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, 2019, the Company had a net loss of
approximately $7,211,000. At March 31, 2019, the Company had an
accumulated deficit of approximately $41,223,000 and a working
capital deficit of approximately $3,773,000. 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 2019 fiscal year, the Company received net
cash proceeds of approximately $1,125,000 from the issuance of
convertible debentures (including amount received on notes
receivable which were issued as collateralization for back end
notes), approximately $465,000 from issuance of the Company’s
common stock through an equity financing agreement and $15,000 from
the sale of the Company’s common stock. Subsequent to March
31, 2019, the Company received $100,000 in net proceeds from one
convertible debentures, and $1,500,000 from the issuance of
approximately 11,483,000 common shares under the equity financing
agreement. (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 shares of common stock
outstanding. Diluted EPS is based on the weighted average number of
shares of common stock 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 shares of common stock outstanding (denominator)
during the period. For
the year ended March 31, 2019, the Company had approximately
$1,097,000 in convertible debentures whose approximately 66,376,000
underlying shares are convertible at the holders’ option at
conversion prices ranging from $0.01 to $0.30 for fixed conversion
rates, and 34% - 60% of the defined trading price for variable
conversion rates and approximately 444,000 warrants with an
exercise price of 45% 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, 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 45% 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.
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, 2019 and 2018.
The
Derivative liabilities are Level 3 fair value
measurements.
The
following is a summary of activity of Level 3 liabilities during
the years ended March 31, 2019 and 2018:
Derivatives
|
|
|
Derivative
liability balance at beginning of period
|
$3,455,000
|
$218,000
|
Additions to
derivative liability for new debt
|
2,090,000
|
2,213,000
|
Reclass to equity
upon conversion or redemption
|
(4,068,500)
|
(576,000)
|
Change in fair
value
|
(1,319,500)
|
1,600,000
|
Balance at end of
period
|
$157,000
|
$3,455,000
|
At
March 31, 2019, 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 $0.21; a risk-free interest rate ranging from 2.41% to
2.63%, and expected volatility of the Company’s common stock
ranging from 335.68% to 478.31%, and the various estimated reset
exercise prices weighted by probability.
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.
Warrant liability
|
|
|
Warrant liability
balance at beginning of period
|
$277,000
|
$28,000
|
Additions to
warrant liability for new warrants
|
-
|
493,000
|
Reclass to equity
upon exercise
|
(231,000)
|
-
|
Change in fair
value
|
47,000
|
(244,000)
|
Balance at end of
period
|
$93,000
|
$277,000
|
At March 31, 2019,
the fair value of the warrant liability was estimated using the
following weighted-average inputs: the price of the Company’s
common stock of $0.21; a risk-free interest rate of 2.21%, and
expected volatility of the Company’s common stock ranging of
285.32%.
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 2.22% to
2.56%, and expected volatility of the Company’s common stock
of 358.6%.
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, 2019 and 2018.
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 $30,000 and $71,000 for the years ended March 31,
2019 and 2018, 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, and the 2019 fiscal year for the
Company. 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 Long-lived Assets and Long-lived Assets
The
Company will periodically evaluate the carrying value of long-lived
assets to be held and used when events and circumstances warrant
such a review and at least annually. The carrying value of a
long-lived 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 long-lived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived 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
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). The Company
adopted ASU 2016-02 on January 1, 2019, and the adoption did not
have a material impact on the Company’s financial position or
results of operations.
In May
2014, the FASB issued Accounting Standards Update ("ASU") No.
2014-09, Revenue from Contracts with Customers: Topic 606, or ASU
2014-09. ASU 2014-09 establishes the principles for recognizing
revenue and develops a common revenue standard for U.S. GAAP. The
standard outlines a single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including
industry-specific guidance. In applying the new revenue recognition
model to contracts with customers, an entity: (1) identifies the
contract(s) with a customer; (2) identifies the performance
obligations in the contract(s); (3) determines the transaction
price; (4) allocates the transaction price to the performance
obligations in the contract(s); and (5) recognizes revenue when (or
as) the entity satisfies a performance obligation. The accounting
standards update applies to all contracts with customers except
those that are within the scope of other topics in the FASB
Accounting Standards Codification. The accounting standards update
also requires significantly expanded quantitative and qualitative
disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. The
Company adopted Topic 606 as of April 1, 2018, using the modified
retrospective transition method. Under the modified retrospective
method, the Company would recognize the cumulative effect of
initially applying the standard as an adjustment to opening
retained earnings at the date of initial application; however, the
Company did not have any material adjustment as of the date of the
adoption and adoption had no impact on the Company's consolidated
balance sheet, results of operations, equity or cash flows as of
the adoption date. The comparative periods have not been
restated.
During
the year ended March 31, 2019, 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, 2019, 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 had a stated interest rate of 5.25%,
maturity date of December 15, 2017 and had an initial interest only
payment on February 3, 2016. On July 18, 2018, the short-term note
was replaced by a promissory note for the outstanding balance of
$25,298, which bears interest at 8% with a maturity date of July
18, 2021. The short-term note is guaranteed by an officer and
director. The balance of the line of credit at both March 31, 2019
and 2018 was $20,193 and $25,298, respectively.
The
Company also has a working capital line of credit with Extraco
Bank. On April 30, 2019, the Company renewed the line of credit for
$372,675. 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, 2020 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, 2019 and March 31, 2018,
respectively, included in non-current liabilities. On April 12,
2019, prior to the renewal, the Company paid $100,000 on the
loan.
The
Company also has additional lines of credit with Extraco Bank for
$100,000 and $200,000, which were renewed on January 19, 2019 and
April 30, 2019, respectively, with maturity dates of January 19,
2020 and April 30, 2020, respectively. The $200,000 line of credit
is included in non-current liabilities as of March 31, 2019 and
March 31, 2018, with an outstanding balance of $178,778. The lines
of credit bear an interest rate of 6.5% and 5%, respectively, 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 March 31, 2019 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 31.4% as of March 31,
2019. The line of credit is unsecured. The balance of the line of
credit was $9,580 at both March 31, 2019 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 15.50% as of March 31, 2019.
The line of credit is secured by assets of the Company’s
subsidiaries. The balance of the line of credit is $10,237 at March
31, 2019 and March 31, 2018.
NOTE 4 – BANK LOAN
On January 10,
2017, the Company entered into a promissory note with Community
National Bank for $245,000, at an annual interest rate of 5% and a
maturity date of January 10, 2020 (the “CNB Note”). The
CNB Note is secured by certain real property owned by the Company
in LaCoste, Texas, and is also personally guaranteed by the
Company’s President, as well as certain shareholders of the
Company. The balance of the CNB Note is $228,759 at March 31, 2019
and $236,413 at March 31, 2018, $7,497 of which was in current
liabilities.
NOTE 5 – CONVERTIBLE DEBENTURES
January 2017 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
debenture is 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 shares of common
stock 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 2017 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 $150,000 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 shares of common stock of the
Company 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 shares of common stock of the Company to the
debenture holder. The fair value of the fee shares was calculated
as $26,625, based on the market value of the shares of common stock
of the Company 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 2017 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
“July Debentures”). 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 shares of common stock of the Company, 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 shares of common stock 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 shares of common stock 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.
During
April 2018, in three separate conversions, the remainder of the
first closing was fully converted into 1,225,627 shares of common
stock 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 shares of
common stock of the Company. As a result of the conversions the
derivative liability was remeasured immediately prior to the
conversions with an overall decrease of $25,000 recognized, with
the fair value of the derivative liability related to the converted
portion of $67,000 being reclassified to equity. The key valuation
assumptions used consist, in part, of the price of the
Company’s common stock on the date of conversion, of $0.03 to
$0.04; a risk-free interest rate of 1.91% to 1.93% and expected
volatility of the Company’s common stock, of 248.71%, and the
various estimated reset exercise prices weighted by
probability.
