock. Trading of our stock may
be restricted by the SEC’s penny stock regulations which may
limit a stockholder’s ability to buy and sell our
stock.
Our
stock is categorized as a “penny stock”, as that term
is defined in SEC Rule 3a51-1, which generally provides that
“penny stock”, is any equity security that has a market
price (as defined) less than US$5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules,
including Rule 15g-9, which impose additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC
which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements
showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or
with the customer’s confirmation. In addition, the penny
stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make
a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in
the secondary market for the stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities and reduces the
number of potential investors. We believe that the penny stock
rules discourage investor interest in and limit the marketability
of our common stock.
According
to SEC Release No. 34-29093, the market for “penny
stocks” has suffered in recent years from patterns of fraud
and abuse. Such patterns include: (1) control of the market for the
security by one or a few broker-dealers that are often related to
the promoter or issuer; (2) manipulation of prices through
prearranged matching of purchases and sales and false and
misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. The occurrence of these
patterns or practices could increase the future volatility of our
share price.
FINRA sales practice requirements may also limit a
stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities
to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may
limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends
will be paid in the foreseeable future.
We do
not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally
available to pay dividends. Even if the funds are legally available
for distribution, we may nevertheless decide not to pay any
dividends. We presently intend to retain all earnings for our
operations.
The existence of indemnification rights to our directors, officers
and employees may result in substantial expenditures by our Company
and may discourage lawsuits against our directors, officers and
employees.
Our
bylaws contain indemnification provisions for our directors,
officers and employees, and we have entered into indemnification
agreements with our officer and directors. The foregoing
indemnification obligations could result in us incurring
substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which we may be unable to
recoup. These provisions and resultant costs may also discourage us
from bringing a lawsuit against directors and officers for breaches
of their fiduciary duties, and may similarly discourage the filing
of derivative litigation by our stockholders against our directors
and officers even though such actions, if successful, might
otherwise benefit us and our stockholders.
If we fail to develop or maintain an effective system of internal
controls, we may not be able to accurately report our financial
results or prevent financial fraud. As a result, current and
potential stockholders could lose confidence in our financial
reporting.
We are
subject to the risk that sometime in the future, our independent
registered public accounting firm could communicate to the board of
directors that we have deficiencies in our internal control
structure that they consider to be “significant
deficiencies.” A “significant deficiency” is
defined as a deficiency, or a combination of deficiencies, in
internal controls over financial reporting such that there is more
than a remote likelihood that a material misstatement of the
entity’s financial statements will not be prevented or
detected by the entity’s internal controls.
Effective
internal controls are necessary for us to provide reliable
financial reports and effectively prevent fraud. If we cannot
provide reliable financial reports or prevent fraud, we could be
subject to regulatory action or other litigation and our operating
results could be harmed. We are required to document and test our
internal control procedures to satisfy the requirements of Section
404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act” or “SOX”), which requires our management to
annually assess the effectiveness of our internal control over
financial reporting.
We
currently are not an “accelerated filer” as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”) requires us to include an internal control report with
our Annual Report on Form 10-K. That report must include
management’s assessment of the effectiveness of our internal
control over financial reporting as of the end of the fiscal year.
This report must also include disclosure of any material weaknesses
in internal control over financial reporting that we have
identified. As of March 31, 2018, the management of the Company
assessed the effectiveness of the Company’s internal control
over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal
Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(“COSO”) and SEC guidance on conducting such
assessments. Management concluded, during the fiscal year ended
March 31, 2018, that the Company’s internal controls and
procedures were not effective to detect the inappropriate
application of U.S. GAAP rules. Management realized there were
deficiencies in the design or operation of the Company’s
internal control that adversely affected the Company’s
internal controls which management considers to be material
weaknesses. A material weakness in the effectiveness of our
internal controls over financial reporting could result in an
increased chance of fraud and the loss of customers, reduce our
ability to obtain financing and require additional expenditures to
comply with these requirements, each of which could have a material
adverse effect on our business, results of operations and financial
condition. For additional information, see Item 9A – Controls
and Procedures.
Our
intended business, operations and accounting are expected to be
substantially more complex than they have been in the past. It may
be time consuming, difficult and costly for us to develop and
implement the internal controls and reporting procedures required
by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls and other finance personnel in order
to develop and implement appropriate internal controls and
reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be
able to obtain the independent accountant certifications required
by such act, which may preclude us from keeping our filings with
the SEC current.
If we
are unable to maintain the adequacy of our internal controls, as
those standards are modified, supplemented, or amended from time to
time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to
achieve and maintain an effective internal control environment
could cause us to face regulatory action and cause investors to
lose confidence in our reported financial information, either of
which could adversely affect the value of our common
stock.
As a public company, we will incur significant increased operating
costs and our management will be required to devote substantial
time to new compliance initiatives.
Although
our management has significant experience in the food industry, it
has only limited experience operating the Company as a public
company. To operate effectively, we will be required to continue to
implement changes in certain aspects of our business and develop,
manage and train management level and other employees to comply
with on-going public company requirements. Failure to take such
actions, or delay in the implementation thereof, could have a
material adverse effect on our business, financial condition and
results of operations.
The
Sarbanes-Oxley Act, as well as rules subsequently implemented by
the SEC, imposes various requirements on public companies,
including requiring establishment and maintenance of effective
disclosure and financial controls and changes in corporate
governance practices. Our management and other personnel will need
to devote a substantial amount of time to these new compliance
initiatives. Moreover, these rules and regulations will increase
our legal and financial compliance costs and will make some
activities more time-consuming and costly.
Our independent registered public accounting firm has issued its
audit opinion on our consolidated financial statements appearing in
our annual report on Form 10-K, including an explanatory paragraph
as to substantial doubt with the respect to our ability to continue
as a going concern.
The
report of Turner, Stone & Company, our independent registered
public accounting firm, with respect to our consolidated financial
statements and the related notes for the fiscal year ended March
31, 2018, indicates that there was substantial doubt about our
ability to continue as a going concern. Our financial statements do
not include any adjustments that might result from this
uncertainty. For additional information, see Item 7 –
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – “Going
Concern.”
Risks Related to the Offering
Our existing stockholders may experience significant dilution from
the sale of our common stock pursuant to the GHS financing
agreement.
The
sale of our common stock to GHS Investments LLC in accordance with
the Financing Agreement may have a dilutive impact on our
shareholders. As a result, the market price of our common stock
could decline. In addition, the lower our stock price is at the
time we exercise our put options, the more shares of our common
stock we will have to issue to GHS in order to exercise a put under
the Financing Agreement. If our stock price decreases, then our
existing shareholders would experience greater dilution for any
given dollar amount raised through the offering.
The
perceived risk of dilution may cause our stockholders to sell their
shares, which may cause a decline in the price of our common stock.
Moreover, the perceived risk of dilution and the resulting downward
pressure on our stock price could encourage investors to engage in
short sales of our common stock. By increasing the number of shares
offered for sale, material amounts of short selling could further
contribute to progressive price declines in our common
stock.
The issuance of shares pursuant to the GHS financing agreement may
have a significant dilutive effect.
Depending
on the number of shares we issue pursuant to the GHS Financing
Agreement, it could have a significant dilutive effect upon our
existing shareholders. Although the number of shares that we may
issue pursuant to the Financing Agreement will vary based on our
stock price (the higher our stock price, the less shares we have to
issue), there may be a potential dilutive effect to our
shareholders, based on different potential future stock prices, if
the full amount of the Financing Agreement is realized. Dilution is
based upon common stock put to GHS and the stock price discounted
to GHS’s purchase price of 80% of the lowest trading price
during the pricing period.
GHS Investments LLC will pay less than the then-prevailing market
price of our common stock which could cause the price of our common
stock to decline.
Our
common stock to be issued under the GHS Financing Agreement will be
purchased at a twenty percent (20%) discount, or eighty percent
(80%) of the lowest closing price for the Company’s common
stock during the ten (10) consecutive trading days immediately
preceding the Purchase Date (as defined in the GHS Financing
Agreement).
GHS has
a financial incentive to sell our shares immediately upon receiving
them to realize the profit between the discounted price and the
market price. If GHS sells our shares, the price of our common
stock may decrease. If our stock price decreases, GHS may have
further incentive to sell such shares. Accordingly, the discounted
sales price in the Financing Agreement may cause the price of our
common stock to decline.
We may not have access to the full amount under the financing
agreement.
The
lowest closing price of the Company’s common stock during the
ten (10) consecutive trading day period immediately preceding the
filing of this Registration Statement was approximately $0.015. At
that price we would be able to sell shares to GHS under the
Financing Agreement at the discounted price of $0.012. At that
discounted price, the 20,000,000 shares would only represent
$240,000, which is far below the full amount of the Financing
Agreement.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do
not relate strictly to historical or current facts. Forward-looking
statements involve risks and uncertainties and include statements
regarding, among other things, our projected revenue growth and
profitability, our growth strategies and opportunity, anticipated
trends in our market and our anticipated needs for working capital.
They are generally identifiable by use of the words
“may,” “will,” “should,”
“anticipate,” “estimate,”
“plans,” “potential,”
“projects,” “continuing,”
“ongoing,” “expects,” “management
believes,” “we believe,” “we intend”
or the negative of these words or other variations on these words
or comparable terminology. These statements may be found under the
sections entitled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and
“Business,” as well as in this prospectus generally. In
particular, these include statements relating to future actions,
prospective products, market acceptance, future performance or
results of current and anticipated products, sales efforts,
expenses, and the outcome of contingencies such as legal
proceedings and financial results.
Examples
of forward-looking statements in this prospectus include, but are
not limited to, our expectations regarding our business strategy,
business prospects, operating results, operating expenses, working
capital, liquidity and capital expenditure requirements. Important
assumptions relating to the forward-looking statements include,
among others, assumptions regarding demand for our products, the
cost, terms and availability of components, pricing levels, the
timing and cost of capital expenditures, competitive conditions and
general economic conditions. These statements are based on our
management’s expectations, beliefs and assumptions concerning
future events affecting us, which in turn are based on currently
available information. These assumptions could prove inaccurate.
Although we believe that the estimates and projections reflected in
the forward-looking statements are reasonable, our expectations may
prove to be incorrect.
Important
factors that could cause actual results to differ materially from
the results and events anticipated or implied by such
forward-looking statements include, but are not limited
to:
●
changes
in the market acceptance of our products;
●
increased levels of
competition;
●
changes
in political, economic or regulatory conditions generally and in
the markets in which we operate;
●
our
relationships with our key customers;
●
our
ability to retain and attract senior management and other key
employees;
●
our
ability to quickly and effectively respond to new technological
developments;
●
our
ability to protect our trade secrets or other proprietary rights,
operate without infringing upon the proprietary rights of others
and prevent others from infringing on the proprietary rights of the
Company; and
●
other
risks, including those described in the “Risk Factors”
discussion of this prospectus.
We
operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for us to
predict all of those risks, nor can we assess the impact of all of
those risks on our business or the extent to which any factor may
cause actual results to differ materially from those contained in
any forward-looking statement. The forward-looking statements in
this prospectus are based on assumptions management believes are
reasonable. However, due to the uncertainties associated with
forward-looking statements, you should not place undue reliance on
any forward-looking statements. Further, forward-looking statements
speak only as of the date they are made, and unless required by
law, we expressly disclaim any obligation or undertaking to
publicly update any of them in light of new information, future
events, or otherwise.
USE OF PROCEEDS
The
Company will use the proceeds from the sale of the Shares for
general corporate and working capital purposes and acquisitions or
assets, businesses or operations or for other purposes that the
Board of Directors, in good faith deem to be in the best interest
of the Company.
DETERMINATION OF OFFERING PRICE
We have
not set an offering price for the shares registered hereunder, as
the only shares being registered are those sold pursuant to the GHS
Financing Agreement. GHS may sell all or a portion of the shares
being offered pursuant to this prospectus at fixed prices and
prevailing market prices at the time of sale, at varying prices or
at negotiated prices.
DILUTION
Not
applicable. The shares registered under this registration statement
are not being offered for purchase. The shares are being registered
on behalf of our selling shareholders pursuant to the GHS Financing
Agreement.
SELLING SECURITY HOLDER
The
selling stockholder identified in this prospectus may offer and
sell up to 20,000,000 shares of our common stock, which consists of
shares of common stock to be sold by GHS pursuant to the Financing
Agreement. If issued presently, the shares of common stock
registered for resale by GHS would represent approximately 22.97%
of our issued and outstanding shares of common stock as of
September 7, 2018. Additionally, the 20,000,000 shares of our
common stock registered for resale herein would represent
approximately 30% of the Company’s public float.
We may
require the selling stockholder to suspend the sales of the shares
of our common stock being offered pursuant to this prospectus upon
the occurrence of any event that makes any statement in this
prospectus or the related registration statement untrue in any
material respect or that requires the changing of statements in
those documents in order to make statements in those documents not
misleading.
The
selling stockholder identified in the table below may from time to
time offer and sell under this prospectus any or all of the shares
of common stock described under the column “Shares of Common
Stock Being Offered” in the table below.
GHS
will be deemed to be an underwriter within the meaning of the
Securities Act. Any profits realized by such selling stockholder
may be deemed to be underwriting commissions.
Information
concerning the selling stockholder may change from time to time
and, if necessary, we will amend or supplement this prospectus
accordingly. We cannot give an estimate as to the number of shares
of common stock that will actually be held by the selling
stockholder upon termination of this offering, because the selling
stockholders may offer some or all of the common stock under the
offering contemplated by this prospectus or acquire additional
shares of common stock. The total number of shares that may be
sold, hereunder, will not exceed the number of shares offered,
hereby. Please read the section entitled “Plan of
Distribution” in this prospectus.
The
manner in which the selling stockholder acquired or will acquire
shares of our common stock is discussed below under “The
Offering.”
The following table sets forth the name of each selling
stockholder, the number of shares of our common stock beneficially
owned by such stockholder before this offering, the number of
shares to be offered for such stockholder’s account and the
number and (if one percent or more) the percentage of the class to
be beneficially owned by such stockholder after completion of the
offering. The number of shares owned are those beneficially owned,
as determined under the rules of the SEC, and such information is
not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares
of our common stock as to which a person has sole or shared voting
power or investment power and any shares of common stock which the
person has the right to acquire within 60 days, through the
exercise of any option, warrant or right, through conversion of any
security or pursuant to the automatic termination of a power of
attorney or revocation of a trust, discretionary account or similar
arrangement, and such shares are deemed to be beneficially owned
and outstanding for computing the share ownership and percentage of
the person holding such options, warrants or other rights, but are
not deemed outstanding for computing the percentage of any other
person. Beneficial ownership percentages are calculated based on
87,056,880 shares of our common stock outstanding as of September
7, 2018.
Unless
otherwise set forth below, (a) the persons and entities named in
the table have sole voting and sole investment power with respect
to the shares set forth opposite the selling stockholder’s
name, subject to community property laws, where applicable, and (b)
no selling stockholder had any position, office or other material
relationship within the past three years, with us or with any of
our predecessors or affiliates. The number of shares of common
stock shown as beneficially owned before the offering is based on
information furnished to us or otherwise based on information
available to us at the timing of the filing of the registration
statement of which this prospectus forms a part.
|
|
|
Number of Shares
to be Owned by Selling Stockholder After the Offering and Percent
of Total Issued and Outstanding Shares
|
Name of Selling Stockholder
|
Shares
Owned by
the
Selling Stockholders
before the Offering
(1)
|
Shares of Common
Stock Being Offered
|
|
|
GHS Investments LLC
(3)
|
0
|
(4)
|
0
|
0%
|
Notes:
(1)
Beneficial ownership is determined in accordance with Securities
and Exchange Commission rules and generally includes voting or
investment power with respect to shares of common stock. Shares of
common stock subject to options, warrants and convertible
debentures currently exercisable or convertible, or exercisable or
convertible within 60 days, are counted as outstanding. The actual
number of shares of common stock issuable upon the conversion of
the convertible debentures is subject to adjustment depending on,
among other factors, the future market price of our common stock,
and could be materially less or more than the number estimated in
the table.
(2)
Because the selling stockholders may offer and sell all or only
some portion of the 20,000,000 shares of our common stock being
offered pursuant to this prospectus and may acquire additional
shares of our common stock in the future, we can only estimate the
number and percentage of shares of our common stock that any of the
selling stockholders will hold upon termination of the
offering.
(3)
Mark Grober exercises voting and dispositive power with respect to
the shares of our common stock that are beneficially owned by GHS
Investments LLC.
(4)
Consists of up to 20,000,000 shares of common stock to be sold by
GHS pursuant to the Financing Agreement.
THE OFFERING
On
August 21, 2018, we entered into an Equity Financing Agreement (the
“Financing Agreement”) with GHS Investments LLC
(“GHS”). Although we are not mandated to sell shares
under the Financing Agreement, the Financing Agreement gives us the
option to sell to GHS, up to $7,000,000 worth of our common stock
over the period ending thirty-six (36) months after the date this
Registration Statement is deemed effective. The $7,000,000 was
stated as the total amount of available funding in the Financing
Agreement because this was the maximum amount that GHS agreed to
offer us in funding. In connection with the Financing Agreement,
the Company executed a promissory note dated August 27, 2018, in
the principal amount of $15,000 (the “Note”) as payment
of the commitment fee for the Financing Agreement. There is no
assurance the market price of our common stock will increase in the
future. The number of common shares that remain issuable may not be
sufficient, dependent upon the share price, to allow us to access
the full amount contemplated under the Financing Agreement. If the
bid/ask spread remains the same we will not be able to place a put
for the full commitment under the Financing Agreement. Based on the
lowest closing price of our common stock during the ten (10)
consecutive trading day period preceding the filing date of this
registration statement was approximately $0.015, the registration
statement covers the offer and possible sale of $240,000 worth of
our shares.
The
purchase price of the common stock will be set at eighty percent
(80%) of the lowest trading price of the common stock during the
ten (10) consecutive trading day period immediately preceding the
date on which the Company delivers a put notice to GHS. In
addition, there is an ownership limit for GHS of
9.99%.
GHS is
not permitted to engage in short sales involving our common stock
during the term of the commitment period. In accordance with
Regulation SHO, however, sales of our common stock by GHS after
delivery of a put notice of such number of shares reasonably
expected to be purchased by GHS under a put will not be deemed a
short sale.
In
addition, we must deliver the other required documents, instruments
and writings required. GHS is not required to purchase the put
shares unless:
●
Our registration
statement with respect to the resale of the shares of common stock
delivered in connection with the applicable put shall have been
declared effective;
●
We shall have
obtained all material permits and qualifications required by any
applicable state for the offer and sale of the registrable
securities; and
●
We shall have filed
all requisite reports, notices, and other documents with the SEC in
a timely manner.
As we
draw down on the equity line of credit, shares of our common stock
will be sold into the market by GHS. The sale of these shares could
cause our stock price to decline. In turn, if our stock price
declines and we issue more puts, more shares will come into the
market, which could cause a further drop in our stock price. You
should be aware that there is an inverse relationship between the
market price of our common stock and the number of shares to be
issued under the equity line of credit. If our stock price
declines, we will be required to issue a greater number of shares
under the equity line of credit. We have no obligation to utilize
the full amount available under the equity line of
credit.
Neither
the Financing Agreement nor any of our rights or GHS’s rights
thereunder may be assigned to any other person.
PLAN OF DISTRIBUTION
Each of
the selling stockholders named above and any of their pledgees and
successors-in-interest may, from time to time, sell any or all of
their shares of common stock on OTC Markets or any other stock
exchange, market or trading facility on which the shares of our
common stock are traded or in private transactions. These sales may
be at fixed prices and prevailing market prices at the time of
sale, at varying prices or at negotiated prices. The selling
stockholders may use any one or more of the following methods when
selling shares:
●
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers;
●
block trades in
which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
●
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account;
●
privately
negotiated transactions;
●
broker-dealers may
agree with the selling stockholders to sell a specified number of
such shares at a stipulated price per share; or
●
a combination of
any such methods of sale.
Broker-dealers
engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, but, except as set forth in
a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in
compliance with FINRA Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with FINRA
IM-2440.
GHS is
an underwriter within the meaning of the Securities Act of 1933 and
any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the
meaning of the Securities Act of 1933 in connection with such
sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act of 1933. GHS has informed us
that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to
distribute the common stock of our company. Pursuant to a
requirement by FINRA, the maximum commission or discount to be
received by any FINRA member or independent broker-dealer may not
be greater than 8% of the gross proceeds received by us for the
sale of any securities being registered pursuant to Rule 415
promulgated under the Securities Act of 1933.
Discounts,
concessions, commissions and similar selling expenses, if any,
attributable to the sale of shares will be borne by the selling
stockholder. The selling stockholder may agree to indemnify any
agent, dealer, or broker-dealer that participates in transactions
involving sales of the shares if liabilities are imposed on that
person under the Securities Act of 1933.
We are
required to pay certain fees and expenses incurred by us incident
to the registration of the shares covered by this prospectus. We
have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933. We will not receive any proceeds
from the resale of any of the shares of our common stock by the
selling stockholders. We may, however, receive proceeds from the
sale of our common stock under the Financing Agreement with GHS.
Neither the Financing Agreement with GHS nor any rights of the
parties under the Financing Agreement with GHS may be assigned or
delegated to any other person.
We have
entered into an agreement with GHS to keep this prospectus
effective until GHS has sold all of the common shares purchased by
it under the Financing Agreement and has no right to acquire any
additional shares of common stock under the Financing
Agreement.
The
resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities
laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or
qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Securities Exchange Act
of 1934, any person engaged in the distribution of the resale
shares may not simultaneously engage in market making activities
with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of
the distribution. In addition, the selling stockholders will be
subject to applicable provisions of the Securities Exchange Act of
1934 and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of shares of
the common stock by the selling stockholders or any other person.
We will make copies of this prospectus available to the selling
stockholders.
DESCRIPTION OF SECURITIES TO BE REGISTERED
General
We are authorized to issue an aggregate of three hundred million
(300,000,000) shares of common stock, $0.0001 par value per share
and two hundred million (200,000,000) shares of preferred stock,
$0.0001 par value per share, in one or more series and to fix the
voting powers, preferences and other rights and limitations of the
preferred stock. As of September 7, 2018, we had 87,056,880 shares
of common stock outstanding and 5,000,000 shares of Preferred Stock
outstanding.
Each
share of common stock shall have one (1) vote per share. Our common
stock does not provide a preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions or
rights. Our common stock holders are not entitled to cumulative
voting for election of Board of Directors.
Dividends
We have
not paid any dividends on our common stock since our inception and
do not intend to pay any dividends in the foreseeable
future.
The
declaration of any future cash dividends is at the discretion of
our board of directors and depends upon our earnings, if any, our
capital requirements and financial position, our general economic
conditions, and other pertinent conditions. It is our present
intention not to pay any cash dividends in the foreseeable future,
but rather to reinvest earnings, if any, in our business
operations.
Warrants
As of
September 7, 2018, there are warrants outstanding to purchase
17,444,433 shares of our common stock. The warrants have a weighted
average exercise price of $0.004 and expire at various times
between January 23, 2022 and September 11, 2022.
Options
The
Company has not granted any options since inception.
Transfer Agent
Our
transfer agent is Island Stock Transfer, Inc., and is located at
15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.
Island Stock Transfer, Inc. telephone number is (727)
289-0010.
Securities Authorized for Issuance Under Equity Compensation
Plans
There
were no equity compensation plans formally approved by the
shareholders of the Company as of March 31,
2018.
Preferred Stock
The
Company has authorized 200,000,000 shares of preferred stock with a
$0.0001 par value. The board of directors has the authority to
issue these shares and to set dividends, voting and conversion
rights, redemption provisions, liquidation preferences, and other
rights and restrictions.
On August 17, 2018, the Company, pursuant to approval by the
Company’s board of directors, filed a certificate of
designation (the “Certificate of Designation”) with the
state of Nevada in order to designate a class of preferred stock.
The class of preferred stock that was designated is referred to as
Series A Convertible Preferred Stock (the “Series A
Stock”), consists of 5,000,000 shares, and was designated
from the 200,000,000 authorized preferred shares of the Company.
The Series A Stock is not entitled to dividends, but carries
liquidation rights upon the dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, at which time the
holders of the Series A Stock shall receive the sum of $0.001 per
share before any payment or distribution shall be made on the
Company’s common stock, or any class ranking junior to the
Series A Stock. The shares of Series A Stock shall vote together as
a single class with the holders of the Company’s common stock
for all matters submitted to the holders of common stock, including
the election of directors, and shall carry voting rights of 60
common shares for every share of Series A Stock. Any time after the
two-year anniversary of the initial issuance date of the Series A
Stock, the Series A Stock shall be convertible at the written
consent of a majority of the outstanding shares of Series A Stock,
in an amount of shares of common stock equal to 100% of the then
outstanding shares of common stock at the time of such
conversion.
On
August 21, 2018, the Company entered into a Stock Exchange
Agreement (the “Exchange Agreement”) with NaturalShrimp
Holdings, Inc. (“NaturalShrimp”), the Company’s
majority shareholder, which is controlled by the Company’s
CEO and President. Pursuant to the Exchange Agreement, the Company
and NaturalShrimp exchanged 75,000,000 shares of common stock for
5,000,000 shares of Series A Stock. The 75,000,000 shares of common
stock was cancelled and returned to the authorized but unissued
shares of common stock of the Company.
Anti-Takeover Effects of Various Provisions of Nevada
Law
Provisions
of the Nevada Revised Statutes, our articles of incorporation, as
amended, and bylaws could make it more difficult to acquire us by
means of a tender offer, a proxy contest or otherwise, or to remove
incumbent officers and directors. These provisions, summarized
below, would be expected to discourage certain types of takeover
practices and takeover bids our Board may consider inadequate and
to encourage persons seeking to acquire control of us to first
negotiate with us. We believe that the benefits of increased
protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us
will outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of
these proposals could result in an improvement of their
terms.
Blank Check Preferred
Our
articles of incorporation permit our Board to issue preferred stock
with voting, conversion and exchange rights that could negatively
affect the voting power or other rights of our Common Stockholders.
The issuance of our preferred stock could delay or prevent a change
of control of our Company.
Amendments to our Articles of Incorporation and Bylaws
Under
the Nevada Revised Statutes, our articles of incorporation may not
be amended by stockholder action alone.
Nevada Anti-Takeover Statute
We may
be subject to Nevada’s Combination with Interested
Stockholders Statute (Nevada Corporation Law Sections
78.411-78.444) which prohibits an “interested
stockholder” from entering into a “combination”
with the corporation, unless certain conditions are met. An
“interested stockholder” is a person who, together with
affiliates and associates, beneficially owns (or within the prior
two years, did beneficially own) 10% or more of the
corporation’s capital stock entitled to vote.
Limitations on Liability and Indemnification of Officers and
Directors
The
Nevada Revised Statutes limits or eliminates the personal liability
of directors to corporations and their stockholders for monetary
damages for breaches of directors’ fiduciary duties as
directors.
The
limitation of liability and indemnification provisions under the
Nevada Revised Statues and in our articles of incorporation and
bylaws may discourage stockholders from bringing a lawsuit against
directors for breach of their fiduciary duties. These provisions
may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an
action, if successful, might otherwise benefit us and our
stockholders. However, these provisions do not limit or eliminate
our rights, or those of any stockholder, to seek non-monetary
relief such as injunction or rescission in the event of a breach of
a director’s fiduciary duties. Moreover, the provisions do
not alter the liability of directors under the federal securities
laws. In addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs of
settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
Authorized but Unissued Shares
Our
authorized but unissued shares of Common Stock and preferred stock
will be available for future issuance without stockholder approval,
except as may be required under the listing rules of any stock
exchange on which our Common Stock is then listed. We may use
additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of Common Stock and preferred stock
could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or
otherwise.
Penny Stock Considerations
Our
shares will be “penny stocks” as that term is generally
defined in the Securities Exchange Act of 1934 to mean equity
securities with a price of less than $5.00 per share. Thus, our
shares will be subject to rules that impose sales practice and
disclosure requirements on broker-dealers who engage in certain
transactions involving a penny stock. Under the penny stock
regulations, a broker-dealer selling a penny stock to anyone other
than an established customer must make a special suitability
determination regarding the purchaser and must receive the
purchaser’s written consent to the transaction prior to the
sale, unless the broker-dealer is otherwise exempt.
In
addition, under the penny stock regulations, the broker-dealer is
required to:
●
Deliver, prior to
any transaction involving a penny stock, a disclosure schedule
prepared by the Securities and Exchange Commission relating to the
penny stock market, unless the broker-dealer or the transaction is
otherwise exempt;
●
Disclose
commissions payable to the broker-dealer and our registered
representatives and current bid and offer quotations for the
securities;
●
Send monthly
statements disclosing recent price information pertaining to the
penny stock held in a customer’s account, the account’s
value, and information regarding the limited market in penny
stocks; and
●
Make a special
written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser’s written
agreement to the transaction, prior to conducting any penny stock
transaction in the customer’s account.
Because
of these regulations, broker-dealers may encounter difficulties in
their attempt to sell shares of our common stock, which may affect
the ability of selling shareholders or other holders to sell their
shares in the secondary market and have the effect of reducing the
level of trading activity in the secondary market. These additional
sales practice and disclosure requirements could impede the sale of
our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares
in all probability will be subject to such penny stock rules and
our shareholders will, in all likelihood, find it difficult to sell
their securities.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The
consolidated financial statements for the Company as of March 31,
2018 and 2017 and for the years then ended included in this
prospectus have been audited by Turner, Stone & Company,
L.L.P., an independent registered public accounting firm, to the
extent and for the periods set forth in our report and are
incorporated herein in reliance upon such report given upon the
authority of said firm as experts in auditing and
accounting.
The
legality of the shares offered under this registration statement
will be passed upon by Lucosky Brookman LLP.
INFORMATION WITH RESPECT TO THE REGISTRANT
Corporate History
We were incorporated in the State of Nevada on July 3, 2008 under
the name “Multiplayer Online Dragon, Inc.” Effective
November 5, 2010, we effected an 8 for 1 forward stock split,
increasing the issued and outstanding shares of our common stock
from 12,000,000 shares to 96,000,000 shares. On October 29, 2014,
we effected a 1 for 10 reverse stock split, decreasing the issued
and outstanding shares of our common stock from 97,000,000 to
9,700,000.
On November 26, 2014, we entered into an Asset Purchase Agreement
(the “Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation
(“NSC”), a Delaware corporation, and NaturalShrimp
Global, Inc. (“NS Global”), a Delaware corporation, and
certain real property located outside of San Antonio, Texas (the
“Assets”).
On January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In connection with our receipt of approval from the Financial
Industry Regulatory Authority (“FINRA”), effective
March 3, 2015, we amended our Articles of Incorporation to change
our name to “NaturalShrimp Incorporated.”
Business Overview
We are a biotechnology company and have developed a proprietary
technology that allows us to grow Pacific White shrimp (Litopenaeus
vannamei, formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS Global, one of our wholly-owned subsidiaries, owns less than 1%
of NaturalShrimp International A.S. in Europe. European-based,
NaturalShrimp International A.S., Oslo, Norway, was responsible for
the construction cost of its facility and operating capital
needs.
The first facility built in Spain for NaturalShrimp International
A.S. is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas.
The Company has three wholly-owned subsidiaries, including NSC, NS
Global and NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology.” Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology.” We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
In 2001, we began research and development of a high density,
natural aquaculture system that is not dependent on ocean water to
provide quality, fresh shrimp every week, fifty-two weeks a year.
The initial NaturalShrimp system was successful, but the Company
determined that it would not be economically feasible due to high
operating costs. Over the next several years, using the knowledge
we gained from developing the first system, we developed a shrimp
production system that eliminated the high costs associated with
the previous system. We have continued to refine this technology,
eliminating bacteria and other problems that affect enclosed
systems, and now have a successful shrimp growing process. We have
produced thousands of pounds of shrimp over the last few years in
order to develop a design that will consistently produce quality
shrimp that grow to a large size at a specific rate of growth. This
included experimenting with various types of natural live and
synthesized feed supplies before selecting the most appropriate
nutritious and reliable combination. It also included utilizing
monitoring and control automation equipment to minimize labor costs
and to provide the necessary oversight for proper regulation of the
shrimp environment. However, there were further enhancements needed
to our process and technology in order to begin production of
shrimp on a commercially viable scale and to generate
revenues.
Our current system consists of a reception tank where the shrimp
are acclimated, then moved to a larger grow-out tank for the rest
of the twenty-four week cycle. During 2016, we engaged in
additional engineering projects with third parties to further
enhance our indoor production capabilities. For example, through
our relationship with Trane, Inc., a division of Ingersoll-Rand Plc
(“Trane”), Trane has provided a detailed audit to use
data to build and verify the capabilities of then initial Phase 1
prototype of a Trane-proposed three tank system at our La Coste,
Texas facility. The Company contracted F&T Water Solutions and
RGA Labs, Inc. (“RGA Labs”) to complete final
engineering and building of the initial patent-pending modified
Electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. The design will present a viable pathway to begin
generating revenue and producing shrimp on a commercially viable
scale. The design is completed and was installed in early June 2018
by RGA Labs, and final financing for the system is expected to be
provided by one of the Company’s existing institutional
investors. The first post larvae (PL) arrived from the hatchery at
the end of June 2018, and the Company expects it will take
approximately six to nine months to begin producing and shipping
shrimp.
Overview of Industry
Shrimp is a well-known and globally-consumed commodity,
constituting one of the most important types of seafood and a
staple protein source for much of the world. According to the USDA
Foreign Agricultural Service, the world consumes approximately 9
billion pounds of shrimp annually with over 1.7 billion pounds
consumed in the United States alone. Approximately 65% of the
global supply of shrimp is caught by ocean trawlers and the other
35% is produced by open-air shrimp farms, mostly in developing
countries.
Shrimp boats catch shrimp through the use of large, boat-towed
nets. These nets are quite toxic to the undersea environment as
they disturb and destroy ocean-bottom ecosystems; these nets also
catch a variety of non-shrimp sea life, which is typically killed
and discarded as part of the shrimp harvesting process.
Additionally, the world’s oceans can only supply a finite
amount of shrimp each year, and in fact, single-boat shrimp yields
have fallen by approximately 20% since 2010 and continue to
decrease. The shrimping industry’s answer to this problem has
been to deploy more (and larger) boats that deploy ever-larger
nets, which has in the short-term been successful at maintaining
global shrimp yields. However, this benefit cannot continue
forever, as eventually global demand has the potential of
outstripping the oceans’ ability to maintain the natural
ecosystem’s balance, resulting in a permanent decline in
yields. When taken in light of global population growth and the
ever-increasing demand for nutrient-rich foods such as shrimp, this
is clearly an unsustainable production paradigm.
Shrimp farming, known in the industry as “aquaculture,”
has ostensibly stepped in to fill this demand/supply imbalance.
Shrimp farming is typically done in open-air lagoons and man-made
shrimp ponds connected to the open ocean. Because these ponds
constantly exchange water with the adjacent sea, the farmers are
able to maintain the water chemistry that allows the shrimp to
prosper. However, this method of cultivating shrimp also carries
severe ecological peril. First of all, most shrimp farming is
primarily conducted in developing countries, where poor shrimp
farmers have little regard for the global ecosystem. Because of
this, these farmers use large quantities of antibiotics and other
chemicals that maximize each farm’s chance of producing a
crop, putting the entire system at risk. For example, a viral
infection that crops up in one farm can spread to all nearby farms,
quite literally wiping out an entire region’s production. In
1999, the White Spot virus invaded shrimp farms in at least five
Latin American countries: Honduras, Nicaragua, Guatemala, Panama
and Ecuador and in 2013-14 EMS (Early Mortality Syndrome) wiped out
most of the Asia Pacific region and Mexico. Secondly, there is also
a finite amount of coastline that can be used for shrimp production
– eventually shrimp farms that are dependent on the open
ocean will have nowhere to expand. Again, this is an ecologically
damaging and ultimately unsustainable system for producing
shrimp.
In both the cases, the current method of shrimp production is
unsustainable. As global populations rise and the demand for shrimp
continues to grow, the current system is bound to fall short.
Shrimp trawling cannot continue to increase production without
completely depleting the oceans’ natural shrimp population.
Trends in per-boat yield confirm that this industry has already
crossed the overfishing threshold, putting the global open-ocean
shrimp population in decline. While open-air shrimp aquaculture may
seem to address this problem, it is also an unsustainable system
that destroys coastal ecological systems and produces shrimp with
very high chemical contamination levels. Closed-system shrimp
farming is clearly a superior alternative, but its unique
challenges have prevented it from becoming a widely-available
alternative – until now.
Of the 1.7 billion pounds of shrimp consumed annually in the United
States, over 1.3 billion pounds are imported – much of this
from developing countries’ shrimp farms. These farms are
typically located in developing countries and use high levels of
antibiotics and pesticides that are not allowed under USDA
regulations. As a result, these shrimp farms produce chemical-laden
shrimp in an ecologically unsustainable way.
Unfortunately, most consumers here in the United States are not
aware of the origin of their store-bought shrimp or worse, that
which they consume in restaurants. This is due to a USDA rule that
states that only bulk-packaged shrimp must state the shrimp’s
country of origin; any “prepared” shrimp, which
includes arrangements sold in grocery stores and seafood markets,
as well as all shrimp served in restaurants, can simply be sold
“as is.” Essentially, this means that most U.S.
consumers may be eating shrimp laden with chemicals and
antibiotics. NaturalShrimp’s product is free of pesticide
chemicals and antibiotics, a fact that we believe is highly
attractive and beneficial in terms of our eventual marketing
success.
Technology
Intensive, Indoor, Closed-System Shrimp Production
Technology
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology”. Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology”. We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
Automated Monitoring and Control System
The Company’s “Automated Monitoring and Control
System” uses individual tank monitors to automatically
control the feeding, oxygenation, and temperature of each of the
facility tanks independently. In addition, a facility computer
running custom software communicates with each of the controllers
and performs additional data acquisition functions that can report
back to a supervisory computer from anywhere in the world. These
computer-automated water controls optimize the growing conditions
for the shrimp as they mature to harvest size, providing a
disease-resistant production environment.
The principal theories behind the Company’s system are
characterized as:
● High-density shrimp production
● Weekly production
● Natural ecology system
● Regional production
● Regional distribution
These principles form the foundation for the Company and our
potential distributors so that consumers can be provided with
continuous volumes of live and fresh shrimp at competitive
prices.
