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
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.
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 December 14, 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.
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 September 30, 2018 to the
Three Months Ended September 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 September 30, 2018 are
summarized as follows, in comparison to our expenses for the three
months ended September 30, 2017:
|
Three Months
Ended September 30,
|
|
|
|
Salaries and
related expenses
|
$
101,223
|
$
77,095
|
Rent
|
2,749
|
3,290
|
Professional
fees
|
63,939
|
84,595
|
Other general and
administrative expenses
|
39,031
|
73,866
|
Facility
operations
|
22,978
|
8,117
|
Depreciation
|
17,719
|
17,719
|
Total
|
$
247,639
|
$
264,682
|
Operating expenses
for the three months ended September 30, 2018 were $247,639,
representing a decrease of 6% compared to operating expenses of
$264,682 for the same period in 2017. The slight decrease in
expenses is the result of a decrease in general and administrative
costs, offset by an increase in salaries and facility operations,
as the Company is progressing with their testing and planning to
begin commercial operations.
Comparison of the Six Months Ended September 30, 2018 to the Six
Months Ended September 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 six months ended September 30, 2018 are summarized
as follows, in comparison to our expenses for the six months ended
September 30, 2017:
|
Six Months Ended
September 30,
|
|
|
|
Salaries and
related expenses
|
$
205,165
|
$
154,495
|
Rent
|
6,030
|
4,790
|
Professional
fees
|
122,943
|
117,895
|
Other general and
administrative expenses
|
95,830
|
338,101
|
Facility
operations
|
43,963
|
15,406
|
Depreciation
|
35,445
|
35,444
|
Total
|
$
509,376
|
$
666,131
|
Operating expenses
for the six months ended September 30, 2018 were $509,376,
representing a decrease of 24% compared to operating expenses of
$666,131 for the same period in 2017. The primary reason for the
change is that in the six months ended September 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
September 30, 2018, we had cash on hand of approximately $5,000 and
a working capital deficiency of approximately $6,221,000 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 six months ended
September 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 accounts payable and accrued
interest of approximately $100,000, 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 in the
warrant liability
Working Capital Deficiency
Our
working capital deficiency as of September 30, 2018, in comparison
to our working capital deficiency as of March 31, 2018, can be
summarized as follows:
|
|
|
|
|
|
Current
assets
|
$
223,599
|
$
260,179
|
Current
liabilities
|
6,445,066
|
7,024,615
|
Working capital
deficiency
|
$
6,221,467
|
$
6,764,436
|
The
decrease in current assets is mainly due to the funding of two Back
end notes receivable in the amount of $112,000, offset by the
addition of a new Back end note receivable of $90,000. The total
current liabilities have decreased approximately $580,000, one
reason for which is 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, there are small increases in both accounts
payable and accrued expenses balances. 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 $642,000, reduced by a redemption and cancellation of
convertible debentures of $138,000, offset by conversions of the
convertible debentures and related accrued interest of
approximately $597,000. In relation to the reductions in the
convertible debentures, $1,740,000 of the derivative liability was
reclassed to equity which along with the reduced fair value of the
remaining derivative liability of $1,328,000, offset by an increase
of $1,724,000 of additions to the derivative liability upon
issuance of the new convertible debentures, resulted in a total
decrease in the derivative liability of $1,345,000. Also, the
warrant liability decreased based on warrant exercises, offset by
an increase in fair value of $47,000 when remeasured at period
end.
Cash Flows
Our
cash flows for the six months ended September 30, 2018, in
comparison to our cash flows for the six months ended September 30,
2017, can be summarized as follows:
|
Six Months Ended
September 30,
|
|
|
|
Net cash used in
operating activities
|
$
(402,798
)
|
$
(436,841
)
|
Net cash used in
investing activities
|
(81,777
)
|
-
|
Net cash provided
by financing activities
|
465,170
|
410,927
|
Decrease in
cash
|
$
(19,405
)
|
$
(25,914
)
|
The
decrease in net cash used in operating activities in the six months
ended September 30, 2018, compared to the same period in 2017,
mainly relates to 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, offset by the
difference in the changes in fair value of the derivative and
warrant liabilities between the two periods, as well increases in
accounts payable and accrued expenses during 2018 as compared to
2017, and the impact of the decrease in prepaid assets occurring in
2017. The net cash used in investing activities in the six months
ended September 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, as the Company
received proceeds of $112,000 from the funding of Back end notes
receivable in the six month period in 2018, while the Company made
approximately $91,000 of payments on debt with related parties in
the six months period in 2017. The cash provided by financing
activities during both the six months ended September 30, 2018 and
2017 arising from proceeds on convertible debentures and the sale
of common stock of the Company, offset by payments on outstanding
convertible debentures, was fairly consistent between the
periods.
Our
cash position was approximately $5,000 as of September 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
On
November 3, 2015, the Company entered into a short-term note
agreement with Community National Bank for a total value of
$50,000. On July 18, 2018 the outstanding principal balance of
$25,298 was exchanged for a 8% promissory note with a maturity date
of July 18, 2021. The balance of the note agreement at both
September 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 September 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 $276,958 at both
September 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 September
30, 2018. The line of credit is unsecured. The balance of the line
of credit was $9,580 at both September 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 September 30,
2018. The line of credit is secured by assets of the
Company’s subsidiaries. The balance of the line of credit is
$11,197 at both September 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. During
July and September, 2018, in two separate conversions, an
additional $20,654 of principal and $3,700 accrued interest of the
note was converted into 5,436,049 common shares of the Company. The
remainder of the principal, $40,328, is in default as of September
30, 2018, although the Company has not received a written notice of
default from the lender.