Additionally, with
each tranche under the note, the Company shall issue a warrant to
purchase an amount of shares of its common stock equal to the face
value of each respective tranche divided by $0.60 as a commitment
fee. The Company issued a warrant to purchase 75,000 shares of the
Company’s common stock with the first closing, with an
exercise price of $0.60. The warrant has an anti-dilution provision
for future issuances, whereby the exercise price would reset. The
exercise price was adjusted to $0.15 and the warrants issued
increased to 300,000, upon a warrant issuance related to a new
convertible debenture on September 11, 2017. The warrants exercise
price was subsequently reset to 50% of the market price during the
third quarter of fiscal 2018, and the warrants issued increased
accordingly. Due to the conversion features on specified notes
containing variable conversion prices with no stated floor the
warrants were required to be 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. 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 were 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 2017 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 shares of
common stock 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 shares of common stock of the Company 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 shares of common stock of the Company 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
shares of common stock 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 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.
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. Due to the
conversion features on specified notes containing variable
conversion prices with no stated floor, , the warrants were
required to be 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 shares of common stock of the
Company. 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.
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 shares of common stock of the Company. 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..
During
the third fiscal quarter of 2019, in five separate conversions, the
remaining principal was fully converted, along with $1,475 accrued
interest of the note into 27,186,186 shares of common stock of the
Company. As a result of the conversions in the third quarter of
2019, the derivative liability was remeasured immediately prior to
the conversions with an overall increase of $15,000 recognized,
with the fair value of the derivative liability related to the
converted portion, of $131,000 being reclassified to equity. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock on the dates of conversion, of
$0.01 and $0.02; a risk-free interest rate of 2.36% to 2.41% and
expected volatility of the Company’s common stock, of 193.06%
to 448.43%, 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.
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.
On
March 20, 2018, the holder converted $32,500 of the September 12,
2017 debentures into 1,031,746 shares of common stock 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.
During
April 2018, in two separate conversions, the remainder of the
debenture was fully converted into 2,611,164 shares of common stock
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 shares of common stock 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 remainder of the debenture plus accrued interest
was fully converted into 4,517,493 shares of common stock 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 was cancelled
on May 15, 2018, based on the trading volume of the Company stock,
per the terms of the debenture. The note is 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.
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 shares of common stock
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. 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 was settled on July 11, 2018, for a
purchase price of $74,000, net of fees. The Buyer Note is included
in Notes Receivable in the accompanying financial statements as of
March 31, 2018.
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.
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
shares of common stock 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 third fiscal quarter of 2019, in four separate conversions, the
holder converted $86,000 of the December 20, 2017 debentures and
approximately $6,000 of accrued interest into 27,288,948 shares of
common stock of the Company. As a result of the conversions the
derivative liability was remeasured immediately prior to the
conversions with an overall increase in the fair value of $91,000
recognized, with the fair value of the derivative liability related
to the converted portion, of $145,000 being reclassified to equity.
The key valuation assumptions used consist, in part, of the price
of the Company’s common stock on the dates of conversion,
ranging from $0.01 to $0.02; a risk-free interest rate ranging from
2.31% to 2.41% and expected volatility of the Company’s
common stock, ranging from 193.06% to 448.43%, and the various
estimated reset exercise prices weighted by
probability.
On
December 31, 2018, the remaining outstanding principal for the
December 20, 2017 notes were settled by payment from another
lender.
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, 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 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 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.
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.
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. On August 24, 2018
the outstanding principal and $2,304 in accrued interest of the
second 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 shares of
common stock of the Company. As a result of the conversions the
derivative liability related to the second debenture was remeasured
immediately prior to the conversions with an overall decrease in
the fair value of $63,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $30,000
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.
On
November 26, 2018, the holder converted $16,168 of principal into
4,732,902 shares of common stock of the Company. As a result of the
conversion the derivative liability related to the second debenture
was remeasured immediately prior to the conversion with an overall
increase in the fair value of $7,000 recognized, with the fair
value of the derivative liability related to the converted portion,
of $28,000 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 2.41% and expected volatility of the
Company’s common stock, of 448.43%, and the various estimated
reset exercise prices weighted by probability.
On
February 6, 2019, the holder converted the remaining principal
balance of approximately $27,000 and accrued interest into
2,542,702 shares of common stock of the Company. As a result of the
conversion the derivative liability related to the second debenture
was remeasured immediately prior to the conversion with an overall
decrease in the fair value of $12,000 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 $0.28; a
risk-free interest rate of 2.31% and expected volatility of the
Company’s common stock, of 478.31%, 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. 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 shares of
common stock of the Company 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 shares of common stock of the
Company issued) was immediately expensed as financing
costs.
During
the third fiscal quarter of 2019, in two separate conversions, the
holder converted $91,592 of principal into 16,870,962 shares of
common stock of the Company. As a result of the conversions the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $27,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $163,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion, of $0.01 and $0.02; a risk-free
interest rate of 2.40% to 2.45% and expected volatility of the
Company’s common stock, of 448.43%, and the various estimated
reset exercise prices weighted by probability.
During
the fourth quarter of 2019 on two separate occasions, the holder
converted $46,759 of principal and $7,142 of accrued interest into
5,670,707 shares of common stock of the Company. As a result of the
conversion the derivative liability related to the first debenture
was remeasured immediately prior to the conversion with an overall
increase in the fair value of $17,000 recognized, with the fair
value of the derivative liability related to the converted portion,
of $65,000 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 $0.45
and $0.03; a risk-free interest rate ranging from 2.41% to 2.45%
and expected volatility of the Company’s common stock, of
478.31%, and the various estimated reset exercise prices weighted
by probability.
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.
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 shares of
common stock of the Company 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 shares of common stock of the
Company issued) was immediately expensed as financing
costs.
On
December 6, 2018, the holder converted $20,160 of principal into
6,000,000 shares of common stock of the Company. As a result of the
conversion the derivative liability related to the debenture was
remeasured immediately prior to the conversion with an overall
increase in the fair value of $14,000 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 2.41% and expected volatility of the
Company’s common stock, of 448.43%, and the various estimated
reset exercise prices weighted by probability.
During
the fourth quarter of 2019, on two separate occasions, the holder
converted the remaining principal balance of $43,488 and $1,127 of
accrued interest into 4,921,835 shares of common stock of the
Company. As a result of the conversion the derivative liability
related to the first debenture was remeasured immediately prior to
the conversion with an overall increase in the fair value of
$20,000 recognized, with the fair value of the derivative liability
related to the converted portion, of $95,000 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 and $0.40; a risk-free interest rate of 2.36%
and 2.41% and expected volatility of the Company’s common
stock, of 448.43% and $478.31%, and the various estimated reset
exercise prices weighted by probability.
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 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 into shares of the Company’s common stock at a
price per share equal to 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.
During
the third fiscal quarter of 2019, in four separate conversions, the
note was fully converted into 18,832,713 shares of common stock of
the Company. As a result of the conversions the derivative
liability related to the debenture was remeasured immediately prior
to the conversions with an overall decrease in the fair value of
$5,500 recognized, with the fair value of the derivative liability
related to the converted portion, of $86,000 being reclassified to
equity. The key valuation assumptions used consist, in part, of the
price of the Company’s common stock on the dates of
conversion, of $0.02; a risk-free interest rate of 2.28% to 2.39%
and expected volatility of the Company’s common stock, of
193.06% to 448.43%, and the various estimated reset exercise prices
weighted by probability.