Research and Development
In 2001, the Company began research and development (R&D) of a
high density, natural aquaculture system that is not dependent on
ocean water to provide quality, fresh shrimp every week, fifty-two
weeks a year. The initial NaturalShrimp system was successful but
the Company determined that it would not be economically feasible
due to high operating costs. Over the next several years, using the
knowledge we gained from the first R&D system, we developed a
shrimp production system that eliminated the high costs associated
with the previous system. We have continued to refine this
technology, eliminating bacteria and other problems that affect
enclosed systems and now have a successful shrimp growing
process.
We have produced thousands of pounds of shrimp over the last few
years in order to develop a design that will consistently produce
quality shrimp that grow to a large size at a specific rate of
growth. This included experimenting with various types of natural
live and synthesized feed supplies before selecting the most
appropriate nutritious and reliable combination. It also included
utilizing monitoring and control automation equipment to minimize
labor costs and to provide the necessary oversight for proper
regulation of the shrimp environment.
After the implementation of the first R&D facility in La Coste,
Texas, the Company has also made significant improvements that
minimize the transfer of shrimp, which will reduce shrimp stress
and labor costs. Our current system consists of a reception tank
where the shrimp are acclimated, then moved to a larger grow-out
tank for the rest of the twenty-four week cycle.
On September 7, 2016, we entered into a Letter of Commitment with
Trane, Inc. (“Trane”), a division of Ingersoll-Rand
Plc, whereby Trane shall proceed with a detailed audit to use data
to verify the capabilities of an initial Phase 1 prototype of a
Trane-proposed three tank system at our La Coste, Texas facility.
The prototype consists of a modified Electrocoagulation (EC) system
for the human grow-out, harvesting and processing of fully mature,
antibiotic-free Pacific White Leg shrimp. Trane was authorized to
proceed with such detailed audit to utilize data for purposes of
verifying the capabilities of the EC system, including the ammonia
and chlorine capture and sequestering and pathogen kill. The
detailed audit delivered (i) a report on the inspection of the
existing infrastructure determining if proper fit, adequate
security, acceptable utility service, environmental protection and
equipment sizing are achievable; (ii) provide firm fixed pricing
for the EC system, electrode selection and supply, waste removal,
ventilation of the off-gassing of the equipment; and (iii) a
formalized plan for commissioning and on-site investigation of
hardware design to simplify build-out of Phase 2 and future phases.
The detailed audit was utilized by RGA Labs to build and install
the initial system in La Coste Texas pilot plant the first week of
July 2018. Management expects to utilize the results of the
detailed audit actual operating data as part of the Company’s
financing and underwriting package at the Company's La Coste, Texas
facility. Installation of the system is expected to be provided by
an outside general contractor, and lease financing for the system
is expected to be provided by an outside leasing firm.
Target Markets and Sales Price
Our goal is to establish production systems and distribution
centers in metropolitan areas of the United States, as well as
international distribution networks through joint venture
partnerships throughout the world. This should allow the Company to
capture a significant portion of world shrimp sales by offering
locally grown, environmentally “green,” naturally
grown, fresh shrimp at competitive wholesale prices.
The United States population is approximately 325 million people
with an annual shrimp consumption of 1.7 billion pounds, of which
less than 400 million pounds are domestically produced. According
to IndexMundi.com, the wholesale price for frozen, commodity grade
shrimp has risen 15% since January 2015 (shell-on headless, 26-30
count; which is comparable to our target growth size). With world
shrimp problems, this price is expected to rise more in the next
few years.
We strive to build a profitable global shrimp production company.
We believe our foundational advantage is that we can deliver fresh,
organically grown, gourmet-grade shrimp, 52 weeks a year to retail
and wholesale buyers in major market areas at competitive, yet
premium prices. By locating regional production and distribution
centers in close proximity to consumer demand, we can provide a
fresh product to customers within 24 hours after harvest, which is
unique in the shrimp industry. We can be the “first to
market” and perhaps “sole weekly provider” of
fresh shrimp and capture as much market share as production
capacity can support.
For those customers that want a frozen product, we may be able to
provide this in the near future and the product will still be
differentiated as a “naturally grown, sustainable
seafood” that will meet the increasing demand of socially
conscious consumers.
Our patented technology and eco-friendly, bio-secure production
processes enable the delivery of a chemical and antibiotic free,
locally grown product that lives up to the Company’s mantra:
“Always Fresh, Always Natural,” thereby solving the
issue of “unsafe” imported seafood.
Product Description
Nearly all of the shrimp consumed today are shipped frozen. Shrimp
are typically frozen from six to twenty-four months before
consumption. Our system is designed to harvest a different tank
each week, which provides for fresh shrimp throughout the year. We
strive to create a niche market of “Always Fresh, Always
Natural” shrimp. As opposed to many of the foreign shrimp
farms, we can also claim that our product is 100% free of
antibiotics. The ability to grow shrimp locally, year round allows
us to provide this high-end product to specialty grocery stores and
upscale restaurants throughout the world. We rotate the stocking
and harvesting of our tanks each week, which allows for weekly
shrimp harvests. Our product is free of all pollutants and is fed
only all-natural feeds.
The seafood industry lacks a consistent “Source
Verification” method to track seafood products as they move
through countries and customs procedures. With worldwide
overfishing leading to declining shrimp freshness and
sustainability around the world, it is vital for shrimp providers
to be able to realistically identify the source of their product.
We have well-managed, sustainable facilities that are able to track
shrimp from hatchery to plate using environmentally responsible
methods.
Shrimp Growth Period
Our production system is designed to produce shrimp at a harvest
size of twenty-one to twenty-five shrimp per pound in a period of
twenty-four weeks. The Company currently purchases post-larva
shrimp that are approximately ten days old (PL 10). In the future,
we plan to build our own hatcheries to control the supply of shrimp
to each of our facilities. Our full-scale production systems
include grow-out and nursery tanks, projected to produce fresh
shrimp fifty-two weeks per year.
Distribution and Marketing
We plan to build these environmentally “green”
production systems near major metropolitan areas of the United
States. Today, we have one pilot production facility in La Coste,
Texas (near San Antonio) and plan to begin construction of a
full-scale production facility in La Coste and plans for Nevada and
New York. Over the next five years, our plan is to increase
construction of new facilities each year. In the fifth year, we
plan for a new system to be completed each month, expanding first
into the largest shrimp consumption markets of the United
States.
Unique Product
We plan to sell and distribute the vast majority of our shrimp
production through distributors which have established customers
and sufficient capacity to deliver a fresh product within hours
following harvest. We believe we have the added advantage of being
able to market our shrimp as fresh, natural and locally grown using
sustainable, eco-friendly technology, a key differentiation from
all existing shrimp producers. Furthermore, we believe that our
ability to advertise our product in this manner along with the fact
that it is a locally grown product, provides us with a marketing
advantage over the competition.
Harvesting, Packaging and Shipment
Each location is projected to include production,
harvesting/processing and a general shipping and receiving area, in
addition to warehousing space for storage of necessary supplies and
products required to grow, harvest, package and otherwise make
ready for delivery, a fresh shrimp crop on a weekly basis to
consumers in each individual market area within 24 hours following
harvest.
The seafood industry lacks a consistent source verification method
to track seafood products as they move through countries and
customs procedures. With worldwide overfishing leading to declining
shrimp freshness and sustainability around the world, it is vital
for shrimp providers to be able to realistically identify the
source of their product. Our future facilities will be designed to
track shrimp from hatchery to plate using environmentally
responsible methods.
International
We own one hundred percent of NaturalShrimp Global, Inc. which was
formed to create international partnerships. Each international
partnership is expected to use the Company’s proprietary
technology to penetrate shrimp markets throughout the world
utilizing existing food service distribution channels.
Because our system is enclosed and also indoors, it is not affected
by weather or climate and does not depend on ocean proximity. As
such, we believe we will be able to provide, naturally grown,
high-quality, fresh shrimp to major market customers each week.
This will allow distribution companies to leverage their existing
customer relationships by offering an uninterrupted supply of high
quality, fresh and locally grown shrimp. We will utilize
distributors that currently supply fresh seafood to upscale
restaurants, country clubs, specialty super markets and retail
stores whose clientele expect and appreciate fresh, natural
products.
NaturalShrimp Global, Inc., a wholly owned subsidiary of
NaturalShrimp Incorporated., owns less than one percent of
NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway was
responsible for the construction cost of their facility and
operating capital.
The first facility built in Spain for NaturalShrimp International
A.S. is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
We will seek potential partners throughout open territories as we
are able to obtain the adequate funding to complete the first two
facilities at the La Coste location.
Go to Market Strategy and Execution
Our strategy is to develop regional production and distribution
centers near major metropolitan areas throughout the United States
and internationally. Today, we have 53,000 sq. ft. of R&D
facilities, which includes, a pilot production system,
greenhouse/reservoirs and utility buildings in La Coste, TX (near
San Antonio). We intend to begin construction of a new
free-standing facility with the next generation shrimp production
system in place on the property in 2018.
The reasoning behind building additional shrimp production systems
in La Coste is availability of trained production personnel, our
research and development team, and an opportunity to develop the
footprint and model for additional facilities. Our current plan is
to develop six regional production and distribution centers near
major markets starting in 2019, adding one system per month in a
selected production center, depending on market
demand.
We have sold product to restaurants up to $12.00 per pound and to
retail consumers at $16.50 to $21.00 per pound, depending on size,
which helps to validate our pricing strategy. Additionally, from
2011 to 2013, we had two successful North Texas test markets which
distributed thousands of pounds of fresh product to customers
within 24 hours following harvest. The fresh product was priced
from $8.40 to $12.00 per pound wholesale, heads on, net price to
the Company.
Current Systems and Expansion
The pilot plant is located in La Coste, Texas and is being
retrofitted with new patent-pending technology that the Company has
been developing with Trane’s engineering audit and F&T
Water Solutions, and RGA Labs. This facility, when completely
retrofitted with the new technology, is projected to produce
approximately 6,000 pounds every month. The next facility in La
Coste will be substantially larger than the current system. The
target yield of shrimp for the new facility will be approximately
6,000 pounds per week. Both facilities combined are projected to
produce over 7,000 pounds of shrimp per week in La Coste. By
staging the stocking and harvests from tank to tank, it enables us
to produce weekly and therefore deliver fresh shrimp every
week.
After the completion of the next system in La Coste, our long-term
plan is to build additional production systems in Las Vegas,
Chicago and New York. These locations are targeted to begin
construction in fiscal 2019, and the funding for these plans are
projected to come from profits, agricultural guaranty programs, and
investors. These cities are not surrounded by commercial shrimp
production and we believe there will be a high demand for fresh
shrimp in all of these locations. In addition, the Company will
continue to use the land it owns in La Coste to build as many
systems as the Texas market demands.
Competition
There are a number of companies conducting research and development
projects in their attempt to develop closed-system technologies in
the U.S., some with reported production and sales. Florida Organic
Aquaculture uses a Bio-Floc Raceway System to intensify shrimp
growth, while Marvesta Shrimp Farms tanks in water from the
Atlantic to use in their indoor system. Since these are
privately-held companies, it is not possible to know, with
certainty, their state of technical development, production
capacity, need for water exchange, location requirements, financial
status and other matters. To the best of our knowledge, none are
producing significant quantities of shrimp relative to their local
markets, and such fresh shrimp sales are likely confined to an area
near the production facility.
Additionally, any new competitor would face significant barriers
for entry into the market and would likely need years of research
and development to develop the proprietary technology necessary to
produce similar shrimp at a commercially viable level. We believe
our technology and business model sets us apart from any current
competition. It is possible that additional competitors will arise
in the future, but with the size and growth of the worldwide shrimp
market, many competitors could co-exist and thrive in the fresh
shrimp industry.
Intellectual Property
We intend to take appropriate steps to protect our intellectual
property. We have registered the trademark
“NATURALSHRIMP” which has been approved and was
published in the Official Gazette on June 5, 2012. There are
potential technical processes for which the Company may be able to
file a patent. However, there are no assurances that such
applications, if filed, would be issued and no right of enforcement
is granted to a patent application. Therefore, the Company has
filed a provisional patent with the U.S. Patent Office and plans to
use a variety of other methods, including copyright registrations
as appropriate, trade secret protection, and confidentiality and
non-compete agreements to protect its intellectual property
portfolio.
Source and Availability of Raw Materials
Raw materials are received in a timely manner from established
suppliers. Currently, we buy our feed from Zeigler, a leading
producer of aquatic feed. Post larvae (“PL”) shrimp are
purchased from Shrimp Improvement Systems (SIS) in Florida and
Global Blue Technologies in Texas.
There have not been any issues regarding the availability of our
raw materials. We have favorable contacts and past business
dealings with other major shrimp feed producers if current
suppliers are not available.
Government Approvals and Regulations
We are subject to government regulation and require certain
licenses. The following list includes regulations to which we are
subject and/or the permits and licenses we currently
hold:
●
Texas
Parks and Wildlife Department (TPWD) - “Exotic species
permit” to raise exotic shrimp (non-native to Texas). The La
Coste facility is north of the coastal shrimp exclusion zone (east
and south of H-35, where it intersects Hwy 21 down to Laredo) and
therefore outside of TPWD’s major area of concern for exotic
shrimp. Currently Active - Expires December 31, 2018.
●
Texas
Department of Agriculture (TDA) - “Aquaculture License”
for aquaculture production facilities. License to “operate a
fish farm or cultured fish processing plant.” Currently
Active – Expires June 30, 2018.
●
Texas
Commission on Environmental Quality (TCEQ) - Regulates facility
wastewater discharge. According to the TCEQ permit classification
system, we are rated Level 1 – Recirculation system with no
discharge. Currently Active – No expiration.
●
San
Antonio River Authority - No permit required, but has some
authority over any effluent water that could impact surface and
ground waters.
●
OSHA
- No permit required but has right to inspect
facility.
●
HACCP
(Hazard Analysis and Critical Control Point) - Not needed unless we
process shrimp on site. Training and preparation of HACCP plans
remain to be completed. There are multiple HACCP plans listed at
http://seafood.ucdavis.edu/haccp/Plans.htm and other web sites that
can be used as examples.
●
Texas
Department of State Health Services - Food manufacturer license #
1011080.
●
Aquaculture
Certification Council (ACC) and Best Aquaculture Practices (BAP) -
Provide shrimp production certification for shrimp marketing
purposes to mainly well-established vendors. ACC and BAP
certifications require extensive record keeping. No license is
required at this time.
We are subject to certain regulations regarding the need for field
employees to be certified. We strictly adhere to these regulations.
The cost of certification is an accepted part of expenses.
Regulations may change and become a cost burden, but compliance and
safety are our main concern.
Market Advantages and Corporate Drivers
The following are what we consider to be our advantages in the
marketplace:
●
Early-mover
Advantage: Commercialized technology in a large growing market with
no significant competition yet identified. Most are early stage
start-ups or early stage companies with limited production and
distribution.
●
Farm-to-Market:
This has significant advantages including reduced transportation
costs and a product that is more attractive to local
consumers.
●
Bio-secured
Building: Our process is a re-circulating, highly-filtered water
technology in an indoor-regulated environment. External pathogens
are excluded.
●
Eco-friendly
“Green” Technology: Our closed-loop, re-circulating
system has no ocean water exchange requirements, does not use
chemical or antibiotics and therefore is sustainable, eco-friendly,
environmentally sound and produces a superior quality shrimp that
is totally natural.
●
Availability
of Weekly Fresh Shrimp: Assures consumers of optimal freshness,
taste, and texture of product which will command premium
prices.
●
Sustainability:
Our naturally grown product does not deplete wild supplies, has no
by-catch kill of marine life, does not damage sensitive ecological
environments and avoids potential risks of imported
seafood.
Subsidiaries
The Company has three wholly-owned subsidiaries including
NaturalShrimp Corporation, NaturalShrimp Global, Inc. and Natural
Aquatic Systems, Inc.
Employees
As of September 7, 2018, we have 5 full-time
employees. We intend to hire additional staff and to engage
consultants in general administration on an as-needed basis. We
also intend to engage experts in general business to advise us in
various capacities. None
of our employees are covered by a collective bargaining agreement,
nor are they represented by a labor union. We have not experienced
any work stoppages, and we consider relations with our employees to
be good.
Website
Our
website address is http://www.naturalshrimp.com.
MARKET PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock
Our common stock is quoted on the OTC Markets OTCQB under the
symbol “SHMP.” The closing price of our common stock on
August 27, 2018 was $0.016 per share. Set forth below are the range
of high and low bid quotations for the period indicated as reported
by the OTC Markets Group (www.otcmarkets.com).
The market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
Quarter
Ended
|
|
|
June 30,
2018
|
$0.11
|
$0.016
|
March 31,
2018
|
$0.21
|
$0.05
|
December 31,
2017
|
$1.00
|
$0.07
|
September 30,
2017
|
$0.44
|
$0.13
|
June 30,
2017
|
$0.45
|
$0.32
|
March 31,
2017
|
$0.60
|
$0.31
|
December 31,
2016
|
$0.62
|
$0.22
|
September 30,
2016
|
$0.83
|
$0.28
|
June 30,
2016
|
$0.43
|
$0.43
|
(b) Holders of Common Equity
As of
the date hereof, there were approximately 86 stockholders of
record. An additional number of stockholders are beneficial holders
of our common stock in “street name” through banks,
brokers and other financial institutions that are the record
holders.
(c) Dividend Information
We have
not paid any cash dividends to our holders of common stock. The
declaration of any future cash dividends is at the discretion of
our board of directors and depends upon our earnings, if any, our
capital requirements and financial position, our general economic
conditions, and other pertinent conditions. It is our present
intention not to pay any cash dividends in the foreseeable future,
but rather to reinvest earnings, if any, in our business
operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
You should read the following discussion of our financial condition
and results of operations in conjunction with financial statements
and notes thereto included elsewhere in this prospectus. The
following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this
prospectus, particularly in the section labeled “Risk
Factors.”
We desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
This filing contains a number of forward-looking statements that
reflect management’s current views and expectations with
respect to our business, strategies, products, future results and
events, and financial performance. All statements made in this
filing other than statements of historical fact, including
statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the
future, including statements related to our technology, market
expectations, future revenues, financing alternatives, statements
expressing general optimism about future operating results, and
non-historical information, are forward looking statements. In
particular, the words “believe,” “expect,”
“intend,” “anticipate,”
“estimate,” “may,” variations of such
words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and
their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below.
Our actual results, performance or achievements could differ
materially from historical results as well as those expressed in,
anticipated, or implied by these forward-looking statements. We do
not undertake any obligation to revise these forward-looking
statements to reflect any future events or
circumstances.
Readers should not place undue reliance on these forward-looking
statements, which are based on management’s current
expectations and projections about future events, are not
guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below),
and apply only as of the date of this filing. Our actual results,
performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be
discussed in this Prospectus and in the press releases and other
communications to shareholders issued by us from time to time which
attempt to advise interested parties of the risks and factors which
may affect our business. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. For
additional information regarding forward-looking statements, see
“Forward-Looking Statements.”
These
risks and factors include, by way of example and without
limitation:
●
our ability to
successfully commercialize our equipment and shrimp farming
operations to produce a market-ready product in a timely manner and
in enough quantity;
●
absence of
contracts with customers or suppliers;
●
our ability to
maintain and develop relationships with customers and
suppliers;
●
our ability to
successfully integrate acquired businesses or new
brands;
●
the impact of
competitive products and pricing;
●
supply constraints
or difficulties;
●
the retention and
availability of key personnel;
●
general economic
and business conditions;
●
substantial doubt
about our ability to continue as a going concern;
●
our need to raise
additional funds in the future;
●
our ability to
successfully recruit and retain qualified personnel in order to
continue our operations;
●
our ability to
successfully implement our business plan;
●
our ability to
successfully acquire, develop or commercialize new products and
equipment;
●
the commercial
success of our products;
●
intellectual
property claims brought by third parties; and
●
the impact of any
industry regulation.
Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, or performance. Except as required by
applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to
conform these statements to actual results.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and in our other reports
filed with the SEC. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes in the future
operating results over time, except as required by law. We believe
that our assumptions are based upon reasonable data derived from
and known about our business and operations. No assurances are made
that actual results of operations or the results of our future
activities will not differ materially from our
assumptions.
As used
in this registration statement on Form S-1 and unless otherwise
indicated, the terms “Company,” “we,”
“us,” and “our” refer to NaturalShrimp
Incorporated and its wholly-owned subsidiaries: NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and Natural Aquatic
Systems, Inc. Unless otherwise specified, all dollar amounts are
expressed in United States dollars.
Corporate History
We were
incorporated in the State of Nevada on July 3, 2008 under the name
“Multiplayer Online Dragon, Inc.” Effective November 5,
2010, we effected an 8 for 1 forward stock split, increasing the
issued and outstanding shares of our common stock from 12,000,000
shares to 96,000,000 shares. On October 29, 2014, we effected a 1
for 10 reverse stock split, decreasing the issued and outstanding
shares of our common stock from 97,000,000 to
9,700,000.
On
November 26, 2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation, a Delaware
corporation, (“NSC”) and NaturalShrimp Global, Inc., a
Delaware corporation, (“NS Global”) and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On
January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In
connection with our receipt of approval from the Financial Industry
Regulatory Authority (“FINRA”), effective March 3,
2015, we amended our Articles of Incorporation to change our name
to “NaturalShrimp Incorporated.”
Business Overview
We are
a biotechnology company and have developed a proprietary technology
that allows us to grow Pacific White shrimp (Litopenaeus vannamei,
formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS
Global, one of our wholly-owned subsidiaries, owns less than 1% of
NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway, was
responsible for the construction cost of its facility and operating
capital.
The
first facility built in Spain for NaturalShrimp International A.S.
is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On
October 16, 2015, we formed Natural Aquatic Systems, Inc., at Texas
corporation, (“NAS”). The purpose of the NAS is to
formalize the business relationship between our Company and F&T
Water Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas.
The
Company has three wholly-owned subsidiaries, including NSC, NS
Global and NAS.
Evolution of Technology and Revenue Expectations
Historically,
efforts to raise shrimp in a high-density, closed system at the
commercial level have been met with either modest success or
outright failure through “BioFloc Technology.”
Infectious agents such as parasites, bacteria and viruses are the
most damaging and most difficult to control. Bacterial infection
can in some cases be combated through the use of antibiotics
(although not always), and in general, the use of antibiotics is
considered undesirable and counter to “green”
cultivation practices. Viruses can be even worse, in that they are
immune to antibiotics. Once introduced to a shrimp population,
viruses can wipe out entire farms and shrimp populations, even with
intense probiotic applications.
Our
primary solution against infectious agents is our “Vibrio
Suppression Technology.” We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
In
2001, we began research and development of a high density, natural
aquaculture system that is not dependent on ocean water to provide
quality, fresh shrimp every week, fifty-two weeks a year. The
initial NaturalShrimp system was successful, but the Company
determined that it would not be economically feasible due to high
operating costs. Over the next several years, using the knowledge
we gained from developing the first system, we developed a shrimp
production system that eliminated the high costs associated with
the previous system. We have continued to refine this technology,
eliminating bacteria and other problems that affect enclosed
systems, and now have a successful shrimp growing process. We have
produced thousands of pounds of shrimp over the last few years in
order to develop a design that will consistently produce quality
shrimp that grow to a large size at a specific rate of growth. This
included experimenting with various types of natural live and
synthesized feed supplies before selecting the most appropriate
nutritious and reliable combination. It also included utilizing
monitoring and control automation equipment to minimize labor costs
and to provide the necessary oversight for proper regulation of the
shrimp environment. However, there were further enhancements needed
to our process and technology in order to begin production of
shrimp on a commercially viable scale and to generate
revenues.
Our
current system consists of a reception tank where the shrimp are
acclimated, then moved to a larger grow-out tank for the rest of
the twenty-four week cycle. During 2016, we engaged in additional
engineering projects with third parties to further enhance our
indoor production capabilities. For example, through our
relationship with Trane, Inc., a division of Ingersoll-Rand Plc
(“Trane”), Trane has provided a detailed audit to use
data to build and verify the capabilities of the initial Phase 1
prototype of a Trane-proposed three tank system at our La Coste,
Texas facility. The Company contracted F&T Water Solutions and
RGA Labs, Inc. (“RGA Labs”) to complete final
engineering and building of the initial patent-pending modified
Electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. The design will present a viable pathway to begin
generating revenue and producing shrimp on a commercially viable
scale. The design is completed and was installed in early June 2018
by RGA Labs, and final financing for the system is expected to be
provided by one of the Company’s existing institutional
investors. The first post larvae (PL) arrived from the hatchery at
the end of June 2018, and the Company expects it will take
approximately six to nine months to begin producing and shipping
shrimp.
Results of Operations
Comparison of the Three Months Ended June 30, 2018 to Three Months
Ended June 30, 2017
Revenue
We have
not earned any significant revenues since our inception and we do
not anticipate earning revenues in the near future.
Expenses
Our
expenses for the three months ended June 30, 2018 are summarized as
follows, in comparison to our expenses for the three months ended
June 30, 2017:
|
Three Months
Ended June 30,
|
|
|
|
Salaries and
related expenses
|
$103,941
|
$77,400
|
Rent
|
3,281
|
1,500
|
Professional
fees
|
59,004
|
55,800
|
Other general and
administrative expenses
|
56,799
|
264,235
|
Facility
operations
|
20,985
|
7,289
|
Depreciation
|
17,726
|
17,725
|
Total
|
$261,736
|
$423,949
|
Operating
expenses for the three months ended June 30, 2018 were $261,736,
representing a decrease of 38% compared to operating expenses of
$423,949 for the same period in 2017. The primary reason for the
change is that in the three months ended June 30, 2017 there was
$220,000 amortization of the remaining prepaid expenses arising
from shares issued in January 2017 to a consultant for services to
be provided over six months. This decrease in expenses is offset by
an increase in salaries and facility operations, as the Company is
progressing with their testing and planning to begin commercial
operations.
Liquidity, Financial Condition and Capital Resources
As of
June 30, 2018, we had cash on hand of $24,415 and a working capital
deficiency of approximately $6,735,000. as compared
to cash on hand of $24,280 and a working capital deficiency of
approximately $6,764,000 as of March 31, 2018. The decrease in
working capital deficiency for the three months ended June 30, 2018
is mainly due to an approximate $650,000 increase in current
liabilities reflecting the reclassification to current liabilities
of certain lines of credit based on their maturity dates and an
increase in the warrant liability, offset by a decrease in the
convertible debentures due to their settlement through conversions
into common stock, and a decrease in the fair value of the
derivative liability arising from the convertible
debentures.
Working Capital Deficiency
Our
working capital deficiency as of June 30, 2018, in comparison to
our working capital deficiency as of March 31, 2018, can be
summarized as follows:
|
|
|
|
|
|
Current
assets
|
$315,490
|
$260,179
|
Current
liabilities
|
7,050,634
|
7,024,615
|
Working capital
deficiency
|
$6,735,144
|
$6,764,436
|
The
increase in current assets is mainly due to the addition of a new
note receivable. The total current liabilities have a small
increase, which is mainly due to an approximate $650,000 increase
in current liabilities reflecting the reclassification to current
liabilities of certain lines of credit based on their maturity
dates. Additionally, the warrant liability increased by $47,000
when remeasured at period end. These increases to the current
liabilities are balanced out by decreases as a result of new
convertible debentures entered into during the current period of
$288,000, offset by conversions of the convertible debentures and
related accrued interest of approximately $516,000. In relation to
the conversions, $1,305,000 of the derivative liability was
reclassed to equity which along with the reduced fair value of the
remaining derivative liability of $232,000, offset by an increase
of $882,000 of additions to the derivative liability upon issuance
of the new convertible debentures, resulted in a decrease in the
derivative liability of $655,000.
Cash Flows
Our
cash flows for the three months ended June 30, 2018, in comparison
to our cash flows for the three months ended June 30, 2017, can be
summarized as follows:
|
Three Months Ended June 30,
|
|
|
|
Net cash used in
operating activities
|
$(160,576)
|
$(206,490)
|
Net cash used in
investing activities
|
(73,877)
|
-
|
Net cash provided
by financing activities
|
234,588
|
136,488
|
Increase (decrease)
in cash
|
$135
|
$(70,002)
|
The
decrease in net cash used in operating activities in the three
months ended June 30, 2018, compared to the same period in 2017,
mainly relates to an increase in the net loss for the period offset
by an increase in the non-cash charges of the amortization of the
debt discount and the financing costs related to the issuance of
new convertible debentures, as well as the difference in the
changes in fair value of the derivative and warrant liabilities
between the two periods. The net cash used in investing activities
in the three months ended June 30, 2018 related mainly to costs
paid on construction in process on the new facility. The net cash
provided by financing activities increased between periods, with
the cash provided by financing activities during both the three
months ended June 30, 2018 and 2017 arising from proceeds on
convertible debentures and the sale of common stock of the Company,
offset in 2017 by payments on outstanding convertible
debentures.
Our
cash position was approximately $24,000 as of June 30, 2018.
Management believes that our cash on hand and working capital are
not sufficient to meet our current anticipated cash requirements
through fiscal 2019, as described in further detail under the
section titled “Going
Concern” below.
Recent Financing Arrangements and Developments During the
Period
Lines of Credit
The
Company has a working capital line of credit with Extraco Bank. On
April 30, 2018, the Company renewed the line of credit for
$475,000. The line of credit bears an interest rate of 5.0% that is
compounded monthly on unpaid balances and is payable monthly. The
line of credit matures on April 30, 2019, and is secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the line of credit
is $472,675 at both June 30, 2018 and March 31, 2018,
respectively.
The
Company also has additional lines of credit with Extraco Bank for
$100,000 and $200,000, which were renewed on January 19, 2018 and
April 30, 2018, respectively, with maturity dates of January 19,
2019 and April 30, 2019, respectively. The lines of credit bear an
interest rate of 4.5% (increased to 6.5% and 5%, respectively, upon
renewal in 2017) that is compounded monthly on unpaid balances and
is payable monthly. They are secured by certificates of deposit and
letters of credit owned by directors and shareholders of the
Company. The balance of the lines of credit was $278,470 at both
June 30, 2018 and March 31, 2018.
Convertible Debentures
On July
31, 2017, the Company entered into a 5% Securities Purchase
Agreement with an accredited investor. The agreement calls for the
purchase of up to $135,000 in convertible debentures, due 12 months
from issuance, with an original issue discount of $13,500. The
first convertible debenture was issued in the principal amount of
$45,000 for a purchase price of $40,500 (an original issue discount
of $4,500), with additional closings to occur at the sole
discretion of the holder. The convertible debentures are
convertible into shares of the Company’s common stock at a
conversion price of sixty percent (60%) of the lowest trading price
over the 25 trading days preceding the date of conversion, subject
to adjustment. With each tranche under the July 31, 2017
convertible debentures, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15, and the number of warrants
issued to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. On October 2, 2017, the Company entered into a second
closing of the July 31, 2017 debenture, in the principal amount of
$22,500 for a purchase price of $20,250, with $1,500 deducted for
legal fees, resulting in net cash proceeds of $18,750. On February
5, 2018, the Company entered into an amendment to the July 31, 2017
debenture, whereby in exchange for a payment of $6,500, except for
a conversion of up to 125,000 shares of the Company’s common
shares, the noteholder shall only be entitled to effectuate a
conversion under the note on or after March 2, 2018. On February
20, 2018, the holder converted $4,431 of the January debentures
into 125,000 common shares of the Company. During March, 2018, the
holder converted an additional $17,113 of the July debentures into
630,000 common shares of the Company. During April 2018, in three
separate conversions, the remainder of the first closing was fully
converted into 1,225,627 common shares of the Company. During May
and June, 2018, in two separate conversions, the remainder of the
second closing was fully converted into 2,810,725 common shares of
the Company.
On
August 28, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $110,000, with an original issue discount of $10,000, which
matured on February 28, 2018. The note is convertible into shares
of the Company’s common stock at a variable conversion rate
equal to the lesser of sixty percent (60%) of the lowest trading
price over the 20 trading days prior to the issuance of the note or
sixty percent (60%) of the lowest trading price over the 20 trading
days prior to conversion, subject to adjustment. In connection with
the note, the Company issued 50,000 warrants, exercisable at $0.20,
with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants issued increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. Additionally, in connection with the
note, the Company also issued 343,750 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $58,438, based on the market value of the common
shares at the closing date of $0.17, and was recognized as part of
the debt discount. The shares are to be returned to the Treasury of
the Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. The note was sold
to the holder of the January 29, 2018 note (below) on February 8,
2018, with an amendment entered into to extend the note until March
5, 2018. On February 22, 2018, in connection with the sale of the
note to the January 29, 2019 note holder, 171,965 of the shares
were returned to the Company and cancelled. The remaining shares
are not required to be returned to the Company, as the note was not
redeemed prior to the date 180 days following the issue date. In
exchange for a cash payment of $5,000 and the issuance of 50,000
shares of common stock, on March 5, 2018, the holder agreed to not
convert any of the outstanding debt into common stock of the
Company until April 8, 2018. The new holder issued a waiver as to
the maturity date of the note and a technical default provision.
During April through June, 2018, in a number of separate
conversions, the August debenture was fully converted into
8,332,582 common shares of the Company.
On
October 31, 2017, there was a second closing to the August
debenture, in the principal amount of $66,000, maturing on April
30, 2018. The second closing has the same conversion terms as the
first closing, however there were no additional warrants issued
with the second closing. Additionally, in connection with the
second closing, the Company issued 332,500 shares of common stock
of the Company as a commitment fee. The commitment shares fair
value was calculated as $35,877, based on the market value of the
common shares at the closing date of $0.11, and was recognized as
part of the debt discount. The shares are to be returned to the
Treasury of the Company in the event the debenture is fully repaid
prior to the date which is 180 days following the issue date.
Subsequent to year end the note holders issued a waiver as to the
maturity date of the two notes and a technical default provision.
The notes have subsequently been fully converted. During May 2018,
the second closing was fully converted into 5,072,216 common shares
of the Company.
On
September 11, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $146,000, with an original issue discount of $13,500, which
matured on June 11, 2018. The note is convertible into shares of
the Company’s common stock at a variable conversion rate
equal to the lesser of the lowest trading price over the 25 trading
days prior to the issuance of the note or fifty percent (50%) of
the lowest trading price over the 25 trading days prior to
conversion, subject to adjustment. In connection with the note, the
Company issued 243,333 warrants, exercisable at $0.15, with a
five-year term. The exercise price is adjustable upon certain
events, as set forth in the agreement, including for future
dilutive issuance. The warrants exercise price was subsequently
reset to 50% of the market price during the third quarter of fiscal
2018, and the warrants issued increased accordingly. During April
and June, 2018, in three separate conversions, $85,000 of the note
was converted into 9,200,600 common shares of the Company. The
remainder of the principal, $61,000, is in default as of June 30,
2018, although the Company has not received a written notice of
default from the lender. On July 27, 2018, the holder converted
$15,113 of the September 11, 2017 debentures into 3,436,049 common
shares of the Company.
On
September 12, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $96,500 with an original issue discount of $4,500, which had an
original maturity date of June 12, 2018. The note is able to be
prepaid prior to the maturity date, at a cash redemption premium,
at various stages as set forth in the agreement. The note is
convertible commencing 180 days after issuance date (or upon an
event of default), or March 11, 2018, at a variable conversion rate
of sixty percent (60%) of the market price, defined as the lowest
trading price during the 20 trading days prior to conversion,
subject to adjustment. On March 20, 2018, the holder converted
$32,500 of the September 12, 2017 debentures into 1,031,746 common
shares of the Company. During April 2018, in two separate
conversions, the debenture was fully converted into 2,611,164
common shares of the Company.
On
September 28, 2017, the Company entered into a Securities Purchase
Agreement with an accredited investor, pursuant to which the
Company agreed to sell a 12% Convertible Note in the principal
amount of $55,000 with a maturity date of September 28, 2018, for a
purchase price of $51,700, and $2,200 deducted for legal fees,
resulting in net cash proceeds of $49,500. The effective closing
date of the Securities Purchase Agreement and Convertible Note was
October 17, 2017. The note is convertible into shares of the
Company’s common stock at the holders’ option, at any
time, at a conversion price equal to the lower of (i) the closing
sale price of the Company’s common stock on the closing date,
or (ii) sixty percent (60%) of either the lowest sale price for the
Company’s common stock during the 20 consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower, provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price. During April and May, 2018, in a
number of separate conversions, approximately $43,000 of the
debenture plus accrued interest was converted into 3,800,000 common
shares of the Company. Subsequent to June 30, 2018, the holder
converted another $10,450 of the October 17, 2017 debentures into
2,300,000 common shares of the Company.
On
November 14, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $112,000, convertible into shares of common
stock of the Company, with maturity dates of November 14, 2018.
Each note was in the principal amount of $56,000, with an original
issue discount of $2,800, resulting in a purchase price for each
note of $53,200. The first of the two notes was paid for by the
buyer in cash upon closing, with the second note initially paid for
by the issuance of an offsetting $53,200 secured promissory note
issued to the Company by the buyer (“Buyer Note”). The
Buyer Note is due on July 14, 2018. The notes are convertible into
shares of the Company’s common stock at a conversion rate of
fifty-seven percent (57%) of the lowest of trading price over last
20 trading days prior to conversion, or the lowest closing bid
price over the last 20 trading days prior to conversion, with the
discount increased (i.e., the conversion rate decreased) to
forty-seven percent (47%) in the event of a DTC chill, with the
second note not being convertible until the buyer has settled the
Buyer Note in cash payment. During the first six months the
convertible redeemable notes are in effect, the Company may redeem
the notes at amounts ranging from 120% to 140% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 90 days to 180 days from the date of
issuance of each note. During May and June, 2018, in three separate
conversions, the debenture was fully converted into 4,834,790
common shares of the Company.
On
December 20, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $240,000, convertible into shares of common
stock of the Company, with the same buyers as the November 14, 2017
debenture. Both notes are due on December 20, 2018. If the note is
not paid by its maturity date the outstanding principal due on the
note increases by 10%. The note also contains a cross default
provision to all other outstanding notes. The first note was issued
in the principal amount of $160,000, with a $4,000 original issue
discount, resulting in a purchase price of $156,000. The second
note was issued in the principal amount of $80,000, with an
original issue discount of $2,000, for a purchase price of $78,000.