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. During the second quarter of fiscal 2019, in
a number of separate conversions, the debenture plus accrued
interest was fully converted into 4,517,493 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. During the second fiscal quarter of 2019, in three
separate conversions, the first debenture was fully converted into
12,607,777 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. During the second fiscal quarter of
2019, in two separate conversions, the holder converted $29,464 of
principal into 4,500,000 common shares of the Company.
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. On September
20, 2018 the outstanding principal and $5,040 in accrued interest
of the note was purchased from the noteholder by a third party, for
$126,882. The additional $37,842 represents the redemption amount
owing to the original noteholder, and increases the principal
amount due to the new noteholder, and was recognized as financing
cost. 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 has obtained a waiver from the holder on this
technical default. Due to the default the holder cancelled the
Back-End and Buyer notes as of September 30, 2018. 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%. 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”. 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
September 14, 2018, the Company entered into a 12% convertible
promissory note for $112,500, with an OID of $10,250, which matures
on March 14, 2019. There is a right of prepayement in the first 180
days, but there is no right to repay after 180 days. Per the
agreement, the Company is required at all times to have authorized
and reserved three 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 interest rate increases to a
default rate of 24% for events as set forth in the agreement,
including if the market capitalization is below $5 million, or
there are any dilutive issuances. There is also a cross default
provision to all other notes. In the event of default, the
outstanding principal balance increases to 150%, and if the Company
fails to maintain the required authorized share reserve, the
outstanding principal increases to 200%. Additionally, If the
Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there
are liquidation damages of 25% of principal, not to be below
$15,000. The Company must also obtain the noteholder's written
consent before issuing any new debt. Additionally, if the note is
not repaid by the maturity date the principal balance increases by
$15,000. The market capitalization is below $5 million and
therefore the note was in default as of September 30, 2018. The
holder has issued a waiver to the Company on this default
provision. The note is convertible at a variable conversion rate
that is the lesser of 60% of the lowest trading price for the last
20 days prior to the 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 10% adjustments to the conversion price for events set
forth in the agreement, including if the conversion price is less
than $0.01, if the Company is not DTC eligible, the Company is no
longer a reporting company, or the note can not 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 three times the number of shares that is
actually issuable upon full conversion of the note. Additionally,
in connection with the debenture the Company also issued 3,000,000
shares of common stock of the Company as a commitment fee. The fair
value of the commitment shares was calculated as $34,500, based on
the market value of the common shares at the closing date of
$0.012, 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, but are not required to be returned if
there is an event of default.
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
August 15, 2018, the Company authorized 5,000,000 of their Prefered
Stock to be designated as Series A Convertible Preferred Stock
(“Series A PS”), with a par value of $0.001. The Series
A PS shall have 60 to 1 voting rights such that each share shall
vote as to 60 shares of common stock. The Series A PS holders shall
not be entitled to receive dividends, if and when declared by the
Board. Upon the dissolution, liquidation or winding up of the
Company, the holders of Series A PS shall be entitled to receive
out of the assets of the Company the sum of $0.00l per share before
any payment or distribution shall be made on the common stock, or
any other class of capital stock of the Company ranking junior to
the Series A Preferred Stock. The Series A PS is convertible, after
two years from the date of issuance, with the consent of a majority
of the Series A PS holders, into the same number of common shares
of the Company as are outstanding at the time.
On
August 21, 2018, the NaturalShrimp Holdings,
Inc.(“NSH”) shareholders exchanged 75,000,000 of the
common shares of the Company which they held, into 5,000,000 newly
issued Series A PS. The common shares were returned to the treasury
and cancelled.
On
April 12, 2018, the Company sold 220,000 shares of its common stock
at $0.077 per share, for a total financing of $15,400
.
Between
April 6, 2018 and September 30, 2018, the Company issued 63,841,481
shares of the Company’s common stock upon conversion of
approximately $597,000 of their outstanding convertible debt and
approximately $43,000 of accrued interest.
The
Company issued 6,719,925 shares of their common stock on July 17,
2018, upon cashless exercise of the warrants granted in connection
with the first closing of the July Debenture, and on August 28,
2018, 4,494,347 shares were issued upon cashless exercise of the
warrants granted in connection with the second closing. (Note
5).
Equity Financing Agreement
On
August 21, 2018, the Company entered into an Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS Investments LLC, a Nevada limited
liability company (“GHS”). Under the terms of the
Equity Financing Agreement, GHS agreed to provide the Company with
up to $7,000,000 upon effectiveness of a registration statement on
Form S-1 (the “Registration Statement”) filed with the
U.S. Securities and Exchange Commission (the
“Commission”). The Registration Statement was filed,
and deemed effective on September 19, 2018.