As of
September 30, 2018, the Back End note and the related
collateralized note receivable were cancelled, as per the terms of
the note, and the Company’s stock price fell below $0.03.
Upon cancellation, the related derivative was reclassed to equity,
and the remaining unamortized debt discount was immediately
expensed.
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 shares of common stock, 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.
During
the third fiscal quarter of 2019, in two separate conversions, the
holder converted $35,000 of principal into 13,246,753 shares of
common stock of the Company. As a result of the conversions the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $13,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $79,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion, of $0.01 to $0.02; a risk-free interest
rate of 2.34% to 2.43% and expected volatility of the
Company’s common stock, of 193.06% to 448.43%, and the
various estimated reset exercise prices weighted by
probability.
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 holder’s prior written
consent, at 150% of the principal and accrued interest balance.
During the fourth quarter of 2019, effective as of December 6,
2018, the outstanding principal and accrued interest of the note
was purchased from the noteholder by a third party, and replaced
with a new convertible debenture with a new principal balance of
$210,460 (disclosed below). The additional $85,460 was recognized
as financing cost.
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 Back-End note was funded on January 22,
2019, and as it was past the maturity date the Company and the
noteholder agreed to the Company returning $43,000 of the payment
and the remaining $50,000 principal balance being converted. 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 shares of common
stock 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 into shares of the Company’s common
stock at a price per share equal to 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. During the fourth
quarter of 2019, effective as of December 31, 2018 the outstanding
principal and accrued interest of the note was purchased from the
noteholder by a third party, and replaced with a new convertible
debenture for $135,910 (disclosed below). The additional $42,910
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 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.
On
January 28, 2019, the holder converted the $50,000 of principal of
the back end note into 6,561,679 shares of common stock of the
Company. As a result of the conversion and the repayment of $43,000
of the principal balance to the noteholder, the derivative
liability related to the back-end debenture was remeasured
immediately prior to the conversion with an overall increase in the
fair value of $20,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $180,000
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 $0.08; a risk-free interest rate of
2.39% and expected volatility of the Company’s common stock,
of 374.79%, and the various estimated reset exercise prices
weighted by probability.
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 into shares of the Company’s common
stock at a price per share equal to 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. On January 10,
2019 the outstanding principal of $55,000 and accrued interest of
$1,974 was purchased from the noteholder by a third party, for
$82,612. The additional $25,638 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 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.
During
the fourth fiscal quarter of 2019, in three separate conversions,
the holder converted $57,164 of principal into 9,291,354 shares of
common stock of the Company. As a result of the conversions the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $65,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $171,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion, of $0.28 to $0.40; a risk-free interest
rate of 2.36% to 2.41% and expected volatility of the
Company’s common stock, of 343.98% to 374.79%, and the
various estimated reset exercise prices weighted by
probability.
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 was in default, however, the holder has issued a
waiver to the Company on this default provision.
The
note is convertible into shares of the Company’s common stock
at a variable conversion rate that is equal to 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 shares of common stock 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.
On
December 13, 2018 the holder converted $11,200 of principal into
4,000,000 shares of common stock of the Company. As a result of the
conversion the derivative liability related to the first debenture
was remeasured immediately prior to the conversion with an overall
increase in the fair value of $26,000 recognized, with the fair
value of the derivative liability related to the converted portion,
of $20,000 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 2.43% and expected volatility of the
Company’s common stock of 448.43% , and the various estimated
reset exercise prices weighted by probability.
On
January 25, 2019 the outstanding principal of $101,550, plus an
additional $56,375 of default principal and $13,695 in accrued
interest of the note was purchased from the noteholder by a third
party. The additional $70,070 representing the default principal
and accrued interest which increased the principal amount due to
the new noteholder has been recognized as financing
cost.
October 30, 2018 Debenture
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.
The
Company estimated the aggregate fair value of the conversion
feature derivatives embedded in the debenture at issuance at
$173,000, 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 2.66% and
expected volatility of the Company’s common stock, of
294.17%, 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 $73,000 was immediately expensed as financing
costs.
December 6, 2018 Debenture
On December 6,
2018, the Company entered into an 10% convertible promissory note
for $210,460, which matures on September 6, 2019. During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at a prepayment percentage of 120% to 130% of
the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. 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. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in Accounting Standards Codification
(“ASC”) 815-10-15-74(a) and would not be bifurcated and
accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $136,799
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method. The
amortization expense recognized during the year ended March
31, 2019
amounted to approximately $46,000.
December 31, 2018 Debenture
On December 31,
2018, the Company entered into an 10% convertible promissory note
for $135,910, which matures on September 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 120% to 130% of
the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. 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. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in Accounting
Standards Codification (“ASC”) 815-10-15-74(a) and
would not be bifurcated and accounted for separately as a
derivative liability. The Company analyzed the conversion feature
under ASC 470-20, “Debt with conversion and other
options”, and based on the market price of the common stock
of the Company on the date of funding as compared to the conversion
price, determined there was a $88,342 beneficial conversion feature
to recognize, which will be amortized over the term of the note
using the effective interest method. The amortization expense
recognized during the year ended March 31, 2019 amounted to
approximately $29,000.
January 16, 2019 Debenture
On
January 16, 2019, the Company entered into an 10% convertible
promissory note for $205,436, with an OID of $18,686, for a
purchase price of $186,750, which matures on October 16, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. 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. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. 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. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in Accounting
Standards Codification (“ASC”) 815-10-15-74(a) and
would not be bifurcated and accounted for separately as a
derivative liability. The Company analyzed the conversion feature
under ASC 470-20, “Debt with conversion and other
options”, and based on the market price of the common stock
of the Company on the date of funding as compared to the conversion
price, determined there was a $176,675 beneficial conversion
feature to recognize, which will be amortized over the term of the
note using the effective interest method. The amortization expense
recognized during the year ended March 31, 2019 amounted to
approximately $59,000.
February 4, 2019 Debenture
On
February 4, 2019, the Company entered into an 10% convertible
promissory note for $85.500, with an OID of $7,500, for a purchase
price of $75,000, which matures on November 4, 2019. During the
first 180 days the convertible redeemable note is in effect, the
Company may redeem the note at a prepayment percentage of 120% to
130% of the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. 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. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. 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. The note is convertible at a fixed
conversion price of $0.01. If an event of default occurs, the fixed
conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in ASC 815-10-15-74(a) and would not be bifurcated
and accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $85,500
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method. The
amortization expense recognized during the year ended March 31,
2019 amounted to approximately $28,000.
March 1, 2019 Debenture
On
March 1, 2019, the Company entered into an 10% convertible
promissory note for $168,000, with an OID of $18,000, for a
purchase price of $150,000, which matures on November 1, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 100% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. 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. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. 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. The note is
convertible at a fixed conversion price of $0.25. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in ASC
815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was a $134,000 beneficial
conversion feature to recognize, which will be amortized over the
term of the note using the effective interest method. The
amortization expense recognized during the year ended March 31,
2019 amounted to approximately $28,000.
The
derivative liability arising from all of the above discussed
debentures was revalued at March 31, 2019, resulting in an increase
of the fair value of the derivative liability of $1,319,500,
including upon conversions, for the year ended March 31, 2019. 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 derivatives revalued at March 31, 2018, resulted
in an increase of the fair value of the derivative liability of
$1,616,000, including upon conversions, 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, 2019, resulting in an
increase to the fair value of the warrant liability of $47,000 for
the year ended March 31, 2019. The key valuation assumptions used
consists, in part, of the price of the Company’s common stock
of $0.21; a risk-free interest rate ranging of 2.21%, and expected
volatility of the Company’s common stock ranging of 285.32%,
and the various estimated reset exercise prices weighted by
probability. The warrant liability was remeasured as of 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%.
