UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2021

 

or

 

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 000-54030

 

NATURALSHRIMP INCORPORATED

(Exact name of registrant as specified in its charter)

 

Nevada

74-3262176

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

5501 LBJ Freeway, Suite 450Dallas, Texas

75240

(Address of Principal Executive Offices)

(Zip Code)

 

(888) 791-9474(Registrant’s telephone number, including area code)

 

15150 Preston Road, Suite #300

Dallas, Texas 7524

(Former address)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of exchange on

which registered

None

 

N/A

 

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

As of August 16, 2021, there were 603,019,728 shares of the registrant’s common stock outstanding.

 

 

 

 

NATURALSHRIMP INCORPORATED

FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2021

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 3

 

 

 

 

ITEM 1.

Financial Statements

 

 3

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and March 31, 2021

 

 3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Month Ended June 30, 2021 and 2020 (unaudited)

 

 4

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended June 30, 2021 and 2020 (unaudited)

 

 5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2021 and 2020 (unaudited)

 

 6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 7

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 19

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 29

 

 

 

 

ITEM 4.

Controls and Procedures

 

 29

 

 

 

 

 

PART II. OTHER INFORMATION

 

 31

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

 31

 

 

 

 

 

ITEM 1A.

Risk Factors

 

 31

 

 

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 32

 

 

 

 

 

ITEM 3.

Defaults Upon Senior Securities

 

 32

 

 

 

 

 

ITEM 4.

Mine Safety Disclosures

 

 32

 

 

 

 

 

ITEM 5.

Other Information

 

 32

 

 

 

 

 

ITEM 6.

Exhibits

 

 32

 

 

 

 

SIGNATURES

 

 33

 

 

 
2

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

  

ASSETS

 

June 30, 2021

 

 

March 31, 2021

 

Current assets

 

 

 

 

 

 

Cash

 

$ 5,972,617

 

 

$ 155,795

 

Prepaid expenses

 

 

578,839

 

 

 

655,339

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

6,551,456

 

 

 

811,134

 

 

 

 

 

 

 

 

 

 

Fixed assets

 

 

12,342,347

 

 

 

12,236,557

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

Construction-in-process

 

 

2,622,870

 

 

 

1,873,219

 

Patents

 

 

6,951,000

 

 

 

-

 

Right of Use asset

 

 

-

 

 

 

275,400

 

Deposits

 

 

20,633

 

 

 

20,633

 

 

 

 

 

 

 

 

 

 

Total other assets

 

 

9,594,503

 

 

 

2,169,252

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 28,488,306

 

 

$ 15,216,943

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 656,150

 

 

$ 963,289

 

Accrued interest

 

 

73,350

 

 

 

73,350

 

Accrued interest - related parties

 

 

187,520

 

 

 

187,520

 

Other accrued expenses

 

 

568,532

 

 

 

602,368

 

Short-term Promissory Note and Lines of credit

 

 

20,833

 

 

 

573,621

 

Bank loan

 

 

8,725

 

 

 

8,725

 

PPP loan

 

 

-

 

 

 

103,200

 

Convertible debentures

 

 

-

 

 

 

483,637

 

Note payable

 

 

96,000

 

 

 

96,000

 

Notes payable - related parties

 

 

495,412

 

 

 

1,151,162

 

Dividends payable

 

 

-

 

 

 

182,639

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

2,106,522

 

 

 

4,425,511

 

 

 

 

 

 

 

 

 

 

Bank loans, less current maturities

 

 

204,085

 

 

 

206,127

 

Notes payable

 

 

5,000,000

 

 

 

5,000,000

 

Note payable, less current maturities

 

 

191,604

 

 

 

215,604

 

Lease Liability

 

 

-

 

 

 

275,400

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

7,502,211

 

 

 

10,122,642

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Series E Redeemable Convertible Preferred stock, $0.0001 par value, 10,000 shares authorized, 3,740 and 0 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively

 

 

2,035,427

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Series D Redeemable Convertible Preferred stock, $0.0001 par value, 20,000 shares authorized,  0 and 6,050 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively

 

 

-

 

 

 

2,023,333

 

 

 

 

 

 

 

 

 

 

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, 2021 and March 31, 2021, respectively

 

 

500

 

 

 

500

 

Series B Convertible Preferred stock, $0.0001 par value, 5,000 shares authorized, 345 and 607 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 900,000,000 shares authorized, 603,019,728 and 560,745,180 shares issued and 602,644,728 and 560,745,180 shares outstanding at June 30, 2021 and March 31, 2021, respectively