Following effectiveness of the Registration
Statement, the Company has the discretion to deliver puts to GHS
and GHS will be obligated to purchase shares of the Company’s
common stock, par value $0.0001 per share (the “Common
Stock”) based on the investment amount specified in each put
notice. The maximum amount that the Company shall be entitled to
put to GHS in each put notice shall not exceed two hundred percent
(200%) of the average daily trading dollar volume of the
Company’s Common Stock during the ten (10) trading days
preceding the put, so long as such amount does not exceed $300,000.
Pursuant to the Equity Financing Agreement, GHS and its affiliates
will not be permitted to purchase and the Company may not put
shares of the Company’s Common Stock to GHS that would result
in GHS’s beneficial ownership equaling more than 9.99% of the
Company’s outstanding Common Stock. The price of each put
share shall be equal to eighty percent (80%) of the Market Price
(as defined in the Equity Financing Agreement). Puts may be
delivered by the Company to GHS until the earlier of thirty-six
(36) months after the effectiveness of the Registration Statement
or the date on which GHS has purchased an aggregate of $7,000,000
worth of Common Stock under the terms of the Equity Financing
Agreement.
Additionally, in
accordance with the Equity Financing Agreement, the Company shall
issue GHS a promissory note in the principal amount of $15,000 to
offset transaction costs (the “Note”). The Note bears
interest at the rate of 8% per annum, is not convertible and is due
180 days from the issuance date of the Note.
The
Company issued their first put notices to GHS in October 2018 (Note
10).
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
quarterly report on Form 10-Q have been prepared, assuming that the
Company will continue as a going concern. The Company has
accumulated losses through the period to September 30, 2018 of
approximately $35,371,000 as well as negative cash flows from
operating activities of approximately $403,000. During the six
months ended September 30, 2018, the Company received net cash
proceeds of approximately $466,000 from the issuance of new
convertible debentures, $112,000 from the payments on notes
receivable, and $15,400 from the sale of the Company’s common
stock. . The Company had approximately $597,000 of their
convertible debentures converted into 63,841,481 shares of their
common stock, reducing their current obligations. The Company also
entered into an Equity Financing Agreement whereby the Company has
the discretion to deliver puts to the investor for purchases of
shares of the Company’s common stock, with each put not to
exceed 200% of their average trading dollar volume for the previous
10 days, for up to $7,000,000 over the next 36 months. Subsequent
to September 30, 2018, the Company received $100,000 in net
proceeds from the issuance of a new convertible debenture.
Presently, the Company does not have sufficient cash resources to
meet its plans in the twelve months following September 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. As previously noted, the
Company entered into an Equity Financing Agreement whereby the
Company will have access to up to $7,000,000 through the sale of
shares of the Company’s common stock to an investor, with
each sale not to exceed 200% of their average trading dollar volume
over the previous 10 days over the next 36 months. Subsequent to
September 30, 2018 we have raised approximately an additional
$100,000, net of OID, from the issuance of new 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 herein for the quarter
ended September 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 September 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.
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
|
|
|
|
|
|
Audited
Consolidated Balance Sheets as of March 31, 2018 and Unaudted as of
September 30, 2018
|
F-2
|
|
|
|
|
Unaudited
Consolidated Statements of Operations for the Three and Six Months
Ended September 30, 2018 and 2017
|
F-3
|
|
|
|
|
Unaudited
Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 2018 and 2017
|
F-4
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
F-5
|
NATURALSHRIMP
INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash
|
$
4,876
|
$
24,280
|
Notes
receivable
|
181,200
|
207,200
|
Inventory
|
4,200
|
-
|
Prepaid
expenses
|
33,323
|
28,699
|
|
|
|
Total
current assets
|
223,599
|
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
|
(1,327,758
)
|
(1,292,313
)
|
|
|
|
Fixed
assets, net
|
1,173,414
|
1,203,509
|
|
|
|
Other
assets
|
|
|
Intercompany
|
-
|
-
|
Construction-in-process
|
247,477
|
171,050
|
Deposits
|
10,500
|
10,500
|
|
|
|
Total
other assets
|
257,977
|
181,550
|
|
|
|
Total
assets
|
$
1,654,990
|
$
1,645,238
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$
581,229
|
$
528,538
|
Accrued
interest, including related parties of $257,587 and $233,322,
respectively
|
286,331
|
240,377
|
Other
accrued expenses
|
555,571
|
497,321
|
Short-term
Promissory Note and Lines of credit
|
793,732
|
143,523
|
Current
maturities of bank loan
|