The first of the two notes was paid for by the buyer in cash upon
closing, with the second note initially paid for by the issuance of
an offsetting $78,000 secured promissory note issued to the Company
by the buyer (“Buyer Note”). The Buyer Note was due on
August 20, 2018, and the Company received the funding on July 11,
2018, for cash proceeds of $74,000. The notes are convertible into
shares of the Company’s common stock at a conversion rate of
sixty percent (60%) of the lower of: (i) lowest trading price or
(ii) lowest closing bid price of the Company’s common stock
over the last 20 trading days prior to conversion, with the
discount increased (i.e., the conversion rate decreased) to fifty
percent (50%) in the event of a DTC chill, with the second note not
being convertible until the buyer has settled the Buyer Note in
cash payment. During the first six months the convertible
redeemable notes are in effect, the Company may redeem the notes at
amounts ranging from 120% to 136% of the principal and accrued
interest balance, based on the redemption date’s passage of
time ranging from 90 days to 180 days from the date of issuance of
each note. On August 7, 2018, the holder converted $25,000 of the
December 20, 2017 debentures into 4,363,013 common shares of the
Company.
On
January 29, 2018, the Company entered into three (3) 12%
convertible redeemable promissory notes with an accredited investor
in the aggregate principal amount of $120,000, with maturity dates
of January 29, 2019. The notes are convertible into shares of the
Company’s common stock at a conversion rate of sixty percent
(60%) of the lowest closing bid price over the last 20 trading days
prior to conversion, with the discount increased (i.e., the
conversion rate decreased) to fifty percent (50%) in the event of a
DTC chill. The interest rate upon an event of default, as defined
in the notes including a cross default to all other outstanding
notes, is 24% per annum. If the note is not paid by its maturity
date the outstanding principal due on the note increases by 10%.
Each note was issued in the principal amount of $40,000, with
$2,000 deducted for legal fees, for net proceeds of $38,000. The
first note was paid for by the buyer in cash upon closing, with the
second and third notes initially paid by the issuance of offsetting
$40,000 secured promissory notes issued to the Company by the buyer
(the “Buyer Notes”). The Buyer Notes are due on
September 29, 2018. The first of the Buyers Notes was funded on
July 26, 2018. During the first 180 days the notes are in effect,
the Company may redeem the note at amounts ranging from 115% to
140% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from 30 days to 180
days from the date of issuance of the note. Upon any sale event, as
defined in the note, at the holder’s request, the Company
will redeem the note for 150% of the principal and accrued
interest. On August 8, 2018, the holder converted $10,000 of the
January 29, 2018 first debenture into 1,666,667 common shares of
the Company.
On
January 30, 2018, Company entered into a 12% convertible redeemable
promissory note with an accredited investor for the principal
amount of $80,000, which matures on January 30, 2019. The note is
convertible into shares of the Company’s common stock at a
conversion rate of sixty-one percent (61%) of the lowest closing
bid price over the last 15 trading days prior to conversion. The
interest rate upon an event of default, as defined in the note, is
22% per annum, and the note becomes immediately due and payable in
an amount equal to 150% of the principal and interest due on the
note upon an event of default. If the Company fails to deliver
conversion shares within two (2) days following a conversion
request, the note will become immediately due and payable at an
amount of twice the default amount. During the first 180 days the
note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 30 days to 180 days from the date of issuance of the
note. The Company redeemed the note on July 27, 2018, for
approximately $123,000.
On
March 9, 2018, the Company entered into a 12% convertible note for
the principal amount of $43,000, with the holder of the January 30,
2018 debenture, convertible into shares of common stock of the
Company, which matures on March 9, 2019. Upon an event of default,
as defined in the note, the note becomes immediately due and
payable, in an amount equal to 150% of all principal and accrued
interest due on the note, with default interest of 22% per annum
(the “Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default.
On
March 20, 2018, the Company entered into a convertible note for the
principal amount of $84,000, convertible into shares of common
stock of the Company, which matures on December 20, 2018. The note
bears interest at 12% for the first 180 days, which increases to
18% after 180 days, and 24% upon an event of default. Upon an event
of default, as defined in the note, the note becomes immediately
due and payable, in an amount equal to 150% of all principal and
accrued interest due on the note. The note is convertible on the
date beginning 180 days after issuance of the note, at the lower of
60% of the lowest trading price for the last 20 days prior to the
issuance date of this note, or 60% of the lowest trading price for
the last 20 days prior to conversion. In the event of a "DTC
chill", the conversion rate is adjusted to 40% of the market price.
Per the agreement, the Company is required at all times to have
authorized and reserved ten times the number of shares that is
actually issuable upon full conversion of the note. Additionally,
the Company also issued 255,675 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $28,124, based on the market value of the common
shares at the closing date of $0.11, and was recognized as part of
the debt discount.
On
March 21, 2018, the Company entered into a convertible note for the
principal amount of $39,199, which includes an OID of $4,199,
convertible into shares of common stock of the Company, which
matures on December 20, 2018. The note bears interest at 12% for
the first 180 days, which increases to 18% after 180 days, and 24%
upon an event of default. Upon an event of default, as defined in
the note, the note becomes immediately due and payable, in an
amount equal to 150% of all principal and accrued interest due on
the note. The note is convertible on the date beginning 180 days
after issuance of the note, at the lowest of 60% of the lowest
trading price for the last 20 days prior to the issuance date of
this note, or 60% of the lowest trading price for the last 20 days
prior to conversion. The discount is increased upon certain events
set forth in the agreement regarding the obtainability of the
shares, such as a DTC "chill". Additionally, if the Company ceases
to be a reporting company, or after 181 days the note cannot be
converted into freely traded shares, the discount is increased an
additional 15%. Per the agreement, the Company is required at all
times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 119,300 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $13,123, based on the market value of
the common shares at the closing date of $0.11, and was recognized
as part of the debt discount.
On
April 10, 2018, the Company entered into two 10% convertible notes
in the aggregate principal amount of $110,000, convertible into
shares of common stock of the Company, with maturity dates of April
10, 2019. The interest upon an event of default, as defined in the
note, is 24% per annum. Each note was in the face amount of
$55,000, with $2,750 for legal fees deducted upon funding. The
first of the notes was paid for by the buyer in cash upon closing,
with the other note ("Back-End note") initially paid for by the
issuance of an offsetting $55,000 secured promissory note issued to
the Company by the buyer (“Buyer Note”). The Buyer Note
is due on December 12, 2018. The interest rate increases to 24%
upon an event of default, as set forth in the agreement, including
a cross default to all other outstanding notes, and if the
debenture is not paid at maturity the principal due increases by
10%. If the Company loses its bid price the principal outstanding
on the debenture increases by 20%, and if the Company’s
common stock is delisted, the principal increases by 50%. An event
of default also occurs if the Company’s common stock has a
closing bid price of less than $0.03 per share for at least five
consecutive days, or the aggregate dollar trading volume of the
Company’s common stock is less than $20,000 in any five
consecutive days. The Company’s common stock closing bid
price fell below $0.03 on June 18, 2018 and continued for over five
consecutive days, and the Company is therefore in default on the
note. The Company The Company has obtained a waiver from the holder
on this technical default. The notes are convertible at 57% of the
lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 47%, upon a DTC "chill". The
Company has not maintained the required share reservation under the
terms of the note agreement. The Back-End note is not convertible
until the buyer has settled the Buyer Notes in a cash payment.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from
130% to 145% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 60 days
to 180 days from the date of issuance of the
debenture.
On
April 27, 2018, the Company entered into a convertible note for the
principal amount of $53,000 for a purchase price of $50,000,
convertible into shares of common stock of the Company, which
matures on January 27, 2019. The note bears interest at 12% for the
first 180 days, which increases to 18% after 180 days, and 24%. The
interest rate increases to 24% upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes. Additionally, in the majority of events of
default, except for the non-payment of the note upon maturity, the
note becomes immediately due and payable at an amount at 150% of
the principal plus accrued interest due. The note is convertible on
the date beginning 180 days after issuance of the note, at the
lowest of 60% of the lowest trading price for the last 20 days
prior to the issuance date of this note, or 60% of the lowest
trading price for the last 20 days prior to conversion. The
discount rate is adjusted based on various situations regarding the
ability to deliver the common shares, such as in the event of a
"DTC chill" or the Company ceases to be a reporting company. Per
the agreement, the Company is required at all times to have
authorized and reserved ten times the number of shares that is
actually issuable upon full conversion of the note. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes.
On June
5, 2018, the Company entered into a convertible note for the
principal amount of $125,000 for a purchase price of $118,800,
convertible on the date beginning 180 days after issuance of the
note, into shares of common stock of the Company, which matures on
June 5, 2019. The note bears interest at 12%, which increases to
18% upon an event of default, as defined in the agreement. The note
is convertible at 60% of the lowest trading price for the last 20
days prior to conversion, with the discount increased 5% in the
event the Company does not have sufficient shares authorized and
outstanding to issue the shares upon conversion request. The
conversion price is adjusted upon a future dilutive issuance, to
the lower of the conversion price or a 25% discount to the
aggregate per share common share price. Per the agreement, the
Company is required at all times to have authorized and reserved
four times the number of shares that is actually issuable upon full
conversion of the note. The Company has not maintained the required
share reservation under the terms of the note agreement. The
Company believes it has sufficient available shares of the
Company’s common stock in the event of conversion for these
notes. During the first 180 days the convertible redeemable note is
in effect, the Company may redeem the note at amounts ranging from
135% to 145% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 90 days
to 180 days from the date of issuance of the debenture. After 180
days, the note is redeemable, with the holders prior written
consent, at 150% of the principal and accrued interest
balance.
On July
27, 2018, the Company entered into two 10% convertible notes in the
aggregate principal amount of $186,000, convertible into shares of
common stock of the Company, with maturity dates of July 27, 2019.
The interest upon an event of default, as defined in the note, is
24% per annum. Each note was in the face amount of $93,000, with
$3,000 OID, for a purchase price of $90,000. The first of the notes
was paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $93,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The interest rate increases to 24% upon an event
of default, as set forth in the agreement, including a cross
default to all other outstanding notes, and if the debenture is not
paid at maturity the principal due increases by 10%. If the Company
loses its bid price the principal outstanding on the debenture
increases by 20%, and if the Company’s common stock is
delisted, the principal increases by 50%. The notes are convertible
at 60% of the lowest closing bid price for the last 20 days. The
discount is increased an additional 10%, to 50%, upon a DTC
"chill". The Company has not maintained the required share
reservation under the terms of the note agreement. The Back-End
note is not convertible until the buyer has settled the Buyer Notes
in a cash payment. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at
amounts ranging from 120% to 136% of the principal and accrued
interest balance, based on the redemption date’s passage of
time ranging from 90 days to 180 days from the date of issuance of
the debenture.
On
August 24, 2018, the Company entered into a 10% convertible note in
the principal amount of $55,000, convertible into shares of common
stock of the Company, which matures August 24, 2019. The interest
rate increases to 24% per annum upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%. An event of default also occurs if the
Company’s common stock has a closing bid price of less than
$0.03 per share for at least five consecutive days, or the
aggregate dollar trading volume of the Company’s common stock
is less than $20,000 in any five consecutive days.
The
notes are convertible at 57% of the lowest closing bid price for
the last 20 days. The discount is increased an additional 10%, to
47%, upon a DTC "chill". The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 130% to
145% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture.
Certain
of the above notes which contain cross default provisions are in
technical default due to the September 11, 2017 note was not paid
in full by the maturity date.
Sale and Issuance of Common Stock
On
April 12, 2018, the Company sold 200,000 shares of its common stock
at $0.077 per share, for a total financing of $15,400.
Between
April 6, 2018 and June 20, 2018, the Company issued 37,887,704
shares of the Company’s common stock upon conversion of
approximately $485,000 of their outstanding convertible debt and
approximately $31,000 of accrued interest.
Shareholder Notes Payable
On
April 20, 2017, the Company issued a Six Percent (6%) Unsecured
Convertible Note to Dragon Acquisitions LLC, an affiliate of the
Company (“Dragon Acquisitions”) in the principal amount
of $140,000. William Delgado, our Treasurer, Chief Financial
Officer, and director, is the managing member of Dragon
Acquisitions. The note accrues interest at the rate of six percent
(6%) per annum, and matures one (1) year from the date of issuance.
Upon an event of default, the default interest rate will be
increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The note is convertible
into shares of the Company’s common stock at a conversion
price of $0.30 per share, subject to adjustment. $52,400 of the
note was repaid during the year ended March 31, 2018.
Going Concern
The
unaudited consolidated financial statements contained in this
registration statement on Form S-1 have been prepared, assuming
that the Company will continue as a going concern. The Company has
accumulated losses through the period to June 30, 2018 of
approximately $35,110,000 as well as negative cash flows from
operating activities of approximately $161,000. During the three
months ended June 30, 2018, the Company received net cash proceeds
of $15,400 from the sale of the Company’s common stock. The
Company also had $515,720 of their convertible debentures converted
into 37,887,704 shares of their common stock, reducing their
current obligations. Subsequent to June 30, 2018, the Company
received $197,500 in net proceeds from the funding of convertible
debentures (See Note 10). Presently, the Company does not have
sufficient cash resources to meet its plans in the twelve months
following June 30, 2018. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
Management is in the process of evaluating various financing
alternatives in order to finance the continued build-out of our
equipment and for general and administrative expenses. These
alternatives include raising funds through public or private equity
markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful
with our fund raising initiatives, management believes that the
Company will be able to secure the necessary financing as a result
of ongoing financing discussions with third party investors and
existing shareholders.
The
consolidated financial statements do not include any adjustments
that may be necessary should the Company be unable to continue as a
going concern. The Company’s continuation as a going concern
is dependent on its ability to obtain additional financing as may
be required and ultimately to attain profitability. If the Company
raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and
such securities might have rights, preferences or privileges senior
to the rights, preferences and privileges of the Company’s
common stock. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict
its future plans for developing its business and achieving
commercial revenues. If the Company is unable to obtain the
necessary capital, the Company may have to cease
operations.
Future Financing
We will
require additional funds to implement our growth strategy for our
business. In addition, while we have received capital from various
private placements that have enabled us to fund our operations,
these funds have been largely used to develop our processes,
although additional funds are needed for other corporate
operational and working capital purposes. Subsequent to year end we
have raised approximately an additional $197,500, net of OID, from
convertible debentures (including funding on Buyers Note
receivables). However, not including funds needed for capital
expenditures or to pay down existing debt and trade payables, we
anticipate that we will need to raise an additional $950,000 to
cover all of our operational expenses over the next 12 months, not
including any capital expenditures needed as part of any commercial
scale-up of our equipment. These funds may be raised through equity
financing, debt financing, or other sources, which may result in
further dilution in the equity ownership of our shares. There can
be no assurance that additional financing will be available to us
when needed or, if available, that such financing can be obtained
on commercially reasonable terms. If we are not able to obtain the
additional necessary financing on a timely basis, or if we are
unable to generate significant revenues from operations, we will
not be able to meet our other obligations as they become due, and
we will be forced to scale down or perhaps even cease our
operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
significant accounting policies are more fully described in the
notes to our financial statements included herein for the quarter
ended June 30, 2018 and in the notes to our consolidated financial
statements included in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2018.
Recently Adopted Accounting Pronouncements
Our
recently adopted accounting pronouncements are more fully described
in Note 2 to our financial statements included herein for the
quarter ended June 30, 2018.
Use of Generally Accepted Accounting Principles
(“GAAP”) Financial Measures
We use
United States GAAP financial measures in the section of this report
captioned “Management’s Discussion and Analysis or Plan
of Operation” (MD&A), unless otherwise noted. All of the
GAAP financial measures used by us in this report relate to the
inclusion of financial information. This discussion and analysis
should be read in conjunction with our financial statements and the
notes thereto included elsewhere in this annual report. All
references to dollar amounts in this section are in United States
dollars, unless expressly stated otherwise. Please see Item 1A
– “Risk Factors” for a list of our risk
factors.
Comparison of the Fiscal Year Ended March 31, 2018 and the Fiscal
Year Ended March 31, 2017
Revenue
We have
not earned any significant revenues since our inception and we do
not anticipate earning revenues in the near future.
Expenses
Our
expenses for the year ended March 31, 2018 are summarized as
follows, in comparison to our expenses for the year ended March 31,
2017:
|
|
|
|
|
Salaries and
related expenses
|
$352,757
|
$348,655
|
Rent
|
11,197
|
12,997
|
Professional
fees
|
278,037
|
139,284
|
Other general and
administrative expenses
|
443,508
|
408,246
|
Facility
operations
|
27,789
|
70,930
|
Depreciation
|
70,894
|
60,459
|
Total
|
$1,184,182
|
$1,040,571
|
Operating
expenses for the year ended March 31, 2018 were $1,184,182,
representing an increase of 14% compared to operating expenses of
$1,040,571 for the same period in 2017. The primary reason for the
change is the increase in professional fees, including increases in
accounting and consultant fees. This increase was offset by reduced
facility fees .
Liquidity, Financial Condition and Capital Resources
As of
March 31, 2018, we had cash on hand of $24,280 and a working
capital deficiency of approximately $6,764,000, as compared to cash
on hand of $88,195 and a working capital deficiency of $2,384,695
as of March 31,, 2017. The increase in working capital deficiency
for the year ended March 31, 2018 is mainly due to an increase in
convertible debentures of approximately $1,477,000 net of debt
discounts of approximately $692,000, an increase in the fair value
of the derivative liability arising from the convertible debentures
of $2,538,000 and an increase in the warrant liability of $249,000,
and the decrease in cash, as well as an increase in accounts
payable and accrued expenses.
Working Capital Deficiency
Our
working capital deficiency as of March 31, 2018, in comparison to
our working capital deficiency as of March 31, 2017, can be
summarized as follows:
|
|
|
|
|
|
Current
assets
|
$260,179
|
$312,195
|
Current
liabilities
|
7,024,615
|
2,696,890
|
Working capital
deficiency
|
$6,764,435
|
$2,384,695
|
The
decrease in current assets is mainly due to the current period
expense recognition of $220,000 out of prepaid expenses for shares
issued for services in connection with a six-month agreement with a
consultant, as well as an approximate $64,000 decrease in cash,
offset by the addition of new notes receivable. The increase in
current liabilities is primarily due to an increase in the carrying
amount of the convertible debentures in the current period, net of
the related debt discounts, as detailed above. The new convertible
debentures entered into during the current year also contained
embedded derivatives, which were bifurcated and further increased
the fair value of the derivative liability, which was $3,455,000 as
of March 31, 2018 as compared to $218,000 as of March 31, 2017.
Additionally, the warrant liability increased by $249,000 due to
additional warrants issued as well as the reset provision which
increased the number of warrants outstanding. Approximately
$485,000 of the convertible debentures outstanding at March 31,
2018, were converted subsequent to year end, and the related
derivative liability reclassed to equity.
Cash Flows
Our
cash flows for the year ended March 31, 2018, in comparison to our
cash flows for the year ended March 31, 2017, can be summarized as
follows:
|
|
|
|
|
Net cash used in
operating activities
|
$(765,793)
|
$(722,215)
|
Net cash used in
investing activities
|
(171,050)
|
-
|
Net cash provided
by financing activities
|
872,928
|
804,252
|
Increase (decrease)
in cash and cash equivalents
|
$(63,915)
|
$82,037
|
The
increase in net cash used in operating activities in the year ended
March 31, 2018, compared to the same period in 2017, mainly relates
to a decrease in prepaid expenses and shares issued for services
from fiscal 2017, offset by the non-cash charges of the
amortization of the debt discount, changes in fair value of the
derivative and warrant liabilities, financing costs in fiscal 2018.
Additionally, there was an approximate $2,339,000 gain on
settlement of debt in the year ended March 31, 2017. The net cash
used in investing activities in the year ended March 31, 2018
related to costs paid on construction in process on the new
facility. The net cash provided by financing activities increased
between periods, with the cash provided by financing activities
during the year ended March 31, 2018 arising from proceeds on
convertible debentures and the sale of common stock of the Company,
offset by payments on outstanding convertible debentures. In
comparison, the cash provided by financing activities during the
year ended March 31, 2017 arose mainly from borrowings on notes
payable with related parties.
Our
cash position was approximately $24,000 as of March 31, 2018.
Management believes that our cash on hand and working capital are
not sufficient to meet our current anticipated cash requirements
through fiscal 2019, as described in further detail under the
section titled “ Going
Concern” below.
Recent Financing Arrangements and Developments During the
Period
Short-Term Debt and Lines of Credit
On
November 3, 2015, the Company entered into a short-term note
agreement with Community National Bank for a total value of
$50,000. The short-term note has a stated interest rate of 5.25%,
maturity date of December 15, 2017 and had an initial interest only
payment on February 3, 2016. The short-term note is guaranteed by
an officer and director. The balance of the line of credit at both
March 31, 2018 and 2017 was $25,298.
The
Company also has a working capital line of credit with Extraco
Bank. On April 30, 2018, the Company renewed the line of credit for
$475,000. The line of credit bears an interest rate of 5.0% that is
compounded monthly on unpaid balances and is payable monthly. The
line of credit matures on April 30, 2019, and is secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the line of credit
is $472,675 and $473,029 at March 31, 2018 and March 31, 2017,
respectively, included in non-current liabilities.
The
Company also has additional lines of credit with Extraco Bank for
$100,000 and $200,000, which were renewed on January 19, 2018 and
April 30, 2018, respectively, with maturity dates of January 19,
2019 and April 30, 2019, respectively. The lines of credit bear an
interest rate of 4.5% (increased to 6.5% and 5%, respectively, upon
renewal in 2017) that is compounded monthly on unpaid balances and
is payable monthly. They are secured by certificates of deposit and
letters of credit owned by directors and shareholders of the
Company. The balance of the lines of credit was $278,470 at both
March 31, 2018 and 2017.
The
Company also has a working capital line of credit with Capital One
Bank for $50,000. The line of credit bears an interest rate of
prime plus 25.9 basis points, which totaled 30.7% as of March 31,
2018. The line of credit is unsecured. The balance of the line of
credit was $9,580 at both March 31, 2018 and 2017.
The
Company also has a working capital line of credit with Chase Bank
for $25,000. The line of credit bears an interest rate of prime
plus 10 basis points, which totaled 14.75% as of March 31, 2018.
The line of credit is secured by assets of the Company’s
subsidiaries. The balance of the line of credit is $10,237 and
$11,197 at March 31, 2018 and March 31, 2017,
respectively.
Bank Loan
On
January 10, 2017, we entered into a promissory note agreement with
Community National Bank in the principal amount of $245,000, with
an annual interest rate of 5% and a maturity date of January 10,
2020 (the “CNB Note”). The CNB Note is secured by
certain real property owned by the Company in La Coste, Texas, and
is also personally guaranteed by the Company’s President and
Chairman of the Board, as well as certain non-affiliated
shareholders of the Company.
Convertible Debentures
On
January 23, 2017, the Company entered into a Securities Purchase
Agreement and issued a Convertible Note in the original principal
amount of $262,500 to an accredited investor, along with a Warrant
to purchase 350,000 shares of the Company’s common stock, in
exchange for a purchase price of $250,000. The Company received
$50,000 upon closing, with additional consideration to be paid to
the Company in such amounts and at such dates as the holder may
choose in its sole discretion. The warrants are exercisable over a
period of five (5) years at an exercise price of $0.60, subject to
adjustment. The exercise price was adjusted to $0.15, and the
warrants issued increased to 280,000, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. The note is convertible into shares
of the Company’s common stock at a conversion price of $0.35
per share, subject to adjustment. The maturity date of the note
shall be two years form the date of each payment of consideration
thereunder. A one-time interest charge of twelve percent (12%)
shall be applied on the issuance date and payable on the maturity
date. During the year ended March 31, 2018, the holder converted
the $50,000 of the January debentures to common shares of the
Company.
On
March 28, 2017, the Company entered into a Securities Purchase
Agreement with an accredited investor related to the purchase and
sale of certain convertible debentures in the aggregate principal
amount of up to $400,000 for an aggregate purchase price of up to
$360,000. The agreement contemplates three separate convertible
debentures, with each maturing three years following the date of
issuance. On March 28, 2017, the Company issued the first
convertible debenture in the principal amount of $100,000 for a
purchase price of $90,000. Pursuant to the Securities Purchase
Agreement, the closing of the second convertible debenture was to
occur upon mutual agreement of the parties, at any time within
sixty (60) to ninety (90) days following the original signing
closing date, in the principal amount of $150,000 for a purchase
price of $135,000. On July 5, 2017, the Securities Purchase
Agreement was amended to reduce the maximum aggregate principal
amount of the convertible debentures to $325,000, for an aggregate
purchase price of up to $292,500, and to reduce the principal
amount of the second convertible debenture to $75,000 for a
purchase price of $67,500. The closing of the second convertible
debenture occurred on July 5, 2017. In connection with the closing
of the second convertible debenture, the Company issued 75,000
shares of restricted common stock to the holder as a fee in
consideration of the expenses incurred in consummating the
transaction. The closing of the third convertible debenture was to
occur upon mutual agreement of the parties within sixty (60) to
ninety (90) days following the second closing, in the principal
amount of $150,000 for a purchase price of $135,000. The third
closing has not occurred. The convertible debentures are
convertible into shares of the Company’s common stock at a
fixed conversion price of $0.30 for the first one hundred eighty
(180) days. After one hundred eighty (180) days, or in an event of
default, the conversion price will be the lower of $0.30 or sixty
percent (60%) of the lowest closing bid price over the 20 trading
days preceding the date of conversion. On September 22, 2017, the
Company exercised its option to redeem the first closing of the
March debenture, for a redemption price at $130,000, 130% of the
principal amount. The principal of $100,000 was derecognized with
the additional $30,000 paid upon redemption recognized as a
financing cost. On December 28, 2017, the Company exercised its
option to redeem the second closing of the March debenture, for a
redemption price at $97,500, 130% of the principal amount. Upon
redemption, the principal of $75,000 was relieved, with the
additional $22,500 paid recognized as a financing
cost.
On July
31, 2017, the Company entered into a 5% Securities Purchase
Agreement with an accredited investor. The agreement calls for the
purchase of up to $135,000 in convertible debentures, due 12 months
from issuance, with an original issue discount of $13,500. The
first convertible debenture was issued in the principal amount of
$45,000 for a purchase price of $40,500 (an original issue discount
of $4,500), with additional closings to occur at the sole
discretion of the holder. The convertible debentures are
convertible into shares of the Company’s common stock at a
conversion price of sixty percent (60%) of the lowest trading price
over the 25 trading days preceding the date of conversion, subject
to adjustment. With each tranche under the July 31, 2017
convertible debentures, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15, and the number of warrants
issued to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. On October 2, 2017, the Company entered into a second
closing of the July 31, 2017 debenture, in the principal amount of
$22,500 for a purchase price of $20,250, with $1,500 deducted for
legal fees, resulting in net cash proceeds of $18,750. On February
5, 2018, the Company entered into an amendment to the July 31, 2017
debenture, whereby in exchange for a payment of $6,500, except for
a conversion of up to 125,000 shares of the Company’s common
shares, the noteholder shall only be entitled to effectuate a
conversion under the note on or after March 2, 2018. On February
20, 2018, the holder converted $4,431 of the January debentures
into 125,000 common shares of the Company. During March, 2018, the
holder converted an additional $17,113 of the July debentures into
630,000 common shares of the Company.
On
August 28, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $110,000, with an original issue discount of $10,000, which
matures on February 28, 2018. The note is convertible into shares
of the Company’s common stock at a variable conversion rate
equal to the lesser of sixty percent (60%) of the lowest trading
price over the 20 trading days prior to the issuance of the note or
sixty percent (60%) of the lowest trading price over the 20 trading
days prior to conversion, subject to adjustment. In connection with
the note, the Company issued 50,000 warrants, exercisable at $0.20,
with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants issued increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. Additionally, in connection with the
note, the Company also issued 343,750 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $58,438, based on the market value of the common
shares at the closing date of $0.17, and was recognized as part of
the debt discount. The shares are to be returned to the Treasury of
the Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
Additionally, in connection with the second closing, the Company
issued 332,500 shares of common stock of the Company as a
commitment fee. The commitment shares fair value was calculated as
$35,877, based on the market value of the common shares at the
closing date of $0.11, and was recognized as part of the debt
discount. The shares are to be returned to the Treasury of the
Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. Subsequent to year
end the note holders issued a waiver as to the maturity date of the
two notes and a technical default provision. The notes have
subsequently been fully converted.
On
September 11, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $146,000, with an original issue discount of $13,500, which
matures on June 11, 2018. The note is convertible into shares of
the Company’s common stock at a variable conversion rate
equal to the lesser of the lowest trading price over the 25 trading
days prior to the issuance of the note or fifty percent (50%) of
the lowest trading price over the 25 trading days prior to
conversion, subject to adjustment. In connection with the note, the
Company issued 243,333 warrants, exercisable at $0.15, with a
five-year term. The exercise price is adjustable upon certain
events, as set forth in the agreement, including for future
dilutive issuance. The warrants exercise price was subsequently
reset to 50% of the market price during the third quarter of fiscal
2018, and the warrants issued increased accordingly.
On
September 12, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $96,500 with an original issue discount of $4,500, which matures
on June 12, 2018. The note is able to be prepaid prior to the
maturity date, at a cash redemption premium, at various stages as
set forth in the agreement. The note is convertible commencing 180
days after issuance date (or upon an event of default), or March
11, 2018, at a variable conversion rate of sixty percent (60%) of
the market price, defined as the lowest trading price during the 20
trading days prior to conversion, subject to adjustment. On March
20, 2018, the holder converted $32,500 of the September 12, 2017
debentures into 1,031,746 common shares of the Company. Subsequent
to year end, the remainder of the outstanding note has been fully
converted.
On
September 28, 2017, the Company entered into a Securities Purchase
Agreement with an accredited investor, pursuant to which the
Company agreed to sell a 12% Convertible Note in the principal
amount of $55,000 with a maturity date of September 28, 2018, for a
purchase price of $51,700, and $2,200 deducted for legal fees,
resulting in net cash proceeds of $49,500. The effective closing
date of the Securities Purchase Agreement and Convertible Note was
October 17, 2017. The note is convertible into shares of the
Company’s common stock at the holders’ option, at any
time, at a conversion price equal to the lower of (i) the closing
sale price of the Company’s common stock on the closing date,
or (ii) sixty percent (60%) of either the lowest sale price for the
Company’s common stock during the 20 consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower, provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price.
On
November 14, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $112,000, convertible into shares of common
stock of the Company, with maturity dates of November 14, 2018.
Each note was in the principal amount of $56,000, with an original
issue discount of $2,800, resulting in a purchase price for each
note of $53,200. The first of the two notes was paid for by the
buyer in cash upon closing, with the second note initially paid for
by the issuance of an offsetting $53,200 secured promissory note
issued to the Company by the buyer (“Buyer Note”). The
Buyer Note is due on July 14, 2018. The notes are convertible into
shares of the Company’s common stock at a conversion rate of
fifty-seven percent (57%) of the lowest of trading price over last
20 trading days prior to conversion, or the lowest closing bid
price over the last 20 trading days prior to conversion, with the
discount increased (i.e., the conversion rate decreased) to
forty-seven percent (47%) in the event of a DTC chill, with the
second note not being convertible until the buyer has settled the
Buyer Note in cash payment. During the first six months the
convertible redeemable notes are in effect, the Company may redeem
the notes at amounts ranging from 120% to 140% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 90 days to 180 days from the date of
issuance of each note.
On
December 20, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $240,000, convertible into shares of common
stock of the Company, with the same buyers as the November 14, 2017
debenture. Both notes are due on December 20, 2018. The first note
was issued in the principal amount of $160,000, with a $4,000
original issue discount, resulting in a purchase price of $156,000.
The second note was issued in the principal amount of $80,000, with
an original issue discount of $2,000, for a purchase price of
$78,000. The first of the two notes was paid for by the buyer in
cash upon closing, with the second note initially paid for by the
issuance of an offsetting $78,000 secured promissory note issued to
the Company by the buyer (“Buyer Note”). The Buyer Note
is due on August 20, 2018. The notes are convertible into shares of
the Company’s common stock at a conversion rate of sixty
percent (60%) of the lower of: (i) lowest trading price or (ii)
lowest closing bid price of the Company’s common stock over
the last 20 trading days prior to conversion, with the discount
increased (i.e., the conversion rate decreased) to fifty percent
(50%) in the event of a DTC chill, with the second note not being
convertible until the buyer has settled the Buyer Note in cash
payment. During the first six months the convertible redeemable
notes are in effect, the Company may redeem the notes at amounts
ranging from 120% to 136% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 90 days to 180 days from the date of issuance of each
note.
On
January 29, 2018, the Company entered into three (3) 12%
convertible redeemable promissory notes with an accredited investor
in the aggregate principal amount of $120,000, with maturity dates
of January 29, 2019. The notes are convertible into shares of the
Company’s common stock at a conversion rate of sixty percent
(60%) of the lowest closing bid price over the last 20 trading days
prior to conversion, with the discount increased (i.e., the
conversion rate decreased) to fifty percent (50%) in the event of a
DTC chill. The interest rate upon an event of default, as defined
in the notes, is 24% per annum. Each note was issued in the
principal amount of $40,000, with $2,000 deducted for legal fees,
for net proceeds of $38,000. The first note was paid for by the
buyer in cash upon closing, with the second and third notes
initially paid by the issuance of offsetting $40,000 secured
promissory notes issued to the Company by the buyer (the
“Buyer Notes”). The Buyer Notes are due on September
29, 2018. During the first 180 days the notes are in effect, the
Company may redeem the note at amounts ranging from 115% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the note. Upon any sale event, as defined
in the note, at the holder’s request, the Company will redeem
the note for 150% of the principal and accrued
interest.
On
January 30, 2018, Company entered into a 12% convertible redeemable
promissory note with an accredited investor for the principal
amount of $80,000, which matures on January 30, 2019. The note is
convertible into shares of the Company’s common stock at a
conversion rate of sixty-one percent (61%) of the lowest closing
bid price over the last 15 trading days prior to conversion. The
interest rate upon an event of default, as defined in the note, is
22% per annum, and the note becomes immediately due and payable in
an amount equal to 150% of the principal and interest due on the
note upon an event of default. If the Company fails to deliver
conversion shares within two (2) days following a conversion
request, the note will become immediately due and payable at an
amount of twice the default amount. During the first 180 days the
note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 30 days to 180 days from the date of issuance of the
note.
On
March 9, 2018, the Company entered into a 12% convertible note for
the principal amount of $43,000, with the holder of the January 30,
2018 debenture, convertible into shares of common stock of the
Company, which matures on March 9, 2019. Upon an event of default,
as defined in the note, the note becomes immediately due and
payable, in an amount equal to 150% of all principal and accrued
interest due on the note, with default interest of 22% per annum
(the “Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default.
On
March 20, 2018, the Company entered into a convertible note for the
principal amount of $84,000, convertible into shares of common
stock of the Company, which matures on December 20, 2018. The note
bears interest at 12% for the first 180 days, which increases to
18% after 180 days, and 24% upon an event of default. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 255,675 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $28,124, based on the market value of
the common shares at the closing date of $0.11, and was recognized
as part of the debt discount.
On
March 21, 2018, the Company entered into a convertible note for the
principal amount of $39,199, which includes an OID of $4,199,
convertible into shares of common stock of the Company, which
matures on December 20, 2018. The note bears interest at 12% for
the first 180 days, which increases to 18% after 180 days, and 24%
upon an event of default. The note is convertible on the date
beginning 180 days after issuance of the note, at the lowest of 60%
of the lowest trading price for the last 20 days prior to the
issuance date of this note, or 60% of the lowest trading price for
the last 20 days prior to conversion. The discount is increased
upon certain events set forth in the agreement regarding the
obtainability of the shares, such as a DTC "chill". Additionally,
if the Company ceases to be a reporting company, or after 181 days
the note cannot be converted into freely traded shares, the
discount is increased an additional 15%. Per the agreement, the
Company is required at all times to have authorized and reserved
ten times the number of shares that is actually issuable upon full
conversion of the note. Additionally, the Company also issued
119,300 shares of common stock of the Company as a commitment fee.
The commitment shares fair value was calculated as $13,123, based
on the market value of the common shares at the closing date of
$0.11, and was recognized as part of the debt
discount.
Sale and Issuance of Common Stock
On May
2, 2017, the Company sold 100,000 shares of its common stock to an
accredited investor at $0.25 per share, for total proceeds of
$25,000.
On
October 10, 2017, the Company issued 200,000 shares of its common
stock to consultants in consideration for consulting services
provided to the Company.
Shareholder Notes Payable
Since
inception, the Company has entered into several working capital
notes payable to Bill Williams, an executive officer, director, and
shareholder of the Company, for a total of $486,500. These notes
are demand notes, had stock issued in lieu of interest and have no
set monthly payment or maturity date. The balance of these notes at
March 31, 2018 and 2017 was $426,404 and $426,404, respectively,
and is classified as a current liability on the consolidated
balance sheets. At March 31, 2018 and 2017, accrued interest
payable was $206,920 and $172,808, respectively. We repaid $0
during the years ended March 31, 2018 and 2017
In
2009, the Company made and entered into an unsecured note payable
to Randall Steele, a shareholder of NSH, in the principal amount of
$50,000. The note accrues interest at six percent (6%) and matured
on January 20, 2011. As of December 31, 2017, and March 31, 2017,
the balance of the note was $50,000, and is classified as a current
liability on our consolidated balance sheets.
On
January 1, 2016, the Company entered into a note payable agreement
with NSH, the Company’s majority shareholder. Between January
16, 2016 and March 31, 2017, the Company borrowed $736,111 under
this agreement. The note payable has no set monthly payment or
maturity date, and has a stated interest rate of two percent (2%).
There was no borrowing under this loan during the year ended March
31, 2018.
Between
January 1, 2017 and March 31, 2017, the Company entered into two
Private Placement Subscription Agreements and issued two Six
Percent (6%) Unsecured Convertible Notes to Dragon Acquisitions
LLC, an affiliate of the Company (“Dragon
Acquisitions”). William Delgado, our Treasurer, Chief
Financial Officer, and director, is the managing member of Dragon
Acquisitions. The first note was issued on January 20, 2017, in the
principal amount of $20,000, and the second note was issued on
March 14, 2017, in the principal amount of $20,000. The notes
accrue interest at the rate of six percent (6%) per annum, and
mature one (1) year from the date of issuance. Upon an event of
default, the default interest rate will be increased to twenty-four
percent (24%), and the total amount of principal and accrued
interest shall become immediately due and payable at the
holder’s discretion. The notes are convertible into shares of
the Company’s common stock at a conversion price of $0.30 per
share, subject to adjustment. The notes were repaid in full between
March and May 2017.