 

 

60,266

 

 

 

56,075

 

Additional paid in capital

 

 

74,585,336

 

 

 

56,649,491

 

Stock Payable

 

 

7,160,900

 

 

 

136,000

 

Accumulated deficit

 

 

(62,856,334 )

 

 

(53,683,268 )

Total stockholders' deficit attributable to NaturalShrimp Incorporated shareholders

 

 

18,950,668

 

 

 

3,158,798

 

 

 

 

 

 

 

 

 

 

Non-controlling interest in NAS

 

 

-

 

 

 

(87,830 )

 

 

 

 

 

 

 

 

 

Total stockholders' deficit

 

 

18,950,668

 

 

 

3,070,968

 

 

 

 

 

 

 

 

 

 

Total liabilities mezzanine and stockholders' deficit

 

$ 28,488,306

 

 

$ 15,216,943

 

 

The accompanying footnotes are in integral part of these condensed consolidated financial statements.

 

 
3

Table of Contents

 

NATURALSHRIMP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the 3 months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

Sales

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

1,644,262

 

 

 

335,979

 

Research and development

 

 

-

 

 

 

-

 

Facility operations

 

 

239,325

 

 

 

11,372

 

Depreciation and amortization

 

 

354,503

 

 

 

10,781

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

2,238,090

 

 

 

358,132

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(2,238,090 )

 

 

(358,132 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(81,536 )

 

 

(30,026 )

Amortization of debt discount

 

 

(236,364 )

 

 

-

 

Financing costs

 

 

(109,953 )

 

 

(61,809 )

Change in fair value of derivative liability

 

 

-

 

 

 

(29,000 )

Change in fair value of warrant liability

 

 

-

 

 

 

-

 

Forgiveness of PPP loan

 

 

103,200

 

 

 

-

 

Loss on disposal of fixed assets

 

 

-

 

 

 

-

 

Loss due to fire

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(324,653 )

 

 

(120,835 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(2,562,743 )

 

 

(478,967 )

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(2,562,743 )

 

 

(478,967 )

 

 

 

 

 

 

 

 

 

Less net loss attributable to non-controlling interest

 

 

-

 

 

 

(1,895 )

 

 

 

 

 

 

 

 

 

Net loss attributable to NaturalShrimp Incorporated

 

 

(2,562,743 )

 

 

477,072 )

 

 

 

 

 

 

 

 

 

Amortization of beneficial conversion feature on Preferred shares

 

 

(817,376 )

 

 

(293,000 )

Accretion on Series D Preferred shares

 

 

 

 

 

 

-

 

Redemption and exchange of Series D Preferred shares

 

 

(5,792,947 )

 

 

-

 

Dividends

 

 

 

 

 

 

(144,792 )

 

 

 

 

 

 

 

 

 

Net loss available for common stockholders

 

$ (9,173,066 )

 

$ (914,864 )

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE (Basic and diluted)

 

$ (0.02 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and diluted)

 

 

501,477,593

 

 

 

386,434,991

 

 

The accompanying footnotes are in integral part of these condensed consolidated financial statements.

 

 
4

Table of Contents

 

NATURALSHRIMP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

Series A Preferred Stock

 

 

Series B Preferred Stock

 

 

Common Stock

 

 

Additional Paid In

 

 

Stock

 

 

Accumulated

 

 

Non-controlling

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Payable 

 

 

Deficit

 

 

Interest 

 

 

Deficit 

 

Balance March 31, 2021

 

 

5,000,000

 

 

$ 500

 

 

 

607

 

 

$ -

 

 

 

560,745,180

 

 

$ 56,076

 

 

$ 56,649,491

 

 

$ 136,000

 

 

$ (53,683,268 )

 

$ (87,830 )

 

$ 3,070,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon conversion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,329,246

 

 

 

133

 

 

 

421,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

421,486

 

Conversion of Series B PS to common stock

 

 

 

 

 

 

 

 

 

 

(262 )

 

 

-

 

 

 

3,144,000

 

 

 

314

 

 

 

(314 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Conversion of Series D PS to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

428,572

 

 

 

43

 

 

 

(43 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Exchange of Series D PS to Series E PS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,258,189 )

 

 

 

 

 

 

(3,258,189 )

Sale of common shares and warrants for cash, less offering costs and commitment shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,772,729

 

 

 

3,577

 

 

 

17,273,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,277,223

 

Exercise of warrants related to the sale of common shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,100,000