NOTE 6 – STOCKHOLDERS’ DEFICIT
Preferred Stock
As
of March 31, 2019 and 2018, the Company had 200,000,000 preferred
stock authorized with a par value of $0.0001.
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 $0.0001. 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 PS. 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 shares of common stock 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
shares of common stock of the Company which they held, into
5,000,000 newly issued Series A PS. The shares of common stock 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 shares of common stock
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
September 20, 2018, the Company increased their authorized common
shares to 900,000,000.
For
shares of common stock issued upon conversion of outstanding
convertible debentures see Note 5.
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.
On
February 14, 2019, the Company issued 225,000 shares of its common
stock to the original noteholder of the March 20, 2018 convertible
debenture. The fair value of the shares of $72,450 based on the
market price of $0.32 on the date of issuance, have been recognized
as a financing cost.
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
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, was recognized over the term
of the agreement, with $220,000 expensed in the year ending March
31, 2018.
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
7)
The
Company issued 10,000,000 and 6,093,683 shares of their common
stock on January 11, 2019 and February 8, 2019, respectively, upon
cashless exercise of the warrants granted in connection with the
September 11, 2017 Debenture (Note 7).
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.
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 November 13, 2018, the Company put to GHS for
the issuance of 6,779,397 shares of common stock, at $0.0046, for a
total of $31,456. On December 10, 2018, the Company put to GHS for
the issuance of 6,880,004 shares of common stock, at $0.0133, for a
total of $91,366. On March 25, 2019, the Company put to GHS for the
issuance of 2,131,894 shares of common stock, at $0.141, for a
total of $300,000.
NOTE 7 – OPTIONS AND WARRANTS
The
Company has not granted any options since inception.
The
Company has granted approximately 424,000 warrants (prior to
adjustments based on subsequent dilutive issuances) in connection
with convertible debentures (Note 5).
The
Company issued 10,000,000 and 6,093,683 shares of their common
stock on January 11, 2019 and February 8, 2019, respectively, upon
cashless exercise of the warrants granted in connection with the
September 11, 2017 Debenture. The Company issued approximately
13,078,000 additional shares upon the cashless exercise, and as
such, based on the fair value of the common shares of the Company,
recognized a loss on exercise of approximately
$3,745,000.
The
Company issued 6,719,925 and 4,494,347 shares of their common stock
on July 17, 2018 and August 28, 2018, respectively, with a fair
value of $150,000, upon cashless exercise of the warrants granted
in connection with the July 31, 2017 Debenture.
In the
year ended March 31, 2018, 323,333 (after adjustment) common shares
of the Company were exercised, with a fair value of $67,000 upon
exercise.
As of
March 31, 2019, there are 444,000 (after adjustment) remaining
warrants outstanding, which expire on January 31, 2022, with an
exercise price of 45% of the market value of the common shares of
the Company on the date of exercise.
NOTE 8 – RELATED PARTY TRANSACTIONS
Accrued Payroll – Related Parties
Included
in other accrued expenses on the accompanying consolidated balance
sheet as of March 31, 2019 is approximately $217,000 owing to the
Chief Executive Officer of the Company, approximately $69,000 owing
to the President of the Company, and approximately $96,000, owing
to a key employee.
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
as of March 31, 2019 and March 31, 2018.
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%. As of March 31, 2019 and
March 31, 2018 the outstanding balance is approximately
$736,000.
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,
2019 and 2018 was $426,404 and $426,404, respectively, and is
classified as a current liability on the consolidated balance
sheets. At March 31, 2019 and 2018, accrued interest payable was
$241,032 and $206,920, respectively.
Shareholders
In
2009, the Company entered into a note payable to Randall Steele, a
shareholder of NSH, for $50,000. The note bears interest at 6.0%
and was payable upon maturity on January 20, 2011. In addition, the
Company issued 100,000 shares of common stock for consideration.
The shares were valued at the date of issuance at fair market
value. The value assigned to the shares of $50,000 was recorded as
increase in common stock and additional paid-in capital and was
limited to the value of the note. The assignment of a value to the
shares resulted in a financing fee being recorded for the same
amount. The note is unsecured. The balance of the note at March 31,
2019 and 2018 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, 2019 and 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 March 31,
2019 and 2018 was $104,647 and is classified as a current liability
on the consolidated balance sheets.
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, 2019
and 2018 consist of the following:
|
|
|
Federal Tax
statutory rate
|
21.00%
|
34.00%
|
Permanent
differences
|
10.23%
|
7.86%
|
Valuation
allowance
|
(31.23)%
|
(41.86)%
|
Effective
rate
|
0.00%
|
0.00%
|
Significant
components of the Company’s deferred tax assets as of March
31, 2019 and 2018 are summarized below. The calculations presented
below at March 31, 2019 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
|
$1,126,000
|
$637,000
|
Deferred tax
benefit
|
287,000
|
408,000
|
Total deferred tax
asset
|
1,413,000
|
1,045,000
|
Valuation
allowance
|
(1,413,000)
|
(1,045,000)
|
|
$-
|
$-
|
As of
March 31, 2019, the Company had approximately $5,645,000 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, the Company’s ability to utilize
their 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
$368,000 in the year ended March 31, 2019.
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, 2019,
and 2018, 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.
Vista Capital Investments, LLC
On
April 30, 2019, a complaint was filed against the Company in the
U.S. District Court in Dallas, Texas alleging that the Company
breached a provision in a common stock purchase warrant (the
“Vista Warrant”) issued by the Company to Vista Capital
Investments, LLC (“Vista”). Vista alleges that the
Company failed to issue certain shares of the Company’s
common stock as was required under the terms of the Vista Warrant.
Vista is currently seeking money damages in the approximate amount
of $7,000,000, which the Company believes is unwarranted and
excessive, as well as costs and reimbursement of expenses. As of
the date hereof, no hearing has been scheduled, but the Company is
vigorously defending itself against these claims, preparing a
counter-claim against Vista and taking such other appropriate
action, in addition to seeking for other costs and relief as may be
appropriate.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to year
end, the Company has converted approximately $19,000 of their
outstanding convertible debt as of March 31, 2019 and approximately
$11,000 of accrued interest, into 3,000,000 shares of the
Company’s common stock.
On
April 9, 2019, the Company put to GHS for the issuance of 2,118,645
shares of common stock, at $0.14, for a total of $300,000. On April
23, 2019, the Company put to GHS for the issuance of 2,071,824
shares of common stock, at $0.14, for a total of $300,000. On May
6, 2019, the Company put to GHS for the issuance of 2,192,983
shares of common stock, at $0.14, for a total of $300,000. On May
21, 2019, the Company put to GHS for the issuance of 2,038,044
shares of common stock, at $0.15, for a total of $300,000. On May
31, 2019, the Company put to GHS for the issuance of 3,061,225
shares of common stock, at $0.10, for a total of
$300,000.
On
April 17, 2019, the Company entered into an 10% convertible
promissory note for $110,000, with an OID of $10,000, for a
purchase price of $100,000, which matures on January 23, 2020.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. 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. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. 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. The
note is convertible at a fixed conversion price of $0.124. If an
event of default occurs, the fixed conversion price is extinguished
and replaced by a variable conversion rate that is 70% of the
lowest trading prices during the 20 days prior to conversion. The
fixed conversion price shall reset upon any future dilutive
issuance of shares, options or convertible securities. The
conversion feature at issuance meets the definition of conventional
convertible debt and therefore qualifies for the scope exception in
ASC 815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was an approximately $59,000
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest
method.