On
April 20, 2017, the Company issued an additional Six Percent (6%)
Unsecured Convertible Note to Dragon Acquisitions in the principal
amount of $140,000. The note accrues interest at the rate of six
percent (6%) per annum, and matures one (1) year from the date of
issuance. Upon an event of default, the default interest rate will
be increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The note is convertible
into shares of the Company’s common stock at a conversion
price of $0.30 per share, subject to adjustment. $52,400 of the
note has been repaid during the year ended March 31,
2018.
Going Concern
The
audited consolidated financial statements contained in this annual
report on Form 10-K have been prepared, assuming that the Company
will continue as a going concern. The Company has accumulated
losses through the period to March 31, 2018 of approximately
$34,013,000 as well as negative cash flows from operating
activities of approximately $767,000. Presently, the Company does
not have sufficient cash resources to meet its plans in the twelve
months following March 31, 2018. These factors raise substantial
doubt about the Company’s ability to continue as a going
concern. Management is in the process of evaluating various
financing alternatives in order to finance the continued build-out
of our equipment and for general and administrative expenses. These
alternatives include raising funds through public or private equity
markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful
with our fund raising initiatives, management believes that the
Company will be able to secure the necessary financing as a result
of ongoing financing discussions with third party investors and
existing shareholders.
The
consolidated financial statements do not include any adjustments
that may be necessary should the Company be unable to continue as a
going concern. The Company’s continuation as a going concern
is dependent on its ability to obtain additional financing as may
be required and ultimately to attain profitability. If the Company
raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and
such securities might have rights, preferences or privileges senior
to the rights, preferences and privileges of the Company’s
common stock. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict
its future plans for developing its business and achieving
commercial revenues. If the Company is unable to obtain the
necessary capital, the Company may have to cease
operations.
Future Financing
We will
require additional funds to implement our growth strategy for our
business. In addition, while we have received capital from various
private placements that have enabled us to fund our operations,
these funds have been largely used to develop our processes,
although additional funds are needed for other corporate
operational and working capital purposes. Subsequent to year end we
have raised approximately an additional $224,000, net of OID, from
convertible debentures. However, not including funds needed for
capital expenditures or to pay down existing debt and trade
payables, we anticipate that we will need to raise an additional
$950,000 to cover all of our operational expenses over the next 12
months, not including any capital expenditures needed as part of
any commercial scale-up of our equipment. These funds may be raised
through equity financing, debt financing, or other sources, which
may result in further dilution in the equity ownership of our
shares. There can be no assurance that additional financing will be
available to us when needed or, if available, that such financing
can be obtained on commercially reasonable terms. If we are not
able to obtain the additional necessary financing on a timely
basis, or if we are unable to generate significant revenues from
operations, we will not be able to meet our other obligations as
they become due, and we will be forced to scale down or perhaps
even cease our operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
significant accounting policies are more fully described in the
notes to our financial statements included in this Annual Report on
Form 10-K for the fiscal year ended March 31, 2018. We believe that
the accounting policies below are critical for one to fully
understand and evaluate our financial condition and results of
operations.
Fair Value Measurement
The
fair value measurement guidance clarifies that fair value is an
exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that
market participants would use in the valuation of an asset or
liability. It establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
the fair value measurement guidance are described
below:
Level 1
- Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical assets or
liabilities;
Level 2
- Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the
full term of the asset or liability; or
Level 3
- Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
Company did not have any Level 1 or Level 2 assets and liabilities
at March 31, 2018 and 2017.
The
Derivative liabilities are Level 3 fair value
measurements.
Basic and Diluted Earnings/Loss per Common Share
Basic
and diluted earnings or loss per share (“EPS”) amounts
in the consolidated financial statements are computed in accordance
with ASC 260 – 10 “ Earnings per Share ”, which
establishes the requirements for presenting EPS. Basic EPS is based
on the weighted average number of common shares outstanding.
Diluted EPS is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents. Basic EPS
is computed by dividing net income or loss available to common
stockholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. For the year
ended March 31, 2018, the Company had $1,292,000 in convertible
debentures whose underlying shares are convertible at the
holders’ option at conversion prices ranging from 50 - 60% of
the defined trading price and approximately 4,625,000 warrants with
an exercise price of 50% to 57% of the market price of the
Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be anti-dilutive.
Included in the diluted EPS for the year ended March 31, 2017, the
Company had $150,000 in convertible debentures whose underlying
shares are convertible at the holders’ option at initial
fixed conversion prices ranging from $0.30 to $0.35.
Income Taxes
Deferred
income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets
and liabilities.
In
addition, the Company’s management performs an evaluation of
all uncertain income tax positions taken or expected to be taken in
the course of preparing the Company’s income tax returns to
determine whether the income tax positions meet a “more
likely than not” standard of being sustained under
examination by the applicable taxing authorities. This evaluation
is required to be performed for all open tax years, as defined by
the various statutes of limitations, for federal and state
purposes.
On
December 22, 2017, the President of the United States signed and
enacted into law H.R. 1 (the “Tax Reform Law”). The Tax
Reform Law, effective for tax years beginning on or after January
1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various
provisions that are expected to impact the Company. The Tax Reform
Law reduces the federal corporate tax rate from 35% to 21%
effective January 1, 2018. The Company will continue to analyze the
provisions of the Tax Reform Law to assess the impact on the
Company’s consolidated financial statements.
Impairment of LongLived Assets and LongLived Assets
The
Company will periodically evaluate the carrying value of longlived
assets to be held and used when events and circumstances warrant
such a review and at least annually. The carrying value of a
longlived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds
the fair value of the longlived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on longlived assets to
be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Recent Accounting Standards
During
the year ended March 31, 2018 and through the date of this report,
there were several new accounting pronouncements issued by the
Financial Accounting Standards Board (“FASB”). Each of
these pronouncements, as applicable, has been or will be adopted by
the Company. Management does not believe the adoption of any of
these accounting pronouncements has had or will have a material
impact on the Company’s consolidated financial
statements.
Recently Issued Accounting Standards
In May
2014, FASB issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,”
which requires an entity to recognize the amount of revenue to
which it expects to be entitled for the transfer of promised goods
or services to customers. ASU 2014-09 will replace most existing
revenue recognition guidance in U.S. GAAP when it becomes
effective. The new standard is effective for annual reporting
periods for public business entities beginning after December 15,
2017, including interim periods within that reporting period. The
new standard permits the use of either the retrospective or
cumulative effect transition method. The Company is currently
evaluating the effect that ASU 2014-09 will have on its financial
statements and related disclosures. As there have been no
significant revenues to date, the Company does not expect the
adoption to have a material impact and no transition method will be
necessary upon adoption.
In
February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The standard
requires all leases that have a term of over 12 months to be
recognized on the balance sheet with the liability for lease
payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over
the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an
operating or a financing lease. Costs of an operating lease will
continue to be recognized as a single operating expense on a
straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019, and must be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. Early adoption is permitted. We are currently
evaluating the timing of adoption and the potential impact of this
standard on our financial position, but we do not expect it to have
a material impact on our results of operations.
Changes In and Disagreements with Accountants
None.
Directors, Executive Officers, Promoters, and Control
Persons
Set
forth below are the present directors and executive officers of the
Company. Except as set forth below, there are no other persons who
have been nominated or chosen to become directors, nor are there
any other persons who have been chosen to become executive
officers. Other than as set forth below, there are no arrangements
or understandings between any of the directors, officers and other
persons pursuant to which such person was selected as a director or
an officer.
Name
|
|
Age
|
|
Position
|
|
Since
|
|
|
|
|
|
|
|
Bill G.
Williams
|
|
83
|
|
Chairman
of the Board, Chief Executive Officer
|
|
2015
|
Gerald
Easterling
|
|
70
|
|
President,
Secretary, Director
|
|
2015
|
William
Delgado
|
|
59
|
|
Treasurer,
Chief Financial Officer, Director
|
|
2014
|
The
Board of Directors is comprised of only one class. All of the
directors serve for a term of one year and until their successors
are elected at the Company’s annual shareholders meeting and
are qualified, subject to removal by the Company’s
shareholders. Each executive officer serves, at the pleasure of the
Board of Directors, for a term of one year and until his successor
is elected at a meeting of the Board of Directors and is
qualified.
Our
Board of Directors believes that all members of the Board and all
executive officers encompass a range of talent, skill, and
experience sufficient to provide sound and prudent guidance with
respect to our operations and interests. The information below with
respect to our directors and executive officers includes each
individual’s experience, qualifications, attributes, and
skills that led our Board of Directors to the conclusion that he or
she should serve as a director and/or executive
officer.
Biographies
Set
forth below are brief accounts of the business experience during
the past five years of each director, executive officer and
significant employee of the Company.
Bill G. Williams – Co-Founder, Chairman of the Board and
Chief Executive Officer
Mr.
Williams has served as Chairman of the Board and CEO of NSH since
its inception in 2001. From 1997 to 2003, he was Chairman and CEO
of Direct Wireless Communications, Inc. and its successor Health
Discovery Corporation, a public company listed on the OTCBB
exchange. From 1990 to 1997, Mr. Williams was Chairman and CEO of
Cafe Quick Enterprises, which uses a unique, patented air
impingement technology to cook fresh and frozen food in vending
machines. From 1985 to 1990, Mr. Williams was Chairman and CEO of
Ameritron Corporation, a multi-business holding company. Mr.
Williams has also served a member of the board of directors of
NaturalShrimp Corporation and NaturalShrimp Global, Inc. since
2001.
We
believe Mr. Williams is qualified to serve on our board of
directors because of his business experiences, including his
experience as a director of companies in similar industries, as
described above.
Gerald Easterling – Co-Founder, President and
Director
Mr.
Easterling has served as President and a director of NSH since its
inception in 2001. Mr. Easterling has experience in the food
business and related industries. In the five years prior to the
formation of NSH, Mr. Easterling was Chairman of the Board of Excel
Vending Companies. He also was President and Director of Cafe Quick
Enterprises and has been a member of the board since 1988. Mr.
Easterling has also served a member of the board of directors of
NaturalShrimp Corporation and NaturalShrimp Global, Inc. since
2001.
We
believe Mr. Easterling is qualified to serve on our board of
directors because of his business experiences, including his
experience as a director of companies in similar industries, as
described above.
Thomas Untermeyer – Co-Founder and Chief Technology
Consultant
Mr. Untermeyer is a co-founder of NSH, has served as an engineering
consultant to NSH since 2001, and is the Company’s Chief
Technology Officer. Mr. Untermeyer holds a Bachelor of Science in
electrical engineering from St. Mary’s University. Mr.
Untermeyer is the inventor of the initial technology behind the
computer-controlled shrimp-raising system used by the
Company.
William J. Delgado – Treasurer, Chief Financial Officer
(former President of Multiplayer Online Dragon, Inc.) and
Director
Mr.
Delgado has served as Director of the Company since May 19, 2014.
Since August 2004, Mr. Delgado has served as a Director, President,
Chief Executive Officer and Chief Financial Officer of Global
Digital Solutions, Inc. (“GDSI”), a publicly traded
company that provides cyber arms manufacturing, complementary
security and technology solutions and knowledge-based,
cyber-related, culturally attuned social consulting in unsettled
areas. Effective August 12, 2013, Mr. Delgado assumed the position
of Executive Vice President of GDSI. He began his career with
Pacific Telephone in the Outside Plant Construction. He moved to
the network engineering group and concluded his career at Pacific
Bell as the Chief Budget Analyst for the Northern California
region. Mr. Delgado founded All Star Telecom in late 1991,
specializing in OSP construction and engineering and systems
cabling. All Star Telecom was sold to International FiberCom in
April 1999. After leaving International FiberCom in 2002, Mr.
Delgado became President/CEO of Pacific Comtel in San Diego,
California, which was acquired by GDSI in 2004. Mr. Delgado holds a
BS with honors in Applied Economics from the University of San
Francisco and Graduate studies in Telecommunications Management at
Southern Methodist University.
We
believe Mr. Delgado is qualified to serve on our board of directors
because of his business experiences, including his experience in
management and as a director of public companies, as described
above.
Family Relationships
There
are no other family relationships between or among any of our
directors, executive officers and any incoming directors or
executive officers.
Involvement in Certain Legal Proceedings
No
director, executive officer, significant employee or control person
of the Company has been involved in any legal proceeding listed in
Item 401(f) of Regulation S-K in the past 10 years.
Committees of the Board
Our
Board of Directors held one formal meeting in the fiscal year-ended
March 31, 2018. Otherwise, all proceedings of the Board of
Directors were conducted by resolutions consented to in writing by
the directors and filed with the minutes of the proceedings of the
directors. Such resolutions consented to in writing by the
directors entitled to vote on that resolution at a meeting of the
directors are, according to the Nevada Revised Statutes and the
bylaws of our Company, as valid and effective as if they had been
passed at a meeting of the directors duly called and held. We do
not presently have a policy regarding director attendance at
meetings.
We do
not currently have a standing audit, nominating or compensation
committee of the Board of Directors, or any committee performing
similar functions. Our Board of Directors performs the functions of
audit, nominating and compensation committees.
Audit Committee
Our
Board of Directors has not established a separate audit committee
within the meaning of Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
Instead, the entire Board of Directors acts as the audit committee
within the meaning of Section 3(a)(58)(B) of the Exchange Act and
will continue to do so until such time as a separate audit
committee has been established.
Audit Committee Financial Expert
We
currently have not designated anyone as an “audit committee
financial expert,” as defined in Item 407(d)(5) of Regulation
S-K as we have not yet created an audit committee of the Board of
Directors.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section
16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange
Commission and to provide us with copies of those
filings.
Based
solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, we believe
that during the fiscal year ended March 31, 2018, one of our
officers, directors and greater than 10% percent beneficial owners
failed to comply on a timely basis with all applicable filing
requirements under Section 16(a) of the Exchange Act.
On
January 20, 2017, the Company issued a convertible note in the
principal amount of $20,000 to Dragon Acquisitions, an affiliate of
the Company whose managing member is William Delgado, the Chief
Financial Officer of the Company. On March 14, 2017, the Company
issued a convertible note in the principal amount of $20,000 to
Dragon Acquisitions. On April 20, 2017, the Company issued a
convertible note in the principal amount of $140,000 to Dragon
Acquisitions. These notes are convertible into shares of the
Company’s common stock at a conversion price of $0.30 per
share. William Delgado, a director and executive officer of the
Company and managing member of Dragon Acquisitions, should have
filed a Form 4 in connection with the issuance of each of the
foregoing convertible notes.
Nominations to the Board of Directors
Our
directors play a critical role in guiding our strategic direction
and oversee the management of the Company. Board candidates are
considered based upon various criteria, such as their broad-based
business and professional skills and experiences, a global business
and social perspective, concern for the long-term interests of the
stockholders, diversity, and personal integrity and
judgment.
In
addition, directors must have time available to devote to Board
activities and to enhance their knowledge in the growing business.
Accordingly, we seek to attract and retain highly qualified
directors who have sufficient time to attend to their substantial
duties and responsibilities to the Company.
In
carrying out its responsibilities, the Board will consider
candidates suggested by stockholders. If a stockholder wishes to
formally place a candidate’s name in nomination, however, he
or she must do so in accordance with the provisions of the
Company’s Bylaws. Suggestions for candidates to be evaluated
by the proposed directors must be sent to the Board of Directors,
c/o NaturalShrimp Incorporated, 5080 Spectrum Drive, Suite 1000
Addison, Texas 75001.
Director Nominations
As of
March 31, 2018, we did not effect any material changes to the
procedures by which our shareholders may recommend nominees to our
Board of Directors.
Board Leadership Structure and Role on Risk Oversight
Bill G.
Williams currently serves as the Company’s principal
executive officer and Chairman of the Company’s Board of
Directors. The Company determined this leadership structure was
appropriate for the Company due to our small size and limited
operations and resources. The Board of Directors will continue to
evaluate the Company’s leadership structure and modify as
appropriate based on the size, resources and operations of the
Company. It is anticipated that the Board of Directors will
establish procedures to determine an appropriate role for the Board
of Directors in the Company’s risk oversight
function.
Compensation Committee Interlocks and Insider
Participation
No
interlocking relationship exists between our board of directors and
the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the
past.
Code of Ethics
The
Company has adopted a written code of ethics that governs the
Company’s employees, officers and directors. A copy of such
code of ethics is available upon written request to the
Company.
Executive Compensation
Summary Compensation Table
General Philosophy
Our
Board of Directors is responsible for establishing and
administering the Company’s executive and director
compensation.
Executive Compensation
The
following summary compensation table indicates the cash and
non-cash compensation earned from the Company during the fiscal
years ended March 31, 2018 and 2017 by the current and former
executive officers of the Company and each of the other two highest
paid executives or directors, if any, whose total compensation
exceeded $100,000 during those periods.
Summary Compensation Table
Name and
Principal
|
|
|
|
|
|
|
Non-Equity
Incentive
Plan
|
|
|
Position
|
|
Year
|
|
|
|
|
|
|
|
Bill G.
Williams,
|
|
2018
|
$36,000
|
-
|
-
|
-
|
-
|
3,880
|
$39,880
|
Chairman of the
Board, CEO
|
|
2017
|
$96,000
|
-
|
-
|
-
|
-
|
-
|
$96,000
|
Gerald
Easterling,
|
|
2018
|
$76,000
|
-
|
-
|
-
|
-
|
6,120
|
$82,120
|
President
|
|
2017
|
$96,000
|
-
|
-
|
-
|
-
|
-
|
$96,000
|
(1)
|
As of
March 31, 2018, Mr. Williams is owed accrued salary of $60,612. In
addition, Mr. Williams is entitled ot receive medical insurance
reimbursement, of which $3,880 was paid during the fiscal year
ending March 31, 2018, and for which $776 is accrued as of March
31, 2018. Mr. Williams is also entitled to an automobile allowance
of $500 per month, of which none was paid, and for which is $10,500
is accrued at March 31, 2018.
|
(2)
|
As of
March 31, 2018, Mr. Easterling is owed accrued salary of $86,754.
In addition, Mr. Easterling is entitled to receive medical
insurance reimbursement, of which $6,120 was paid during the fiscal
year ending March 31,2018 and for which $0 is accrued as of March
31, 2018. Mr. Easterling is also entitled to an automobile
allowance of $500 per month, of which none was paid, and for which
$12,000 is accrued at March 31, 2018.
|
Employment Agreements
We have
employment agreements in place with Bill G. Williams, our Chief
Executive Officer, and Gerald Easterling, our
President.
Bill G. Williams
On
April 1, 2015, the Company entered into an employment agreement
with Bill G. Williams as the Company’s Chief Executive
Officer. The agreement is terminable at will and provides for a
base annual salary of $96,000. In addition, the agreement provides
that the Mr. Williams is entitled, at the sole and absolute
discretion of the Company’s Board of Directors, to receive
performance bonuses. Mr. Williams will also be entitled to certain
benefits including health insurance and monthly allowances for cell
phone and automobile expenses.
The
agreement provides that in the event Mr. Williams is terminated
without cause or resigns for good reason (each as defined in the
agreement), Mr. Williams will receive, as severance, his base
salary for a period of 60 months following the date of termination.
In the event of a change of control of the Company, Mr. Williams
may elect to terminate the agreement within 30 days thereafter and
upon such termination would receive a lump sum payment equal to
500% of his base salary. The agreement contains certain restrictive
covenants relating to non-competition, non-solicitation of
customers and non-solicitation of employees for a period of one
year following termination of the agreement.
Gerald Easterling
On
April 1, 2015, the Company entered into an employment agreement
with Gerald Easterling as the Company’s President. The
agreement is terminable at will and provides for a base annual
salary of $96,000. In addition, the agreement provides that the Mr.
Easterling is entitled, at the sole and absolute discretion of the
Company’s Board of Directors, to receive performance bonuses.
Mr. Easterling will also be entitled to certain benefits including
health insurance and monthly allowances for cell phone and
automobile expenses.
The
agreement provides that in the event Mr. Easterling is terminated
without cause or resigns for good reason (each as defined in the
agreement), Mr. Easterling will receive, as severance, his base
salary for a period of 60 months following the date of termination.
In the event of a change of control of the Company, Mr. Easterling
may elect to terminate the agreement within 30 days thereafter and
upon such termination would receive a lump sum payment equal to
500% of his base salary.
The
agreement contains certain restrictive covenants relating to
non-competition, non-solicitation of customers and non-solicitation
of employees for a period of one year following termination of the
agreement.
Potential Payments Upon Termination or
Change-in-Control
SEC
regulations state that we must disclose information regarding
agreements, plans or arrangements that provide for payments or
benefits to our executive officers in connection with any
termination of employment or change in control of the Company. Such
payments are set forth above in the section entitled
“Employment Agreements.”
None of
our executive officers or directors received, nor do we have any
arrangements to pay out, any bonus, stock awards, option awards,
non-equity incentive plan compensation, or non-qualified deferred
compensation.
Compensation of Directors
We have
no standard arrangement to compensate directors for their services
in their capacity as directors. Directors are not paid for meetings
attended. However, we intend to review and consider future
proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us, if
and when incurred.
Stock Option Plans - Outstanding Equity Awards at Fiscal Year
End
None.
Pension Table
None.
Retirement Plans
We do
not offer any annuity, pension, or retirement benefits to be paid
to any of our officers, directors, or employees in the event of
retirement. There are also no compensatory plans or arrangements
with respect to any individual named above which results or will
result from the resignation, retirement, or any other termination
of employment with our company, or from a change in the control of
our Company.
Compensation Committee
The
Company does not have a separate Compensation Committee. Instead,
the Company’s Board of Directors reviews and approves
executive compensation policies and practices, reviews salaries and
bonuses for other officers, administers the Company’s stock
option plans and other benefit plans, if any, and considers other
matters.
Risk Management Considerations
We
believe that our compensation policies and practices for our
employees, including our executive officers, do not create risks
that are reasonably likely to have a material adverse effect on our
Company.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of September 7, 2018, we had outstanding 87,056,880 shares of
common stock. Each share of common stock is currently entitled to
one vote on all matters put to a vote of our stockholders. The
following table sets forth the number of common shares, and
percentage of outstanding common shares, beneficially owned as of
the date hereof by:
●
each person known
by us to be the beneficial owner of more than five percent of our
outstanding common stock;
●
each of our current
directors;
●
each our current
executive officers and any other persons identified as a
“named executive” in the Summary Compensation Table
above; and
●
all our current
executive officers and directors as a group.
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes general voting power and/or investment power with respect
to securities. Shares of common stock issuable upon exercise of
options or warrants that are currently exercisable or exercisable
within 60 days of the record date, and shares of common stock
issuable upon conversion of other securities currently convertible
or convertible within 60 days, are deemed outstanding for computing
the beneficial ownership percentage of the person holding such
securities but are not deemed outstanding for computing the
beneficial ownership percentage of any other person. Under the
applicable SEC rules, each person’s beneficial ownership is
calculated by dividing the total number of shares with respect to
which they possess beneficial ownership by the total number of
outstanding shares. In any case where an individual has beneficial
ownership over securities that are not outstanding but are issuable
upon the exercise of options or warrants or similar rights within
the next 60 days, that same number of shares is added to the
denominator in the calculation described above. Because the
calculation of each person’s beneficial ownership set forth
in the “Percentage Beneficially Owned” column of the
table may include shares that are not presently outstanding, the
sum total of the percentages set forth in such column may exceed
100%. Unless otherwise indicated, the address of each of the
following persons is 5080 Spectrum Drive, Suite 1000 Addison, Texas
75001, and, based upon information available or furnished to us,
each such person has sole voting and investment power with respect
to the shares set forth opposite his, her or its name.
|
Common Shares Beneficially
Owned (2)
|
Percentage of Common Shares Beneficially Owned (2)
|
Series A Preferred Shares Beneficially Owned (5)
|
Percentage of Series A Preferred Shares Beneficially Owned
(5)
|
Name and Address of Beneficial Owner(1)
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Bill
G. Williams (3)(6)
|
520,240
|
(7)
|
5,000,000
|
100%
|
Gerald
Easterling (3)(6)
|
520,240
|
(7)
|
5,000,000
|
100%
|
Tom
Untermeyer
|
0
|
0.00%
|
0
|
0.00%
|
William
Delgado(4)
|
6,270,719
|
7.27%
|
0
|
0.00%
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
See Footnotes to
this Beneficial Ownership Table
|
|
|
|
|
(1)
|
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Pursuant to the rules of the SEC, shares of
common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of any option, warrant or
right, or through the conversion of a security, are deemed to be
outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
|
(2)
|
Based on 87,056,880 shares of our common stock issued and
outstanding as of September 7, 2018. See footnote 7.
|
(3)
|
Bill G. Williams is the indirect owner, together with Gerald
Easterling, of 520,240 shares of common stock and 5,000,000 shares
of Series A Preferred Stock of the Company, which are directly held
by NaturalShrimp Holdings, Inc. Mr. Williams is the Chairman of the
Board and the Chief Executive Officer of NaturalShrimp Holdings,
Inc. and has shared voting and dispositive power over the shares
held by NaturalShrimp Holdings, Inc. Mr. Easterling is the
President of NaturalShrimp Holdings, Inc. and has shared voting and
dispositive power over the shares held by NaturalShrimp Holdings,
Inc.
|
(4)
|
William
Delgado is the indirect owner of 6,270,719 shares of common stock,
which are directly held by Dragon Acquisitions LLC. The shares of
common stock beneficially owned by Dragon Acquisitions LLC, and
indirectly owned by William Delgado, include 600,000 shares of
common stock issuable upon conversion of outstanding convertible
notes held by Dragon Acquisitions LLC. Mr. Delgado is the managing
member of Dragon Acquisitions LLC and has shared voting and
dispositive power over the shares held by Dragon Acquisitions
LLC.
|
(5)
|
On August 17, 2018, the Company, pursuant to approval by the
Company’s board of directors, filed a certificate of
designation (the “Certificate of Designation”) with the
state of Nevada in order to designate a class of preferred stock.
The class of preferred stock that was designated is referred to as
Series A Convertible Preferred Stock (the “Series A
Stock”), consists of 5,000,000 shares, and was designated
from the 200,000,000 authorized preferred shares of the Company.
The Series A Stock is not entitled to dividends, but carries
liquidation rights upon the dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, at which time the
holders of the Series A Stock shall receive the sum of $0.001 per
share before any payment or distribution shall be made on the
Company’s common stock, or any class ranking junior to the
Series A Stock. The shares of Series A Stock shall vote together as
a single class with the holders of the Company’s common stock
for all matters submitted to the holders of common stock, including
the election of directors, and shall carry voting rights of 60
common shares for every share of Series A Stock. Any time after the
two-year anniversary of the initial issuance date of the Series A
Stock, the Series A Stock shall be convertible at the written
consent of a majority of the outstanding shares of Series A Stock,
in an amount of shares of common stock equal to 100% of the then
outstanding shares of common stock at the time of such
conversion.
|
(6)
|
On August 21, 2018, the Company entered into a
Stock Exchange Agreement (the “Exchange Agreement”)
with NaturalShrimp Holdings, Inc. (“NaturalShrimp”),
the Company’s majority shareholder, which is controlled by
the Company’s CEO and President. Pursuant to the Exchange
Agreement, the Company and NaturalShrimp exchanged 75,000,000
shares of common stock for 5,000,000 shares of Series A Stock. The
75,000,000 shares of common stock will be cancelled and returned to
the authorized but unissued shares of common stock of the
Company. Bill G. Williams and Gerald Easterling share voting
and dispositive power of the shares beneficially owned by
NaturalShrimp Holdings, Inc.
|
(7)
|
*equals less than 1%
|
Transactions with Related Persons
Transactions with Related Persons
Except as set out below, as of March 31, 2018, there have been no
transactions, or currently proposed transactions, in which we were
or are to be a participant and the amount involved exceeds the
lesser of $120,000 or one percent of the average of our total
assets at year-end for the last two completed fiscal years, and in
which any of the following persons had or will have a direct or
indirect material interest:
●
any
director or executive officer of our company;
●
any
person who beneficially owns, directly or indirectly, shares
carrying more than 5% of the voting rights attached to our
outstanding shares of common stock;
●
any
promoters and control persons; and
●
any
member of the immediate family (including spouse, parents,
children, siblings and in laws) of any of the foregoing
persons.
NaturalShrimp Holdings, Inc.
On November 26, 2014, Multiplayer Online Dragon, Inc., a Nevada
corporation (“MYDR”), entered into an Asset Purchase
Agreement (the “Agreement”) with NaturalShrimp
Holdings, Inc. a Delaware corporation (“NSH”), pursuant
to which MYDR was to acquire substantially all of the assets of NSH
which assets consist primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation
(“NSC”), a Delaware corporation, and NaturalShrimp
Global, Inc. (“NS Global”), a Delaware corporation, and
certain real property located outside of San Antonio, Texas (the
“Assets”).
On January 30, 2015, MYDR consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, the MYDR issued 75,520,240 shares of its common stock to
NSH as consideration for the Assets. As a result of the
transaction, NSH acquired 88.62% of MYDR’s issued and
outstanding shares of common stock, NSC and NS Global became
MYDR’s wholly-owned subsidiaries, and MYDR changed its
principal business to a global shrimp farming company.
There were no material relationships between the MYDR and NSH or
between the Company’s or NSH’s respective affiliates,
directors, or officers or associates thereof, other than in respect
of the Agreement. Effective March 3, 2015, MYDR amended its
Articles of Incorporation to change its name to
“NaturalShrimp Incorporated”.
On January 1, 2016 we entered into a note payable agreement with
NSH. Between January 16, 2016 and March 7, 2016, we borrowed
$134,750 under this agreement. An additional $601,361 was borrowed
under this agreement in the year ended March 31, 2017. The note
payable has no set monthly payment or maturity date with a stated
interest rate of 2%.
Bill G. Williams
We have entered into several working capital notes payable to Bill
Williams, an officer, a director, and a shareholder of the Company,
for a total of $486,500 since inception. These notes are demand
notes, had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes at March 31,
2018 and 2017 was $426,404 and $426,404, respectively, and is
classified as a current liability on the consolidated balance
sheets. At March 31, 2018 and 2017, accrued interest payable was
$206,920 and $172,808, respectively. We repaid $0 during the years
ended March 31, 2018 and 2017
William Delgado
Between January 1, 2017 and March 31, 2017, we entered into two
Private Placement Subscription Agreements and issued two Six
Percent (6%) Unsecured Convertible Notes to Dragon Acquisitions,
whose managing member is William Delgado, the Treasurer, Chief
Financial Officer, and a director of the Company. The first note
was issued on January 20, 2017, in the principal amount of $20,000,
and the second note was issued on March 14, 2017, in the principal
amount of $20,000. The notes accrue interest at the rate of six
percent (6%) per annum, and mature one (1) year from the date of
issuance. Upon an event of default, the default interest rate will
be increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The notes are convertible
into shares of our common stock at a conversion price of $0.30 per
share, subject to adjustment. The notes were repaid in full between
March and May 2017.
On April 20, 2017, the Company issued an additional Six Percent
(6%) Unsecured Convertible Note to Dragon Acquisitions in the
principal amount of $140,000. The note accrues interest at the rate
of six percent (6%) per annum, and matures one (1) year from the
date of issuance. Upon an event of default, the default interest
rate will be increased to twenty-four percent (24%), and the total
amount of principal and accrued interest shall become immediately
due and payable at the holder’s discretion. The note is
convertible into shares of the Company’s common stock at a
conversion price of $0.30 per share, subject to adjustment. $52,400
of the note has been repaid during the year ended March 31,
2018.
Gerald Easterling
On January 10, 2017, we entered into a promissory note agreement
with Community National Bank in the principal amount of $245,000,
with an annual interest rate of 5% and a maturity date of January
10, 2020 (the “CNB Note”). The CNB Note is secured by
certain real property owned by the Company in La Coste, Texas, and
is also personally guaranteed by the Company’s President and
Chairman of the Board, as well as certain non-affiliated
shareholders of the Company. As consideration for the guarantee,
the Company issued 600,000 shares of common stock to the
guaranteeing shareholders, not including the Company’s
President and Chairman of the Board, which was recognized as debt
issuance costs. The fair value of this issuance is estimated to be
$264,000, based on the market value of our common stock on the date
of issuance. The balance of the CNB Note is $236,413 as of March
31, 2018.
Named Executive Officers and Current Directors
For information regarding compensation for our named executive
officers and current directors, see “Executive
Compensation”.
Director Independence
Our board of directors consists of Bill G. Williams, Gerald
Easterling and William Delgado. Our securities are quoted on the
OTC Markets Group, which does not have any director independence
requirements. We evaluate independence by the standards for
director independence established by applicable laws, rules, and
listing standards including, without limitation, the standards for
independent directors established by The New York Stock Exchange,
Inc., the NASDAQ National Market, and the Securities and Exchange
Commission.
Subject to some exceptions, these standards generally provide that
a director will not be independent if (a) the director is, or in
the past three years has been, an employee of ours; (b) a member of
the director’s immediate family is, or in the past three
years has been, an executive officer of ours; (c) the director or a
member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than
for service as a director (or for a family member, as a
non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years
has been, employed in a professional capacity by our independent
public accountants, or has worked for such firm in any capacity on
our audit; (e) the director or a member of the director’s
immediate family is, or in the past three years has been, employed
as an executive officer of a company where one of our executive
officers serves on the compensation committee; or (f) the director
or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives
payments from, us in an amount which, in any twelve-month period
during the past three years, exceeds the greater of $1,000,000 or
two percent of that other company’s consolidated gross
revenues. Based on these standards, we have determined that none of
our directors are independent directors.
|
Unaudited
Consolidated Financial Statements
|
|
|
|
|
|
Unaudited
Consolidated Balance Sheets as of March 31, 2018 and June 30,
2018
|
F-1
|
|
|
|
|
Unaudited
Consolidated Statements of Operations and Comprehensive Loss for
the Three Months Ended June 30, 2018 and 2017
|
F-2
|
|
|
|
|
Unaudited
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2018 and 2017
|
F-3
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
F-4
|
NATURALSHRIMP
INCORPORATED
CONDENSED
CONSOLIDATED BALANCE
SHEETS
|
|
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
Cash
|
$24,415
|
$24,280
|
Notes
receivable
|
262,200
|
207,200
|
Inventory
|
4,200
|
-
|
Prepaid
expenses
|
24,675
|
28,699
|
|
|
|
Total
current assets
|
315,490
|
260,179
|
|
|
|
Fixed
assets
|
|
|
Land
|
202,293
|
202,293
|
Buildings
|
1,328,161
|
1,328,161
|
Machinery
and equipment
|
934,595
|
929,245
|
Autos
and trucks
|
14,063
|
14,063
|
Furniture
and fixtures
|
22,060
|
22,060
|
Accumulated
depreciation
|
(1,310,039)
|
(1,292,313)
|
|
|
|
Fixed
assets, net
|
1,191,133
|
1,203,509
|
|
|
|
Other
assets
|
|
|
Construction-in-process
|
239,577
|
171,050
|
Deposits
|
10,500
|
10,500
|
|
|
|
Total
other assets
|
250,077
|
181,550
|
|
|
|
Total
assets
|
$1,756,700
|
$1,645,238
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$595,332
|
$528,538
|
Accrued
interest, including related parties of $215,568
|
258,734
|
240,377
|
Other
accrued expenses
|
518,123
|
497,321
|
Short-term
Promissory Note and Lines of credit
|
794,976
|
143,523
|
Current
maturities of bank loan
|
7,751
|
7,497
|
Convertible
debentures, less debt discount of$ 691,558
|
392,956
|
516,597
|
Convertible
debentures, related party
|
87,600
|
87,600
|
Notes
payable - related parties
|
1,271,162
|
1,271,162
|
Derivative
liability
|
2,800,000
|
3,455,000
|
Warrant
liability
|
324,000
|
277,000
|
|
|
|
Total
current liabilities
|
7,050,634
|
7,024,615
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loan, less current maturities
|
226,800
|
228,916
|
Lines
of credit
|
-
|
651,453
|
|
|
|
Total
liabilities
|
7,277,434
|
7,904,984
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
Common
stock, $0.0001 par value, 300,000,000 shares authorized 135,763,799
and 97,656,095 shares issued and outstanding at June 30, 2018 and
March 31, 2018, respectively
|
13,577
|
9,766
|
Additional
paid in capital
|
29,575,662
|
27,743,352
|
Accumulated
deficit
|
(35,109,973)
|
(34,012,864)
|
|
|
|
Total
stockholders' deficit
|
(5,520,734)
|
(6,259,746)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$1,756,700
|
$1,645,238
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP
INCORPORATED
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
For
the Three months ended
|
|
|
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
20,985
|
7,289
|
General
and administrative
|
223,025
|
398,935
|
Depreciation
and amortization
|
17,726
|
17,725
|
|
|
|
Total
operating expenses
|
261,736
|
423,949
|
|
|
|
Net
Operating loss before other income (expense)
|
(261,736)
|
(423,949)
|
|
|
|
Other
income (expense):
|
|
|
Interest
expense
|
(68,219)
|
(40,355)
|
Amortization
of debt discount
|
(343,454)
|
(13,333)
|
Financing
costs
|
(608,699)
|
-
|
Change
in fair value of derivative liability
|
232,000
|
35,000
|
Change
in fair value of warrant liability
|
(47,000)
|
3,000
|
|
|
|
Total
other income (expense)
|
(835,372)
|
(15,688)
|
|
|
|
Loss
before income taxes
|
(1,097,108)
|
(439,637)
|
|
|
|
Provision
for income taxes
|
-
|
-
|
|
|
|
Net
loss
|
$(1,097,108)
|
$(439,637)
|
|
|
|
|
|
|
Loss
per share - Basic
|
$(0.01)
|
$(0.00)
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
112,720,679
|
92,473,133
|
|
|
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP
INCORPORATED
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
For
the Three months ended
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(1,097,108)
|
$(439,637)
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
Depreciation
expense
|
17,726
|
17,725
|
Amortization
of debt discount
|
343,454
|
13,333
|
Change
in fair value of derivative liability
|
(232,000)
|
(35,000)
|
Change
in fair value of warrant liability
|
47,000
|
(3,000)
|
Financing
costs related to convertible debentures
|
608,700
|
-
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
Inventory
|
(4,200)
|
-
|
Prepaid
expenses and other current assets
|
4,024
|
157,500
|
Accounts
payable
|
63,793
|
20,613
|
Other
accrued expenses
|
37,448
|
41,976
|
Accrued
interest - related parties
|
50,587
|
20,000
|
|
|
|
Cash used in operating activitites
|
(160,576)
|
(206,490)
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Cash
paid for fixed assets
|
(5,350)
|
-
|
Cash
paid for construction in progress
|
(68,527)
|
-
|
|
|
|
Cash used in investing activities
|
(73,877)
|
-
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Payments
on bank loan
|
(1,862)
|
(1,012)
|
Proceeds
from sale of stock
|
15,400
|
25,000
|
Proceeds
from convertible debentures
|
221,050
|
140,000
|
Payments
on convertible debentures
|
-
|
(27,500)
|
|
|
|
Cash provided by financing activitites
|
234,588
|
136,488
|
|
|
|
Net change in cash
|
135
|
(70,002)
|
|
|
|
Cash at beginning of period
|
24,280
|
88,195
|
|
|
|
Cash at end of period
|
$24,415
|
$18,193
|
|
|
|
|
|
|
Interest paid
|
$19,287
|
$20,355
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
Shares
issued upon conversion
|
$515,750
|
$-
|
Notes
receivable for convertible debentures
|
$55,000
|
$-
|
|
|
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP
INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2018
(Unaudited)
NOTE
1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp
Incorporated (“NaturalShrimp” “the
Company”), a Nevada corporation, is a biotechnology company
and has developed a proprietary technology that allows it to grow
Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus
vannamei) in an ecologically controlled, high-density, low-cost
environment, and in fully contained and independent production
facilities. The Company’s system uses technology which allows
it to produce a naturally-grown shrimp “crop” weekly,
and accomplishes this without the use of antibiotics or toxic
chemicals. The Company has developed several proprietary technology
assets, including a knowledge base that allows it to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Its initial production facility is located outside of
San Antonio, Texas.