 

 

 

110

 

 

 

10,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,000

 

Beneficial conversion feature related to the Series E Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,269,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,269,505

 

Amortization of beneficial conversion feature related to Series E Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(817,376 )

 

 

 

 

 

 

(817,376 )

Redemption of Series D Preferred shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,534,758 )

 

 

 

 

 

 

(2,534,758 )

Amortization of beneficial conversion feature related to Series D Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Commitment shares issued with Series D Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Common shares to be issued for the acquisition of the non-controlling interest subsidiary's remaining equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,087,830 )

 

 

2,000,000

 

 

 

 

 

 

 

87,830

 

 

 

(1,000,000 )

Common shares to be issued for Patent acquisition 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000,000

 

 

 

 

 

 

 

 

 

 

 

5,000,000

 

Common stock vested to consultant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125,000

 

 

 

13

 

 

 

48,738

 

 

 

24,900

 

 

 

 

 

 

 

 

 

 

 

73,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,562,743 )

 

 

 

 

 

 

(2,562,743 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Balance June 30, 2021

 

 

5,000,000

 

 

$ 500

 

 

 

345

 

 

$ -

 

 

 

602,644,727

 

 

$ 60,266

 

 

$ 74,585,336

 

 

$ 7,160,900

 

 

$ (62,856,334 )

 

$ -

 

 

$ 18,950,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2020

 

 

5,000,000

 

 

$ 500

 

 

 

2,250

 

 

$

 

 

 

379,742,524

 

 

$ 37,975

 

 

$ 43,533,243

 

 

 

-

 

 

$ (46,427,396 )

 

$ (82,101 )

 

 

(2,937,780 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon conversion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,926,239

 

 

 

3,793

 

 

 

222,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

226,437

 

Reclass of derivative liability upon conversion or redemption of related convertible debentures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

205,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

205,000

 

Purchase of Series B Preferred shares

 

 

 

 

 

 

 

 

 

 

1,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,250,000

 

Beneficial conversion feature related to the Series B Preferred Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

293,000

 

 

 

 

 

 

 

(293,000 )

 

 

 

 

 

 

-

 

Dividends payable on Series B PS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(144,792 )

 

 

 

 

 

 

(144,792 )

Series B PS Dividends in kind issued

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,458

 

Conversion of Series B PS to common stock

 

 

 

 

 

 

 

 

 

 

(800 )

 

 

(0 )

 

 

33,569,730

 

 

 

3,357

 

 

 

(3,357 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Common stock issued in Vista Warrant settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,500,000

 

 

 

1,750

 

 

 

608,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

610,000

 

Reclass of warrant liability upon the cancellation of warrants under Vista Warrant settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,000

 

Common stock issued to consultant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,250,000

 

 

 

125

 

 

 

61,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(477,072 )

 

 

 

 

 

 

(477,072 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Balance June 30, 2020

 

 

5,000,000

 

 

$ 500

 

 

 

2,750

 

 

$ 0

 

 

 

469,988,493

 

 

$ 47,000

 

 

$ 46,316,363

 

 

$ -

 

 

$ (47,342,260 )

 

$ (82,101 )

 

$ (1,060,499 )

 

The accompanying footnotes are in integral part of these condensed consolidated financial statements.

 

 
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NATURALSHRIMP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the 3 Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss attributable to NaturalShrimp Incorporated

 

$ (2,562,743 )

 

$ (477,072 )

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

354,503

 

 

 

10,781

 

Amortization of debt discount

 

 

236,364

 

 

 

-

 

Change in fair value of derivative liability

 

 

-

 

 

 

29,000

 

Financing costs

 

 

109,953

 

 

 

-

 

Default penalty

 

 

 

 

 

 

41,112

 

Net loss attributable to non-controlling interest

 

 

-

 

 

 

(1,895 )

Forgiveness of PPP loan

 

 

(103,200 )

 

 

-

 

Shares issued for services

 

 

73,651

 

 

 

61,250

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

76,500

 

 

 

68,743

 

Deposits

 

 

-

 

 

 

(628,879 )

Accounts payable

 

 

(304,997 )

 

 

(149,193 )

Other accrued expenses

 

 

(33,836 )

 

 

(159,814 )

Accrued interest

 

 

13,018

 

 

 

6,836

 

Accrued interest - related parties

 

 

-

 

 

 

12,096

 

 

 

 

 

 

 

 

 

 

Cash used in operating activities

 

 

(2,140,788 )

 

 