NATURALSHRIMP INCORPORATED AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash
|
$818,174
|
$137,499
|
Notes
receivable
|
1,700
|
1,700
|
Inventory
|
4,200
|
4,200
|
Prepaid
expenses
|
54,933
|
35,286
|
|
|
|
Total
current assets
|
879,007
|
178,685
|
|
|
|
Fixed
assets
|
|
|
Land
|
202,293
|
202,293
|
Buildings
|
1,378,546
|
1,328,161
|
Machinery
and equipment
|
951,859
|
934,621
|
Autos
and trucks
|
14,063
|
14,063
|
Furniture
and fixtures
|
22,060
|
22,060
|
Accumulated
depreciation
|
(1,334,853)
|
(1,322,609)
|
|
|
|
Fixed
assets, net
|
1,233,968
|
1,178,589
|
|
|
|
Other
assets
|
|
|
Construction-in-process
|
607,504
|
377,504
|
Right
of Use asset
|
275,400
|
-
|
Deposits
|
20,633
|
10,500
|
|
|
|
Total
other assets
|
903,537
|
388,004
|
|
|
|
Total
assets
|
$3,016,512
|
$1,745,278
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$566,697
|
$576,028
|
Accrued
interest - related parties
|
341,184
|
295,184
|
Other
accrued expenses
|
662,243
|
609,243
|
Short-term
Promissory Note and Lines of credit
|
687,887
|
139,418
|
Current
maturities of bank loan
|
226,765
|
228,725
|
Current maturities
of convertible debentures, less debt discount of $355,206 and
$511,640
|
727,282
|
494,451
|
Convertible
debentures, related party
|
87,600
|
87,600
|
Notes
payable - related parties
|
1,271,162
|
1,271,162
|
Derivative
liability
|
141,000
|
157,000
|
Warrant
liability
|
93,000
|
93,000
|
|
|
|
Total
current liabilities
|
4,804,820
|
3,951,811
|
|
|
|
Lines
of credit
|
-
|
650,453
|
Lease
Liability
|
275,400
|
-
|
|
|
|
Total
liabilities
|
5,080,220
|
4,602,264
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
Series A Convertible Preferred stock, $0.0001 par
value, 5,000,000 shares authorized, 5,000,000
shares issued and outstanding at June 30, 2019 and March 31,
2019
|
500
|
500
|
Common stock,
$0.0001 par value, 900,000,000 shares authorized, 316,254,147 and
301,758,293 shares issued and outstanding at June 30, 2019 and
March 31, 2019, respectively
|
31,625
|
30,177
|
Additional
paid in capital
|
39,922,882
|
38,335,782
|
Accumulated
deficit
|
(42,018,715)
|
(41,223,445)
|
|
|
|
Total
stockholders' deficit
|
(2,063,708)
|
(2,856,986)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$3,016,512
|
$1,745,278
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP INCORPORATED
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
124,524
|
20,985
|
General
and administrative
|
84,994
|
|
Rent
|
4,066
|
|
Salaries
and Wages
|
109,510
|
|
Stock
Compensation
|
-
|
|
Professional
services
|
60,796
|
|
|
|
|
General
and administrative
|
259,366
|
223,025
|
Depreciation
and amortization
|
12,244
|
17,726
|
|
|
|
Total
operating expenses
|
396,134
|
261,736
|
|
|
|
Net loss from
operations
|
(396,134)
|
(261,736)
|
|
|
|
Other
income (expense):
|
|
|
Interest
expense
|
(62,488)
|
(68,219)
|
Amortization
of debt discount
|
(221,379)
|
(343,454)
|
Financing
costs
|
(81,269)
|
(608,699)
|
Change
in fair value of derivative liability
|
16,000
|
232,000
|
Change
in fair value of warrant liability
|
-
|
(47,000)
|
Loss
on warrant settlement
|
(50,000)
|
-
|
|
|
|
Total
other income (expense)
|
(399,136)
|
(835,372)
|
|
|
|
Loss
before income taxes
|
(795,270)
|
(1,097,108)
|
|
|
|
Provision
for income taxes
|
-
|
-
|
|
|
|
Net loss
|
$(795,270)
|
$(1,097,108)
|
|
|
|
|
|
|
EARNINGS
PER SHARE (Basic and diluted)
|
$(0.00)
|
$(0.01)
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING (Basic and diluted)
|
308,558,080
|
112,720,679
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP INCORPORATED
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
April 1, 2019
|
5,000,000
|
500
|
301,758,293
|
30,177
|
38,335,782
|
(41,223,445)
|
(2,856,986)
|
|
|
|
|
|
|
|
|
Issuance
of shares under equity financing agreement
|
|
|
11,482,721
|
1,148
|
1,498,852
|
|
1,500,000
|
Issuance
of shares upon conversion
|
|
|
3,000,000
|
300
|
29,700
|
|
30,000
|
Beneficial
conversion feature
|
|
|
|
|
58,548
|
|
58,548
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
(795,270)
|
(795,270)
|
|
|
|
|
|
|
|
|
Balance
June 30, 2019
|
5,000,000
|
$500
|
316,241,014
|
$31,625
|
$39,922,882
|
$(42,018,715)
|
$(2,063,708)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 1,
2018
|
-
|
$-
|
97,656,095
|
9,766
|
27,743,352
|
(34,012,864)
|
(6,259,746)
|
|
|
|
|
|
|
|
|
Issuance
of shares for cash
|
|
|
220,000
|
22
|
15,378
|
|
15,400
|
Issuance
of shares upon conversion
|
|
|
37,887,704
|
3,789
|
511,932
|
|
515,721
|
Reclass
of derivative liability upon conversion or redemption of related
convertible debentures
|
|
|
|
|
1,305,000
|
|
1,305,000
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
(1,097,108)
|
(1,097,108)
|
|
|
|
|
|
|
|
|
Balance
June 30, 2018
|
-
|
-
|
135,763,799
|
13,577
|
29,575,662
|
(35,109,972)
|
(5,520,733)
|
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
|
$(795,270)
|
$(1,097,108)
|
|
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
Depreciation
expense
|
12,244
|
17,726
|
Amortization of
debt discount
|
221,379
|
343,454
|
Change in fair
value of derivative liability
|
(16,000)
|
(232,000)
|
Change in fair
value of warrant liability
|
-
|
47,000
|
Financing costs
related to convertible debentures
|
-
|
608,700
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
Inventory
|
-
|
(4,200)
|
Prepaid expenses
and other current assets
|
(19,647)
|
4,024
|
Deposits
|
(10,133)
|
-
|
Accounts
payable
|
(9,331)
|
63,793
|
Other accrued
expenses
|
53,000
|
37,448
|
Accrued interest -
related parties
|
46,000
|
50,587
|
|
|
|
Cash
used in operating activitites
|
(517,758)
|
(160,576)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
Cash paid for
machinery and equipment
|
(67,623)
|
(5,350)
|
Cash paid for
construction in progress
|
(230,000)
|
(68,527)
|
|
|
|
CASH
USED IN INVESTING ACTIVITIES
|
(297,623)
|
(73,877)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Payments on bank
loan
|
(1,960)
|
(1,862)
|
Repayment
line of credit short-term
|
(101,984)
|
-
|
Proceeds from sale
of stock
|
-
|
15,400
|
Proceeds from
issuance of common shares under equity agreement
|
1,500,000
|
-
|
Proceeds from
convertible debentures
|
100,000
|
221,050
|
|
|
|
Cash
provided by financing activitites
|
1,496,056
|
234,588
|
|
|
|
NET
CHANGE IN CASH
|
680,675
|
135
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
137,499
|
24,280
|
|
|
|
CASH
AT END OF PERIOD
|
$818,174
|
$24,415
|
|
0
|
|
|
|
|
INTEREST
PAID
|
$16,488
|
$19,287
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
Shares issued upon
conversion
|
$30,000
|
$515,750
|
Notes receivable
for convertible debentures
|
$-
|
$55,000
|
The accompanying
footnotes are in integral part of these condensed consolidated
financial statements.