The Company has
three wholly-owned subsidiaries including NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and Natural Aquatic
Systems, Inc.
Going Concern
The accompanying
consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America, assuming the Company will continue as a going concern,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. For the three months
ended June 30, 2018, the Company had a net loss of approximately
$1,097,000. At June 30, 2018, the Company had an accumulated
deficit of approximately $35,110,000 and a working capital deficit
of approximately $6,735,000. These factors raise substantial doubt
about the Company’s ability to continue as a going concern,
within one year from the issuance date of this filing. The
Company’s ability to continue as a going concern is dependent
on its ability to raise the required additional capital or debt
financing to meet short and long-term operating requirements.
During the three months ended June 30, 2018, the Company received
net cash proceeds of $15,400 from the sale of the Company’s
common stock. The Company also had $515,720 of their convertible
debentures converted into 37,887,704 shares of their common stock,
reducing their current obligations. Subsequent to June 30, 2018,
the Company received $197,500 in net proceeds from the funding of
convertible debentures (See Note 10). Management believes that
private placements of equity capital and/or additional debt
financing will be needed to fund the Company’s long-term
operating requirements. The Company may also encounter business
endeavors that require significant cash commitments or
unanticipated problems or expenses that could result in a
requirement for additional cash. If the Company raises additional
funds through the issuance of equity or convertible debt
securities, the percentage ownership of its current shareholders
could be reduced, and such securities might have rights,
preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If
adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of prospective
business endeavors or opportunities, which could significantly and
materially restrict our operations. The Company continues to pursue
external financing alternatives to improve its working capital
position. If the Company is unable to obtain the necessary capital,
the Company may have to cease operations.
The Company plans
to improve the growth rate of the shrimp and the environmental
conditions of its production facilities. Management also plans to
acquire a hatchery in which the Company can better control the
environment in which to develop the post larvaes. If management is
unsuccessful in these efforts, discontinuance of operations is
possible. The consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
unaudited financial information as of and for the three months
ended June 30, 2018 and 2017 has been prepared in accordance with
accounting principles generally accepted in the U.S. for interim
financial information and with the instructions to Quarterly Report
on Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, such financial information includes all adjustments
(consisting only of normal recurring adjustments) considered
necessary for a fair presentation of our financial position at such
date and the operating results and cash flows for such periods.
Operating results for the three months ended June 30, 2018 are not
necessarily indicative of the results that may be expected for the
entire year or for any other subsequent interim
period.
Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules of the U.S.
Securities and Exchange Commission, or the SEC. These unaudited
financial statements and related notes should be read in
conjunction with our audited financial statements for the year
ended March 31, 2018 included in our Annual Report on Form
10-K filed with the SEC on July 13, 2018.
The condensed
consolidated balance sheet at March 31, 2018 has been derived from
the audited financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles in the U.S. for complete financial
statements.
Consolidation
The consolidated
financial statements include the accounts of NaturalShrimp
Incorporated and its wholly-owned subsidiaries, NaturalShrimp
Corporation, NaturalShrimp Global and Natural Aquatic Systems, Inc.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
Preparing financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Basic and Diluted Earnings/Loss per Common Share
Basic and diluted
earnings or loss per share (“EPS”) amounts in the
consolidated financial statements are computed in accordance with
ASC 260 – 10 “Earnings
per Share”, which establishes the requirements for
presenting EPS. Basic EPS is based on the weighted average number
of common shares outstanding. Diluted EPS is based on the weighted
average number of common shares outstanding and dilutive common
stock equivalents. Basic EPS is computed by dividing net income or
loss available to common stockholders (numerator) by the weighted
average number of common shares outstanding (denominator) during
the period. For the three months ended June 30, 2018, the Company
had approximately $1,117,000 in principal on convertible debentures
whose approximately 98,689,000 underlying shares are convertible at
the holders’ option at conversion prices ranging from 34% -
61% of the defined trading price and approximately 18,227,000
warrants with an exercise price of 50% to 57% of the market price
of the Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be anti-dilutive.
For the three months ended June 30, 2017, the Company had $330,000
in convertible debentures whose underlying shares were convertible
at the holders’ option at initial fixed conversion prices
ranging from $0.30 to $0.35 and 70,000 warrants with an exercise
price of $0.60, which were not included in the calculation of
diluted EPS as their effect would be anti-dilutive.
Fair Value Measurements
ASC Topic 820,
“Fair Value
Measurement”, requires that certain financial
instruments be recognized at their fair values at our balance sheet
dates. However, other financial instruments, such as debt
obligations, are not required to be recognized at their fair
values, but Generally Accepted Accounting Principles in the United
States (“GAAP”) provides an option to elect fair value
accounting for these instruments. GAAP requires the disclosure of
the fair values of all financial instruments, regardless of whether
they are recognized at their fair values or carrying amounts in our
balance sheets. For financial instruments recognized at fair value,
GAAP requires the disclosure of their fair values by type of
instrument, along with other information, including changes in the
fair values of certain financial instruments recognized in income
or other comprehensive income. For financial instruments not
recognized at fair value, the disclosure of their fair values is
provided below under “Financial
Instruments.”
Nonfinancial
assets, such as property, plant and equipment, and nonfinancial
liabilities are recognized at their carrying amounts in the
Company’s balance sheets. GAAP does not permit nonfinancial
assets and liabilities to be remeasured at their fair values.
However, GAAP requires the remeasurement of such assets and
liabilities to their fair values upon the occurrence of certain
events, such as the impairment of property, plant and equipment. In
addition, if such an event occurs, GAAP requires the disclosure of
the fair value of the asset or liability along with other
information, including the gain or loss recognized in income in the
period the remeasurement occurred.
The Company did not
have any Level 1 or Level 2 assets and liabilities at June 30, 2018
and 2017.
The Derivative
liabilities are Level 3 fair value measurements.
The following is a
summary of activity of Level 3 liabilities during the three months
ended June 30, 2018:
Derivative
liability balance at March 31, 2018
|
$3,455,000
|
Additions to
derivative liability for new debt
|
882,000
|
Reclass to equity
upon conversion
|
(1,305,000)
|
Change in fair
value
|
(232,000)
|
Balance at June 30,
2018
|
$2,800,000
|
At June 30, 2018,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: the
price of the Company’s common stock of $0.02; a risk-free
interest rate ranging from 1.93% to 2.33%, and expected volatility
of the Company’s common stock ranging from 248.71% to
321.92%, and the various estimated reset exercise prices weighted
by probability.
Fixed Assets
Equipment is
carried at historical value or cost and is depreciated over the
estimated useful lives of the related assets. Depreciation on
buildings is computed using the straight-line method, while
depreciation on all other fixed assets is computed using the
Modified Accelerated Cost Recovery System (MACRS) method, which
does not materially differ from GAAP. Estimated useful lives are as
follows:
Buildings
|
27.5 – 39
years
|
Other Depreciable
Property
|
5 – 10
years
|
Furniture and
Fixtures
|
3 – 10
years
|
Maintenance and
repairs are charged to expense as incurred. At the time of
retirement or other disposition of equipment, the cost and
accumulated depreciation will be removed from the accounts and the
resulting gain or loss, if any, will be reflected in
operations.
The consolidated
statements of operations reflect depreciation expense of
approximately $18,000 for both the three months ended June 30, 2018
and 2017, respectively.
Commitments and Contingencies
Certain conditions
may exist as of the date the consolidated financial statements are
issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to
occur. The Company’s management and its legal counsel assess
such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the
Company’s legal counsel evaluates the perceived merits of any
legal proceedings or unasserted claims as well as the perceived
merits of the amount of relief sought or expected to be sought
therein.
If the assessment
of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in the
Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency
is not probable, but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if
determinable and material, would be disclosed.
Loss contingencies
considered remote are generally not disclosed unless they involve
guarantees, in which case the nature of the guarantee would be
disclosed.
Recently Issued Accounting Standards
In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2014-09,
“Revenue from Contracts with Customers,” which requires
an entity to recognize the amount of revenue to which it expects to
be entitled for the transfer of promised goods or services to
customers. ASU 2014-09 will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The
new standard is effective for annual reporting periods for public
business entities beginning after December 15, 2017, including
interim periods within that reporting period. The new standard
permits the use of either the retrospective or cumulative effect
transition method. The Company adopted ASU 2014-09 in the three
months ended June 30, 2018, and as there have not been any
significant revenues to date, the adoption did not have a material
impact on the Company’s financial position or results of
operations, and no transition method was necessary upon
adoption.
In February 2016,
the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard
requires all leases that have a term of over 12 months to be
recognized on the balance sheet with the liability for lease
payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over
the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an
operating or a financing lease. Costs of an operating lease will
continue to be recognized as a single operating expense on a
straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019, and must be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. Early adoption is permitted. We are currently
evaluating the timing of adoption and the potential impact of this
standard on our financial position, but we do not expect it to have
a material impact on our results of operations.
During the three
months ended June 30, 2018, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board.
Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of
any of these accounting pronouncements has had or will have a
material impact on the Company’s consolidated financial
statements.
Management’s Evaluation of Subsequent Events
The Company
evaluates events that have occurred after the balance sheet date of
June 30, 2018, through the date which the consolidated financial
statements were issued. Based upon the review, other than described
in Note 10 – Subsequent Events, the Company did not identify
any recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the consolidated financial
statements.
NOTE
3 – SHORT-TERM NOTE AND LINES OF CREDIT
On November 3,
2015, the Company entered into a short-term note agreement with
Community National Bank for a total value of $50,000. The
short-term note has a stated interest rate of 5.25%, maturity date
of December 15, 2017 and had an initial interest only payment on
February 3, 2016. The short-term note is guaranteed by an officer
and director. The balance of the line of credit at both June 30,
2018 and March 31, 2018 was $25,298.
The Company also
has a working capital line of credit with Extraco Bank. On April
30, 2018, the Company renewed the line of credit for $475,000. The
line of credit bears an interest rate of 5.0% that is compounded
monthly on unpaid balances and is payable monthly. The line of
credit matures on April 30, 2019, and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. The balance of the line of credit is $472,675 at
both June 30, 2018 and March 31, 2018.
The Company also
has additional lines of credit with Extraco Bank for $100,000 and
$200,000, which were renewed on January 19, 2018 and April 30,
2018, respectively, with maturity dates of January 19, 2019 and
April 30, 2019, respectively. The lines of credit bear an interest
rate of 4.5% (increased to 6.5% and 5%, respectively, upon renewal
in 2017) that is compounded monthly on unpaid balances and is
payable monthly. They are secured by certificates of deposit and
letters of credit owned by directors and shareholders of the
Company. The balance of the lines of credit was $278,470 at both
June 30, 2018 and March 31, 2018.
The Company also
has a working capital line of credit with Capital One Bank for
$50,000. The line of credit bears an interest rate of prime plus
25.9 basis points, which totaled 30.9% as of June 30, 2018. The
line of credit is unsecured. The balance of the line of credit was
$9,580 at both June 30, 2018 and March 31, 2018.
The Company also
has a working capital line of credit with Chase Bank for $25,000.
The line of credit bears an interest rate of prime plus 10 basis
points, which totaled 15.00% as of June 30, 2018. The line of
credit is secured by assets of the Company’s subsidiaries.
The balance of the line of credit is $10,237 at both June 30, 2018
and March 31, 2018.
NOTE
4 – BANK LOAN
On January 10,
2017, the Company entered into a promissory note with Community
National Bank for $245,000, at an annual interest rate of 5% and a
maturity date of January 10, 2020 (the “CNB Note”). The
CNB Note is secured by certain real property owned by the Company
in LaCoste, Texas, and is also personally guaranteed by the
Company’s President, as well as certain shareholders of the
Company. As consideration for the guarantee, the Company issued
600,000 of its common stock to the shareholders, which was
recognized as debt issuance costs with a fair value of $264,000,
based on the market value of the Company’s common stock of
$0.44 on the date of issuance. As the fair value of the debt
issuance costs exceeded the face amount of the promissory note, the
excess of the fair value was recognized as financing costs in the
statement of operations. The resulting debt discount is to be
amortized over the term of the CNB Note under the effective
interest method. As the debt discount is in excess of the face
amount of the promissory note, the effective interest rate is not
determinable, and as such, all of the discount was immediately
expensed.
Maturities on Bank
loan is as follows:
12 months
ending:
|
|
June 30,
2019
|
$7,751
|
June 30,
2020
|
226,800
|
|
$234,551
|
NOTE
5 – CONVERTIBLE DEBENTURES
July Debenture
On July 31, 2017,
the Company entered into a 5% Securities Purchase Agreement. The
agreement calls for the purchase of up to $135,000 in convertible
debentures, due 12 months from issuance, with a $13,500 OID. The
first closing was for principal of $45,000 with a purchase price of
$40,500 (an OID of $4,500), with additional closings at the sole
discretion of the holder. On October 2, 2017, the Company entered
into a second closing of the July 31, 2017 debenture, in the
principal amount of $22,500 for a purchase price of $20,250, with
$1,500 deducted for legal fees, resulting in net cash proceeds of
$18,750. The July 31 debenture is convertible at a conversion price
of 60% of the lowest trading price during the twenty-five days
prior to the conversion date, and is also subject to equitable
adjustments for stock splits, stock dividends or rights offerings
by the Company. A further adjustment occurs if the trading price at
any time is equal to or lower than $0.10, whereby an additional 10%
discount to the market price shall be factored into the conversion
rate, as well as an adjustment to occur upon subsequent sales of
securities at a price lower than the original conversion price. The
conversion feature meets the definition of a derivative and
therefore requires bifurcation and is accounted for as a derivative
liability.
On February 5,
2018, the Company entered into an amendment to the July Debenture,
whereby in exchange for a payment of $6,500 the note holder, except
for a conversion of up to 125,000 shares of the Company’s
common shares, would be only entitled to effectuate a conversion
under the note on or after March 2, 2018.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $61,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.33
at issuance date; a risk-free interest rate of 1.23% and expected
volatility of the Company’s common stock, of 192.43%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $45,500, including the commitment fees, was immediately
expensed as financing costs.
On February 20,
2018, the holder converted $4,431 of the January debentures into
125,000 common shares of the Company. As a result of the conversion
the derivative liability relating to the portion converted was
remeasured immediately prior to the conversion with a fair value of
$11,000, with an increase of $4,000 recognized, with the fair value
of the derivative liability related to the converted portion being
reclassified to equity. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.12;
a risk-free interest rate of 1.87% and expected volatility of the
Company’s common stock, of 353.27%, and the various estimated
reset exercise prices weighted by probability.
During March, 2018,
the holder converted an additional $17,113 of the July debentures
into 630,000 common shares of the Company. As a result of the
conversion the derivative liability was remeasured immediately
prior to the conversion with a fair value of $138,000, with an
increase of $74,000 recognized, with the fair value of the
derivative liability related to the converted portion being
reclassified to equity. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11;
a risk-free interest rate of 1.77% and expected volatility of the
Company’s common stock, of 375.93%, and the various estimated
reset exercise prices weighted by probability.
During April 2018,
in three separate conversions, the remainder of the first closing
was fully converted into 1,225,627 common shares of the Company. As
a result of the conversions the derivative liability was remeasured
immediately prior to the conversions with an overall decrease of
$25,000 recognized, with the fair value of the derivative liability
related to the converted portion, of $66,000 being reclassified to
equity. The key valuation assumptions used consist, in part, of the
price of the Company’s common stock on the date of
conversion, of $0.07 to $0.09; a risk-free interest rate of 1.73%
to 1.87% and expected volatility of the Company’s common
stock, of 248.71%, and the various estimated reset exercise prices
weighted by probability.
During May and
June, 2018, in two separate conversions, the remainder of the
second closing was fully converted into 2,810,725 common shares of
the Company. As a result of the conversions the derivative
liability was remeasured immediately prior to the conversions with
an overall decrease of $25,000 recognized, with the fair value of
the derivative liability related to the converted portion of
$67,000 being reclassified to equity. The key valuation assumptions
used consist, in part, of the price of the Company’s common
stock on the date of conversion, of $0.03 to $0.04; a risk-free
interest rate of 1.91% to 1.93% and expected volatility of the
Company’s common stock, of 248.71%, and the various estimated
reset exercise prices weighted by probability.
Additionally, with
each tranche under the note, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15 and the warrants issued
increased to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. As a result of the dilutive issuance adjustment
provision, the warrants have been classified out of equity as a
warrant liability. The Company estimated the fair value of the
warrant liability using the Black Scholes pricing model. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.33 at issuance date; a risk-free
interest rate of 1.84% and expected volatility of the
Company’s common stock, of 316.69%, resulting in a fair value
of $25,000.
August Debenture
On August 28, 2017,
the Company entered into a 12% convertible promissory note for
$110,000, with an OID of $10,000, which matures on February 28,
2018. The note is convertible at a variable conversion rate that is
the lesser of 60% of the lowest trading price for last 20 days
prior to issuance of the note or 60% of the lowest market price
over the 20 days prior to conversion. The conversion price shall be
adjusted upon subsequent sales of securities at a price lower than
the original conversion price. There are additional adjustments to
the conversion price for events set forth in the agreement,
including if the Company is not DTC eligible, the Company is no
longer a reporting company, or the note cannot be converted into
free trading shares on or after nine months from issue date. Per
the agreement, the Company is required at all times to have
authorized and reserved five times the number of shares that is
actually issuable upon full conversion of the note. The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative liability. The
note was sold to the holder of the January 29, 2018 note (below) on
February 8, 2018, with an amendment entered into to extend the note
until March 5, 2018. In exchange for a cash payment of $5,000 and
the issuance of 50,000 shares of common stock, on March 5, 2018,
the holder agreed to not convert any of the outstanding debt into
common stock of the Company until April 8, 2018. The new holder
issued a waiver as to the maturity date of the note and a technical
default provision.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $150,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17
at issuance date; a risk-free interest rate of 1.12% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $116,438, was immediately expensed as financing
costs.
During April
through June, 2018, in a number of separate conversions, the August
debenture was fully converted into 8,332,582 common shares of the
Company. As a result of the conversions the derivative liability
was remeasured immediately prior to the conversions with an overall
decrease of $112,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $316,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the date of conversion, of $0.09 to $0.02; a risk-free interest
rate of 1.72% to 1.94% and expected volatility of the
Company’s common stock of 248.71% to 375.93% , and the
various estimated reset exercise prices weighted by
probability
In connection with
the note, the Company issued 50,000 warrants, exercisable at $0.20,
with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants outstanding increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. As a result of the dilutive issuance
adjustment provision, the warrants have been classified out of
equity as a warrant liability. The Company estimated the fair value
of the warrant liability using the Black Scholes pricing model. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock of $0.17 at issuance date; a
risk-free interest rate of 1.74% and expected volatility of the
Company’s common stock, of 276.90%, resulting in a fair value
of $8,000.
Additionally, in
connection with the debenture the Company also issued 343,750
shares of common stock of the Company as a commitment fee. The
commitment shares fair value was calculated as $58,438, based on
the market value of the common shares at the closing date of $0.17,
and was recognized as part of the debt discount. The shares are to
be returned to the Treasury of the Company in the event the
debenture is fully repaid prior to the date which is 180 days
following the issue date. On February 22, 2018, in connection with
the sale of the note to the January 29, 2019 note holder, 171,965
of the shares were returned to the Company and cancelled. The
remaining shares are not required to be returned to the Company, as
the note was not redeemed prior to the date 180 days following the
issue date.
On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
The conversion feature meets the definition of a derivative and
therefore requires bifurcation and is accounted for as a derivative
liability. Subsequent to year end the holder issued a waiver as to
the maturity date of the note and a technical default
provision.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $94,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11
at issuance date; a risk-free interest rate of 1.28% and expected
volatility of the Company’s common stock, of 193.79%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $69,877, was immediately expensed as financing
costs.
Additionally, in
connection with the second closing, the Company also issued 332,500
shares of common stock of the Company as a commitment fee. The
commitment shares fair value was calculated as $35,877, based on
the market value of the common shares at the closing date of $0.11,
and was recognized as part of the debt discount. The shares are to
be returned to the Treasury of the Company in the event the
debenture is fully repaid prior to the date which is 180 days
following the issue date.
During May 2018,
the second closing was fully converted into 5,072,216 common shares
of the Company. As a result of the conversion the derivative
liability was remeasured immediately prior to the conversions with
an overall decrease of $42,000 recognized, with the fair value of
the derivative liability related to the converted portion, of
$196,000 being reclassified to equity. The key valuation
assumptions used consist, in part, of the price of the
Company’s common stock on the date of conversion, of $0.03; a
risk-free interest rate of 1.87% and expected volatility of the
Company’s common stock, of 248.71%, and the various estimated
reset exercise prices weighted by probability
September 11, 2017 Debenture
On September 11,
2017, the Company entered into a convertible promissory note for
$146,000, with an OID of $13,500, which matures on June 11, 2018.
The note bears interest at 12%, which increases to 24% upon an
event of default. The note is convertible at a variable conversion
rate that is the lower of the trading price for last 25 days prior
to issuance of the note or 50% of the lowest market price over the
25 days prior to conversion. Furthermore, the conversion rate may
be adjusted downward if, within three business days of the
transmittal of the notice of conversion, the common stock has a
closing bid which is 5% or lower than that set forth in the notice
of conversion. There are additional adjustments to the conversion
price for events set forth in the agreement, if any third party has
the right to convert monies at a discount to market greater than
the conversion price in effect at that time then the holder, may
utilize such greater discount percentage. Per the agreement, the
Company is required at all times to have authorized and reserved
seven times the number of shares that is actually issuable upon
full conversion of the note. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
is accounted for as a derivative liability.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $269,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17
at issuance date; a risk-free interest rate of 1.16% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $168,250, was immediately expensed as financing
costs.
In connection with
the note, the Company issued 243,333 warrants, exercisable at
$0.15, with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The warrants exercise price was subsequently
reset to 50% of the market price during the third quarter of fiscal
2018, and the warrants issued increased accordingly. As a result of
the dilutive issuance adjustment provision, the warrants have been
classified out of equity as a warrant liability. The Company
estimated the fair value of the warrant liability using the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.13
at issuance date; a risk-free interest rate of 1.71% and expected
volatility of the Company’s common stock, of 276.90%,
resulting in a fair value of $32,000.
During April and
June, 2018, in three separate conversions, $85,000 of the note was
converted into 9,200,600 common shares of the Company. The
remainder of the principal, $61,000, is in default as of June 30,
2018, although the Company has not received a written notice of
default from the lender. As a result of the conversions the
derivative liability was remeasured immediately prior to the
conversions with an overall decrease of $124,000 recognized, with
the fair value of the derivative liability related to the converted
portion, of $263,000 being reclassified to equity. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock on the date of conversion, of $0.03 to
$0.10; a risk-free interest rate of 1.73% to 1.94% and expected
volatility of the Company’s common stock, of 248.71% to
375.93%, and the various estimated reset exercise prices weighted
by probability. On July 27, 2018, the holder converted $15,113 of
the September 11, 2017 debentures into 3,436,049 common shares of
the Company.
September 12, 2017 Debenture
On September 12,
2017, the Company entered into a 12% convertible promissory note
for principal amount of $96,500 with a $4,500 OID, which matures on
June 12, 2018. The note is able to be prepaid prior to the maturity
date, at a cash redemption premium, at various stages as set forth
in the agreement. The note is convertible commencing 180 days after
issuance date (or upon an event of Default), or March 11, 2018,
with a variable conversion rate at 60% of market price, defined as
the lowest trading price during the twenty days prior to the
conversion date. Additionally, the conversion price adjusts if the
Company is not able to issue the shares requested to be converted,
or upon any future financings have more favorable terms. Per the
agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually
issuable upon full conversion of the note. The conversion feature
meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
On March 20, 2018,
the holder converted $32,500 of the September 12, 2017 debentures
into 1,031,746 common shares of the Company. As a result of the
conversion the derivative liability was remeasured immediately
prior to the conversion with a fair value of $318,000, with an
increase of $165,000 recognized, with the fair value of the
derivative liability related to the converted portion of $107,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.09; a risk-free interest rate of 1.81% and expected
volatility of the Company’s common stock, of 375.93%, and the
various estimated reset exercise prices weighted by
probability.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $110,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.13
at issuance date; a risk-free interest rate of 1.16% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $18,000 was immediately expensed as financing
costs.
During April 2018,
in two separate conversions, the debenture was fully converted into
2,611,164 common shares of the Company. As a result of the
conversions the derivative liability was remeasured immediately
prior to the conversions with an overall decrease of $43,000
recognized, with the fair value of the derivative liability related
to the converted portion, of $206,000 being reclassified to equity.
The key valuation assumptions used consist, in part, of the price
of the Company’s common stock on the date of conversion, of
$0.06 to $0.08; a risk-free interest rate of 1.73% to 1.82% and
expected volatility of the Company’s common stock, of
375.93%, and the various estimated reset exercise prices weighted
by probability
October 17, 2017 Debenture
On September 28,
2017, the Company entered into a Securities Purchase Agreement,
pursuant to which the Company agreed to sell a 12% Convertible Note
for $55,000 with a maturity date of September 28, 2018, for a
purchase price of $51,700, and $2,200 deducted for legal fees,
resulting in net cash proceeds of $49,500. The effective closing
date of the Securities Purchase Agreement and Note is October 17,
2017. The note is convertible at the holders’ option, at any
time, at a conversion price equal to the lower of (i) the closing
sale price of the Company’s common stock on the closing date,
or (ii) 60% of either the lowest sale price for the Company’s
common stock during the twenty (20) consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower , provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
is accounted for as a derivative liability.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $91,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11
at issuance date; a risk-free interest rate of 1.41% and expected
volatility of the Company’s common stock, of 193.79%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $41,500 was immediately expensed as financing
costs.
During April and
May, 2018, in a number of separate conversions, approximately
$43,000 of the debenture plus accrued interest was converted into
3,800,000 common shares of the Company. As a result of the
conversions the derivative liability was remeasured immediately
prior to the conversions with an overall decrease of $50,000
recognized, with the fair value of the derivative liability related
to the converted portion, of $85,000 being reclassified to equity.
The key valuation assumptions used consist, in part, of the price
of the Company’s common stock on the date of conversion, of
$0.03 to $0.05; a risk-free interest rate of 1.80% to 1.91% and
expected volatility of the Company’s common stock of 248.71%
to 375.93%, and the various estimated reset exercise prices
weighted by probability. Subsequent to June 30, 2018, the holder
converted another $10,450 of the October 17, 2017 debentures into
2,300,000 common shares of the Company.
November 14, 2017 Debenture
On November 14,
2017, the Company entered into two 8% convertible redeemable notes,
in the aggregate principal amount of $112,000, convertible into
shares of common stock of the Company, with maturity dates of
November 14, 2018. Each note was in the face amount of $56,000,
with an original issue discount of $2,800, resulting in a purchase
price for each note of $53,200. The first of the two notes was paid
for by the buyer in cash upon closing, with the second note
initially paid for by the issuance of an offsetting $53,200 secured
promissory note issued to the Company by the buyer (“Buyer
Note”). The Buyer Note is due on July 14, 2018. The notes are
convertible at 57% of the lowest of trading price for last 20 days,
or lowest closing bid price for last 20 days, with the discount
increased to 47% in the event of a DTC chill, with the second note
not being convertible until the buyer has settled the Buyer Note in
cash payment. The Buyer Note is included in Notes Receivable in the
accompanying financial statements.
During the first
six months, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 120% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of each debenture.
The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $164,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.10 at issuance date; a risk-free interest rate of 1.59% and
expected volatility of the Company’s common stock, of
192.64%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $63,200 was immediately expensed as financing
costs.
During May and
June, 2018, in three separate conversions, the first debenture was
fully converted into 4,834,790 common shares of the Company. As a
result of the conversions the derivative liability was remeasured
immediately prior to the conversions with an overall decrease of
$47,000 recognized, with the fair value of the derivative liability
related to the converted portion, of $106,000 being reclassified to
equity. The key valuation assumptions used consist, in part, of the
price of the Company’s common stock on the date of
conversion, of $0.03 to $0.04; a risk-free interest rate of 2.08%
to 2.14% and expected volatility of the Company’s common
stock, of 321.92%, and the various estimated reset exercise prices
weighted by probability.
December 20, 2017 Debenture
On December 20,
2017, the Company entered into two 8% convertible redeemable notes,
in the aggregate principal amount of $240,000, convertible into
shares of common stock, of the Company, with the same buyers as the
November 14, 2017 debenture. Both notes are due on December 20,
2018. If the note is not paid by its maturity date the outstanding
principal due on the note increases by 10%. The note also contains
a cross default to all other outstanding notes. The first note has
face amount of $160,000, with a $4,000 OID, resulting in a purchase
price of $156,000. The second note has a face amount of $80,000,
with an OID of $2,000, for a purchase price of $78,000. The first
of the two notes was paid for by the buyer in cash upon closing,
with the second note initially paid for by the issuance of an
offsetting $78,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is included in
Notes Receivable in the accompanying financial statements. The
Buyer Note was due on August 20, 2018. The Buyer Note was settled
on July 11, 2018, for a purchase price of $74,000, net of fees. The
notes are convertible at 60% of the lower of: (i) lowest trading
price or (ii) lowest closing bid price, of the Company’s
common stock for the last 20 trading days prior to conversion, with
the discount increased to 50% in the event of a DTC chill, with the
second note not being convertible until the buyer has settled the
Buyer Note in cash payment. On August 7, 2018, the holder converted
$25,000 of the December 20, 2017 debentures into 4,363,013 common
shares of the Company.
During the first
six months, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 120% to 136% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of each debenture.
The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $403,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.15 at issuance date; a risk-free interest rate of 1.72% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $181,000 was immediately expensed as financing
costs.
January 29, 2018 Debenture
On January 29,
2018, the Company entered into three 12% convertible notes of the
Company in the aggregate principal amount of $120,000, convertible
into shares of common stock of the Company, with maturity dates of
January 29, 2019. The interest upon an event of default, as defined
in the note, including a cross default to all other outstanding
notes, is 24% per annum. If the note is not paid by its maturity
date the outstanding principal due on the note increases by 10%.
Each note was in the face amount of $40,000, with $2,000 legal
fees, for net proceeds of $38,000. The first of the three notes was
paid for by the buyer in cash upon closing, with the other two
notes initially paid for by the issuance of an offsetting $40,000
secured promissory note issued to the Company by the buyer
(“Buyer Note”). The Buyer Notes are due on September
29, 2018. The first of the Buyer’s Notes was funded on July
26, 2018. (Note 10). The notes are convertible at 60% of the lowest
closing bid price for the last 20 days, with the discount increased
to 50% in the event of a DTC chill. The second and third notes not
being convertible until the buyer has settled the Buyer Notes in a
cash payment. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability. On August 8, 2018, the holder converted
$10,000 of the January 29, 2018 first debenture into 1,666,667
common shares of the Company.
During the first
180 days, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 115% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of each debenture. Upon any sale event, as
defined, at the holder’s request the Company will redeem the
note for 150% of the principal and accrued interest.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the three convertible debentures at
issuance at $185,000, based on weighted probabilities of
assumptions used in the Black Scholes pricing model. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.12 at issuance date; a risk-free
interest rate of 1.80% and expected volatility of the
Company’s common stock, of 215.40%, and the various estimated
reset exercise prices weighted by probability. This resulted in the
calculated fair value of the debt discount being greater than the
face amount of the debt, and the excess amount of $71,000 was
immediately expensed as financing costs.
January 30, 2018 Debenture
On January 30,
2018, the Company entered into a 12% convertible note for the
principal amount of $80,000, convertible into shares of common
stock of the Company, which matures on January 30, 2019. Upon an
event of default, as defined in the note, the note becomes
immediately due and payable, in an amount equal to 150% of all
principal and accrued interest due on the note, with default
interest of 22% per annum (the “Default Amount”). If
the Company fails to deliver conversion shares within 2 days of a
conversion request, the note becomes immediately due and payable at
an amount of twice the Default Amount. The note is convertible at
61% of the lowest closing bid price for the last 15 days. Per the
agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually
issuable upon full conversion of the note. Failure to maintain the
reserved number of shares is considered an event of default if not
cured within three days of a notice of conversion. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During the first
180 days, the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 140% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the debenture. The note was redeemed on
July 27, 2018, for approximately $123,000 (Note 10).
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$163,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.08 at issuance date; a risk-free interest rate of 1.88% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $83,000 was immediately expensed as financing
costs.
On March 9, 2018,
the Company entered into a 12% convertible note for the principal
amount of $43,000, with the holder of the January 30, 2018
debenture, convertible into shares of common stock of the Company,
which matures on March 9, 2019. Upon an event of default, as
defined in the note, the note becomes immediately due and payable,
in an amount equal to 150% of all principal and accrued interest
due on the note, with default interest of 22% per annum (the
“Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 140% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the debenture.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$94,000, based on weighted probabilities of assumptions used in the
Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.09 at issuance date; a risk-free interest rate of 2.03% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $54,000 was immediately expensed as financing
costs.
March 20, 2018 Debenture
On March 20, 2018,
the Company entered into a convertible note for the principal
amount of $84,000, convertible into shares of common stock of the
Company, which matures on December 20, 2018. The note bears
interest at 12% for the first 180 days, which increases to 18%
after 180 days, and 24% upon an event of default. Upon an event of
default, as defined in the note, the note becomes immediately due
and payable, in an amount equal to 150% of all principal and
accrued interest due on the note. The note is convertible on the
date beginning 180 days after issuance of the note, at the lower of
60% of the lowest trading price for the last 20 days prior to the
issuance date of this note, or 60% of the lowest trading price for
the last 20 days prior to conversion. In the event of a "DTC
chill", the conversion rate is adjusted to 40% of the market price.
Per the agreement, the Company is required at all times to have
authorized and reserved ten times the number of shares that is
actually issuable upon full conversion of the note. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
Additionally, the
Company also issued 255,675 shares of common stock of the Company
as a commitment fee. The commitment shares fair value was
calculated as $28,124, based on the market value of the common
shares at the closing date of $0.11, and was recognized as part of
the debt discount.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$191,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.06 at issuance date; a risk-free interest rate of 2.09% and
expected volatility of the Company’s common stock, of
272.06%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $144,124 (including the fair value of the
common shares issued) was immediately expensed as financing
costs.
March 21, 2018 Debenture
On March 21, 2018,
the Company entered into a convertible note for the principal
amount of $39,199, which includes an OID of $4,199, convertible
into shares of common stock of the Company, which matures on
December 20, 2018. The note bears interest at 12% for the first 180
days, which increases to 18% after 180 days, and 24% upon an event
of default. Upon an event of default, as defined in the note, the
note becomes immediately due and payable, in an amount equal to
150% of all principal and accrued interest due on the note. The
note is convertible on the date beginning 180 days after issuance
of the note, at the lowest of 60% of the lowest trading price for
the last 20 days prior to the issuance date of this note, or 60% of
the lowest trading price for the last 20 days prior to conversion.
The discount is increased upon certain events set forth in the
agreement regarding the obtainability of the shares, such as a DTC
"chill". Additionally, if the Company ceases to be a reporting
company, or after 181 days the note cannot be converted into freely
traded shares, the discount is increased an additional 15%. Per the
agreement, the Company is required at all times to have authorized
and reserved ten times the number of shares that is actually
issuable upon full conversion of the note. The Company has not
maintained the required share reservation under the terms of the
note agreement. The Company believes it has sufficient available
shares of the Company’s common stock in the event of
conversion for these notes. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
Additionally, the
Company also issued 119,300 shares of common stock of the Company
as a commitment fee. The commitment shares fair value was
calculated as $13,123, based on the market value of the common
shares at the closing date of $0.11, and was recognized as part of
the debt discount.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $89,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.06 at issuance date; a risk-free interest rate of 2.09% and
expected volatility of the Company’s common stock, of
272.06%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $67,123 (including the fair value of the
common shares issued) was immediately expensed as financing
costs.