(1,187,035 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for machinery and equipment

 

 

(411,293 )

 

 

(126,158 )

Cash paid for patent acquisition with F & T

 

 

(2,000,000 )

 

 

-

 

Cash paid for acquisition of shares of NCI

 

 

(1,000,000 )

 

 

-

 

Cash received from Insurance settlement

 

 

-

 

 

 

917,210

 

Cash paid for construction in process

 

 

(749,651 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash (used in) provided by investing activities

 

 

(4,160,944 )

 

 

791,052

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on bank loan

 

 

(2,042 )

 

 

(3,989 )

Payment of note payable

 

 

(24,000 )

 

 

-

 

Payment of note payable, related party

 

 

(655,750 )

 

 

-

 

Repayment of short-term promissory note and lines of credit

 

 

(552,788 )

 

 

-

 

Proceeds from PPP loan

 

 

-

 

 

 

103,200

 

Proceeds from issuance of common shares

 

 

17,277,223

 

 

 

-

 

Shares issued upon exercise of warrants

 

 

11,000

 

 

 

-

 

Proceeds from sale of Series B Convertible Preferred stock

 

 

-

 

 

 

1,250,000

 

Payments on  convertible debentures

 

 

(421,486 )

 

 

-

 

Redemption of Series D PS

 

 

(3,513,504 )

 

 

-

 

Proceeds from sale of Series D PS

 

 

-

 

 

 

-

 

Cash received in relation to Vista warrant settlement

 

 

-

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

Cash provided by financing activities

 

 

12,118,653

 

 

 

1,399,211

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

5,816,922

 

 

 

1,003,228

 

 

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

 

155,795

 

 

 

109,491

 

 

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 

$ 5,972,717

 

 

$ 1,112,719

 

 

 

 

 

 

 

 

 

 

INTEREST PAID

 

$ 81,536

 

 

$ 17,930

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Shares issued upon conversion

 

$ 421,486

 

 

$ 226,437

 

Cancellation of Right of Use asset and Lease liability

 

$ 275,400

 

 

$ -

 

Dividends in kind issued

 

$ -

 

 

$ 56,458

 

Shares issued on Vista Warrant settlement

 

$ -

 

 

$ 560,000

 

Shares to be issued as consideration for Patent acquisition

 

$ 5,000,000

 

 

$ -

 

Shares to be issued as consideration for acquisition of remaining NCI

 

$ 2,000,000

 

 

$ -

 

 

The accompanying footnotes are in integral part of these condensed consolidated financial statements.

 

 
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NATURALSHRIMP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2021

(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.

 

On December 15, 2020, the Company entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for the Company to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other improvements located on such real property) of Iowa’s First. The facility was originally designed as an aquaculture facility, with the company having production issues. The Company began a modification process to convert the plant to produce shrimp, which will allow them to scale faster without having to build new facilities. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company's patented EC platform technology. On May 19, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with F&T Water Solutions, LLC (“F&T”), for F&T’s owned shares of Natural Aquatic Systems, Inc. Prior to entering into the SPA, the Company owned fifty-one percent (51%) and F&T owned forty-nine percent (49%) of the issued and outstanding shares of common stock of NAS. After the SPA, NAS is a 100% owned subsidiary of the Company (See Note 8).

 

The Company has three wholly-owned subsidiaries including NaturalShrimp Corporation, NaturalShrimp Global, Inc. and NAS.

 

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, 2021, the Company had a net loss available for common stockholders of approximately $9,173,000. At June 30, 2021, the Company had an accumulated deficit of approximately $62,856,000. 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, 2021, the Company received net cash proceeds of approximately $17,277,000 from the sale of common shares (See Note 9). Management believes that private placements of equity capital 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, 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 be unable to develop its facilities and enter in production.

 

 
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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, 2021 and 2020 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, 2021 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on June 29, 2021.

 

The condensed consolidated balance sheet at March 31, 2021 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, 2021, the Company had 10,000,000 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For ,the three months ended June 30,2020, the Company had approximately $278,000 in convertible debentures whose approximately 1,560,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.124 to $0.25 for fixed conversion rates which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

 

 
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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, 2021 and March 31, 2021.

 

The Derivative and Warrant liabilities are Level 3 fair value measurements. There were no Level 3 fair value measurements during the three months ended June 30. 2021.