7,687
|
7,497
|
Convertible
debentures, less debt discount of $631,556 and $691,558,
respectively
|
577,254
|
516,597
|
Convertible
debentures, related party
|
87,600
|
87,600
|
Notes
payable - related parties
|
1,271,162
|
1,271,162
|
Derivative
liability
|
2,110,500
|
3,455,000
|
Warrant
liability
|
174,000
|
277,000
|
|
|
|
Total
current liabilities
|
6,445,066
|
7,024,615
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
loan, less current maturities
|
224,978
|
228,916
|
Lines
of credit
|
-
|
651,453
|
|
|
|
Total
liabilities
|
6,670,044
|
7,904,984
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
Series
A Convertible Preferred stock, $0.0001 par value, 5,000,000 shares
authorized 5,000,000 and 0 shares issued and outstanding at
September 30, 2018 and March 31, 2018, respectively
|
500
|
-
|
Common
stock, $0.0001 par value, 300,000,000 shares authorized 100,944,928
and 97,656,095 shares issued and outstanding at September 30, 2018
and March 31, 2018, respectively
|
10,094
|
9,766
|
Additional
paid in capital
|
30,345,848
|
27,743,352
|
Accumulated
deficit
|
(35,371,496
)
|
(34,012,864
)
|
|
|
|
Total
stockholders' deficit
|
(5,015,054
)
|
(6,259,746
)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$
1,654,990
|
$
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
|
22,978
|
8,117
|
43,963
|
15,406
|
General
and administrative
|
206,942
|
238,846
|
429,968
|
615,281
|
Depreciation
and amortization
|
17,719
|
17,719
|
35,445
|
35,444
|
|
|
|
|
|
Total
operating expenses
|
247,639
|
264,682
|
509,376
|
666,131
|
|
|
|
|
|
Net
Operating loss before other income (expense)
|
(247,639
)
|
(264,682
)
|
(509,376
)
|
(666,131
)
|
|
(17,043
)
|
0.064390476
|
|
|
Other
income (expense):
|
|
|
|
|
Interest
expense
|
(68,708
)
|
(20,161
)
|
(136,927
)
|
(60,516
)
|
Amortization
of debt discount
|
(365,529
)
|
(156,146
)
|
(708,983
)
|
(169,479
)
|
Financing
costs
|
(675,647
)
|
(510,064
)
|
(1,284,346
)
|
(510,064
)
|
Change
in fair value of derivative liability
|
1,096,000
|
58,000
|
1,328,000
|
93,000
|
Change
in fair value of warrant liability
|
-
|
(33,000
)
|
(47,000
)
|
(30,000
)
|
|
|
|
|
|
Total
other income (expense)
|
(13,884
)
|
(661,371
)
|
(849,256
)
|
(677,059
)
|
|
|
|
|
|
Loss
before income taxes
|
(261,523
)
|
(926,053
)
|
(1,358,632
)
|
(1,343,190
)
|
|
|
|
|
|
Provision
for income taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Net
loss
|
$
(261,523
)
|
$
(926,053
)
|
$
(1,358,632
)
|
$
(1,343,190
)
|
|
|
|
|
|
|
|
|
|
|
Loss
per share - Basic
|
$
(0.00
)
|
$
(0.01
)
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
120,729,446
|
92,851,835
|
117,301,552
|
92,663,520
|
The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
NATURALSHRIMP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$
(1,358,632
)
|
$
(1,343,190
)
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
Depreciation
expense
|
35,445
|
35,444
|
Amortization
of debt discount
|
708,983
|
169,479
|
Change
in fair value of derivative liability
|
(1,328,000
)
|
(93,000
)
|
Change
in fair value of warrant liability
|
47,000
|
30,000
|
Financing
costs related to convertible debentures
|
1,284,346
|
510,064
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
Inventory
|
(4,200
)
|
-
|
Prepaid
expenses and other current assets
|
(4,624
)
|
134,144
|
Accounts
payable
|
46,841
|
29,470
|
Other
accrued expenses
|
74,896
|
70,748
|
Accrued
interest
|
95,147
|
20,000
|
|
|
|
Cash used in operating activities
|
(402,798
)
|
(436,841
)
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Cash
paid for fixed assets
|
(5,350
)
|
-
|
Cash
paid for construction in progress
|
(76,427
)
|
-
|
|
|
|
Cash used in investing activities
|
(81,777
)
|
-
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Payments
on bank loan
|
(3,748
)
|
(2,837
)
|
Payment
of related party notes payable
|
-
|
(24,000
)
|
Repayment
Line of Credit Short-term
|
(1,244
)
|
(2,486
)
|
Notes
receivable
|
112,000
|
-
|
Proceeds
from sale of stock
|
15,400
|
25,000
|
Proceeds
from convertible debentures
|
465,800
|
432,750
|
Proceeds
from convertible debentures, related party
|
|
180,000
|
Payments
on convertible debentures
|
(123,038
)
|
(130,000
)
|
Payments
on convertible debentures, related party
|
-
|
(67,500
)
|
|
|
|
Cash provided by financing activities
|
465,170
|
410,927
|
|
|
|
Net change in cash
|
(19,405
)
|
(25,914
)
|
|
|
|
Cash at beginning of period
|
24,280
|
88,195
|
|
|
|
Cash at end of period
|
$
4,875
|
$
62,281
|
|
|
|
|
|
|
Interest paid
|
$
60,398
|
$
40,516
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
Shares
issued upon conversion of convertible debentures
|
$
662,953
|
$
-
|
Shares
issued upon exercise of warrants
|
$
150,000
|
$
-
|
Notes
receivable for convertible debentures
|
$
90,000
|
$
-
|
Common
shares exchanged for Series A Preferred Shares
|
$
500
|
$
-
|
The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
NATURALSHRIMP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 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 and six months ended September 30, 2018, the Company had
a net loss of approximately $262,000 and $1,359,000, respectively.