April 10, 2018 Debenture
On April 10, 2018,
the Company entered into two 10% convertible notes in the aggregate
principal amount of $110,000, convertible into shares of common
stock of the Company, with maturity dates of April 10, 2019. The
interest upon an event of default, as defined in the note, is 24%
per annum. Each note was in the face amount of $55,000, with $2,750
for legal fees deducted upon funding. The first of the notes was
paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $55,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The interest rate increases to 24% upon an event
of default, as set forth in the agreement, including a cross
default to all other outstanding notes, and if the debenture is not
paid at maturity the principal due increases by 10%. If the Company
loses its bid price the principal outstanding on the debenture
increases by 20%, and if the Company’s common stock is
delisted, the principal increases by 50%. An event of default also
occurs if the Company’s common stock has a closing bid price
of less than $0.03 per share for at least five consecutive days, or
the aggregate dollar trading volume of the Company’s common
stock is less than $20,000 in any five consecutive days. The
Company’s common stock closing bid price fell below $0.03 on
June 18, 2018 and continued for over five consecutive days, and the
Company is therefore in default on the note. The Company has
obtained a waiver from the holder on this technical
default.
The notes are
convertible at 57% of the lowest closing bid price for the last 20
days. The discount is increased an additional 10%, to 47%, upon a
DTC "chill". The Company has not maintained the required share
reservation under the terms of the note agreement. The Back-End
note is not convertible until the buyer has settled the Buyer Notes
in a cash payment. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 130% to 145% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $348,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.09 at issuance date; a risk-free interest rate of 2.09% and
expected volatility of the Company’s common stock, of
272.06%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $243,500 was immediately expensed as financing
costs.
April 27, 2018 Debenture
On April 27, 2018,
the Company entered into a convertible note for the principal
amount of $53,000 for a purchase price of $50,000, convertible into
shares of common stock of the Company, which matures on January 27,
2019. The note bears interest at 12% for the first 180 days, which
increases to 18% after 180 days, and 24%. The interest rate
increases to 24% upon an event of default, as set forth in the
agreement, including a cross default to all other outstanding
notes. Additionally, in the majority of events of default, except
for the non-payment of the note upon maturity, the note becomes
immediately due and payable at an amount at 150% of the principal
plus accrued interest due.
The note is
convertible on the date beginning 180 days after issuance of the
note, at the lowest of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. The
discount rate is adjusted based on various situations regarding the
ability to deliver the common shares, such as in the event of a
"DTC chill" or the Company ceases to be a reporting company. . Per
the agreement, the Company is required at all times to have
authorized and reserved ten times the number of shares that is
actually issuable upon full conversion of the note. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the debenture at issuance at $159,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.09
at issuance date; a risk-free interest rate of 2.24% and expected
volatility of the Company’s common stock, of 272.06%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $109,000 was immediately expensed as financing
costs.
June 5, 2018 Debenture
On June 5, 2018,
the Company entered into a convertible note for the principal
amount of $125,000 for a purchase price of $118,800, convertible on
the date beginning 180 days after issuance of the note, into shares
of common stock of the Company, which matures on June 5, 2019. The
note bears interest at 12%, which increases to 18% upon an event of
default, as defined in the agreement. The note is convertible at
60% of the lowest trading price for the last 20 days prior to
conversion, with the discount increased 5% in the event the Company
does not have sufficient shares authorized and outstanding to issue
the shares upon conversion request. The conversion price is
adjusted upon a future dilutive issuance, to the lower of the
conversion price or a 25% discount to the aggregate per share
common share price. Per the agreement, the Company is required at
all times to have authorized and reserved four times the number of
shares that is actually issuable upon full conversion of the note.
The Company has not maintained the required share reservation under
the terms of the note agreement. The Company believes it has
sufficient available shares of the Company’s common stock in
the event of conversion for these notes. The conversion feature
meets the definition of a derivative and therefore requires
bifurcation and will be accounted for as a derivative
liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of the debenture. After 180 days, the note is
redeemable, with the holders prior written consent, at 150% of the
principal and accrued interest balance.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the debenture at issuance at $375,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.04
at issuance date; a risk-free interest rate of 2.32% and expected
volatility of the Company’s common stock, of 292.85%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $256.200 was immediately expensed as financing
costs.
As the September
11, 2017 debenture was not paid in full by the maturity date, the
above notes which have cross default provisions as disclosed, are
in technical default.
The derivative
liability arising from all of the above discussed debentures was
revalued at June 30, 2018, resulting in an increase of the fair
value of the derivative liability of $232,000 for the three months
ended June 30, 2018, after the reclass of $1,305,000 of the
derivative fair value to equity upon the conversions of
approximately $467,000 of principal, and a decrease in the fair
value of $468,000 immediately prior to conversion . The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.02; a risk-free interest rate
ranging from 1.93% to 2.33%, and expected volatility of the
Company’s common stock ranging from 248.71% to 321.92%, and
the various estimated reset exercise prices weighted by
probability. The derivative liability was revalued at March 31,
2018, resulting in an increase of the fair value of the derivative
liability of $1,616,000 for the year ended March 31, 2018. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.06; a risk-free interest rate
ranging from 1.73% to 2.09%, and expected volatility of the
Company’s common stock ranging from 272.06% to 375.93%, and
the various estimated reset exercise prices weighted by
probability.
The warrant
liability relating to all of the warrant issuances discussed above
was revalued at June 30, 2018, resulting in an estimated fair value
of $324,000, for an increase to the fair value of $47,000 for the
three months ended June 30, 2018. The key valuation assumptions
used consists, in part, of the price of the Company’s common
stock of $0.02; a risk-free interest rate ranging from 1.89% to
2.73%, and expected volatility of the Company’s common stock
of 351.3%. The warrant liability was remeasured as of March 31,
2018, resulting in an estimated fair value of $277,000, for a
decrease in fair value of $244,000. The key valuation assumptions
used consists, in part, of the price of the Company’s common
stock of $0.06; a risk-free interest rate ranging from 2.22% to
2.56%, and expected volatility of the Company’s common stock
of 358.6%.
NOTE
6 – STOCKHOLDERS’ DEFICIT
Common Stock
On April 12, 2018,
the Company sold 200,000 shares of its common stock at $0.077 per
share, for a total financing of $15,400.
Between April 6,
2018 and June 20, 2018, the Company issued 37,887,704 shares of the
Company’s common stock upon conversion of approximately
$485,000 of their outstanding convertible debt and approximately
$31,000 of accrued interest.
NOTE
7 – RELATED PARTY TRANSACTIONS
Notes Payable – Related Parties
On April 20, 2017,
the Company entered into a convertible debenture with an affiliate
of the Company whose managing member is the Treasurer, Chief
Financial Officer, and a director of the Company (the
“affiliate”), for $140,000. The convertible debenture
matures one year from date of issuance, and bears interest at 6%.
Upon an event of default, as defined in the debenture, the
principal and any accrued interest becomes immediately due, and the
interest rate increases to 24%. The convertible debenture is
convertible at the holder’s option at a conversion price of
$0.30. As of June 30, 2018 and March 31, 2018, the Company has paid
$52,400 on this note, with $87,600 remaining
outstanding.
NaturalShrimp Holdings, Inc.
On January 1, 2016
the Company entered into a notes payable agreement with
NaturalShrimp Holdings, Inc.(“NSH”), a shareholder.
Between January 16, 2016 and March 7, 2016, the Company borrowed
$134,750 under this agreement. An additional $601,361 was borrowed
under this agreement in the year ended March 31, 2017, for a total
of $736,111. The note payable has no set monthly payment or
maturity date with a stated interest rate of 2%.
Shareholder Notes
The Company has
entered into several working capital notes payable to multiple
shareholders of NSH and Bill Williams, an officer, a director, and
a shareholder of the Company, for a total of $486,500. These notes
had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes at both June
30, 2018 and March 31, 2018 was $426,404, and is classified as a
current liability on the consolidated balance sheets. At June 30,
2018 and March 31, 2018, accrued interest payable was $215,448 and
$206,920, respectively.
Shareholders
In 2009, the
Company entered into a note payable to Randall Steele, a
shareholder of NSH, for $50,000. The note bears interest at 6.0%
and was payable upon maturity on January 20, 2011. In addition, the
Company issued 100,000 shares of common stock for consideration.
The shares were valued at the date of issuance at fair market
value. The value assigned to the shares of $50,000 was recorded as
increase in common stock and additional paid-in capital and was
limited to the value of the note. The assignment of a value to the
shares resulted in a financing fee being recorded for the same
amount. The note is unsecured. The balance of the note at June 30,
2018 and March 31, 2018 was $50,000, respectively, and is
classified as a current liability on the consolidated balance
sheets. Interest expense on the note was $750 and $3,000 during the
three months ended June 30, 2018 and the year ended March 31, 2018,
respectively.
Beginning in 2010,
the Company started entering into several working capital notes
payable with various shareholders of NSH for a total of $290,000
and bearing interest at 8%. The balance of these notes at June 30,
2018 and March 31, 2018 was $5,000 and is classified as a current
liability on the consolidated balance sheets. At June 30, 2018 and
March 31, 2018, accrued interest payable was $1,700 and $1,600,
respectively.
NOTE
8 – CONCENTRATION OF CREDIT RISK
The Company
maintains cash balances at one financial institution. Accounts at
this institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $250,000. As of June 30, 2018 and March
31, 2018, the Company’s cash balance did not exceed FDIC
coverage.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements – Bill Williams and Gerald
Easterling
On April 1, 2015,
the Company entered into employment agreements with each of Bill G.
Williams, as the Company’s Chief Executive Officer, and
Gerald Easterling as the Company’s President, effective as of
April 1, 2015 (the “Employment
Agreements”).
The Employment
Agreements are each terminable at will and each provide for a base
annual salary of $96,000. In addition, the Employment Agreements
each provide that the employee is entitled, at the sole and
absolute discretion of the Company’s Board of Directors, to
receive performance bonuses. Each employee will also be entitled to
certain benefits including health insurance and monthly allowances
for cell phone and automobile expenses.
Each Employment
Agreement provides that in the event employee is terminated without
cause or resigns for good reason (each as defined in their
Employment Agreements), the employee will receive, as severance the
employee’s base salary for a period of 60 months following
the date of termination. In the event of a change of control of the
Company, the employee may elect to terminate the Employment
Agreement within 30 days thereafter and upon such termination would
receive a lump sum payment equal to 500% of the employee’s
base salary.
Each Employment
Agreement contains certain restrictive covenants relating to
non-competition, non-solicitation of customers and non-solicitation
of employees for a period of one year following termination of the
employee’s Employment Agreement.
NOTE
10 – SUBSEQUENT EVENTS
Subsequent to
period end, the Company has converted approximately $61,000 of
their outstanding convertible debt as of June 30, 2018 and
approximately $5,000 of accrued interest and fees, into 11,765,729
shares of the Company’s common stock. The Company also issued
6,719,925 shares of their common stock on July 17, 2018, upon
cashless exercise of warrants granted in connection with the July
Debenture.
On July 11, 2018,
the Company received the funding for the Buyer Note issued in
connection with the second note under the December 20, 2017 8%
convertible redeemable note, for cash proceeds of
$74,000.
On July 26, 2018,
the Company received the funding for the Buyer Note issued in
connection with the January 29, 2018 12% convertible redeemable
note, for cash proceeds of $38,000.
On July 27, 2018,
the Company redeemed the January 30, 2018, 12% convertible note
$83,000, for approximately $123,000, with the approximately $40,000
redemption amount being recognized as financing costs.
On July 27, 2018,
the Company entered into two 10% convertible notes in the aggregate
principal amount of $186,000, convertible into shares of common
stock of the Company, with maturity dates of July 27, 2019. The
interest upon an event of default, as defined in the note, is 24%
per annum. Each note was in the face amount of $93,000, with $3,000
OID, for a purchase price of $90,000. The first of the notes was
paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $93,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The interest rate increases to 24% upon an event
of default, as set forth in the agreement, including a cross
default to all other outstanding notes, and if the debenture is not
paid at maturity the principal due increases by 10%. If the Company
loses its bid price the principal outstanding on the debenture
increases by 20%, and if the Company’s common stock is
delisted, the principal increases by 50%.
The notes are
convertible at 60% of the lowest closing bid price for the last 20
days. The discount is increased an additional 10%, to 50%, upon a
DTC "chill". The Company has not maintained the required share
reservation under the terms of the note agreement. The Back-End
note is not convertible until the buyer has settled the Buyer Notes
in a cash payment. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 120% to 136% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of the debenture.
NATURALSHRIMP INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2018
TABLE OF CONTENTS
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
Consolidated
Balance Sheets
|
F-2
|
|
|
Consolidated
Statements of Operations
|
F-3
|
|
|
Consolidated
Statements of Shareholders’ Deficit
|
F-4
|
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of NaturalShrimp
Incorporated.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
NaturalShrimp Incorporated (the “Company”) as of March
31, 2018 and 2017, and the related consolidated statements of
operations, changes in stockholders’ deficit, and cash flows
for the years then ended, and the related notes (collectively
referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of March 31,
2018 and 2017, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has suffered significant
losses from inception and has a significant working capital
deficit. These conditions raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/
Turner, Stone & Company, L.L.P.
Dallas,
Texas
July
13, 2018
We have
served as the Company’s auditor since 2015.
NATURALSHRIMP
INCORPORATED
CONSOLIDATED
BALANCE SHEETS
|
|
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash
|
$24,280
|
$88,195
|
Accounts
receivable
|
-
|
-
|
Notes
receivable
|
207,200
|
-
|
Inventory
|
-
|
-
|
Prepaid
expenses
|
28,699
|
224,000
|
|
|
|
Total
current assets
|
260,179
|
312,195
|
|
|
|
Fixed
assets
|
|
|
Land
|
202,293
|
202,293
|
Buildings
|
1,328,161
|
1,328,161
|
Machinery
and equipment
|
929,245
|
929,214
|
Autos
and trucks
|
14,063
|
14,063
|
Furniture
and fixtures
|
22,060
|
22,060
|
Accumulated
depreciation
|
(1,292,313)
|
(1,221,419)
|
|
|
|
Fixed
assets, net
|
1,203,509
|
1,274,372
|
|
|
|
Other
assets
|
|
|
Construction-in-process
|
171,050
|
-
|
Deposits
|
10,500
|
10,500
|
|
|
|
Total
other assets
|
181,550
|
10,500
|
|
|
|
Total
assets
|
$1,645,238
|
$1,597,067
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$528,538
|
$505,033
|
Accrued
interest - related parties
|
240,377
|
178,922
|
Other
accrued expenses
|
497,321
|
317,499
|
Short-term
Promissory Note and Lines of credit
|
143,523
|
145,964
|
Current
maturities of bank loan
|
7,497
|
7,310
|
Current
maturities of convertible debentures, less debt discount of$
691,558
|
516,597
|
-
|
Convertible
debentures, related party
|
87,600
|
-
|
Notes
payable - related parties
|
1,271,162
|
1,296,162
|
Derivative
liability
|
3,455,000
|
218,000
|
Warrant
liability
|
277,000
|
28,000
|
|
|
|
Total
current liabilities
|
7,024,615
|
2,696,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loan, less current maturities
|
228,916
|
235,690
|
Lines
of credit
|
651,453
|
651,498
|
Convertible
debentures, less current maturities
|
-
|
50,000
|
|
|
|
Total
liabilities
|
7,904,984
|
3,634,078
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
Common
stock, $0.0001 par value, 300,000,000 shares authorized 97,656,095
and 92,408,298 shares issued and outstanding at March 31, 2018 and
March 31, 2017, respectively
|
9,766
|
9,242
|
Additional
paid in capital
|
27,743,352
|
26,681,521
|
Accumulated
deficit
|
(34,012,864)
|
(28,727,774)
|
|
|
|
Total
stockholders' deficit
|
(6,259,746)
|
(2,037,011)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$1,645,238
|
$1,597,067
|
The accompanying
notes are an integral part of these consolidated financial
statements.
NATURALSHRIMP
INCORPORATED
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
27,789
|
70,930
|
|
|
|
General
and administrative
|
1,085,499
|
909,182
|
Depreciation
and amortization
|
70,894
|
60,459
|
|
|
|
Total
operating expenses
|
1,184,182
|
1,040,571
|
|
|
|
Net
Operating (loss) before other income (expense)
|
(1,184,182)
|
(1,040,571)
|
|
|
|
Other
income (expense):
|
|
|
Interest
expense
|
(171,065)
|
(174,335)
|
Amortization
of debt discount
|
(775,091)
|
(295,000)
|
Financing
costs
|
(1,310,751)
|
(164,000)
|
Change
in fair value of derivative liability
|
(1,600,000)
|
11,000
|
Change
in fair value of warrant liability
|
(244,000)
|
4,000
|
Gain
on extinguishment of debt, related party
|
-
|
2,339,353
|
Debt
settlement expense
|
-
|
(566,129)
|
|
|
|
Total
other income (expense)
|
(4,100,907)
|
1,154,889
|
|
|
|
Loss
before income taxes
|
(5,285,089)
|
114,318
|
|
|
|
Provision
for income taxes
|
-
|
38,868
|
|
|
|
Benefit
of Net operating loss
|
|
(38,868)
|
|
|
|
Net
income/(loss)
|
$(5,285,089)
|
$114,318
|
|
|
|
|
|
|
EARNINGS
PER SHARE (Basic)
|
$(0.05)
|
$0.00
|
|
|
|
EARNINGS
PER SHARE (Diluted)
|
$(0.00)
|
$0.00
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING (Basic)
|
97,656,095
|
90,025,445
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING (Diluted)
|
97,656,095
|
90,070,074
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
NATURALSHRIMP
INCORPORATED
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1,
2016
|
89,399,012
|
8,940
|
25,342,943
|
-
|
(28,842,092)
|
(3,490,209)
|
|
|
|
|
|
|
|
Issuance of shares
for cash
|
28,571
|
3
|
9,997
|
|
|
10,000
|
Issuance of shares
for Acquisition settlement expense
|
1,225,715
|
123
|
566,006
|
|
|
566,129
|
Issuance of shares
for compensation
|
1,055,000
|
106
|
464,645
|
|
|
464,751
|
Issuance of shares
in connection with debt
|
700,000
|
70
|
297,930
|
|
|
298,000
|
|
|
|
|
|
|
-
|
Net
income
|
|
|
|
|
114,317
|
114,317
|
|
|
|
|
|
|
|
Balance March 31,
2017
|
92,408,298
|
9,242
|
26,681,521
|
-
|
(28,727,775)
|
(2,037,012)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares
in connection with debt
|
1,004,260
|
100
|
146,951
|
|
|
147,051
|
Issuance of shares
for services
|
1,000,000
|
100
|
99,900
|
|
|
100,000
|
Issuance of shares
for cash
|
100,000
|
10
|
24,990
|
|
|
25,000
|
Issuance of shares
upon conversion
|
2,820,204
|
282
|
119,022
|
|
|
119,304
|
Beneficial
conversion feature
|
|
|
28,000
|
|
|
28,000
|
Reclass of
derivative liability upon conversion or redemption of related
convertible debentures
|
|
|
576,000
|
|
|
576,000
|
Issuance of shares
upon exercise of warrants
|
323,333
|
32
|
66,968
|
|
|
67,000
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
(5,285,089)
|
(5,285,089)
|
|
|
|
|
|
|
|
Balance March 31,
2018
|
97,656,095
|
9,766
|
27,743,352
|
-
|
(34,012,864)
|
(6,259,746)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
NATURALSHRIMP
INCORPORATED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net income
(loss)
|
$(5,285,089)
|
$114,318
|
|
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
Stock-based
compensation
|
-
|
464,750
|
Depreciation
expense
|
70,894
|
60,459
|
(Gain)/loss on
extinguishment of debt
|
-
|
(2,339,353)
|
Debt settlement
expense
|
-
|
566,129
|
Amortization of
debt discount
|
775,091
|
295,000
|
Change in fair
value of derivative liability
|
1,600,000
|
(11,000)
|
Change in fair
value of warrant liability
|
244,000
|
(4,000)
|
Financing costs
related to convertible debentures
|
1,310,751
|
164,000
|
Shares issued for
services
|
100,000
|
-
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
Prepaid expenses
and other current assets
|
145,301
|
(223,000)
|
Deposits
|
-
|
-
|
Accounts
payable
|
31,982
|
(63,959)
|
Other accrued
expenses
|
179,822
|
162,941
|
Accrued interest -
related parties
|
61,455
|
91,500
|
|
|
|
Cash
used in operating activities
|
(765,793)
|
(722,215)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
Cash paid for
construction in progress
|
(171,050)
|
-
|
|
|
|
CASH
USED IN INVESTING ACTIVITIES
|
(171,050)
|
-
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds from bank
loan
|
-
|
45,000
|
Payments on bank
loan
|
(6,587)
|
(2,000)
|
Payment of related
party notes payable
|
-
|
(16,000)
|
Repayment line of credit short-term
|
(2,486)
|
-
|
Borrowing on Notes
payable related party
|
-
|
657,257
|
Notes
receivable
|
(76,000)
|
-
|
Lines of
credit
|
|
(40,005)
|
Proceeds from sale
of stock
|
25,000
|
10,000
|
Proceeds from
convertible debentures
|
1,072,901
|
150,000
|
Proceeds from
convertible debentures, related party
|
180,000
|
-
|
Payments on
convertible debentures
|
(227,500)
|
-
|
Payments on
convertible debentures, related party
|
(92,400)
|
-
|
|
|
|
Cash
provided by financing activities
|
872,928
|
804,252
|
|
|
|
NET
CHANGE IN CASH
|
(63,915)
|
82,037
|
|
|
|
CASH
AT BEGINNING OF YEAR
|
88,195
|
6,158
|
|
|
|
CASH
AT END OF YEAR
|
$24,280
|
$88,195
|
|
|
|
|
|
|
INTEREST PAID
|
$109,610
|
$72,837
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
Common stock issued
for debt settlement
|
$-
|
$566,129
|
Repayment of debt
through issuance of bank loan
|
$-
|
$200,000
|
Shares
issued upon conversion
|
$79,304
|
$-
|
Notes
receivable for convertible debentures
|
$131,200
|
$-
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
NATURALSHRIMP
INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp
Incorporated (“NaturalShrimp” “the
Company”), a Nevada corporation, is a biotechnology company
and has developed a proprietary technology that allows it to grow
Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus
vannamei) in an ecologically controlled, high-density, low-cost
environment, and in fully contained and independent production
facilities. The Company’s system uses technology which allows
it to produce a naturally-grown shrimp “crop” weekly,
and accomplishes this without the use of antibiotics or toxic
chemicals. The Company has developed several proprietary technology
assets, including a knowledge base that allows it to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Its initial production facility is located outside of
San Antonio, Texas.
The Company has
three wholly-owned subsidiaries including NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and Natural Aquatic
Systems, Inc.
Going Concern
The accompanying
consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States
of America, assuming the Company will continue as a going concern,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. For the year ended
March 31, 2018, the Company had a net loss of approximately
$5,285,000. At March 31, 2018, the Company had an accumulated
deficit of approximately $34,013,000 and a working capital deficit
of approximately $6,764,000. These factors raise substantial doubt
about the Company’s ability to continue as a going concern,
within one year from the issuance date of this filing. The
Company’s ability to continue as a going concern is dependent
on its ability to raise the required additional capital or debt
financing to meet short and long-term operating requirements.
During the 2018 fiscal year, the Company received net cash proceeds
of approximately $1,088,000 from the issuance of convertible
debentures, $180,000 from the issuance of convertible debt to a
related party and $25,000 from the sale of the Company’s
common stock. Subsequent to March 31, 2018, the Company received
$105,000 in net proceeds from three convertible debentures (See
Note 12). Management believes that private placements of equity
capital and/or additional debt financing will be needed to fund the
Company’s long-term operating requirements. The Company may
also encounter business endeavors that require significant cash
commitments or unanticipated problems or expenses that could result
in a requirement for additional cash. If the Company raises
additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of its current shareholders
could be reduced, and such securities might have rights,
preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If
adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of prospective
business endeavors or opportunities, which could significantly and
materially restrict our operations. The Company continues to pursue
external financing alternatives to improve its working capital
position. If the Company is unable to obtain the necessary capital,
the Company may have to cease operations.
The Company plans
to improve the growth rate of the shrimp and the environmental
conditions of its production facilities. Management also plans to
acquire a hatchery in which the Company can better control the
environment in which to develop the post larvaes. If management is
unsuccessful in these efforts, discontinuance of operations is
possible. The consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated
financial statements include the accounts of NaturalShrimp
Incorporated and its wholly-owned subsidiaries, NaturalShrimp
Corporation, NaturalShrimp Global and Natural Aquatic Systems, Inc.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
Preparing financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Basic and Diluted Earnings/Loss per Common Share
Basic and diluted
earnings or loss per share (“EPS”) amounts in the
consolidated financial statements are computed in accordance with
ASC 260 – 10 “Earnings
per Share”, which establishes the requirements for
presenting EPS. Basic EPS is based on the weighted average number
of common shares outstanding. Diluted EPS is based on the weighted
average number of common shares outstanding and dilutive common
stock equivalents. Basic EPS is computed by dividing net income or
loss available to common stockholders (numerator) by the weighted
average number of common shares outstanding (denominator) during
the period. For the year ended March 31, 2018, the Company had
approximately $1,293,000 in convertible debentures whose
approximately 46,170,000 underlying shares are convertible at the
holders’ option at conversion prices ranging from 34 - 60% of
the defined trading price and approximately 4,625,000 warrants with
an exercise price of 50% to 57% of the market price of the
Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be anti-dilutive.
Included in the diluted EPS for the year ended March 31, 2017, the
Company had $150,000 in convertible debentures whose underlying
shares are convertible at the holders’ option at initial
fixed conversion prices ranging from $0.30 to $0.35.
Fair Value Measurements
ASC Topic 820,
“Fair Value
Measurement”, requires that certain financial
instruments be recognized at their fair values at our balance sheet
dates. However, other financial instruments, such as debt
obligations, are not required to be recognized at their fair
values, but Generally Accepted Accounting Principles in the United
States (“GAAP”) provides an option to elect fair value
accounting for these instruments. GAAP requires the disclosure of
the fair values of all financial instruments, regardless of whether
they are recognized at their fair values or carrying amounts in our
balance sheets. For financial instruments recognized at fair value,
GAAP requires the disclosure of their fair values by type of
instrument, along with other information, including changes in the
fair values of certain financial instruments recognized in income
or other comprehensive income. For financial instruments not
recognized at fair value, the disclosure of their fair values is
provided below under “Financial
Instruments.”
Nonfinancial
assets, such as property, plant and equipment, and nonfinancial
liabilities are recognized at their carrying amounts in the
Company’s balance sheets. GAAP does not permit nonfinancial
assets and liabilities to be remeasured at their fair values.
However, GAAP requires the remeasurement of such assets and
liabilities to their fair values upon the occurrence of certain
events, such as the impairment of property, plant and equipment. In
addition, if such an event occurs, GAAP requires the disclosure of
the fair value of the asset or liability along with other
information, including the gain or loss recognized in income in the
period the remeasurement occurred.
The Company did not
have any Level 1 or Level 2 assets and liabilities at March 31,
2018 and 2017.
The Derivative
liabilities are Level 3 fair value measurements.
The following is a
summary of activity of Level 3 liabilities during the year ended
March 31, 2018:
Derivative
liability balance at March 31, 2017
|
$218,000
|
Additions to
derivative liability for new debt
|
2,213,000
|
Reclass to equity
upon conversion
|
(236,000)
|
Derecognition of
notes redeemed for cash
|
(340,000)
|
Change in fair
value
|
1,600,000
|
Balance at March
31, 2018
|
$3,455,000
|
At March 31, 2018,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: the
price of the Company’s common stock of $0.06; a risk-free
interest rate ranging from 1.73% to 2.09%, and expected volatility
of the Company’s common stock ranging from 272.06% to
375.93%, and the various estimated reset exercise prices weighted
by probability.
Financial Instruments
The Company’s
financial instruments include cash and cash equivalents,
receivables, payables, and debt and are accounted for under the
provisions of ASC Topic 825, “Financial Instruments”. The
carrying amount of these financial instruments, with the exception
of discounted debt, as reflected in the consolidated balance sheets
approximates fair value.
Cash and Cash Equivalents
For the purpose of
the consolidated statements of cash flows, the Company considers
all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. There were no cash
equivalents at March 31, 2018 and 2017.
Fixed Assets
Equipment is
carried at historical value or cost and is depreciated over the
estimated useful lives of the related assets. Depreciation on
buildings is computed using the straight-line method, while
depreciation on all other fixed assets is computed using the
Modified Accelerated Cost Recovery System (MACRS) method, which
does not materially differ from GAAP. Estimated useful lives are as
follows:
Buildings
|
27.5 – 39
years
|
Other Depreciable
Property
|
5 – 10
years
|
Furniture and
Fixtures
|
3 – 10
years
|
Maintenance and
repairs are charged to expense as incurred. At the time of
retirement or other disposition of equipment, the cost and
accumulated depreciation will be removed from the accounts and the
resulting gain or loss, if any, will be reflected in
operations.
The consolidated
statements of operations reflect depreciation expense of
approximately $71,000 and $60,000 for the years ended March 31,
2018 and 2017, respectively.
Income Taxes
Deferred income tax
assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and
liabilities.
In addition, the
Company’s management performs an evaluation of all uncertain
income tax positions taken or expected to be taken in the course of
preparing the Company’s income tax returns to determine
whether the income tax positions meet a “more likely than
not” standard of being sustained under examination by the
applicable taxing authorities. This evaluation is required to be
performed for all open tax years, as defined by the various
statutes of limitations, for federal and state
purposes.
On
December 22, 2017, the President of the United States signed and
enacted into law H.R. 1 (the “Tax Reform Law”). The Tax
Reform Law, effective for tax years beginning on or after January
1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various
provisions that are expected to impact the Company. The Tax Reform
Law reduces the federal corporate tax rate from 35% to 21%
effective January 1, 2018. The Company will continue to analyze the
provisions of the Tax Reform Law to assess the impact on the
Company’s consolidated financial statements.
Stock-Based Compensation
The Company
accounts for stock-based compensation to employees in accordance
with ASC 718. “Stock-based
Compensation to Employees” is measured at the grant
date, based on the fair value of the award, and is recognized as
expense over the requisite employee service period. The Company
accounts for stock-based compensation to other than employees in
accordance with ASC 505-50 “Equity Instruments Issued to Other than
Employees” and are valued at the earlier of a
commitment date or upon completion of the services, based on the
fair value of the equity instruments and is recognized as expense
over the service period. The Company estimates the fair value of
stock-based payments using the Black-Scholes option-pricing model
for common stock options and warrants and the closing price of the
Company’s common stock for common share issuances. Once the
stock is issued the appropriate expense account is
charged.
Impairment of LongLived Assets and LongLived
Assets
The Company will
periodically evaluate the carrying value of longlived assets
to be held and used when events and circumstances warrant such a
review and at least annually. The carrying value of a
longlived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds
the fair value of the longlived asset. Fair value is
determined primarily using the anticipated cash flows discounted at
a rate commensurate with the risk involved. Losses on
longlived assets to be disposed of are determined in a
similar manner, except that fair values are reduced for the cost to
dispose.
Commitments and Contingencies
Certain
conditions may exist as of the date the consolidated financial
statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management and its
legal counsel assess such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in
such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or
expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that
a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in
the Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency
is not probable, but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if
determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the nature of the guarantee
would be disclosed.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers,” which requires an entity to recognize the amount
of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers. ASU 2014-09 will replace
most existing revenue recognition guidance in U.S. GAAP when it
becomes effective. The new standard is effective for annual
reporting periods for public business entities beginning after
December 15, 2017, including interim periods within that reporting
period. The new standard permits the use of either the
retrospective or cumulative effect transition method. The Company
is currently evaluating the effect that ASU 2014-09 will have on
its financial statements and related
disclosures. As
there have been no significant revenues to date, the Company does
not expect the adoption to have a material impact and no transition
method will be necessary upon adoption.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) The standard requires all leases that
have a term of over 12 months to be recognized on the balance sheet
with the liability for lease payments and the corresponding
right-of-use asset initially measured at the present value of
amounts expected to be paid over the term. Recognition of the costs
of these leases on the income statement will be dependent upon
their classification as either an operating or a financing lease.
Costs of an operating lease will continue to be recognized as a
single operating expense on a straight-line basis over the lease
term. Costs for a financing lease will be disaggregated and
recognized as both an operating expense (for the amortization of
the right-of-use asset) and interest expense (for interest on the
lease liability). This standard will be effective for our interim
and annual periods beginning January 1, 2019, and must be applied
on a modified retrospective basis to leases existing at, or entered
into after, the beginning of the earliest comparative period
presented in the financial statements. Early adoption is permitted.
We are currently evaluating the timing of adoption and the
potential impact of this standard on our financial position, but we
do not expect it to have a material impact on our results of
operations.
During the year
ended March 31, 2018, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board.
Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of
any of these accounting pronouncements has had or will have a
material impact on the Company’s consolidated financial
statements.
Management’s Evaluation of Subsequent Events
The
Company evaluates events that have occurred after the balance sheet
date of March 31, 2018, through the date which the consolidated
financial statements were issued. Based upon the review, other than
described in Note 12 – Subsequent Events, the Company did not
identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the consolidated
financial statements.
NOTE
3 – SHORT-TERM NOTE AND LINES OF CREDIT
On November 3,
2015, the Company entered into a short-term note agreement with
Community National Bank for a total value of $50,000. The
short-term note has a stated interest rate of 5.25%, maturity date
of December 15, 2017 and had an initial interest only payment on
February 3, 2016. The short-term note is guaranteed by an officer
and director. The balance of the line of credit at both March 31,
2018 and 2017 was $25,298.
The Company also
has a working capital line of credit with Extraco Bank. On April
30, 2018, the Company renewed the line of credit for $475,000. The
line of credit bears an interest rate of 5.0% that is compounded
monthly on unpaid balances and is payable monthly. The line of
credit matures on April 30, 2019, and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. The balance of the line of credit is $472,675 and
$473,029 at March 31, 2018 and March 31, 2017, respectively,
included in non-current liabilities.
The Company also
has additional lines of credit with Extraco Bank for $100,000 and
$200,000, which were renewed on January 19, 2018 and April 30,
2018, respectively, with maturity dates of January 19, 2019 and
April 30, 2019, respectively. The $200,000 line of credit is
included in non-current liabilities as of March 31, 2018, with an
outstanding balance of $178,778. The lines of credit bear an
interest rate of 4.5% (increased to 6.5% and 5%, respectively, upon
renewal in 2017) that is compounded monthly on unpaid balances and
is payable monthly. They are secured by certificates of deposit and
letters of credit owned by directors and shareholders of the
Company. The balance of the lines of credit was $278,470 at both
March 31, 2018 and March 31, 2017.
The Company also
has a working capital line of credit with Capital One Bank for
$50,000. The line of credit bears an interest rate of prime plus
25.9 basis points, which totaled 30.7% as of March 31, 2018. The
line of credit is unsecured. The balance of the line of credit was
$9,580 at both March 31, 2018 and March 31, 2017.
The Company also
has a working capital line of credit with Chase Bank for $25,000.
The line of credit bears an interest rate of prime plus 10 basis
points, which totaled 14.75% as of March 31, 2018. The line of
credit is secured by assets of the Company’s subsidiaries.
The balance of the line of credit is $10,237 and $11,197 at March
31, 2018 and March 31, 2017, respectively.
NOTE
4 – BANK LOAN
On January 10,
2017, the Company entered into a
promissory note with Community National Bank for $245,000, at an
annual interest rate of 5% and a maturity date of January 10, 2020
(the “CNB Note”). The CNB Note is secured by certain
real property owned by the Company in LaCoste, Texas, and is also
personally guaranteed by the Company’s President, as well as
certain shareholders of the Company. As consideration for the
guarantee, the Company issued 600,000 of its common stock to the
shareholders, which was recognized as debt issuance costs with a
fair value of $264,000, based on the market value of the
Company’s common stock of $0.44 on the date of issuance. As
the fair value of the debt issuance costs exceeded the face amount
of the promissory note, the excess of the fair value was recognized
as financing costs in the statement of operations. The resulting
debt discount is to be amortized over the term of the CNB Note
under the effective interest method. As the debt discount is in
excess of the face amount of the promissory note, the effective
interest rate is not determinable, and as such, all of the discount
was immediately expensed.
Maturities
on Bank loan is as follows:
Years
ending:
|
|
March 31,
2019
|
$7,497
|
March 31,
2020
|
228,916
|
|
$236,413
|
NOTE
5 – CONVERTIBLE DEBENTURES
January Debentures
On January 23,
2017, the Company entered into a Securities Purchase Agreement
(“January SPA”) for the sale of a convertible debenture
(“January debenture”) with an original principal amount
of $262,500, for consideration of $250,000, with a prorated five
percent original issue discount (“OID”). The debenture
has a one-time interest charge of twelve percent applied on the
issuance date and due on the maturity date, which is two years from
the date of each payment of consideration. The January SPA included
a warrant to purchase 350,000 shares of the Company’s common
stock. The warrants have a five year term and vest such that the
buyer shall receive 1.4 warrants for every dollar funded to the
Company under the January debenture. The Company received $50,000
at closing, with additional consideration to be paid at the
holder’s option. Upon the closing the buyer was granted a
warrant to purchase 70,000 shares of the Company’s common
stock.
The January
debentures are convertible at an original conversion price of
$0.35, subject to adjustment if the Company’s common stock
trades at a price lower than $0.60 per share during the forty-five
day period immediately preceding August 15, 2017, in which case the
conversion price is reset to sixty percent of the lowest trade
occurring during the twenty-five days prior to the conversion date.
Additionally, the conversion price, as well as other terms
including interest rates, original issue discounts, warrant
coverage, adjusts if any future financings have more favorable
terms. The January debenture also has piggyback registration
rights.
The conversion
feature of the January debenture meets the definition of a
derivative and due to the adjustment to the conversion price to
occur upon subsequent sales of securities at a price lower than the
original conversion price, requires bifurcation and is accounted
for as a derivative liability. The derivative was initially
recognized at an estimated fair value of $85,000 and created a
discount on the January debentures that will be amortized over the
life of the debentures using the effective interest rate method.
The fair value of the embedded derivative is measured and
recognized at fair value each subsequent reporting period and the
changes in fair value are recognized in the Consolidated Statement
of Operations as a change in fair value of derivative
liability.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures based on weighted
probabilities of assumptions used in the Black Scholes pricing
model. The key valuation assumptions used consist, in part, of the
price of the Company’s common stock of $0.46 at issuance
date; a risk free interest rate of 1.16% and expected volatility of
the Company’s common stock, of 384.75%, and the various
estimated reset exercise prices weighted by probability. This
resulted in the calculated fair value of the debt discount being
greater than the face amount of the debt, and the excess amount of
$35,000 was immediately expensed as Financing costs. As the
discount was in excess of the face amount of the debenture, the
effective interest rate is not determinable, and as such, all of
the discount was immediately expensed.