 

The following is a summary of activity of Level 3 liabilities during the three months ended June 30, 2021 and 2020:

 

Derivatives

 

 

 

2020

 

Derivative liability balance at beginning of period

 

$ 176,000

 

Reclass to equity upon conversion or redemption

 

 

(205,000 )

Change in fair value

 

 

29,000

 

Balance at end of period

 

$ -

 

 

At June 30, 2020, 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 $0.04; a risk-free interest rate of 0.13%, and expected volatility of the Company’s common stock of 158.29%, and the various estimated reset exercise prices weighted by probability.

 

Warrant liability

 

 

 

2020

 

Warrant liability balance at beginning of period

 

$ 90,000

 

Reclass to equity upon cancellation or exercise

 

 

(90,000 )

Change in fair value

 

 

-

 

Balance at end of period

 

$ -

 

 

At June 30, 2020, 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%.

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.

 

 
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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 June 30, 2021 and March 31, 2021.

 

Concentration of Credit Risk

 

The Company maintains cash balances at two financial institutions. Accounts at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of June 30, 2021 the Company’s cash balance exceeded FDIC coverage. As of March 31, 2021, 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 using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives are as follows:

 

 

Buildings

 

27.5 – 39 years

 

Machinery and Equipment

 

7 – 10 years

 

 Vehicles

 

 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 $306,000 and $11,000 for the three months ended June 30, 2021 and 2020, 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.

 

 
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Recently Issued Accounting Standards

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

 

As of June 30, 2021, 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, 2021, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 13 – 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 – FIXED ASSETS

 

A summary of the fixed assets as of June 30, 2021 and March 31, 2021 is as follows:

 

 

 

June 30, 2021

 

 

March 31, 2021

 

Land

 

$ 324,293

 

 

$ 324,293

 

Buildings

 

 

4,910,292

 

 

 

4,702,063

 

Machinery and equipment

 

 

7,755,454

 

 

 

7,580,873

 

Autos and trucks

 

 

232,301

 

 

 

213,849

 

 

 

 

13,222,340

 

 

 

12,891,078

 

Accumulated depreciation

 

 

(879,993 )

 

 

(4,52158 )

Fixed assets, net

 

$ 12,342,347

 

 

$ 12,236,557

 

 

The fixed assets include the assets purchased in the asset acquisition on December 15, 2020, with VBF. The $10,136,000 consideration was allocated to the fixed assets acquired based on their relative fair value.

 

NOTE 4 – PATENT ACQUISITION

 

On May 19, 2021, the Company entered into a Patents Purchase Agreement (the “Patents Agreement”) with F&T. The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest. Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issued 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000. The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021. As of June 30, 2021, the shares of common stock have not been issued and are therefore classified in Shares payable.

 

 
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In accordance with ASC 805-10-55-5A, as substantially all the assets acquired are concentrated in a single identifiable asset, the patents, the acquisition has been determined to not be considered a business combination but an asset acquisition. The consideration will be allocated to the two patents, which were both approved in December, 2018, and will be amortized through the earliest of their useful life or December, 2038. Amortization over the next five years is expected to be $390,000 per year, for a total of $1,950,000. Amortization expense was $49,000 for the three months ended June 30, 2021

 

NOTE 5 – SHORT-TERM NOTE AND LINES OF CREDIT

 

The Company has a working capital line of credit with Extraco Bank. On April 30, 2020, the line of credit was renewed with a maturity date of April 30, 2021 for a balance of $372,675. The line of credit bore an interest rate of 5.0%, that was compounded monthly and to be paid with the principal on the maturity date. The line of credit matured on April 30, 2021 and was secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On May 5, 2021, the Company paid off the line of credit. The balance of the line of credit was $372,675 at March 31, 2021.

 

The Company also had an additional line of credit with Extraco Bank for $200,000, which was renewed with a maturity date of April 30, 2021, for a balance of $177,778. The line of credit bore interest at a rate of 5%, that was compounded monthly and to be paid with the principal on the maturity date. The line of credit was secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On April 15, 2021, the line of credit was paid off in full. The balance of the line of credit was $177,778 at March 31, 2021.

 

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 29.15% as of June 30, 2021. The line of credit is unsecured. The balance of the line of credit was $9,580 at both June 30, 2021 and March 31, 2021.

 

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 13.25% as of June 30, 2021. 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, 2021 and March 31, 2021.

 

NOTE 6 – BANK LOANS

 

On April 10, 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $103,200 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On April 16, 2021, the Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan on April 26, 2021.