At September 30, 2018, the Company had an accumulated deficit of
approximately $35,371,000 and a working capital deficit of
approximately $6,221,000. 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 six months ended September 30, 2018, the Company
received net cash proceeds of approximately $466,000 from the
issuance of new convertible debentures and $15,400 from the sale of
the Company’s common stock. The Company had approximately
$597,000 of principal of their convertible debentures converted
into 63,841,481 shares of their common stock, reducing their
current obligations. The Company also entered into an Equity
Financing Agreement (Note 6) whereby the Company has the discretion
to deliver puts to the investor for purchases of shares of the
Company’s common stock, at 80% of the market price, for up to
$7,000,000 over the next 36 months. Subsequent to September 30,
2018, the Company received $100,000 in net proceeds from the
issuance of new convertible debentures and approximately $42,000 in
net proceeds from the sales of common shares through their equity
financing agreement (Note 6). 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. 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 and six months ended September 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
and six months ended September 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 six
months ended September 30, 2018, the Company had approximately
$1,296,000 in principal on convertible debentures whose
approximately 193,807,000 underlying shares are convertible at the
holders’ option at conversion prices ranging from 34% - 61%
of the defined trading price and approximately 14,537,000 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 six months ended September 30, 2017, the Company had
$595,000 in convertible debentures whose underlying shares were
convertible at the holders’ option at initial fixed
conversion prices ranging from $0.30 to 60% of the defined trading
price and 890,000 warrants with an exercise price of $0.15, 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 September 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 six months ended September 30, 2018:
Derivative
liability balance at March 31, 2018
|
$
3,455,000
|
Additions to
derivative liability for new debt
|
1,724,000
|
Reclass to equity
upon conversion/cancellation
|
(1,740,500
)
|
|
(1,328,000
)
|
Balance at
September 30, 2018
|
$
2,110,500
|
At
September 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 and $35,000 for both the three and six
months ended September 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 on April 1,
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 six months ended September 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 September 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. On July 18, 2018 the outstanding principal balance of
$25,298 was exchanged for an 8% promissory note with a maturity
date of July 18, 2021. The balance of the note agreement at both
September 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 September 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 $276,958 at both
September 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 September
30, 2018. The line of credit is unsecured. The balance of the line
of credit was $9,580 at both September 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 September 30,
2018. The line of credit is secured by assets of the
Company’s subsidiaries. The balance of the line of credit is
$11,197 at both September 30, 2018 and March 31, 2018.
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:
|
|
September 30,
2019
|
$
7,687
|
|
224,978
|
|
$
232,665
|
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
and 37,500 with the second closing, with an exercise price of
$0.60. The warrants have an anti-dilution provision for future
issuances, whereby the exercise price would reset. 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 issued 6,719,925 shares
of their common stock on July 17, 2018, upon cashless exercise of
the warrants granted in connection with the first closing of the
July Debenture, and on August 28, 2018, 4,494,347 shares were
issued upon cashless exercise of the warrants granted in connection
with the second closing. As a result of the exercise, the fair
value of the warrants at the date of exercise was reclassed into
equity. The Company estimated the fair value of the warrants using
the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
of $0.02 at both exercise dates; a risk-free interest rate of 2.73
and 2.77% and expected volatility of the Company’s common
stock, of 351.29 and 342.70%, resulting in an aggregate fair value
of $150,000.
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 matured
on June 11, 2018, and is in default as of September 30, 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 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 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.
During July and September 2018, in two separate conversions, an
additional $20,654 of principal and $3,700 accrued interest of the
note was converted into 5,436,049 common shares of the Company. The
remainder of the principal, $40,328, is in default as of September
30, 2018, although the Company has not received a written notice of
default from the lender. As a result of the conversions in the
second quarter of 2019, the derivative liability was remeasured
immediately prior to the conversions with an overall decrease of
$82,000 recognized, with the fair value of the derivative liability
related to the converted portion, of $61,000 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, $0.01; a risk-free interest rate of 2.00% and expected
volatility of the Company’s common stock, of 248.71% , and
the various estimated reset exercise prices weighted by
probability. As a result of the conversions in the first quarter of
2019, 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.
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.
During
the second quarter of fiscal 2019, in a number of separate
conversions, the debenture plus accrued interest was fully
converted into 4,517,493 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 in
the fair value of $15,000 recognized, with the fair value of the
remaining derivative liability of $31,000 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 $0.02; a risk-free interest rate of 2.02% to 2.14%
and expected volatility of the Company’s common stock of
193.06 % to 248.71% , and the various estimated reset exercise
prices weighted by probability.
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 and $1,178 of accrued interest into 4,363,013
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 in the fair value of $260,000
recognized, with the fair value of the derivative liability related
to the converted portion, of $36,000 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
$0.02; a risk-free interest rate of 2.06% and expected volatility
of the Company’s common stock, of 248.71%, and the various
estimated reset exercise prices weighted by
probability.
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, for cash proceeds of $38,000. Per the agreement,
the Company is required at all times to have authorized and
reserved three 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
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.
During
the second fiscal quarter of 2019, in three separate conversions,
the first debenture was fully converted into 12,607,777 common
shares of the Company. As a result of the conversions the
derivative liability related to the first debenture was remeasured
immediately prior to the conversions with an overall decrease in
the fair value of $37,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $64,000
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 $0.01 to $0.02; a risk-free interest
rate of 2.17% to 2.22% and expected volatility of the
Company’s common stock, of 193.06% to 321.92%, and the
various estimated reset exercise prices weighted by
probability.