The derivative was
remeasured as of March 31, 2017, resulting in an estimated fair
value of $74,000, for a decrease in fair value of $11,000. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.40; a risk free interest rate of
1.16% and expected volatility of the Company’s common stock,
of 388.06%, and the various estimated reset exercise prices
weighted by probability.
During the three
months ended September 30, 2017, the holder converted $40,000 of
the January debentures to common shares of the Company, leaving
outstanding principal of $10,000 as of September 30, 2017. As a
result of the conversion the derivative liability was remeasured
immediately prior to the conversion with a fair value of $55,000,
with an increase of $2,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $44,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.17; a risk-free interest rate of 1.12% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by
probability.
During the three
months ended December 31, 2017, the holder converted the remaining
$10,000 of the January debentures to common shares of the Company.
As a result of the conversion the derivative liability was
remeasured immediately prior to the conversion with a fair value of
$16,000, with an increase of $4,000 recognized, with the fair value
of the derivative liability related to the converted portion being
reclassified to equity. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.10;
a risk-free interest rate of 1.46% and expected volatility of the
Company’s common stock, of 200.17%, and the various estimated
reset exercise prices weighted by probability.
The warrants have
an original exercise price of $0.60, which adjusts for any future
dilutive issuances. As a result of the dilutive issuance adjustment
provision, the warrants have been classified out of equity as a
warrant liability. The Company estimated the fair value of the
warrant liability using the Black Scholes pricing model. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.46 at issuance date; a risk free
interest rate of 1.88% and expected volatility of the
Company’s common stock, of 309.96%, resulting in a fair value
of $32,000. As noted above, the calculated fair value of the
discount is greater than the face amount of the debt, and
therefore, the excess amount of $32,000 was immediately expensed as
Financing costs.
March Debentures
On March 28, 2017,
the Company entered into a Securities Purchase Agreement
(“SPA”) for the purchase of up to $400,000 in
convertible debentures (“March debentures”), due 3
years from issuance. The SPA consists of three separate convertible
debentures, the first purchase which occurred at the signing
closing date on March 28, 2017, for $100,000 with a purchase price
of $90,000 (an OID of $10,000). The second closing is to occur by
mutual agreement of the buyer and Company, at any time sixty to
ninety days following the signing closing date, for $150,0000 with
a purchase price of $135,000 (an OID of $15,000). The third closing
is to occur sixty to ninety days after the second closing for
$150,000 with a purchase price of $135,000 (an OID of $15,000). The
SPA also includes a commitment fee to include 100,000 restricted
shares of common stock of the Company upon the signing closing
date. The commitment shares fair value was calculated as $34,000,
based on the market value of the common shares at the closing date
of $0.34, and was recognized as a debt discount. The conversion
price is fixed at $0.30 for the first 180 days. After 180 days, or
in the event of a default, the conversion price becomes the lower
of $0.30 or 60% (or 55% based on certain conditions) of the lowest
closing bid price for the past 20 days.
On July 5, 2017,
the March Debenture was amended. The total principal amount of the
convertible debentures issuable under the SPA was reduced to
$325,000, for a total purchase price of $292,500, and the second
closing was reduced to $75,000 with a purchase price of $67,500.
The second closing occurred on July 5, 2017. As a fee in connection
with the second closing, the Company issued 75,000 of its
restricted common shares to the debenture holder. The fair value of
the fee shares was calculated as $26,625, based on the market value
of the common shares at the closing date of $0.36, which will be
recognized as a debt discount and amortized over the life of the
note with a 34.4% effective interest rate.
The conversion
feature of the March debenture meets the definition of a derivative
as it would not be classified as equity were it a stand-alone
instrument, and therefore requires bifurcation and is accounted for
as a derivative liability. The derivative was initially recognized
at an estimated fair value of $170,000 and created a discount on
the March debentures that will be amortized over the life of the
debentures using the effective interest rate method. The fair value
of the embedded derivative is measured and recognized at fair value
each subsequent reporting period and the changes in fair value are
recognized in the Consolidated Statement of Operations as Change in
fair value of derivative liability.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures based on weighted
probabilities of assumptions used in the Black Scholes pricing
model. The key valuation assumptions used consist, in part, of the
price of the Company’s common stock of $0.40 at issuance
date; a risk free interest rate of 1.56% and expected volatility of
the Company’s common stock, of 333.75%, and the various
estimated reset exercise prices weighted by probability. This
resulted in the calculated fair value of the debt discount being
greater than the face amount of the debt, and the excess amount of
$104,000, including the commitment fees, was immediately expensed
as financing costs.
The debenture is
also redeemable at the option of the Company, at amounts ranging
from 105% to 140% of the principal and accrued interest balance,
based on the redemption date’s passage of time ranging from
90 days to 180 days from the date of issuance of each
debenture.
On September 22,
2017, the Company exercised its option to redeem the first closing
of the March debenture, for a redemption price at $130,000, 130% of
the principal amount. The principal of $100,000 was derecognized
with the additional $30,000 paid upon redemption recognized as a
financing cost. As a result of the redemption, the unamortized
discount related to the converted balance of $91,667 was
immediately expensed. Additionally, the derivative was remeasured
upon redemption of the debenture, resulting in an estimated fair
value of $189,000, for an increase in fair value of $45,000. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock of $0.17; a risk-free interest
rate of 1.58% and expected volatility of the Company’s common
stock, of 290.41%, and the various estimated reset exercise prices
weighted by probability.
On December 28,
2017, the Company exercised its option to redeem the second closing
of the March debenture, for a redemption price at $97,500, 130% of
the principal amount. Upon redemption, the principal of $75,000 was
relieved, with the additional $22,500 paid recognized as a
financing cost. As a result of the redemption, the unamortized
discount related to the converted balance of $68,750 was
immediately expensed. Additionally, the derivative was remeasured
upon redemption of the debenture, resulting in an estimated fair
value of $151,000, for an increase in fair value of $63,000. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock of $0.15; a risk-free interest
rate of 1.89% and expected volatility of the Company’s common
stock, of 260.54%, and the various estimated reset exercise prices
weighted by probability.
July Debenture
On July 31, 2017,
the Company entered into a 5% Securities Purchase Agreement. The
agreement calls for the purchase of up to $135,000 in convertible
debentures, due 12 months from issuance, with a $13,500 OID. The
first closing was for principal of $45,000 with a purchase price of
$40,500 (an OID of $4,500), with additional closings at the sole
discretion of the holder. On October 2, 2017, the Company entered
into a second closing of the July 31, 2017 debenture, in the
principal amount of $22,500 for a purchase price of $20,250, with
$1,500 deducted for legal fees, resulting in net cash proceeds of
$18,750. The July 31 debenture is convertible at a conversion price
of 60% of the lowest trading price during the twenty-five days
prior to the conversion date, and is also subject to equitable
adjustments for stock splits, stock dividends or rights offerings
by the Company. A further adjustment occurs if the trading price at
any time is equal to or lower than $0.10, whereby an additional 10%
discount to the market price shall be factored into the conversion
rate, as well as an adjustment to occur upon subsequent sales of
securities at a price lower than the original conversion price. The
conversion feature meets the definition of a derivative and
therefore requires bifurcation and is accounted for as a derivative
liability.
On February 5,
2018, the Company entered into an amendment to the July Debenture,
whereby in exchange for a payment of $6,500 the note holder, except
for a conversion of up to 125,000 shares of the Company’s
common shares, would be only entitled to effectuate a conversion
under the note on or after March 2, 2018.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $61,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.33
at issuance date; a risk-free interest rate of 1.23% and expected
volatility of the Company’s common stock, of 192.43%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $45,500, including the commitment fees, was immediately
expensed as financing costs.
On February 20,
2018, the holder converted $4,431 of the January debentures into
125,000 common shares of the Company. As a result of the conversion
the derivative liability relating to the portion converted was
remeasured immediately prior to the conversion with a fair value of
$11,000, with an increase of $4,000 recognized, with the fair value
of the derivative liability related to the converted portion being
reclassified to equity. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.12;
a risk-free interest rate of 1.87% and expected volatility of the
Company’s common stock, of 353.27%, and the various estimated
reset exercise prices weighted by probability.
During March, 2018,
the holder converted an additional $17,113 of the July debentures
into 630,000 common shares of the Company. As a result of the
conversion the derivative liability was remeasured immediately
prior to the conversion with a fair value of $138,000, with an
increase of $74,000 recognized, with the fair value of the
derivative liability related to the converted portion being
reclassified to equity. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11;
a risk-free interest rate of 1.77% and expected volatility of the
Company’s common stock, of 375.93%, and the various estimated
reset exercise prices weighted by probability. Subsequent to year
end the remainder of the two notes were fully
converted.
Additionally, with
each tranche under the note, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15 and the warrants issued
increased to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. As a result of the dilutive issuance adjustment
provision, the warrants have been classified out of equity as a
warrant liability. The Company estimated the fair value of the
warrant liability using the Black Scholes pricing model. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.33 at issuance date; a risk-free
interest rate of 1.84% and expected volatility of the
Company’s common stock, of 316.69%, resulting in a fair value
of $25,000.
August Debenture
On August 28, 2017,
the Company entered into a 12% convertible promissory note for
$110,000, with an OID of $10,000, which matures on February 28,
2018. The note is convertible at a variable conversion rate that is
the lesser of 60% of the lowest trading price for last 20 days
prior to issuance of the note or 60% of the lowest market price
over the 20 days prior to conversion. The conversion price shall be
adjusted upon subsequent sales of securities at a price lower than
the original conversion price. There are additional adjustments to
the conversion price for events set forth in the agreement,
including if the Company is not DTC eligible, the Company is no
longer a reporting company, or the note cannot be converted into
free trading shares on or after nine months from issue date. Per
the agreement, the Company is required at all times to have
authorized and reserved five times the number of shares that is
actually issuable upon full conversion of the note. The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative liability. The
note was sold to the holder of the January 29, 2018 note (below) on
February 8, 2018, with an amendment entered into to extend the note
until March 5, 2018. In exchange for a cash payment of $5,000 and
the issuance of 50,000 shares of common stock, on March 5, 2018,
the holder agreed to not convert any of the outstanding debt into
common stock of the Company until April 8, 2018. Subsequent to year
end the new holder issued a waiver as to the maturity date of the
note and a technical default provision. The note has subsequently
been fully converted.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $150,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17
at issuance date; a risk-free interest rate of 1.12% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $116,438, was immediately expensed as financing
costs.
In connection with
the note, the Company issued 50,000 warrants, exercisable at $0.20,
with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants outstanding increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. As a result of the dilutive issuance
adjustment provision, the warrants have been classified out of
equity as a warrant liability. The Company estimated the fair value
of the warrant liability using the Black Scholes pricing model. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock of $0.17 at issuance date; a
risk-free interest rate of 1.74% and expected volatility of the
Company’s common stock, of 276.90%, resulting in a fair value
of $8,000.
Additionally, in
connection with the debenture the Company also issued 343,750
shares of common stock of the Company as a commitment fee. The
commitment shares fair value was calculated as $58,438, based on
the market value of the common shares at the closing date of $0.17,
and was recognized as part of the debt discount. The shares are to
be returned to the Treasury of the Company in the event the
debenture is fully repaid prior to the date which is 180 days
following the issue date. On February 22, 2018, in connection with
the sale of the note to the Janaury 29, 2019 note holder, 171,965
of the shares were returned to the Company and cancelled. The
remaining shares are not required to be returned to the Company, as
the note was not redeemed prior to the date 180 days following the
issue date.
On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
The conversion feature meets the definition of a derivative and
therefore requires bifurcation and is accounted for as a derivative
liability. Subsequent to year end the holder issued a waiver as to
the maturity date of the note and a technical default provision.
The note has subsequently been fully converted.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $94,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11
at issuance date; a risk-free interest rate of 1.28% and expected
volatility of the Company’s common stock, of 193.79%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $69,877, was immediately expensed as financing
costs.
Additionally, in
connection with the second closing, the Company also issued 332,500
shares of common stock of the Company as a commitment fee. The
commitment shares fair value was calculated as $35,877, based on
the market value of the common shares at the closing date of $0.11,
and was recognized as part of the debt discount. The shares are to
be returned to the Treasury of the Company in the event the
debenture is fully repaid prior to the date which is 180 days
following the issue date.
September 11, 2017 Debenture
On September 11,
2017, the Company entered into a 12% convertible promissory note
for $146,000, with an OID of $13,500, which matures on June 11,
2018. The note is convertible at a variable conversion rate that is
the lower of the trading price for last 25 days prior to issuance
of the note or 50% of the lowest market price over the 25 days
prior to conversion. Furthermore, the conversion rate may be
adjusted downward if, within three business days of the transmittal
of the notice of conversion, the common stock has a closing bid
which is 5% or lower than that set forth in the notice of
conversion. There are additional adjustments to the conversion
price for events set forth in the agreement, if any third party has
the right to convert monies at a discount to market greater than
the conversion price in effect at that time then the holder, may
utilize such greater discount percentage. Per the agreement, the
Company is required at all times to have authorized and reserved
seven times the number of shares that is actually issuable upon
full conversion of the note. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
is accounted for as a derivative liability. Subsequent to year end
approximately $85,000 of the note was converted.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $269,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17
at issuance date; a risk-free interest rate of 1.16% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $168,250, was immediately expensed as financing
costs.
In connection with
the note, the Company issued 243,333 warrants, exercisable at
$0.15, with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The warrants exercise price was subsequently
reset to 50% of the market price during the third quarter of fiscal
2018, and the warrants issued increased accordingly. As a result of
the dilutive issuance adjustment provision, the warrants have been
classified out of equity as a warrant liability. The Company
estimated the fair value of the warrant liability using the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.13
at issuance date; a risk-free interest rate of 1.71% and expected
volatility of the Company’s common stock, of 276.90%,
resulting in a fair value of $32,000.
September 12, 2017 Debenture
On September 12,
2017, the Company entered into a 12% convertible promissory note
for principal amount of $96,500 with a $4,500 OID, which matures on
June 12, 2018. The note is able to be prepaid prior to the maturity
date, at a cash redemption premium, at various stages as set forth
in the agreement. The note is convertible commencing 180 days after
issuance date (or upon an event of Default), or March 11, 2018,
with a variable conversion rate at 60% of market price, defined as
the lowest trading price during the twenty days prior to the
conversion date. Additionally, the conversion price adjusts if the
Company is not able to issue the shares requested to be converted,
or upon any future financings have more favorable terms. Per the
agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually
issuable upon full conversion of the note. The conversion feature
meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
On March 20, 2018,
the holder converted $32,500 of the September 12, 2017 debentures
into 1,031,746 common shares of the Company. As a result of the
conversion the derivative liability was remeasured immediately
prior to the conversion with a fair value of $318,000, with an
increase of $165,000 recognized, with the fair value of the
derivative liability related to the converted portion of $107,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.09; a risk-free interest rate of 1.81% and expected
volatility of the Company’s common stock, of 375.93%, and the
various estimated reset exercise prices weighted by probability.
Subsequent to year end the remainder of the note has been fully
converted.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $110,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.13
at issuance date; a risk-free interest rate of 1.16% and expected
volatility of the Company’s common stock, of 190.70%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $18,000 was immediately expensed as financing
costs.
October 17, 2017 Debenture
On September 28,
2017, the Company entered into a Securities Purchase Agreement,
pursuant to which the Company agreed to sell a 12% Convertible Note
for $55,000 with a maturity date of September 28, 2018, for a
purchase price of $51,700, and $2,200 deducted for legal fees,
resulting in net cash proceeds of $49,500. The effective closing
date of the Securities Purchase Agreement and Note is October 17,
2017. The note is convertible at the holders’ option, at any
time, at a conversion price equal to the lower of (i) the closing
sale price of the Company’s common stock on the closing date,
or (ii) 60% of either the lowest sale price for the Company’s
common stock during the twenty (20) consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower , provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
is accounted for as a derivative liability. Subsequent to year end
approximately $43,000 of the note was converted.
The Company
estimated the fair value of the conversion feature derivatives
embedded in the convertible debentures at issuance at $91,000,
based on weighted probabilities of assumptions used in the Black
Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11
at issuance date; a risk-free interest rate of 1.41% and expected
volatility of the Company’s common stock, of 193.79%, and the
various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount
being greater than the face amount of the debt, and the excess
amount of $41,500 was immediately expensed as financing
costs.
November 14, 2017 Debenture
On November 14,
2017, the Company entered into two 8% convertible redeemable notes,
in the aggregate principal amount of $112,000, convertible into
shares of common stock of the Company, with maturity dates of
November 14, 2018. Each note was in the face amount of $56,000,
with an original issue discount of $2,800, resulting in a purchase
price for each note of $53,200. The first of the two notes was paid
for by the buyer in cash upon closing, with the second note
initially paid for by the issuance of an offsetting $53,200 secured
promissory note issued to the Company by the buyer (“Buyer
Note”). The Buyer Note is due on July 14, 2018. The notes are
convertible at 57% of the lowest of trading price for last 20 days,
or lowest closing bid price for last 20 days, with the discount
increased to 47% in the event of a DTC chill, with the second note
not being convertible until the buyer has settled the Buyer Note in
cash payment. The Buyer Note is included in Notes Receivable in the
accompanying financial statements. The first note has been fully
converted subsequent to year end.
During the first
six months, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 120% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of each debenture.
The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $164,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.10 at issuance date; a risk-free interest rate of 1.59% and
expected volatility of the Company’s common stock, of
192.64%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $63,200 was immediately expensed as financing
costs.
December 20, 2017 Debenture
On December 20,
2017, the Company entered into two 8% convertible redeemable notes,
in the aggregate principal amount of $240,000, convertible into
shares of common stock, of the Company, with the same buyers as the
November 14, 2017 debenture. Both notes are due on December 20,
2018. The first note has face amount of $160,000, with a $4,000
OID, resulting in a purchase price of $156,000. The second note has
a face amount of $80,000, with an OID of $2,000, for a purchase
price of $78,000. The first of the two notes was paid for by the
buyer in cash upon closing, with the second note initially paid for
by the issuance of an offsetting $78,000 secured promissory note
issued to the Company by the buyer (“Buyer Note”). The
Buyer Note is due on August 20, 2018. The notes are convertible at
60% of the lower of: (i) lowest trading price or (ii) lowest
closing bid price, of the Company’s common stock for the last
20 trading days prior to conversion, with the discount increased to
50% in the event of a DTC chill, with the second note not being
convertible until the buyer has settled the Buyer Note in cash
payment. The Buyer Note is included in Notes Receivable in the
accompanying financial statements.
During the first
six months, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 120% to 136% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of each debenture.
The conversion
feature meets the definition of a derivative and therefore requires
bifurcation and is accounted for as a derivative
liability.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $403,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.15 at issuance date; a risk-free interest rate of 1.72% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $181,000 was immediately expensed as financing
costs.
January 29, 2018 Debenture
On January 29, 2
018, the Company entered into three 12% convertible notes of the
Company in the aggregate principal amount of $120,000, convertible
into shares of common stock of the Company, with maturity dates of
January 29, 2019. The interest upon an event of default, as defined
in the note, is 24% per annum. Each note was in the face amount of
$40,000, with $2,000 legal fees, for net proceeds of $38,000. The
first of the three notes was paid for by the buyer in cash upon
closing, with the other two notes initially paid for by the
issuance of an offsetting $40,000 secured promissory note issued to
the Company by the buyer (“Buyer Note”). The Buyer
Notes are due on September 29, 2018. The notes are convertible at
60% of the lowest closing bid price for the last 20 days, with the
discount increased to 50% in the event of a DTC chill. The second
and third notes not being convertible until the buyer has settled
the Buyer Notes in a cash payment. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During the first
180 days, the convertible redeemable notes are in effect, the
Company may redeem the note at amounts ranging from 115% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of each debenture. Upon any sale event, as
defined, at the holder’s request the Company will redeem the
note for 150% of the principal and accrued interest.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the three convertible debentures at
issuance at $185,000, based on weighted probabilities of
assumptions used in the Black Scholes pricing model. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.12 at issuance date; a risk-free
interest rate of 1.80% and expected volatility of the
Company’s common stock, of 215.40%, and the various estimated
reset exercise prices weighted by probability. This resulted in the
calculated fair value of the debt discount being greater than the
face amount of the debt, and the excess amount of $71,000 was
immediately expensed as financing costs.
January 30, 2018 Debenture
On January 30,
2018, the Company entered into a 12% convertible note for the
principal amount of $80,000, convertible into shares of common
stock of the Company, which matures on January 30, 2019. Upon an
event of default, as defined in the note, the note becomes
immediately due and payable, in an amount equal to 150% of all
principal and accrued interest due on the note, with default
interest of 22% per annum (the “Default Amount”). If
the Company fails to deliver conversion shares within 2 days of a
conversion request, the note becomes immediately due and payable at
an amount of twice the Default Amount. The note is convertible at
61% of the lowest closing bid price for the last 15 days. Per the
agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually
issuable upon full conversion of the note. Failure to maintain the
reserved number of shares is considered an event of default if not
cured within three days of a notice of conversion. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During the first
180 days, the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 140% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the debenture.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$163,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.08 at issuance date; a risk-free interest rate of 1.88% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $83,000 was immediately expensed as financing
costs.
On March 9, 2018,
the Company entered into a 12% convertible note for the principal
amount of $43,000, with the holder of the January 30, 2018
debenture, convertible into shares of common stock of the Company,
which matures on March 9, 2019. Upon an event of default, as
defined in the note, the note becomes immediately due and payable,
in an amount equal to 150% of all principal and accrued interest
due on the note, with default interest of 22% per annum (the
“Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 140% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the debenture.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$94,000, based on weighted probabilities of assumptions used in the
Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.09 at issuance date; a risk-free interest rate of 2.03% and
expected volatility of the Company’s common stock, of
215.40%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $54,000 was immediately expensed as financing
costs.
March 20, 2018 Debenture
On March 20, 2018,
the Company entered into a convertible note for the principal
amount of $84,000, convertible into shares of common stock of the
Company, which matures on December 20, 2018. The note bears
interest at 12% for the first 180 days, which increases to 18%
after 180 days, and 24% upon an event of default. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
The Company has not maintained the required share reservation under
the terms of the note agreement. The Company believes it has
sufficient available shares of the Company’s common stock in
the event of conversion for these notes. The conversion feature
meets the definition of a derivative and therefore requires
bifurcation and will be accounted for as a derivative
liability.
Additionally, the
Company also issued 255,675 shares of common stock of the Company
as a commitment fee. The commitment shares fair value was
calculated as $28,124, based on the market value of the common
shares at the closing date of $0.11, and was recognized as part of
the debt discount.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the convertible debenture at issuance at
$191,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.06 at issuance date; a risk-free interest rate of 2.09% and
expected volatility of the Company’s common stock, of
272.06%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $144,124 (including the fair value of the
common shares issued) was immediately expensed as financing
costs.
March 21, 2018 Debenture
On March 21, 2018,
the Company entered into a convertible note for the principal
amount of $39,199, which includes an OID of $4,199, convertible
into shares of common stock of the Company, which matures on
December 20, 2018. The note bears interest at 12% for the first 180
days, which increases to 18% after 180 days, and 24% upon an event
of default. The note is convertible on the date beginning 180 days
after issuance of the note, at the lowest of 60% of the lowest
trading price for the last 20 days prior to the issuance date of
this note, or 60% of the lowest trading price for the last 20 days
prior to conversion. The discount is increased upon certain events
set forth in the agreement regarding the obtainability of the
shares, such as a DTC "chill". Additionally, if the Company ceases
to be a reporting company, or after 181 days the note cannot be
converted into freely traded shares, the discount is increased an
additional 15%. Per the agreement, the Company is required at all
times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
The Company has not maintained the required share reservation under
the terms of the note agreement. The Company believes it has
sufficient available shares of the Company’s common stock in
the event of conversion for these notes. The conversion feature
meets the definition of a derivative and therefore requires
bifurcation and will be accounted for as a derivative
liability.
Additionally, the
Company also issued 119,300 shares of common stock of the Company
as a commitment fee. The commitment shares fair value was
calculated as $13,123, based on the market value of the common
shares at the closing date of $0.11, and was recognized as part of
the debt discount.
The Company
estimated the aggregate fair value of the conversion feature
derivatives embedded in the two convertible debentures at issuance
at $89,000, based on weighted probabilities of assumptions used in
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.06 at issuance date; a risk-free interest rate of 2.09% and
expected volatility of the Company’s common stock, of
272.06%, and the various estimated reset exercise prices weighted
by probability. This resulted in the calculated fair value of the
debt discount being greater than the face amount of the debt, and
the excess amount of $67,123 (including the fair value of the
common shares issued) was immediately expensed as financing
costs.
The derivative
liability arising from all of the above discussed debentures was
revalued at March 31, 2018, resulting in an increase of the fair
value of the derivative liability of $1,616,000 for the year ended
March 31, 2018. The key valuation assumptions used consist, in
part, of the price of the Company’s common stock of $0.06; a
risk-free interest rate ranging from 1.73% to 2.09%, and expected
volatility of the Company’s common stock ranging from 272.06%
to 375.93%, and the various estimated reset exercise prices
weighted by probability.
The warrant
liability relating to all of the warrant issuances discussed above
was revalued at March 31, 2018, resulting in an increase to the
fair value of the warrant liability of $244,000 for the year ended
March 31, 2018. The key valuation assumptions used consists, in
part, of the price of the Company’s common stock of $0.06; a
risk-free interest rate ranging from 2.22% to 2.56%, and expected
volatility of the Company’s common stock of 358.6%. The
warrant liability was remeasured as of March 31, 2017, resulting in
an estimated fair value of $28,000, for a decrease in fair value of
$4,000. The key valuation assumptions used consists, in part, of
the price of the Company’s common stock of $0.40; a risk free
interest rate of 1.88% and expected volatility of the
Company’s common stock, of 292.42%.
NOTE
6 – STOCKHOLDERS’ DEFICIT
Common Stock
On May 2, 2017, the
Company sold 100,000 shares of its common stock at $0.25 per share,
for a total financing of $25,000.
On August 1, 2016,
the Company reached an agreement with a professional advisor in
which the Company issued 55,000 shares of common stock with a fair
value of $24,750. This amount was recognized as stock compensation
cost for the period ended December 31, 2016.
On October 10,
2016, the Company entered into a form of Subscription Agreement for
$0.35 per common share and issued 28,571 common shares for $10,000
in cash proceeds.
On January 10,
2017, the Company issued 1,000,000 shares to a consultant for
services to be rendered over six months. The fair value of the
shares of $440,000, based on the market value of the common stock
on the date of issuance, will be recognized over the term of the
agreement. $220,000 was expensed in the year ending March 31, 2017,
with $220,000 included in prepaid assets as of March 31, 2017. The
prepaid balance of $220,000 was expensed in the year ending March
31, 2018.
The Company issued
1,225,715 shares to two unrelated parties on January 23, 2017, in
exchange for the settlement of debt owed by NaturalShrimp Holdings,
Inc., a related party (Note 8), previous to the Company’s
January 2015 reverse acquisition. At the time of the acquisition
the Company was not made aware of the debt and therefore did not
assume the liability in the purchase agreement. When the Company
was presented with the debt during the fiscal year ending March 31,
2017, the Company agreed to assume and settle this debt by the
issuance of common shares. The fair value of the shares issued,
based on the market value of the common shares on the date of the
settlement agreement, was $563,829.
NOTE
7 – OPTIONS AND WARRANTS
The Company has not
granted any options since inception. The Company has granted
approximately 4,958,000 warrants (after adjustment) in connection
with convertible debentures, or which 333,333 have been exercised.
For further discussion see Note 5.
NOTE
8 – RELATED PARTY TRANSACTIONS
Notes Payable – Related Parties
On April 20, 2017,
the Company entered into a convertible debenture with an affiliate
of the Company whose managing member is the Treasurer, Chief
Financial Officer, and a director of the Company (the
“affiliate”), for $140,000. The convertible debenture
matures one year from date of issuance, and bears interest at 6%.
Upon an event of default, as defined in the debenture, the
principal and any accrued interest becomes immediately due, and the
interest rate increases to 24%. The convertible debenture is
convertible at the holder’s option at a conversion price of
$0.30. As of March 31, 2018, the Company has paid $52,400 on this
note, with $87,600 remaining outstanding.
On January 20, 2017
and on March 14, 2017, the Company entered into convertible
debentures with an affiliate of the Company whose managing member
is the Treasurer, Chief Financial Officer, and a director of the
Company. The convertible debentures are each in the amount of
$20,000, mature one year from date of issuance, and bear interest
at 6%. Upon an event of default, as defined in the debenture, the
principal and any accrued interest becomes immediately due, and the
interest rate increases to 24%. The convertible debentures are
convertible at the holder’s option at a conversion price of
$0.30. As of March 31, 2018, the notes have been paid off in
full.
NaturalShrimp Holdings, Inc.
On January 1, 2016
the Company entered into a notes payable agreement with
NaturalShrimp Holdings, Inc.(“NSH”), a shareholder.
Between January 16, 2016 and March 7, 2016, the Company borrowed
$134,750 under this agreement. An additional $601,361 was borrowed
under this agreement in the year ended March 31, 2017. The note
payable has no set monthly payment or maturity date with a stated
interest rate of 2%.
Baptist Community Services (BCS)
On January 10, 2017, the Company agreed to pay
to Baptist Community Services (BCS), a shareholder of NSH,
$200,000 of the proceeds from the CNB
Note (Note 4), in satisfaction
of the outstanding amounts due on a promissory note with BCS of
$2,305,953, plus accrued interest of $233,398, resulting in a gain
on extinguishment of debt of $2,339,353 in the year ended March 31,
2017.
Shareholder Notes
The Company has
entered into several working capital notes payable to multiple
shareholders of NSH and Bill Williams, an officer, a director, and
a shareholder of the Company, for a total of $486,500. These notes
had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes at March 31,
2018 and 2017 was $426,404 and $426,404, respectively, and is
classified as a current liability on the consolidated balance
sheets. At March 31, 2018 and 2017, accrued interest payable was
$206,920 and $172,808, respectively.
Shareholders
In 2009, the
Company entered into a note payable to Randall Steele, a
shareholder of NSH, for $50,000. The note bears interest at 6.0%
and was payable upon maturity on January 20, 2011. In addition, the
Company issued 100,000 shares of common stock for consideration.
The shares were valued at the date of issuance at fair market
value. The value assigned to the shares of $50,000 was recorded as
increase in common stock and additional paid-in capital and was
limited to the value of the note. The assignment of a value to the
shares resulted in a financing fee being recorded for the same
amount. The note is unsecured. The balance of the note at March 31,
2018 and 2017 was $50,000, respectively, and is classified as a
current liability on the consolidated balance sheets. Interest
expense on the note was $3,000 and $3,000 during the years ended
March 31, 2018 and 2017, respectively.
Beginning in 2010,
the Company started entering into several working capital notes
payable with various shareholders of NSH for a total of $290,000
and bearing interest at 8%. The balance of these notes at March 31,
2018 and 2017 was $5,000 and is classified as a current liability
on the consolidated balance sheets. At March 31, 2018 and 2017,
accrued interest payable was $1,600 and $1,200,
respectively.
NOTE
9 – FEDERAL INCOME TAX
The Company
accounts for income taxes under ASC 740-10, which provides for an
asset and liability approach of accounting for income taxes. Under
this approach, deferred tax assets and liabilities are recognized
based on anticipated future tax consequences, using currently
enacted tax laws, attributed to temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts calculated for income tax
purposes.
The components of
income tax expense for the years ended March 31, 2018 and 2017
consist of the following:
|
|
|
Federal Tax
statutory rate
|
34.00%
|
34.00%
|
Permanent
differences
|
7.86%
|
559.25%
|
Valuation
allowance
|
(41.86)%
|
(525.25)%
|
Effective
rate
|
0.00%
|
0.00%
|
Significant
components of the Company’s deferred tax assets as of March
31, 2018 and 2017 are summarized below. The calculations presented
below at December 31, 2017 reflect the new U.S. federal statutory
corporate tax rate of 21% effective January 1, 2018 (see Note
2).
|
|
|
Deferred tax
assets:
|
|
|
Net operating loss
carryforwards
|
$637,000
|
$570,000
|
Deferred tax
benefit
|
408,000
|
350,000
|
Total deferred tax
asset
|
1,045,000
|
920,000
|
Valuation
allowance
|
(1,045,000)
|
(920,000)
|
|
$-
|
$-
|
As of March 31,
2018, the Company had approximately $3,034,000 of federal net
operating loss carry forwards. These carry forwards, if not used,
will begin to expire in 2028. Future utilization of the net
operating loss carry forwards is subject to certain limitations
under Section 382 of the Internal Revenue Code. The Company
believes that the issuance of its common stock in exchange for
Multiplayer Online Dragon, Inc. January 30, 2015 resulted in an
“ownership change” under the rules and regulations of
Section 382. Accordingly, our ability to utilize our net operating
losses generated prior to this date is limited to approximately
$282,000 annually.
To the extent that
the tax deduction is included in a net operating loss carry forward
and is in excess of amounts recognized for book purposes, no
benefit will be recognized until the loss carry forward is
recognized. Upon utilization and realization of the carry forward,
the corresponding change in the deferred asset and valuation
allowance will be recorded as additional paid-in
capital.
The Company
provides for a valuation allowance when it is more likely than not
that it will not realize a portion of the deferred tax assets. The
Company has established a valuation allowance against the net
deferred tax asset due to the uncertainty that enough taxable
income will be generated in those taxing jurisdictions to utilize
the assets. Therefore, we have not reflected any benefit of such
deferred tax assets in the accompanying financial statements. Our
net deferred tax asset and valuation allowance increased by
$120,000 in the year ended March 31, 2018, $394,000 of which
related to the decrease in the expected future tax rate as a result
of the Tax Reform Law..
The Company
reviewed all income tax positions taken or that we expect to be
taken for all open years and determined that our income tax
positions are appropriately stated and supported for all open
years. The Company is subject to U.S. federal income tax
examinations by tax authorities for years after 2012 due to
unexpired net operating loss carryforwards originating in and
subsequent to that year. The Company may be subject to income tax
examinations for the various taxing authorities which vary by
jurisdiction.
NOTE
10 – CONCENTRATION OF CREDIT RISK
The Company
maintains cash balances at one financial institution. Accounts at
this institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $250,000. As of March 31, 2018, and 2017,
the Company’s cash balance did not exceed FDIC
coverage.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements – Bill Williams and Gerald
Easterling
On April 1, 2015,
the Company entered into employment agreements with each of Bill G.
Williams, as the Company’s Chief Executive Officer, and
Gerald Easterling as the Company’s President, effective as of
April 1, 2015 (the “Employment
Agreements”).
The Employment
Agreements are each terminable at will and each provide for a base
annual salary of $96,000. In addition, the Employment Agreements
each provide that the employee is entitled, at the sole and
absolute discretion of the Company’s Board of Directors, to
receive performance bonuses. Each employee will also be entitled to
certain benefits including health insurance and monthly allowances
for cell phone and automobile expenses.
Each Employment
Agreement provides that in the event employee is terminated without
cause or resigns for good reason (each as defined in their
Employment Agreements), the employee will receive, as severance the
employee’s base salary for a period of 60 months following
the date of termination. In the event of a change of control of the
Company, the employee may elect to terminate the Employment
Agreement within 30 days thereafter and upon such termination would
receive a lump sum payment equal to 500% of the employee’s
base salary.
Each Employment
Agreement contains certain restrictive covenants relating to
non-competition, non-solicitation of customers and non-solicitation
of employees for a period of one year following termination of the
employee’s Employment Agreement.
NOTE
12 – SUBSEQUENT EVENTS
Subsequent to year
end, the Company has converted approximately $485,000 of their
outstanding convertible debt as of March 31, 2018 and approximately
$31,000 of accrued interest, into 37,887,704 shares of the
Company’s common stock.
On April 10, 2018,
the Company entered into two 10% convertible notes in the aggregate
principal amount of $110,000, convertible into shares of common
stock of the Company, with maturity dates of April 10, 2019. The
interest upon an event of default, as defined in the note, is 24%
per annum. Each note was in the face amount of $55,000, with $2,750
for legal fees deducted upon funding. The first of the notes was
paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $55,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The notes are convertible at 57% of the lowest
closing bid price for the last 20 days. The Back-End note is not
convertible until the buyer has settled the Buyer Notes in a cash
payment. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 130% to 145% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture
On April 12, 2018,
the Company sold 200,000 shares of its common stock at $0.077 per
share, for a total financing of $15,400.
On April 27, 2018,
the Company entered into a convertible note for the principal
amount of $53,000 for a purchase price of $50,000, convertible into
shares of common stock of the Company, which matures on January 27,
2019. The note bears interest at 12% for the first 180 days, which
increases to 18% after 180 days, and 24% upon an event of default.
The note is convertible on the date beginning 180 days after
issuance of the note, at the lowest of 60% of the lowest trading
price for the last 20 days prior to the issuance date of this note,
or 60% of the lowest trading price for the last 20 days prior to
conversion. In the event of a "DTC chill", the conversion rate is
adjusted to 40% of the market price. Per the agreement, the Company
is required at all times to have authorized and reserved ten times
the number of shares that is actually issuable upon full conversion
of the note. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability.
On June 5, 2018,
the Company entered into a convertible note for the principal
amount of $125,000 for a purchase price of $118,800, convertible on
the date beginning 180 days after issuance of the note, into shares
of common stock of the Company, which matures on June 5, 2019. The
note bears interest at 12%, which increases to 18% upon an event of
default, as defined in the agreement. The note is convertible at
60% of the lowest trading price for the last 20 days prior to
conversion, with the discount increased 5% in the event the Company
does not have sufficient shares authorized and outstanding to issue
the shares upon conversion request. Per the agreement, the Company
is required at all times to have authorized and reserved four times
the number of shares that is actually issuable upon full conversion
of the note. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability.
During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of the debenture. After 180 days, the note is
redeemable, with the holders prior written consent, at 150% of the
principal and accrued interest balance.