 

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. On January 10, 2020, the loan was modified, with certain terms amended. The modified note is for the principal balance of $222,736, with initial monthly payments of $1,730 through February 1, 2037, when all unpaid principal and interest will be due and payable. The loan has an initial yearly rate of interest of 5.75% , which may change beginning on February 1, 2023 and each 36 months thereafter, to the Wall Street Journal Prime Rate plus 1%, but never below 4.25%. The monthly payments may change on the same dates as the interest changes. The Company is also allowed to make payments against the principal at any time. The balance of the CNB Note is $212,810 at June 30, 2021, $8,990 of which was in current liabilities, and $222,736 at March 31, 2021, of which $8,904 was in current liabilities.

 

On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000, with a maturity date of December 15, 2017. 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 note is guaranteed by an officer and director. The balance of the note at June 30, 2021 and March 31, 2021 was $789 and $3,124, respectively. The note was paid off in full in July of 2021.

 

 
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Maturities on Bank loan is as follows:

 

 

Years ended:

 

 

 

March 31, 2022

 

$ 20,760

 

March 31, 2023

 

 

20,760

 

March 31, 2024

 

 

20,760

 

March 31, 2025

 

 

20,760

 

March 31, 2025

 

 

20,760

 

Thereafter

 

 

109,799

 

 

 

$ 213,599

 

 

NOTE 7 – CONVERTIBLE DEBENTURES

 

February 26, 2021 Debenture

 

On February 26, 2021, the Company entered into a convertible note for the principal amount of $720,000, with an original issue discount of $120,000, convertible into shares of common stock of the Company. The note bears interest of 12% and is due six months from the date of issuance. The note is convertible from the date of issuance, at a fixed conversion rate of $0.36. The conversion rate shall change to $0.10 upon the event of default. 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 $164,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. The amortization of the beneficial conversion feature was $27,273 and the original issuance discount was $20,000, for the year ended March 31, 2021. On April 16, 2021, the Company settled the convertible note, consisting of $720,000 in principal, approximately $13,000 in accrued interest, and approximately $110,000 in redemption fee, for a total of $842,972 . The Company paid $421,486 in cash, and settled the remaining balance through the conversion into the issuance of 1,303,982 common shares.

 

NOTE 8 – ACQUISITION OF NON-CONTROLLING INTEREST

 

On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with F&T, for the shares owned by F&T of NAS. Upon the closing of the SPA, the Company purchased the 980,000 shares of NAS’ common stock owned by F&T for a purchase price of $1,000,000 in cash and issued 3,960,396 shares of the Company’s common stock at a market value of $0.505 per share, for a total fair value of $2,000,000, for a total acquisition price of $3,000,000. The Company paid the cash purchase price on May 20, 2021 and the purchase of the NAS shares closed on May 25, 2021. Prior to entering into the SPA, the Company owned fifty-one percent (51%) and F&T owned forty-nine percent (49%) of the issued and outstanding shares of common stock of NAS, and therefore, NAS was included in the consolidated financial statements of the Company, with F&T’s ownership accounted for as a non-controlling interest. After the SPA, the non-controlling interest was no longer in existence and NAS became a 100% owned subsidiary of the Company. In accordance with ASC 810-10-45, when the parent’s ownership interest changes while the parent retains its controlling interest in a subsidiary, it is accounted for as an equity transaction and there is no gain or loss recognized in the consolidated net loss. The difference between the fair value of the consideration paid and the amount of the non-controlling interest as of the acquisition of NAS shares held by F&T is recognized in equity attributable to the Company. The carrying amount of the non-controlling interest prior to the acquisition was a deficit of $87,830, and as a result, a deduction of $3,087,830 was recognized in additional paid in capital in the Consolidated Statement of Changes in Equity, for the three months ended June 30, 2021.

 

 
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NOTE 9 – STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

As of June 30, 2021 and March 31, 2021, 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 of Series A preferred stock are authorized and outstanding, 5,000 shares Series B preferred stock are authorized and 345 and 607 outstanding, respectively, 5,000 shares Series D preferred stock are authorized and 0 and 6,050 outstanding, respectively and 5,000 shares Series E preferred stock are authorized and 3,740 and 0 outstanding, respectively.