NATURALSHRIMP INCORPORATED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED JUNE 30, 2019
(Unaudited)
NOTE
1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp
Incorporated (“NaturalShrimp” or 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 (“GAAP”), assuming the Company will continue
as a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business.
For the three months ended June 30, 2019, the Company had a net
loss of approximately $795,000. At June 30, 2019, the Company had
an accumulated deficit of approximately $42,019,000 and a working
capital deficit of approximately $3,926,000. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern, within one year from the issuance date of this
filing. The Company’s ability to continue as a going concern
is dependent on its ability to raise the required additional
capital or debt financing to meet short and long-term operating
requirements. During the three months ended June 30, 2019, the
Company received net cash proceeds of approximately $100,000 from
the issuance of convertible debentures and approximately $1,500,000
from the issuance of approximately 11,483,000 common shares of the
Company’s common stock through an equity financing agreement.
Subsequent to June 30, 2019, the Company $274,000 from the issuance
of approximately 3,262,000 common shares under the equity financing
agreement. (See Note 10). Management believes that private
placements of equity capital and/or additional debt financing will
be needed to fund the Company’s long-term operating
requirements. The Company may also encounter business endeavors
that require significant cash commitments or unanticipated problems
or expenses that could result in a requirement for additional cash.
If the Company raises additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of
its current shareholders could be reduced, and such securities
might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not
available on acceptable terms, the Company may not be able to take
advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict our operations. The
Company continues to pursue external financing alternatives to
improve its working capital position. If the Company is unable to
obtain the necessary capital, the Company may have to cease
operations.
The Company plans
to improve the growth rate of the shrimp and the environmental
conditions of its production facilities. Management also plans to
acquire a hatchery in which the Company can better control the
environment in which to develop the post larvaes. If management is
unsuccessful in these efforts, discontinuance of operations is
possible. The consolidated financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
unaudited financial information as of and for the three months
ended June 30, 2019 and 2018 has been prepared in accordance with
GAAP in the U.S. for interim financial information and with the
instructions to Quarterly Report on Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, such financial
information includes all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation
of our financial position at such date and the operating results
and cash flows for such periods. Operating results for the three
months ended June 30, 2019 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, 2019 included in the Company’s Annual
Report on Form 10-K filed with the SEC on July 1,
2019.
The condensed
consolidated balance sheet at March 31, 2019 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 shares of common stock
outstanding. Diluted EPS is based on the weighted average number of
shares of common stock 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 shares of common stock outstanding (denominator)
during the period. For the three months ended June 30, 2019, the
Company had approximately $1,168,000 in convertible debentures
whose approximately 40,269,000 underlying shares are convertible at
the holders’ option at conversion prices ranging from $0.01
to $0.30 for fixed conversion rates, and 34% - 60% of the defined
trading price for variable conversion rates and approximately
444,000 warrants with an exercise price of 45% of the market price
of the Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be anti-dilutive.
For the three months ended June 30, 2018, the Company had
approximately $1,117,000 in principal on convertible debentures
whose approximately 98,689,000 underlying shares are convertible at
the holders’ option at conversion prices ranging from 34% -
61% of the defined trading price and approximately 18,227,000
warrants with an exercise price of 50% to 57% of the market price
of the Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be
anti-dilutive.
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 GAAP provides an option to elect fair value accounting
for these instruments. GAAP requires the disclosure of the fair
values of all financial instruments, regardless of whether they are
recognized at their fair values or carrying amounts in our balance
sheets. For financial instruments recognized at fair value, GAAP
requires the disclosure of their fair values by type of instrument,
along with other information, including changes in the fair values
of certain financial instruments recognized in income or other
comprehensive income. For financial instruments not recognized at
fair value, the disclosure of their fair values is provided below
under “Financial
Instruments.”
Nonfinancial
assets, such as property, plant and equipment, and nonfinancial
liabilities are recognized at their carrying amounts in the
Company’s balance sheets. GAAP does not permit nonfinancial
assets and liabilities to be remeasured at their fair values.
However, GAAP requires the remeasurement of such assets and
liabilities to their fair values upon the occurrence of certain
events, such as the impairment of property, plant and equipment. In
addition, if such an event occurs, GAAP requires the disclosure of
the fair value of the asset or liability along with other
information, including the gain or loss recognized in income in the
period the remeasurement occurred.
The Company did not
have any Level 1 or Level 2 assets and liabilities at June 30, 2019
and March 31, 2019.
The Derivative
liabilities are Level 3 fair value measurements.
The following is a
summary of activity of Level 3 liabilities during the three months
ended June 30, 2019 and 2018:
Derivatives
|
|
|
Derivative
liability balance at beginning of period
|
$157,000
|
$3,455,000
|
Additions to
derivative liability for new debt
|
--
|
882,000
|
Reclass to equity
upon conversion or redemption
|
--
|
(1,305,000)
|
Change in fair
value
|
(16,000)
|
(232,000)
|
Balance at end of
period
|
$141,000
|
$2,800,000
|
At June 30, 2019,
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 $0.12; a risk-free
interest rate of 2.12%, and expected volatility of the
Company’s common stock of 110.05%, and the various estimated
reset exercise prices weighted by probability.
At June 30, 2018,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: the
price of the Company’s common stock of $0.02; a risk-free
interest rate ranging from 1.93% to 2.339%, 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.
Warrant
liability
|
|
|
Warrant liability
balance at beginning of period
|
$92,000
|
$277,000
|
Reclass to equity
upon exercise
|
-
|
(150,000)
|
Change in fair
value
|
-
|
47,000
|
Balance at end of
period
|
$92,000
|
$174,000
|
At June 30, 2019,
the fair value of the warrant liability was estimated using the
following weighted-average inputs: the price of the Company’s
common stock of $0.12; a risk-free interest rate of 1.71%, and
expected volatility of the Company’s common stock ranging of
268.05%.
At June 30, 2018,
the fair value of the warrant liability was estimated using the
following weighted-average inputs: the price of the Company’s
common stock of $0.02 a risk-free interest rate of 2.73%, and
expected volatility of the Company’s common stock of
351.3%.
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, 2019 and 2018.
Concentration of Credit Risk
The Company
maintains cash balances at one financial institution. Accounts at
this institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $250,000. As of June 30, 2019 the
Company’s cash balance exceeded FDIC coverage. As of March
31, 2019, the Company’s cash balance did not exceed FDIC
coverage. The Company has not experienced any losses in such
accounts and periodically evaluates the credit worthiness of the
financial institutions and has determined the credit exposure to be
negligible.
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 $12,000 and $18,000 for the three months ended June
30, 2019 and 2018, 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 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). The Company
adopted ASU 2016-02 on April 1, 2019, and the adoption resulted in
the recognition of a Right of Use Asset (“ROU”) and a
Lease Liability for a new equipment lease entered into on June 24,
2019 (Note 8).
During the three
months ended June 30, 2019, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board.
Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of
any of these accounting pronouncements has had or will have a
material impact on the Company’s consolidated financial
statements.
Management’s Evaluation of Subsequent Events
The Company
evaluates events that have occurred after the balance sheet date of
June 30, 2019, through the date which the consolidated financial
statements were issued. Based upon the review, other than described
in Note 10 – Subsequent Events, the Company did not identify
any recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the consolidated financial
statements.