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 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, with the
approximately $40,000 redemption amount being recognized as
financing costs. Upon redemption, the fair value of the related
derivative liability was remeasured immediately prior to the
redemption with an overall decrease in the fair value of $90,000
recognized, and the derivative liability fair value of $119,000
reclassed to equity. The key valuation assumptions used consist, in
part, of the price of the Company’s common stock on the date
of redemption, of $0.01; a risk-free interest rate of 1.93% and
expected volatility of the Company’s common stock, of
248.71%, and the various estimated reset exercise prices weighted
by probability.
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 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. On August 24, 2018
the outstanding principal and $2,304 in accrued interest of the
note was purchased from the noteholder by a third party, for
$71,000. The additional $25,696 represents the redemption amount
owing to the original noteholder and increases the principal amount
due to the new noteholder and was recognized as financing
cost.
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.
During
the second fiscal quarter of 2019, in two separate conversions, the
holder converted $29,464 of principal into 4,500,000 common shares
of the Company. As a result of the conversions the derivative
liability related to the first debenture was remeasured immediately
prior to the conversions with an overall decrease in the fair value
of $60,000 recognized, with the fair value of the derivative
liability related to the converted portion, of $33,000 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 $0.01 ; a risk-free interest rate of 2.33%
to 2.37% and expected volatility of the Company’s common
stock, of 223.20% , and the various estimated reset exercise prices
weighted by probability.
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.
During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 125% to
150% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from the issuance
to 180 days from the date of issuance of the debenture. On
September 20, 2018 the outstanding principal and $5,040 in accrued
interest of the note was purchased from the noteholder by a third
party, for $126,882. The additional $37,842 represents the
redemption amount owing to the original noteholder and increases
the principal amount due to the new noteholder and was recognized
as financing cost.
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.
During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 125% to
150% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from the issuance
to 180 days from the date of issuance of the debenture. On
September 20, 2018 the outstanding principal and $2,352 in accrued
interest of the note was purchased from the noteholder by a third
party, for $62,326. The additional $20,775 represents the
redemption amount owing to the original noteholder and increases
the principal amount due to the new noteholder and was recognized
as financing cost.
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. Due to the default the holder cancelled the
Back-End and Buyer notes as of September 30, 2018. Upon
cancellation the remaining unamortized debt discount of $27,500 was
immediately expensed. Also as a result of the cancellation, the
fair value of the derivative liability related to the Back-End note
was remeasured with a decrease in the fair value of $128,000
recognized, and the fair value of the derivative liability related
to the note of $91,500 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 $0.01; a
risk-free interest rate of 2.36% and expected volatility of the
Company’s common stock, of 223.20%, and the various estimated
reset exercise prices weighted by probability.
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.
July 27, 2018 Debenture
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%. Per the agreement, the
Company is required at all times to have authorized and reserved
16,900,000 common shares of the Company. 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
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 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.
The
Company estimated the aggregate fair value of the conversion
feature derivatives embedded in the debenture at issuance at
$374,000, 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 $0.01 at issuance date; a risk-free interest rate of 2.43% 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 $194,000 was immediately expensed as financing
costs.
August 24, 2018 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%.
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.
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 $0.02 at issuance date; a risk-free interest rate of 2.44% and
expected volatility of the Company’s common stock, of
295.23%, 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 $95,750 was immediately expensed as financing
costs.
September 14, 2018 Debenture
On
September 14, 2018, the Company entered into a 12% convertible
promissory note for $112,500, with an OID of $10,250, which matures
on March 14, 2019. There is a right of prepayment in the first 180
days, but there is no right to repay after 180 days. Per the
agreement, the Company is required at all times to have authorized
and reserved three 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 interest rate increases to a
default rate of 24% for events as set forth in the agreement,
including if the market capitalization is below $5 million, or
there are any dilutive issuances. There is also a cross default
provision to all other notes. In the event of default, the
outstanding principal balance increases to 150%, and if the Company
fails to maintain the required authorized share reserve, the
outstanding principal increases to 200%. Additionally, If the
Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there
are liquidation damages of 25% of principal, not to be below
$15,000. The Company must also obtain the noteholder's written
consent before issuing any new debt. Additionally, if the note is
not repaid by the maturity date the principal balance increases by
$15,000. The market capitalization is below $5 million and
therefore the note is in default as of September 30,
2018.
The
note is convertible at a variable conversion rate that is the
lesser of 60% of the lowest trading price for the last 20 days
prior to the 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 10% adjustments
to the conversion price for events set forth in the agreement,
including if the conversion price is less than $0.01, 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
three 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.
Additionally,
in connection with the debenture the Company also issued 3,000,000
shares of common stock of the Company as a commitment fee. The fair
value of the commitment shares was calculated as $34,500, based on
the market value of the common shares at the closing date of
$0.012, 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 but are not required to be returned if
there is an event of default.