On
July 11, 2018, the Company received the funding for the Buyer Note
issued in connection with the second note under the December 20,
2017 8% convertible redeemable note, for cash proceeds of
$74,000.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Audit and Accounting Fees
Effective April 11, 2015, the Board of Directors of the Company
engaged Turner, Stone & Company (“TSC”) as its
independent registered public accounting firm to audit the
Company’s annual financial statements. The following tables
set forth the fees billed to the Company for professional services
rendered by TSC for the years ended March 31, 2018 and
2017:
Services
|
|
|
Audit
fees
|
$26,250
|
$29,300
|
Audit related
fees
|
-
|
-
|
Tax
fees
|
-
|
-
|
All other
fees
|
-
|
-
|
Total
fees
|
$26,250
|
$29,300
|
Audit Fees
The audit fees were paid for the audit services of our annual and
quarterly reports and issuing consents for our registration
statements.
Tax Fees
There were no tax fees paid to TSC.
Pre-Approval Policies and Procedures
Our board of directors preapproves all services provided by our
independent registered public accounting firm. All of the above
services and fees were reviewed and approved by the board of
directors before the respective services were
rendered.
Indemnification of Officers and Directors
Nevada Law
The
Nevada Revised Statutes limits or eliminates the personal liability
of directors to corporations and their stockholders for monetary
damages for breaches of directors’ fiduciary duties as
directors. Our bylaws include provisions that require the company
to indemnify our directors or officers against monetary damages for
actions taken as a director or officer of our Company. We are also
expressly authorized to carry directors’ and officers’
insurance to protect our directors, officers, employees and agents
for certain liabilities. Our articles of incorporation do not
contain any limiting language regarding director immunity from
liability.
The
limitation of liability and indemnification provisions under the
Nevada Revise Statutes and our bylaws may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duties. These provisions may also have the effect of
reducing the likelihood of derivative litigation against directors
and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. However, these
provisions do not limit or eliminate our rights, or those of any
stockholder, to seek non-monetary relief such as injunction or
rescission in the event of a breach of a director’s fiduciary
duties. Moreover, the provisions do not alter the liability of
directors under the federal securities laws. In addition, your
investment may be adversely affected to the extent that, in a class
action or direct suit, we pay the costs of settlement and damage
awards against directors and officers pursuant to these
indemnification provisions.
RECENT SALES OF UNREGISTERED SECURITIES
The
following sets forth information regarding all unregistered
securities sold by us in transactions that were exempt from the
requirements of the Securities Act in the last three years. Except
where noted, all of the securities discussed in this Item 15 were
all issued in reliance on the exemption under Section 4(a)(2) of
the Securities Act. Unless otherwise indicated, all of the share
issuances described below were made in reliance on the exemption
from registration provided by Section 4(a)(2) of the Securities
Act.
On January 23, 2017, the Company entered into a Securities Purchase
Agreement and issued a Convertible Note in the original principal
amount of $262,500 to an accredited investor, along with a Warrant
to purchase 350,000 shares of the Company’s common stock, in
exchange for a purchase price of $250,000. The Company received
$50,000 upon closing, with additional consideration to be paid to
the Company in such amounts and at such dates as the holder may
choose in its sole discretion. The warrants are exercisable over a
period of five (5) years at an exercise price of $0.60, subject to
adjustment. The exercise price was adjusted to $0.15, and the
warrants issued increased to 280,000, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. The note is convertible into shares
of the Company’s common stock at a conversion price of $0.35
per share, subject to adjustment. The maturity date of the note
shall be two years form the date of each payment of consideration
thereunder. A one-time interest charge of twelve percent (12%)
shall be applied on the issuance date and payable on the maturity
date. During the year ended March 31, 2018, the holder converted
the $50,000 of the January debentures to common shares of the
Company.
On March 28, 2017, the Company entered into a Securities Purchase
Agreement with an accredited investor related to the purchase and
sale of certain convertible debentures in the aggregate principal
amount of up to $400,000 for an aggregate purchase price of up to
$360,000. The agreement contemplates three separate convertible
debentures, with each maturing three years following the date of
issuance. On March 28, 2017, the Company issued the first
convertible debenture in the principal amount of $100,000 for a
purchase price of $90,000. Pursuant to the Securities Purchase
Agreement, the closing of the second convertible debenture was to
occur upon mutual agreement of the parties, at any time within
sixty (60) to ninety (90) days following the original signing
closing date, in the principal amount of $150,000 for a purchase
price of $135,000. On July 5, 2017, the Securities Purchase
Agreement was amended to reduce the maximum aggregate principal
amount of the convertible debentures to $325,000, for an aggregate
purchase price of up to $292,500, and to reduce the principal
amount of the second convertible debenture to $75,000 for a
purchase price of $67,500. The closing of the second convertible
debenture occurred on July 5, 2017. In connection with the closing
of the second convertible debenture, the Company issued 75,000
shares of restricted common stock to the holder as a fee in
consideration of the expenses incurred in consummating the
transaction. The closing of the third convertible debenture was to
occur upon mutual agreement of the parties within sixty (60) to
ninety (90) days following the second closing, in the principal
amount of $150,000 for a purchase price of $135,000. The
convertible debentures are convertible into shares of the
Company’s common stock at a fixed conversion price of $0.30
for the first one hundred eighty (180) days. After one hundred
eighty (180) days, or in an event of default, the conversion price
will be the lower of $0.30 or sixty percent (60%) of the lowest
closing bid price over the 20 trading days preceding the date of
conversion. On September 22, 2017, the Company exercised its option
to redeem the first closing of the March debenture, for a
redemption price at $130,000, 130% of the principal amount. The
principal of $100,000 was derecognized with the additional $30,000
paid upon redemption recognized as a financing cost. On December
28, 2017, the Company exercised its option to redeem the second
closing of the March debenture, for a redemption price at $97,500,
130% of the principal amount. Upon redemption, the principal of
$75,000 was relieved, with the additional $22,500 paid recognized
as a financing cost.
On May 2, 2017, the Company sold 100,000 shares of its common stock
to an accredited investor at $0.25 per share, for total proceeds of
$25,000.
On July 31, 2017, the Company entered into a 5% Securities Purchase
Agreement with an accredited investor. The agreement calls for the
purchase of up to $135,000 in convertible debentures, due 12 months
from issuance, with an original issue discount of $13,500. The
first convertible debenture was issued in the principal amount of
$45,000 for a purchase price of $40,500 (an original issue discount
of $4,500), with additional closings to occur at the sole
discretion of the holder. The convertible debentures are
convertible into shares of the Company’s common stock at a
conversion price of sixty percent (60%) of the lowest trading price
over the 25 trading days preceding the date of conversion, subject
to adjustment. With each tranche under the July 31, 2017
convertible debentures, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15, and the number of warrants
issued to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. On October 2, 2017, the Company entered into a second
closing of the July 31, 2017 debenture, in the principal amount of
$22,500 for a purchase price of $20,250, with $1,500 deducted for
legal fees, resulting in net cash proceeds of $18,750. On February
5, 2018, the Company entered into an amendment to the July 31, 2017
debenture, whereby in exchange for a payment of $6,500, the
noteholder shall only be entitled to effectuate a conversion under
the note on or after March 2, 2018. On February 20, 2018, the
holder converted $4,431 of the January debentures into 125,000
common shares of the Company. During March, 2018, the holder
converted an additional $17,113 of the July debentures into 630,000
common shares of the Company.
On August 28, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $110,000, with an original issue discount of $10,000, which
matures on February 28, 2018. The note is convertible into shares
of the Company’s common stock at a variable conversion rate
equal to the lesser of sixty percent (60%) of the lowest trading
price over the 20 trading days prior to the issuance of the note or
sixty percent (60%) of the lowest trading price over the 20 trading
days prior to conversion, subject to adjustment. In connection with
the note, the Company issued 50,000 warrants, exercisable at $0.20,
with a five-year term. The exercise price is adjustable upon
certain events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants issued increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. Additionally, in connection with the
note, the Company also issued 343,750 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $58,438, based on the market value of the common
shares at the closing date of $0.17, and was recognized as part of
the debt discount. The shares are to be returned to the Treasury of
the Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
Additionally, in connection with the second closing, the Company
issued 332,500 shares of common stock of the Company as a
commitment fee. The commitment shares fair value was calculated as
$35,877, based on the market value of the common shares at the
closing date of $0.11, and was recognized as part of the debt
discount. The shares are to be returned to the Treasury of the
Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date.
On September 11, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $146,000, with an original issue discount of $13,500, which
matures on June 11, 2018. The note is convertible into shares of
the Company’s common stock at a variable conversion rate
equal to the lesser of the lowest trading price over the 25 trading
days prior to the issuance of the note or fifty percent (50%) of
the lowest trading price over the 25 trading days prior to
conversion, subject to adjustment. In connection with the note, the
Company issued 243,333 warrants, exercisable at $0.15, with a
five-year term. The exercise price is adjustable upon certain
events, as set forth in the agreement, including for future
dilutive issuance. The warrants exercise price was subsequently
reset to 50% of the market price during the third quarter of fiscal
2018, and the warrants issued increased accordingly.
On September 12, 2017, the Company entered into a 12% convertible
promissory note with an accredited investor in the principal amount
of $96,500 with an original issue discount of $4,500, which matures
on June 12, 2018. The note is able to be prepaid prior to the
maturity date, at a cash redemption premium, at various stages as
set forth in the agreement. The note is convertible commencing 180
days after issuance date (or upon an event of default), or March
11, 2018, at a variable conversion rate of sixty percent (60%) of
the market price, defined as the lowest trading price during the 20
trading days prior to conversion, subject to adjustment. On March
20, 2018, the holder converted $32,500 of the September 12, 2017
debentures into 1,031,746 common shares of the
Company.
On September 28, 2017, the Company entered into a Securities
Purchase Agreement with an accredited investor, pursuant to which
the Company agreed to sell a 12% Convertible Note in the principal
amount of $55,000 with a maturity date of September 28, 2018, for a
purchase price of $51,700, and $2,200 deducted for legal fees,
resulting in net cash proceeds of $49,500. The effective closing
date of the Securities Purchase Agreement and Convertible Note was
October 17, 2017. The note is convertible into shares of the
Company’s common stock at the holders’ option, at any
time, at a conversion price equal to the lower of (i) the closing
sale price of the Company’s common stock on the closing date,
or (ii) sixty percent (60%) of either the lowest sale price for the
Company’s common stock during the 20 consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower, provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price.
On October 10, 2017, the Company issued 200,000 shares of its
common stock to consultants in consideration for consulting
services provided to the Company.
On October 16, 2017, the Company issued 800,000 shares of its
common stock to consultants in consideration for consulting
services provided to the Company.
On November 14, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $112,000, convertible into shares of common
stock of the Company, with maturity dates of November 14, 2018.
Each note was in the principal amount of $56,000, with an original
issue discount of $2,800, resulting in a purchase price for each
note of $53,200. The first of the two notes was paid for by the
buyer in cash upon closing, with the second note initially paid for
by the issuance of an offsetting $53,200 secured promissory note
issued to the Company by the buyer (“Buyer Note”). The
Buyer Note is due on July 14, 2018. The notes are convertible into
shares of the Company’s common stock at a conversion rate of
fifty-seven percent (57%) of the lowest of trading price over last
20 trading days prior to conversion, or the lowest closing bid
price over the last 20 trading days prior to conversoin, with the
discount increased (i.e., the conversion rate decreased) to
forty-seven percent (47%) in the event of a DTC chill, with the
second note not being convertible until the buyer has settled the
Buyer Note in cash payment. During the first six months the
convertible redeemable notes are in effect, the Company may redeem
the notes at amounts ranging from 120% to 140% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 90 days to 180 days from the date of
issuance of each note.
On December 20, 2017, the Company entered into two 8% convertible
redeemable notes with an accredited investor, in the aggregate
principal amount of $240,000, convertible into shares of common
stock of the Company, with the same buyers as the November 14, 2017
debenture. Both notes are due on December 20, 2018. The first note
was issued in the principal amount of $160,000, with a $4,000
original issue discount, resulting in a purchase price of $156,000.
The second note was issued in the principal amount of $80,000, with
an original issue discount of $2,000, for a purchase price of
$78,000. The first of the two notes was paid for by the buyer in
cash upon closing, with the second note initially paid for by the
issuance of an offsetting $78,000 secured promissory note issued to
the Company by the buyer (“Buyer Note”). The Buyer Note
is due on August 20, 2018. The notes are convertible into shares of
the Company’s common stock at a conversion rate of sixty
percent (60%) of the lower of: (i) lowest trading price or (ii)
lowest closing bid price of the Company’s common stock over
the last 20 trading days prior to conversion, with the discount
increased (i.e., the conversion rate decreased) to fifty percent
(50%) in the event of a DTC chill, with the second note not being
convertible until the buyer has settled the Buyer Note in cash
payment. During the first six months the convertible redeemable
notes are in effect, the Company may redeem the notes at amounts
ranging from 120% to 136% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 90 days to 180 days from the date of issuance of each
note.
On January 29, 2018, the Company entered into three (3) 12%
convertible redeemable promissory notes with an accredited investor
in the aggregate principal amount of $120,000, with maturity dates
of January 29, 2019. The notes are convertible into shares of the
Company’s common stock at a conversion rate of sixty percent
(60%) of the lowest closing bid price over the last 20 trading days
prior to conversion, with the discount increased (i.e., the
conversion rate decreased) to fifty percent (50%) in the event of a
DTC chill. The interest rate upon an event of default, as defined
in the notes, is 24% per annum. Each note was issued in the
principal amount of $40,000, with $2,000 deducted for legal fees,
for net proceeds of $38,000. The first note was paid for by the
buyer in cash upon closing, with the second and third notes
initially paid by the issuance of offsetting $40,000 secured
promissory notes issued to the Company by the buyer (the
“Buyer Notes”). The Buyer Notes are due on September
29, 2018. During the first 180 days the notes are in effect, the
Company may redeem the note at amounts ranging from 115% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the note. Upon any sale event, as defined
in the note, at the holder’s request, the Company will redeem
the note for 150% of the principal and accrued
interest.
On January 30, 2018, the Company entered into a 12% convertible
redeemable promissory note with an accredited investor for the
principal amount of $80,000, which matures on January 30, 2019. The
note is convertible into shares of the Company’s common stock
at a conversion rate of sixty-one percent (61%) of the lowest
closing bid price over the last 15 trading days prior to
conversion. The interest rate upon an event of default, as defined
in the note, is 22% per annum, and the note becomes immediately due
and payable in an amount equal to 150% of the principal and
interest due on the note upon an event of default. If the Company
fails to deliver conversion shares within two (2) days following a
conversion request, the note will become immediately due and
payable at an amount of twice the default amount. During the first
180 days the note is in effect, the Company may redeem the note at
amounts ranging from 115% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of
time ranging from 30 days to 180 days from the date of issuance of
the note.
On March 20, 2018, the Company entered into a convertible note for
the principal amount of $84,000, convertible into shares of common
stock of the Company, which matures on December 20, 2018. The note
bears interest at 12% for the first 180 days, which increases to
18% after 180 days, and 24% upon an event of default. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 255,675 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $28,124, based on the market value of
the common shares at the closing date of $0.11, and was recognized
as part of the debt discount.
On March 21, 2018, the Company entered into a convertible note for
the principal amount of $39,199, which includes an OID of $4,199,
convertible into shares of common stock of the Company, which
matures on December 20, 2018. The note bears interest at 12% for
the first 180 days, which increases to 18% after 180 days, and 24%
upon an event of default. The note is convertible on the date
beginning 180 days after issuance of the note, at the lowest of 60%
of the lowest trading price for the last 20 days prior to the
issuance date of this note, or 60% of the lowest trading price for
the last 20 days prior to conversion. The discount is increased
upon certain events set forth in the agreement regarding the
obtainability of the shares, such as a DTC "chill". Additionally,
if the Company ceases to be a reporting company, or after 181 days
the note cannot be converted into freely traded shares, the
discount is increased an additional 15%. Per the agreement, the
Company is required at all times to have authorized and reserved
ten times the number of shares that is actually issuable upon full
conversion of the note. Additionally, the Company also issued
119,300 shares of common stock of the Company as a commitment fee.
The commitment shares fair value was calculated as $13,123, based
on the market value of the common shares at the closing date of
$0.11, and was recognized as part of the debt
discount.
On April 10, 2018, the Company entered into two 10% convertible
notes with an accredited investor in the aggregate principal amount
of $110,000, convertible into shares of common stock of the
Company, with maturity dates of April 10, 2019. The interest upon
an event of default, as defined in the note, is 24% per annum. Each
note was in the face amount of $55,000, with $2,750 for legal fees
deducted upon funding. The first of the notes was paid for by the
buyer in cash upon closing, with the other note ("Back-End note")
initially paid for by the issuance of an offsetting $55,000 secured
promissory note issued to the Company by the buyer (“Buyer
Note”). The Buyer Note is due on December 12, 2018. The
interest rate increases to 24% upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%. An event of default also occurs if the
Company’s common stock has a closing bid price of less than
$0.03 per share for at least five consecutive days, or the
aggregate dollar trading volume of the Company’s common stock
is less than $20,000 in any five consecutive days. The
Company’s common stock closing bid price fell below $0.03 on
June 18, 2018 and continued for over five consecutive days, and the
Company is therefore in default on the note. The Company has
obtained a waiver from the holder on this technical default. The
notes are convertible at 57% of the lowest closing bid price for
the last 20 days. The discount is increased an additional 10%, to
47%, upon a DTC "chill". The Company has not maintained the
required share reservation under the terms of the note agreement.
The Back-End note is not convertible until the buyer has settled
the Buyer Notes in a cash payment. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 130% to 145% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 60 days to 180 days from the date of
issuance of the debenture.
Between April 6, 2018 and June 20, 2018, the Company issued
37,887,704 shares of the Company’s common stock to an
accredited investor upon conversion of approximately $485,000 of
their outstanding convertible debt and approximately $31,000 of
accrued interest.
On April 12, 2018, the Company sold 200,000 shares of its common
stock at $0.077 per share, for a total financing of
$15,400.
On April 27, 2018, the Company entered into a convertible note with
an accredited investor for the principal amount of $53,000 for a
purchase price of $50,000, convertible into shares of common stock
of the Company, which matures on January 27, 2019. The note bears
interest at 12% for the first 180 days, which increases to 18%
after 180 days, and 24%. The interest rate increases to 24% upon an
event of default, as set forth in the agreement, including a cross
default to all other outstanding notes. Additionally, in the
majority of events of default, except for the non-payment of the
note upon maturity, the note becomes immediately due and payable at
an amount at 150% of the principal plus accrued interest due. The
note is convertible on the date beginning 180 days after issuance
of the note, at the lowest of 60% of the lowest trading price for
the last 20 days prior to the issuance date of this note, or 60% of
the lowest trading price for the last 20 days prior to conversion.
The discount rate is adjusted based on various situations regarding
the ability to deliver the common shares, such as in the event of a
"DTC chill" or the Company ceases to be a reporting company. Per
the agreement, the Company is required at all times to have
authorized and reserved ten times the number of shares that is
actually issuable upon full conversion of the note. The Company has
not maintained the required share reservation under the terms of
the note agreement. The Company believes it has sufficient
available shares of the Company’s common stock in the event
of conversion for these notes.
On June 5, 2018, the Company entered into a convertible note with
an accredited investor for the principal amount of $125,000 for a
purchase price of $118,800, convertible on the date beginning 180
days after issuance of the note, into shares of common stock of the
Company, which matures on June 5, 2019. The note bears interest at
12%, which increases to 18% upon an event of default, as defined in
the agreement. The note is convertible at 60% of the lowest trading
price for the last 20 days prior to conversion, with the discount
increased 5% in the event the Company does not have sufficient
shares authorized and outstanding to issue the shares upon
conversion request. The conversion price is adjusted upon a future
dilutive issuance, to the lower of the conversion price or a 25%
discount to the aggregate per share common share price. Per the
agreement, the Company is required at all times to have authorized
and reserved four times the number of shares that is actually
issuable upon full conversion of the note. The Company has not
maintained the required share reservation under the terms of the
note agreement. The Company believes it has sufficient available
shares of the Company’s common stock in the event of
conversion for these notes. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 135% to 145% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 90 days to 180 days from the date of
issuance of the debenture. After 180 days, the note is redeemable,
with the holders prior written consent, at 150% of the principal
and accrued interest balance.
On July 27, 2018, the Company entered into two 10% convertible
notes with an accredited investor in the aggregate principal amount
of $186,000, convertible into shares of common stock of the
Company, with maturity dates of July 27, 2019. The interest upon an
event of default, as defined in the note, is 24% per annum. Each
note was in the face amount of $93,000, with $3,000 OID, for a
purchase price of $90,000. The first of the notes was paid for by
the buyer in cash upon closing, with the other note ("Back-End
note") initially paid for by the issuance of an offsetting $93,000
secured promissory note issued to the Company by the buyer
(“Buyer Note”). The Buyer Note is due on December 12,
2018. The interest rate increases to 24% upon an event of default,
as set forth in the agreement, including a cross default to all
other outstanding notes, and if the debenture is not paid at
maturity the principal due increases by 10%. If the Company loses
its bid price the principal outstanding on the debenture increases
by 20%, and if the Company’s common stock is delisted, the
principal increases by 50%. The notes are convertible at 60% of the
lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 50%, upon a DTC "chill". The
Company has not maintained the required share reservation under the
terms of the note agreement. The Back-End note is not convertible
until the buyer has settled the Buyer Notes in a cash payment.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from
120% to 136% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 90 days
to 180 days from the date of issuance of the
debenture.
On
August 24, 2018, the Company entered into a 10% convertible note in
the principal amount of $55,000, convertible into shares of common
stock of the Company, which matures August 24, 2019. The interest
rate increases to 24% per annum upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%. An event of default also occurs if the
Company’s common stock has a closing bid price of less than
$0.03 per share for at least five consecutive days, or the
aggregate dollar trading volume of the Company’s common stock
is less than $20,000 in any five consecutive days. The notes are
convertible at 57% of the lowest closing bid price for the last 20
days. The discount is increased an additional 10%, to 47%, upon a
DTC "chill". The conversion feature meets the definition of a
derivative and therefore requires bifurcation and will be accounted
for as a derivative liability. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 130% to 145% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 60 days to 180 days from the date of
issuance of the debenture.
Subsequent to period end, the Company has converted approximately
$61,000 of their outstanding convertible debt as of June 30, 2018
and approximately $5,000 of accrued interest and fees, into
11,765,729 shares of the Company’s common stock. The Company
also issued 6,719,925 shares of their common stock on July 17,
2018, upon cashless exercise of warrants granted in connection with
the July Debenture.
The
preceding securities were not registered under the Securities Act
of 1933, as amended (the “Securities Act”), but
qualified for exemption under Section 4(a)(2) of the Securities
Act. The securities were exempt from registration under Section
4(a)(2) of the Securities Act because the issuance of such
securities by the Company did not involve a “public
offering,” as defined in Section 4(a)(2) of the Securities
Act, due to the insubstantial number of persons involved in the
transaction, size of the offering, and manner of the offering and
number of securities offered. The Company did not undertake an
offering in which itsold a high number of securities to a high
number of investors. In addition, the Investor had the necessary
investment intent as required by Section 4(a)(2) of the Securities
Act since they agreed to, and received, the securities bearing a
legend stating that such securities are restricted pursuant to Rule
144 of the Securities Act. This restriction ensures that these
securities would not be immediately redistributed into the market
and therefore not be part of a “public offering.” Based
on an analysis of the above factors, the Company has met the
requirements to qualify for exemption under Section 4(a)(2) of the
Securities Act.
EXHIBITS
Exhibit
Number
|
Description
|
(2)
|
Plan of acquisition, reorganization, arrangement, liquidation or
succession
|
|
Asset
Purchase Agreement, dated November 26, 2014, by and between
Multiplayer Online Dragon, Inc. and NaturalShrimp Holdings, Inc.
(incorporated by reference to our Current Report on Form 8-K filed
on December 3, 2014).
|
(3)
|
(i) Articles of Incorporation; and (ii) Bylaws
|
|
Articles
of Incorporation (incorporated by reference to our Registration
Statement on Form S-1 originally filed on June 11,
2009).
|
|
Amendment
to Articles of Incorporation (incorporated by reference to our
Amended Quarterly Report on Form 10-Q/A filed on May 19,
2014).
|
|
Bylaws
(incorporated by reference to our Registration Statement on Form
S-1 originally filed on June 11, 2009).
|
(4)
|
Instruments Defining the Rights of Security Holders, Including
Indentures
|
4.1
|
Specimen
Common Stock Certificate (incorporated by reference to our
Registration Statement on Form S-1 filed on December 29,
2008)
|
4.2
|
Form of
Registrant’s 10% Senior Convertible Promissory Note
(incorporated by reference to our Registration Statement on Form
8-K filed on October 17, 2013)
|
(5)
|
Opinion re Legality
|
5.1*
|
Legal
Opinion of Lucosky Brookman LLP
|
(10)
|
Material Agreements
|
|
Business
Loan Agreement, dated September 13, 2005, by and among
NaturalShrimp Holdings, Inc., Amarillo National Bank, NSC,
NaturalShrimp International, Inc., NaturalShrimp San Antonio, L.P.,
Shirley Williams, Gerald Easterling, Mary Ann Untermeyer, and High
Plain Christian Ministries Foundation, as amended, modified and
assigned (incorporated by reference to our Current Report on Form
8-K filed on February 11, 2015).
|
|
Secured
Promissory Note, dated September 13, 2005, issued by NaturalShrimp
Holdings, Inc. to Amarillo National Bank in the original principal
amount of $1,500,000, as amended, modified and assigned
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Assignment
Agreement, dated March 26, 2009, by and between Baptist Community
Services, Amarillo National Bank and NaturalShrimp Holdings, Inc.
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Fifth
Forbearance Agreement, dated January 30, 2015, by and between the
Company, NaturalShrimp Holdings, Inc. and Baptist Community
Services (incorporated by reference to our Current Report on Form
8-K filed on February 11, 2015).
|
|
Stock
Pledge Agreement, dated January 30, 2015, by and between the
Company and Baptist Community Services (incorporated by reference
to our Current Report on Form 8-K filed on February 11,
2015).
|
|
Agreement
Regarding Loan Documents, dated January 30, 2015, by and between
the Company and NaturalShrimp Holdings, Inc. (incorporated by
reference to our Current Report on Form 8-K filed on February 11,
2015).
|
|
Exclusive
Rights Agreement, dated August 19, 2014, between NaturalShrimp
Holdings, Inc., its subsidiaries and F&T Water Solutions, LLC
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Members
Agreement, dated August 19, 2014, between NaturalShrimp Holdings,
Inc., F&T Water Solutions, LLC and the members of Natural
Aquatic Systems, LLC (incorporated by reference to our Current
Report on Form 8-K filed on February 11, 2015).
|
|
Form of
Subscription Agreement (incorporated by reference to our Current
Report on Form 8-K filed on May 7, 2015).
|
|
Form of
Promissory Note with Shirley K. Williams, Kay Chafin and Jack Heald
(incorporated by reference to our Annual Report on Form 10-K filed
on July 28, 2015).
|
|
Form of
Loan Agreement with Bill G. Williams (incorporated by reference to
our Annual Report on Form 10-K filed on July 28,
2015).
|
|
Form of
Security Agreement with Kay Chafin and Jack Heald (incorporated by
reference to our Annual Report on Form 10-K filed on July 28,
2015).
|
|
Form of
Line of Credit Agreement with Extraco Bank (incorporated by
reference to our Annual Report on Form 10-K filed on July 28,
2015).
|
|
Employment
Agreement dated April 1, 2015 with Bill G. Williams (incorporated
by reference to our Current Report on Form 8-K filed on May 7,
2015).
|
|
Employment
Agreement dated April 1, 2015 with Gerald Easterling (incorporated
by reference to our Current Report on Form 8-K filed on May 7,
2015).
|
|
Form of
Private Placement Subscription Agreement and 6% Unsecured
Convertible Note with Dragon Acquisitions LLC. (incorporated by
reference to our Annual Report on Form 10-K filed on June 29,
2017)
|
|
Form of
Promissory Note dated January 10, 2017 with Community National Bank
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on February 14, 2017).
|
|
Form of
Guaranty made by Gerald Easterling to Community National Bank
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on February 14, 2017).
|
|
Payoff
Letter, Termination and Release dated January 13, 2017 from Baptist
Community Services (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 14, 2017).
|
|
Securities
Purchase Agreement dated January 23, 2017 with Vista Capital
Investments, LLC. (incorporated by reference to our Annual Report
on Form 10-K filed on June 29, 2017)
|
|
Warrant
to Purchase Shares of Common Stock issued January 23, 2017 to Vista
Capital Investments, LLC. (incorporated by reference to our Annual
Report on Form 10-K filed on June 29, 2017)
|
|
Convertible
Note dated January 23, 2017 issued to Vista Capital Investments,
LLC. (incorporated by reference to our Annual Report on Form 10-K
filed on June 29, 2017)
|
|
Securities
Purchase Agreement dated March 16, 2017 with Peak One Opportunity
Fund, L.P. (incorporated by reference to our Annual Report on Form
10-K filed on June 29, 2017)
|
|
Convertible
Debenture dated March 28, 2017 issued to Peak One Opportunity Fund,
L.P.
|
|
6%
Convertible Note dated January 20, 2017 issued Dragon Acquisitions
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.1 on February 14, 2018)
|
|
Securities
Purchase Agreement dated March 16, 2017 with Peak One Opportunity
Fund, L.P. (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.2 on February 14, 2018)
|
|
Amendment
#1 to the Securities Purchase Agreement Entered into on March 16,
2017, dated July 5, 2017, with Peak One Opportunity Fund, L.P.
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.3 on February 14, 2018)
|
|
6%
Convertible Note dated March 11, 2017 issued to Dragon Acquisitions
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.4 on February 14, 2018)
|
|
6%
Convertible Note dated April 20, 2017 issued to Dragon Acquisitions
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.5 on February 14, 2018)
|
|
Securities
Purchase Agreement dated July 31, 2017, with Crown Bridge Partners
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.6 on February 14, 2018)
|
|
5%
Convertible Note dated July 31, 2017, issued to Crown Bridge
Partners LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.7 on February 14, 2018)
|
|
Common
Stock Purchase Warrant dated July 31, 2017, issued to Crown Bridge
Partners LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.8 on February 14, 2018)
|
|
Securities
Purchase Agreement dated August 28, 2017 with Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.9 on February 14, 2018)
|
|
12%
Convertible Note dated August 28, 2017, with Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.10 on February 14, 2018)
|
|
Common
Stock Purchase Warrant dated August 28, 2017, issued to Labrys
Fund, LP (incorporated by reference to our Quarterly Report on Form
10-Q filed as Exhibit 10.11 on February 14, 2018)
|
|
12%
Convertible Note dated September 11, 2017 issued to Auctus Funds,
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.12 on February 14, 2018)
|
|
Common
Stock Purchase Warrant dated September 11, 2017 issued to Auctus
Funds, LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.13 on February 14, 2018)
|
|
12%
Convertible Note dated September 12, 2017 issued to JSJ
Investments, Inc. (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.14 on February 14,
2018)
|
|
Securities
Purchase Agreement dated September 28, 2017 with EMA Financial, LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.15 on February 14, 2018)
|
|
12%
Convertible Note issued to EMA Financial, LLC dated September 28,
2017 (incorporated by reference to our Quarterly Report on Form
10-Q filed as Exhibit 10.16 on February 14, 2018)
|
|
Common
Stock Purchase Warrant dated October 2, 2017, issued to Crown
Bridge Partners LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.17 on February 14,
2018)
|
|
Securities
Purchase Agreement dated October 31, 2017 with Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.18 on February 14, 2018)
|
|
12%
Convertible Note dated October 31, 2017, issued to Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.19 on February 14, 2018)
|
|
Securities
Purchase Agreement dated November 9, 2017 with GS Capital Partners,
LLC. (incorporated by reference to our Quarterly Report on Form
10-Q filed as Exhibit 10.20 on February 14, 2018)
|
|
8%
Convertible Secured Redeemable Note issued to GS Capital Partners,
LLC dated November 14, 2017 (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.21 on February
14, 2018)
|
|
8%
Convertible Secured Redeemable Note issued to GS Capital Partners,
LLC dated November 14, 2017 (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.22 on February
14, 2018)
|
|
8%
Collateralized Secured Promissory Note dated November 14, 2017,
from GS Capital Partners, LLC (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.23 on February
14, 2018)
|
|
Securities
Purchase Agreement dated December 20, 2017 with GS Capital
Partners, LLC. (incorporated by reference to our Quarterly Report
on Form 10-Q filed as Exhibit 10.24 on February 14,
2018)
|
|
8%
Convertible Secured Redeemable Note issued to GS Capital Partners,
LLC dated December 20, 2017 (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.25 on February
14, 2018)
|
|
8%
Convertible Secured Redeemable Note issued to GS Capital Partners,
LLC dated December 20, 2017 (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.26 on February
14, 2018)
|
|
8%
Collateralized Secured Promissory Note dated November 14, 2017,
from GS Capital Partners, LLC (incorporated by reference to our
Quarterly Report on Form 10-Q filed as Exhibit 10.27 on February
14, 2018)
|
10.52
|
12%
Convertible Note dated April 27, 2018 from BlueHawk Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.52 on July 13, 2018)
|
10.53
|
Securities
Purchase Agreement dated March 20, 2018 with BlueHawk Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.53 on July 13, 2018)
|
10.54
|
12%
Collateralized Secured Promissory Note dated January 29, 2018 from
Adar Bays, LLC(incorporated by reference to our Annual Report on
Form 10-K filed as Exhibit 10.54 on July 13, 2018)
|
10.55
|
12%
Collateralized Secured Promissory Note dated January 29, 2018 from
Adar Bays, LLC(incorporated by reference to our Annual Report on
Form 10-K filed as Exhibit 10.55 on July 13, 2018)
|
10.56
|
Debt
Purchase Agreement dated February 8, 2018 between Labrys Fund LP
and Adar Bays, LLC(incorporated by reference to our Annual Report
on Form 10-K filed as Exhibit 10.56 on July 13, 2018)
|
10.57
|
12%
Convertible Redeemable Note dated January 29, 2018 from Adar Bays,
LLC (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.57 on July 13, 2018)
|
10.58
|
12%
Convertible Redeemable Note dated January 29, 2018 from Adar Bays,
LLC (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.58 on July 13, 2018)
|
10.59
|
Securities
Purchase Agreement dated January 29, 2018 with Adar Bays, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.59 on July 13, 2018)
|
10.60
|
Securities
Purchase Agreement dated April 12, 2018 with One44 Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.60 on July 13, 2018)
|
10.61
|
10%
Collateralized Secured Promissory Note dated April 12, 2018 with
One44 Capital, LLC (incorporated by reference to our Annual Report
on Form 10-K filed as Exhibit 10.61 on July 13, 2018)
|
10.62
|
First
Amendment to the Convertible Promissory Note dated July 31, 2017
with Crown Bridge Partners, LLC (incorporated by reference to our
Annual Report on Form 10-K filed as Exhibit 10.62 on July 13,
2018)
|
10.63
|
Securities
Purchase Agreement dated March 20, 2018 with Jefferson Street
Capital, LLC (incorporated by reference to our Annual Report on
Form 10-K filed as Exhibit 10.63 on July 13, 2018)
|
10.64
|
12%
Secured Convertible Promissory Note dated March 20, 2018 with
Jefferson Street Capital, LLC (incorporated by reference to our
Annual Report on Form 10-K filed as Exhibit 10.64 on July 13,
2018)
|
10.65
|
12%
Convertible Promissory Note dated March 9, 2018 with Power Up
Lending Group Ltd. (incorporated by reference to our Annual Report
on Form 10-K filed as Exhibit 10.65 on July 13, 2018)
|
10.66
|
12%
Convertible Promissory Note dated January 30, 2018 with Power Up
Lending Group Ltd. (incorporated by reference to our Annual Report
on Form 10-K filed as Exhibit 10.66 on July 13, 2018)
|
10.67
|
Securities
Purchase Agreement dated January 30, 2018 with Power Up Lending
Group Ltd. (incorporated by reference to our Annual Report on Form
10-K filed as Exhibit 10.67 on July 13, 2018)
|
10.68
|
Securities
Purchase Agreement dated March 9, 2018 with Power Up Lending Group
Ltd. (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.68 on July 13, 2018)
|
10.69
|
Equity
Financing Agreement with GHS Investments LLC (incorporated by
reference to our Current Report on Form 8-K filed as Exhibit 10.1
on August 27, 2018)
|
10.70
|
Registration
Rights Agreement with GHS Investments LLC (incorporated by
reference to our Current Report on Form 8-K filed as Exhibit 10.2
on August 27, 2018)
|
|
Consent
of Turner, Stone &
Company
|
|
Legal
Opinion of Lucosky Brookman LLP (See
Exhibit 5.1)
|
*Filed
herewith
ITEM 17. UNDERTAKINGS.
The
undersigned registrant hereby undertakes
1.
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
i.
To
include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
ii.
ii.
To
reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of Prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement. iii.
To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
2.
That,
for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3.
To
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
4.
That,
for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant
undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such
purchaser:
i.
Any
Preliminary Prospectus or Prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
ii.
Any
free writing Prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
iii.
The
portion of any other free writing Prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
iv.
Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
|
5.
|
That,
for the purpose of determining liability under the Securities Act
of 1933 to any purchaser: Each Prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other
than Prospectuses filed in reliance on Rule 430A, shall be deemed
to be part of and included in the registration statement as of the
date it is first used after effectiveness. Provided, however, that
no statement made in a registration statement or Prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or Prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or Prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first use.
|
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling
persons, we have been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
us of expenses incurred or paid by a director, officer or
controlling person of the corporation in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the
matter has been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by us is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the
final adjudication of such case.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized on September
7, 2018.
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
September
7, 2018
|
|
/s/Bill G. Williams
|
|
Chief
Executive Officer and Chairman of the Board
|
|
|
Bill G.
Williams
|
|
(Principal
Executive Officer)
|
In
accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in
the capacities and on the dates stated:
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
September
7, 2018
|
|
/s/ Bill G.
Williams
|
|
Chief
Executive Officer and Chairman of the Board
|
|
|
Bill G.
Williams
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
September
7, 2018
|
|
/s/ Gerald Easterling
|
|
President
and Director
|
|
|
Gerald
Easterling
|
|
|
|
|
|
|
|
September 7,
2018
|
|
/s/
William Delgado
|
|
Chief Financial
officer, Treasurer and Director
|
|
|
William
Delgado
|
|
(Principal
Financial Officer) (Principal Accounting Officer)
|