NOTE
3 – SHORT-TERM NOTE AND LINES OF CREDIT
On November 3,
2015, the Company entered into a short-term note agreement with
Community National Bank for a total value of $50,000. The
short-term note had a stated interest rate of 5.25%, maturity date
of December 15, 2017 and had an initial interest only payment on
February 3, 2016. On July 18, 2018, the short-term note was
replaced by a promissory note for the outstanding balance of
$25,298, which bears interest at 8% with a maturity date of July
18, 2021. The short-term note is guaranteed by an officer and
director. The balance of the note at June 30, 2019 and March 31,
2019 was $18,209 and $20,193, respectively.
The Company also
has a working capital line of credit with Extraco Bank. On April
30, 2019, the Company renewed the line of credit for $372,675. 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, 2020 and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. On April 12, 2019, prior to the renewal, the
Company paid $100,000 on the loan. The balance of the line of
credit is $372,675 and $472,675 at June 30, 2019 and March 31,
2019, respectively.
The Company also
has additional lines of credit with Extraco Bank for $100,000 and
$200,000, which were renewed on January 19, 2019 and April 30,
2019, respectively, with maturity dates of January 19, 2020 and
April 30, 2020, respectively. The lines of credit bear interest at
a rate of 6.5% and 5%, respectively, 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 June 30, 2019 and March 31, 2019.
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 31.4% as of June 30, 2019. The
line of credit is unsecured. The balance of the line of credit was
$9,580 at both June 30, 2019 and March 31, 2019.
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 15.50% as of June 30, 2019. The line of
credit is secured by assets of the Company’s subsidiaries.
The balance of the line of credit is $10,237 at June 30, 2019 and
March 31, 2019.
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. The balance of the CNB Note is $226,765 at June 30, 2019
and $228,759 at March 31, 2019 and $236,413, $7,497 of which was in
current liabilities.
NOTE
5 – CONVERTIBLE DEBENTURES
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
was in default, however, the holder has issued a waiver to the
Company on this default provision.
The note is
convertible into shares of the Company’s common stock at a
variable conversion rate that is equal to 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 shares of common stock 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.
On December 13,
2018 the holder converted $11,200 of principal into 4,000,000
shares of common stock of the Company. As a result of the
conversion the derivative liability related to the first debenture
was remeasured immediately prior to the conversion with an overall
increase in the fair value of $26,000 recognized, with the fair
value of the derivative liability related to the converted portion,
of $20,000 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 2.43% and expected volatility of the
Company’s common stock of 448.43% , and the various estimated
reset exercise prices weighted by probability.
On January 25, 2019
the outstanding principal of $101,550, plus an additional $56,375
of default principal and $13,695 in accrued interest of the note
was purchased from the noteholder by a third party. The new balance
outstanding as of June 30, 2019 is $171,620.
The derivative
liability arising from all of the above discussed debentures was
revalued at June 30, 2019, resulting in an increase of the fair
value of the derivative liability of $16,000 for the three months
ended June 30, 2019. 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 2.12%, and expected volatility of the
Company’s common stock ranging of 110.05%, and the various
estimated reset exercise prices weighted by probability. The
derivatives revalued at June 30, 2018, resulted in an increase of
the fair value of the derivative liability of $232,000, including
upon conversions, for the three months ended June 30, 2018. The key
valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.02; a risk-free interest rate
ranging from 1.93% to 2.33%, and expected volatility of the
Company’s common stock ranging from 248.71% to 321.92%, and
the various estimated reset exercise prices weighted by
probability.
December 6, 2018 Debenture
On December 6,
2018, the Company entered into an 10% convertible promissory note
for $210,460, which matures on September 6, 2019. During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at a prepayment percentage of 120% to 130% of
the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. 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. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in Accounting Standards Codification
(“ASC”) 815-10-15-74(a) and would not be bifurcated and
accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $136,799
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method. The
amortization expense recognized during the three months ended June
30, 2019
amounted to approximately $46,000.
On June 27, 2019
the holder converted $30,000 of principal into 3,000,000 shares of
common stock of the Company.
December 31, 2018 Debenture
On December 31,
2018, the Company entered into an 10% convertible promissory note
for $135,910, which matures on September 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 120% to 130% of
the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. 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. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in Accounting
Standards Codification (“ASC”) 815-10-15-74(a) and
would not be bifurcated and accounted for separately as a
derivative liability. The Company analyzed the conversion feature
under ASC 470-20, “Debt with conversion and other
options”, and based on the market price of the common stock
of the Company on the date of funding as compared to the conversion
price, determined there was a $88,342 beneficial conversion feature
to recognize, which will be amortized over the term of the note
using the effective interest method. The amortization expense
recognized during the three months ended June 30, 2019 amounted to
approximately $29,000.
January 16, 2019 Debenture
On January 16,
2019, the Company entered into an 10% convertible promissory note
for $205,436, with an OID of $18,686, for a purchase price of
$186,750, which matures on October 16, 2019. During the first 180
days the convertible redeemable note is in effect, the Company may
redeem the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. 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. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in Accounting Standards Codification
(“ASC”) 815-10-15-74(a) and would not be bifurcated and
accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $176,675
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method. The
amortization expense recognized during the three months ended June
30, 2019
amounted to approximately $59,000.
February 4, 2019 Debenture
On February 4,
2019, the Company entered into an 10% convertible promissory note
for $85.500, with an OID of $7,500, for a purchase price of
$75,000, which matures on November 4, 2019. During the first 180
days the convertible redeemable note is in effect, the Company may
redeem the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. 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. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in ASC
815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was a $85,500 beneficial
conversion feature to recognize, which will be amortized over the
term of the note using the effective interest method. The
amortization expense recognized during the three months ended June
30, 2019 amounted to approximately $28,000.
March 1, 2019 Debenture
On March 1, 2019,
the Company entered into an 10% convertible promissory note for
$168,000, with an OID of $18,000, for a purchase price of $150,000,
which matures on November 1, 2019. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at a prepayment percentage of 100% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. 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. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is
convertible at a fixed conversion price of $0.25. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in ASC
815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was a $134,000 beneficial
conversion feature to recognize, which will be amortized over the
term of the note using the effective interest method. The
amortization expense recognized during the three months ended June
30, 2019 amounted to approximately $50,000.
April 17, 2019 Debenture
On April 17, 2019,
the Company entered into an 10% convertible promissory note for
$110,000, with an OID of $10,000, for a purchase price of $100,000,
which matures on January 23, 2020. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. 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. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
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. The note is
convertible at a fixed conversion price of $0.124. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in ASC
815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was an approximately $59,000
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method. The
amortization expense recognized during the three months ended June
30, 2019 amounted to approximately $20,000.
NOTE
6 – STOCKHOLDERS’ DEFICIT
Preferred Stock
As of June 30, 2019
and March 31, 2019, the Company had 200,000,000 shares of preferred
stock authorized with a par value of $0.0001. Of this amount,
5,000,000 shares Series A preferred stock are authorized and
outstanding.
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.
During the three
months ended June 30, 2019, the Company put to GHS for the issuance
of 11,482,721 shares of common stock for a total of
$1,500,000.
Options and Warrants
The Company has not
granted any options since inception.
The Company has
granted approximately 424,000 warrants (prior to adjustments based
on subsequent dilutive issuances) in connection with convertible
debentures (Note 5).
As of March 31,
2019, there are 444,000 (after adjustment) remaining warrants to
purchase shares of common stock outstanding, classified as a
warrant liability, which expire on January 31, 2022, with an
exercise price of 45% of the market value of the common shares of
the Company on the date of exercise.