The
Company estimated the aggregate fair value of the conversion
feature derivatives embedded in the debenture at issuance at
$189,000, 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 $0.01 at issuance date; a risk-free interest rate of 2.33% and
expected volatility of the Company’s common stock, of
224.70%, 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 $121,000 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 September 30, 2018, resulting in a
decrease of the fair value of the derivative liability of $424,000
and $188,000, respectively, for the three and six months ended
September 30, 2018. During the three and six months ended September
30, 2018, there was a reclass of $222,000 and $1,527,000 of the
derivative fair value to equity upon the conversions of
approximately $130,000 and $597,000 of principal, and a decrease in
the fair value of $457,000 and $925,000 immediately prior to
conversion . The key valuation assumptions used consist, in part,
of the price of the Company’s common stock of $0.012; a
risk-free interest rate ranging from 1.93% to 2.59%, and expected
volatility of the Company’s common stock ranging from 193.06%
to 294.17%, and the various estimated reset exercise prices
weighted by probability.
The
warrant liability relating to all of the outstanding warrant
issuances discussed above was revalued at September 30, 2018,
resulting in an estimated fair value of $174,000, for an increase
to the fair value of $47,000 for both the three and six months
ended September 30, 2018. The key valuation assumptions used
consists, in part, of the price of the Company’s common stock
of $0.012; a risk-free interest rate of 2.88%, and expected
volatility of the Company’s common stock of
342.70%.
NOTE 6 – STOCKHOLDERS’ DEFICIT
Preferred Stock
On
August 15, 2018, the Company authorized 5,000,000 of their
Preferred Stock to be designated as Series A Convertible Preferred
Stock (“Series A PS”), with a par value of $0.001. The
Series A PS shall have 60 to 1 voting rights such that each share
shall vote as to 60 shares of common stock. The Series A PS holders
shall not be entitled to receive dividends, if and when declared by
the Board. Upon the dissolution, liquidation or winding up of the
Company, the holders of Series A PS shall be entitled to receive
out of the assets of the Company the sum of $0.00l per share before
any payment or distribution shall be made on the common stock, or
any other class of capital stock of the Company ranking junior to
the Series A Preferred Stock. The Series A PS is convertible, after
two years from the date of issuance, with the consent of a majority
of the Series A PS holders, into the same number of common shares
of the Company as are outstanding at the time.
On
August 21, 2018, the NaturalShrimp Holdings,
Inc.(“NSH”) shareholders exchanged 75,000,000 of the
common shares of the Company which they held, into 5,000,000 newly
issued Series A PS. The common shares were returned to the treasury
and cancelled. The Series A PS do not have any redemption feature
and are therefore classified in permanent equity. The conversion
feature was evaluated, and as at the commitment date the fair value
of the common shares exchanged was greater than the fair value of
the shares into which they would be converted, it was determined
there was no beneficial aspect to the conversion
feature.
Common Stock
On
April 12, 2018, the Company sold 220,000 shares of its common stock
at $0.077 per share, for a total financing of $15,400.
Between
April 6, 2018 and September 30, 2018, the Company issued 63,841,481
shares of the Company’s common stock upon conversion of
approximately $597,000 of their outstanding convertible debt and
approximately $43,000 of accrued interest.
The
Company issued 6,719,925 shares of their common stock on July 17,
2018, upon cashless exercise of the warrants granted in connection
with the first closing of the July Debenture, and on August 28,
2018, 4,494,347 shares were issued upon cashless exercise of the
warrants granted in connection with the second closing. (Note
5).
Equity Financing Agreement
On August 21, 2018, the Company entered into an Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS Investments LLC, a Nevada limited
liability company (“GHS”). Under the terms of the
Equity Financing Agreement, GHS agreed to provide the Company with
up to $7,000,000 upon effectiveness of a registration statement on
Form S-1 (the “Registration Statement”) filed with the
U.S. Securities and Exchange Commission (the
“Commission”). The Registration Statement was filed and
deemed effective on September 19, 2018.
Following effectiveness of the Registration Statement, the Company
has the discretion to deliver puts to GHS and GHS will be obligated
to purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $300,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to
purchase, and the Company may not put shares of the Company’s
Common Stock to GHS that would result in GHS’s beneficial
ownership equaling more than 9.99% of the Company’s
outstanding Common Stock. The price of each put share shall be
equal to eighty percent (80%) of the Market Price (as defined in
the Equity Financing Agreement). Puts may be delivered by the
Company to GHS until the earlier of thirty-six (36) months after
the effectiveness of the Registration Statement or the date on
which GHS has purchased an aggregate of $7,000,000 worth of Common
Stock under the terms of the Equity Financing Agreement.
Additionally, in accordance with the Equity Financing Agreement,
the Company shall issue GHS a promissory note in the principal
amount of $15,000 to offset transaction costs (the
“Note”). The Note bears interest at the rate of 8% per
annum, is not convertible and is due 180 days from the issuance
date of the Note.
The Company issued their first put notices to GHS in October 2018
(Note 10).
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 September 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 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%. Interest expense on the note was approximately $3,700 and
$7,400 during the three and six months ended September 30, 2018,
respectively. At September 30, 2018 and March 31, 2018, accrued
interest payable was $28,823 and $21,462,
respectively.