 

Series E Preferred Stock

 

On April 14, 2021, the Board authorized the issuance of 10,000 shares of the Company’s Series E Preferred Stock and has filed a Certificate of Designation of Preferences of the Series E Convertible Preferred Stock with the State of Nevada. The shares of Series E Preferred Stock have a stated value of $1,200 per share and are convertible into shares of common stock at the election of the holder of the Series E Preferred Stock at any time at a price of $0.35 per share, subject to adjustment (the “Conversion Price”). The Series E Preferred Stock is convertible into that number of shares of common stock determined by dividing the Series E Stated Value (plus any and all other amounts which may be owing in connection therewith) by the Conversion Price, subject to certain beneficial ownership limitations. Each holder of Series E Preferred Stock shall be entitled to receive, with respect to each share of Series E Preferred Stock then outstanding and held by such holder, dividends at the rate of twelve percent (12%) per annum, payable quarterly. Each share of Series E Preferred Stock shall be redeemed by the Company on the date that is no later than one calendar year from the date of its issuance. The Series D PS are also redeemable at the Company's option, at percentages ranging from 115% to 125% for the first 180 days, based on the passage of time. The holders of Series E Preferred Stock rank senior to the Common Stock and Common Stock Equivalents (as defined in the Series E Designation) with respect to payment of dividends and rights upon liquidation and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations, on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Upon any liquidation, dissolution or winding-up of the Company, the holders shall be entitled to receive out of the assets of the Company an amount equal to the stated value, plus any accrued and unpaid dividends and any other fees or liquidated damages then due and owing for each share of Preferred Stock, before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

Series B Preferred Equity Offering

 

On September 17, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with GHS Investments LLC, a Nevada limited liability company (“GHS”) for the purchase of up to 5,000 shares of Series B PS at a stated value of $1,200 per share, or for a total net proceeds of $5,000,000 in the event the entire 5,000 shares of Series B PS are purchased.

 

On April 8, 2021, the Company converted 262 Series B into 3,144,000 shares of the Company’s common stock.

 

Securities Purchase Agreement

 

On April 14, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Purchaser”), for the offering (the “Offering”) of (i) $5,000,000 worth of common stock (“Shares”), par value $0.0001 per share, of the Company (“Common Stock”); at a per share purchase price of $0.55 per Share (ii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of 10,000,000 shares of Common Stock, which are exercisable for a period of five years after issuance at an initial exercise price of $0.75 per share, subject to certain adjustments, as provided in the Warrants; and (iii) 1,000,000 shares of Common Stock (the “Commitment Shares”). Pursuant to the Purchase Agreement, on April 15, 2021, the Company received net proceeds of $4,732,123 from the Purchaser.

 

 
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Further, pursuant to the terms of the Purchase Agreement, from the date thereof until the date that is the twelve-month anniversary of the closing of the Offering, upon any issuance by the Company or any of its subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

 

Pursuant to the Purchase Agreement, on May 5, 2021, the Purchaser purchased an additional 15,454,456 shares of common stock at a per share purchase price of $0.55 per share (the “Second Closing”), for net proceeds of approximately $8,245,000.

 

Additionally, on May 20, 2021, the Purchaser purchased an additional 2,727,272 shares of common stock at a price per share of $0.55 per share (“Third Closing”), for net proceeds of approximately $1,455,000.

 

GHS Purchase Agreement

 

On June 28, 2021, the Company entered into a securities purchase agreement with GHS (the “June GHS Purchase Agreement”) for the offering of up to (i) $3,000,000 worth of common stock of the Company at a per share purchase price of $0.40 and (ii) $11,000 worth of prefunded common stock purchase warrants to purchase an aggregate of up to 1,100,000 shares of common stock, which are exercisable upon issuance and shall not expire prior to exercise, and are subject to certain adjustments, as provided in the warrants. Pursuant to the June GHS Purchase Agreement, on June 28, 2021, GHS purchased 7,500,000 shares of common stock and 1,100,000 shares of common stock underlying the prefunded warrants, for an aggregate purchase price of $3,011,000, less offering expenses of $90,330, for net proceeds of $2,909,670.

 

Share Exchange Agreement and Redemption

 

On April 14, 2021, the Company, entered into a share exchange agreement (the “Exchange Agreement”) with a holder of the Series D Preferred Stock, whereby, at the closing of the Offering, the Holder agreed to exchange an aggregate of 3,600 shares of the Company’s Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) into 3,739.63 shares of the Company’s Series E Convertible Preferred stock, par value $0.0001 (the “Series E Preferred Stock”). The exchange was completed on April 15, 2021. In accordance with ASC 260-10-S99-2, exchanges of preferred stock that are considered to be extinguishments are to be accounted for as a redemption. Therefore, the difference between the fair value of the Series E Preferred Stock transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the exchange, which was $3,258,189, was accounted for in a manner similar to a dividend.