The warrant
liability was revalued at June 30, 2019, resulting in no change to
the fair value of the warrant liability for the three months ended
June 30, 2019. The key valuation assumptions used consists, in
part, of the price of the Company’s common stock of $0.12; a
risk-free interest rate of 2.21%, and expected volatility of the
Company’s common stock ranging of 285.32%, and the various
estimated reset exercise prices weighted by probability. The
warrant liability was remeasured as of June 30, 2018, resulting in
an increase to the fair value of the warrant liability of $47,000
for the three months ended June 30, 2018. The key valuation
assumptions used consists, in part, of the price of the
Company’s common stock of $0.02; a risk-free interest rate
ranging from 1.89% to 2.73%, and expected volatility of the
Company’s common stock of 351.3%.
NOTE
7 – RELATED PARTY TRANSACTIONS
Accrued Payroll – Related Parties
Included in other
accrued expenses on the accompanying consolidated balance sheet as
of June 30, 2019 is approximately $217,000 owing to the Chief
Executive Officer of the Company, approximately $69,000 owing to
the President of the Company, and approximately $96,000 owing to a
key employee.
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 as of June 30, 2019 and
March 31, 2019. Subsequent to the period end, on July 26, 2019, the
Company paid $47,000 on this note, leaving $40,600 remaining
outstanding on the note.
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%. As of June 30, 2019 and March 31, 2019 the
outstanding balance is approximately $736,000.
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. The notes
are unsecured and bear interest at 8%. These notes had stock issued
in lieu of interest and have no set monthly payment or maturity
date. The balance of these notes at June 30, 2019 and March 31,
2019 was $426,404 and $426,404, respectively, and is classified as
a current liability on the consolidated balance sheets. At June 30,
2019 and March 31, 2019, accrued interest payable was $249,560 and
$241,032, 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, and is currently
in default. In addition, the Company issued 100,000 shares of
common stock for consideration. The shares were valued at the date
of issuance at fair market value. The value assigned to the shares
of $50,000 was recorded as increase in common stock and additional
paid-in capital and was limited to the value of the note. The
assignment of a value to the shares resulted in a financing fee
being recorded for the same amount. The note is unsecured. The
balance of the note at June 30, 2019 and March 31, 2019 was
$50,000, respectively, and is classified as a current liability on
the consolidated balance sheets.
Beginning in 2010,
the Company started entering into several working capital notes
payable with various shareholders of NSH for a total of $290,000
and bearing interest at 8%. The balance of these notes at June 30,
2019 and March 31, 2019 was $104,647 and is classified as a current
liability on the consolidated balance sheets.
NOTE
8 – LEASE
On June 24, 2019,
the Company entered into a service and equipment lease agreement
for water treatment services, consumables and equipment. The lease
term is for five years, with a renewal option of an additional five
years, with a monthly lease payment of $5,000. The Company analyzed
the classification of the lease under ASC 842, and as it did not
meet any of the criteria for a financing lease it has been
classified as an operating lease. The Company determined the Right
of Use asset and Lease liability values at inception calculated at
the present value of all future lease payments for the lease term,
using an incremental borrowing rate of 5%. The Lease Liability will
be expensed each month, on a straight line basis, over the life of
the lease.
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.
Vista Capital Investments, LLC
On April 30, 2019,
a complaint was filed against the Company in the U.S. District
Court in Dallas, Texas alleging that the Company breached a
provision in a common stock purchase warrant (the “Vista
Warrant”) issued by the Company to Vista Capital Investments,
LLC (“Vista”). Vista alleges that the Company failed to
issue certain shares of the Company’s common stock as was
required under the terms of the Vista Warrant. Vista is currently
seeking money damages in the approximate amount of $7,000,000,
which the Company believes is unwarranted and excessive, as well as
costs and reimbursement of expenses. As of the date hereof, no
hearing has been scheduled, but the Company is vigorously defending
itself against these claims, preparing a counter-claim against
Vista and taking such other appropriate action, in addition to
seeking for other costs and relief as may be appropriate. The
Company is currently in discussions with Vista and has accrued
$50,000 for the settlement of this complaint, which is recognized
as “loss on warrant settlement” on the accompanying
Statement of Operations in the three months ended June 30,
2019
NOTE
10 – SUBSEQUENT EVENTS .
Sales of Common Stock
On July 2, 2019,
the Company put to GHS for the issuance of 3,261,925 shares of
common stock, at $0.09, for a total of $274,000.
Issuance of Common Stock under Convertible Notes
On July 18, 2019,
the Company issued 4,000,000 shares of common stock upon the
conversion of $40,000 of principal and interest of convertible
notes to GHS.
Contingent Events
On August 5, 2019,
the Company received a formal notice from the Texas Parks and
Wildlife Department for the Company’s facility in La Coste,
Texas due to the detection of IHHNV, a viral disease of Pacific
white shrimp, from two Postlarvae (“PL”) shipments from
the Company’s Texas hatchery supplier in March and April of
this year. At the time of receipts of such shipments from the
hatchery in March and April, the Company was notified by its
supplier that the shipments were virus free. Based on the
Company’s quality control procedures during the course of the
shrimp farming process in the Company’s tanks and, in this
case the slower than normal growth rate indicating possible
compromise, the Company undertook to have lots independently tested
by the University of Arizona Pathology Laboratory in Tucson. Based
on those tests, IHHNV was detected and the Company’s facility
was placed under quarantine until further notice by Texas Parks and
Wildlife Department and the United States Department of
Agriculture/Animal and Plant Health Inspection Service. Such
quarantine notice also imposes no discharge of any culture water to
state waters (creeks, rivers, streams, bays) and no sales of any
shrimp until further notice. The Company’s system of tanks
prevents crossover contamination in order to quickly begin
restocking of PL shrimp from a different hatchery beginning in
August in different tanks. Such orders have been placed and are
expected to be placed into production as soon as inspection is
passed and the quarantine has been lifted. Furthermore, the Company
has enhanced its system to include nursery tanks that will allow
the Company to evaluate the health of the shrimp through much
earlier testing in its quality control process. While the Company
expects to incur costs associated with the proper disposal of such
batches, it does not expect it to be material. Furthermore, the
Company expects that it will also recover certain of these costs
from its Texas hatchery supplier.
$5,000,000 Preferred Equity Offering Initiated with GHS
Investments, LLC
On
August 7, 2019, the Company entered into a Securities Purchase
Agreement with GHS Investments, LLC for the purchase of up to 5,000
shares of Series C Preferred Stock (the “Preferred
Stock”) at a stated value of $1,200 per share, or for a total
net proceeds of $5,000,000 in the event the entire 5000 shares of
Preferred Stock are purchased (the “GHS SPA”). As of
the date of this filing, the GHS SPA had not yet been funded and is
therefore not effective.
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, 2019 and 2018:
Services
|
|
|
Audit
fees
|
$45,700
|
$26,250
|
Audit related
fees
|
-
|
-
|
Tax
fees
|
-
|
-
|
All other
fees
|
-
|
-
|
Total
fees
|
$45,700
|
$26,250
|
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 February 13, 2019. 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 February 13,
2019. 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.
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 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 into shares of the
Company’s common stock at a variable conversion rate that is
equal to 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. 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 shares of common stock 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. On December 13, 2018, the holder
converted $11,200 of principal into 4,000,000 shares of common
stock of the Company.
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.
On
January 16, 2019, the Company entered into an 10% convertible
promissory note for $205,436.60, with an OID of $18,6867, for a
purchase price of $186,750.55, which matures on October 16, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. 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. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. 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 issue new debt. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities.
On
February 4, 2019, the Company issued a 10% convertible promissory
note for $85,500, with an OID of $7,500, for a purchase price of
$75,000, which matures on November 4, 2019. During the first 180
days the convertible redeemable note is in effect, the Company may
redeem the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. 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. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. 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 issue new debt. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities.
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.