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 September 30, 2018 and March 31, 2018 was $426,404 and is
classified as a current liability on the consolidated balance
sheets. Interest expense on the note was approximately $8,500 and
$17,000 during the three and six months ended September 30, 2018,
respectively. At September 30, 2018 and March 31, 2018, accrued
interest payable was $223,976 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. The note is
unsecured. The balance of the note at September 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 $1,500 during the three and six months ended
September 30, 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
September 30, 2018 and March 31, 2018 was $5,000 and is classified
as a current liability on the consolidated balance sheets. At
September 30, 2018 and March 31, 2018, accrued interest payable was
$1,800 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 September 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 $63,000 of
their outstanding convertible debt as of September 30, 2018 and
approximately $2,000 of accrued interest and fees, into 21,398,126
shares of the Company’s common stock.
On
October 3, 2018, the Company put to GHS for the issuance of
2,814,682 shares of common stock, at $0.0088, for a total of
$24,769. On October 22, 2018, the Company put to GHS for the
issuance of 3,525,917 shares of common stock, at $0.0048, for a
total of $16,924.
On
October 30, 2018, the Company entered into an 8% convertible
promissory note for $113,300, with an OID of $10,300, which matures
on October 30, 2019. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at a
prepayment percentage of 123% of the outstanding principal and
accrued interest. 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 interest rate increases to a default rate of 24% for events as
set forth in the agreement. In the event of default, the
outstanding principal balance increases to 150%, and if the Company
fails to maintain the required authorized share reserve or is
unable to issue the requested shares upon a conversion notice, the
outstanding principal increases to 200%.
The
note is convertible after 180 days at a variable conversion rate
that is 75% of the average of the lowest two trading prices over
the 15 days prior to conversion. The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
is accounted for as a derivative liability.
NATURALSHRIMP INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2018
TABLE OF CONTENTS
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-27
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
Consolidated
Balance Sheets
|
F-28
|
|
|
Consolidated
Statements of Operations
|
F-29
|
|
|
Consolidated
Statements of Shareholders’ Deficit
|
F-30
|
|
|
Consolidated
Statements of Cash Flows
|
F-31
|
|
|
Notes
to Consolidated Financial Statements
|
F-32
|
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
|
|
|
|
|
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
)
|
|
|
|
|
1,203,509
|
1,274,372
|
|
|
|
Other
assets
|
|
|
Construction-in-process
|
171,050
|
-
|
Deposits
|
10,500
|
10,500
|
|
|
|
|
181,550
|
10,500
|
|
|
|
|
$
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
|
|
|
|
|
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
|
|
|
|
|
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
)
|
|
|
|
|
$
(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
|
|
|
|
|
|
|
|
|
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
)
|
|
|
|
|
|
|
|
|
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
)
|
|
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
|
|
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
%
|
|
(41.86
)%
|
(525.25
)%
|
|
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
|
|
408,000
|
350,000
|
Total deferred tax
asset
|
1,045,000
|
920,000
|
|
(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 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, 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 it sold 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).
|
3.1(c)
|
Amendment
to Articles of Incorporation*
|
|
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
|
|
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)
|
|
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)
|
|
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)
|
|
12%
Convertible Promissory Note dated June 5, 2018 with JSJ
Investments, Inc. (incorporated by to our Quarterly Report on Form
10-Q filed as Exhibit 10.71 on November 13, 2018)
|
|
12%
Convertible Promissory Note dated June 5, 2018 with JSJ
Investments, Inc. (incorporated by to our Quarterly Report on
Form 10-Q filed as Exhibit 10.72 on November 13, 2018)
|
|
10%
Convertible Secured Redeemable Note issued to GS Capital Partners,
LLC dated July 27, 2018 (incorporated by to our Quarterly
Report on Form 10-Q filed as Exhibit 10.73 on November 13,
2018)
|
|
10%
Collateralized Secured Promissory Note dated July 27, 2018, from GS
Capital Partners, LLC (incorporated by to our Quarterly Report
on Form 10-Q filed as Exhibit 10.74 on November 13,
2018)
|
|
Securities
Purchase Agreement dated August 24, 2018 with One44 Capital,
LLC (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.75 on November 13, 2018)
|
|
10%
Convertible Redeemable Note issued August 24, 2018 with One44
Capital, LLC (incorporated by to our Quarterly Report on Form
10-Q filed as Exhibit 10.76 on November 13, 2018)
|
|
Securities
Purchase Agreement dated September 14, 2018 with Labrys Fund
LP (incorporated by to our Quarterly Report on Form 10-Q filed
as Exhibit 10.77 on November 13, 2018)
|
|
12%
Convertible Promissory Note dated September 14, issued to Labrys
Fund, LP (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.78 on November 13, 2018)
|
|
Securities
Purchase Agreement dated October 30, 2018 with Power Up Lending
Group Ltd (incorporated by to our Quarterly Report on Form
10-Q filed as Exhibit 10.79 on November 13, 2018)
|
|
8%
Convertible Promissory Note dated October 30, 2018 with Power Up
Lending Group Ltd (incorporated by to our Quarterly Report on
Form 10-Q filed as Exhibit 10.80 on November 13, 2018)
|
|
Subsidiaries
of the Registrant
|
23.1
*
|
Consent
of
Turner, Stone &
Company
|
23.2*
|
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. 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.