 

In addition, in relation to the Offering, on April 15, 2021, the Company redeemed the remaining 2,450 of the Series D PS for $3,513,504. In accordance with ASC 260-10-S99-2, the difference between the fair value of the consideration transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the redemption, which was $2,719,538, was accounted for in a manner similar to a dividend.

 

Leak-Out Agreements

 

In connection with the issuance of a total of 13,861,386 shares of the Company’s common stock pursuant to the SPA (Note 8) and the Patents Agreement (Note 3) (the “Shares”), the Company and F&T, on May 19, 2021, entered into two separate leak-out agreements (the “Leak-Out Agreements”). Pursuant to the Leak-Out Agreements, F&T agreed that it would not sell or transfer the Shares for six months following the closing of the SPA and Patents Agreement and that, following these six months, each shareholder of F&T who was issued a portion of the Shares could sell up to one-sixth of their portion of the Shares every thirty-day period occurring thereafter for the next six months. Following the one-year anniversary of the closings, there will be no further restrictions regarding the sale or transfer of the Shares.

 

Common Shares Issued to Consultants

 

On April 14, 2021, 500,000 shares of common stock were issued to a consultant per an agreement entered into on January 20, 2021 for advisory services for a two-year period. The shares had a fair value of $195,000, based on the market price of $0.39 on the grant date. 62,500 common shares shall vest each quarter through October 1, 2022, at $24,275, with $48,750 vested through the three months ended June 30, 2021.

 

 
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On May 24, 2021, the Company entered into an agreement with a consultant, with a three-month term, that shall automatically renew each three months unless one party terminates the agreement. The compensation shall be $12,500 in cash per month for the first six months and $15,000 per month thereafter. Also included in compensation are 200,000 shares of common stock, with a fair value of $99,600 based upon the market price of $0.50 upon the grant date. The shares of common stock will vest in quarterly installments, with 50,000 to vest immediately. The shares of common stock have not yet been issued, and therefore the 50,000 vested shares, at $24,900, are included in Shares payable.

 

On August 24, 2020, the Company issued 1,500,000 shares of common stock to a consultant per an agreement entered into on June 25, 2020. On December 25, 2020, the Company renewed the agreement for an additional six months. As consideration for the agreement the Company issued 1,500,000 shares of common stock to the consultant. The agreement has a six-month term, and therefore the fair value of $616,500, based on the market value of $0.041 on the grant date, was recognized in Prepaid expense to be amortized over the six-month term. As of the year end March 31, 2021, $308,250 remained in Prepaid expense with $308,250 recognized in consulting expense for the year end March 31, 2021. The remaining $308.250 was expensed in the three months ended June 30, 2021.

 

Options and Warrants

 

The Company has not granted any options since inception.

 

NOTE 10 – RELATED PARTY TRANSACTIONS

 

Accrued Payroll – Related Parties

 

Included in other accrued expenses on the accompanying consolidated balance sheet is approximately $18,000 and $35,000 owing to the President of the Company as of June 30, 2021 and March 31, 2021, respectively, and approximately $130,000 and $154,000, owing to a key employee (which includes $50,000 in both fiscal years, from consulting services prior to his employment) as of June 30, 2021 and March 31, 2021. These amounts include both accrued payroll and accrued allowances and expenses.

 

Bonus Compensation – Related Party

 

On May 11, 2021, the Company paid a compensation bonus to the Chief Financial Officer, for $300,000.

 

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%. During the three months ended June 30, 2021, the Company paid off $655,750 of the note payable. The outstanding balance is approximately $77,000 and $735,000, as of June 30, 2021 and March 31, 2021, respectively. At June 30, 2021 and March 31, 2021, accrued interest payable was approximately $68,000 and $66,000, respectively.

 

Shareholder Notes

 

The Company has entered into several working capital notes payable to multiple shareholders of NSH and Bill Williams, a former officer and 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 was $356,404 as of both June 30, 2021 and March 31, 2021, and is classified as a current liability on the consolidated balance sheets. As of March 31, 2021 and March 31, 2021, accrued interest payable was approximately $125,000 and $118,000, respectively.

 

 
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Shareholders

 

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, 2021 and March 31, 2021 was $54,647 and is classified as a current liability on the consolidated balance sheets.

 

NOTE 11 – 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 was 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%. As of March 31, 2021, the lease was on hold while the Company waited for new equipment to be delivered and installed. During the first quarter of fiscal 2022, the Company has cancelled the lease. As the lease was on hold there has been no lease expense or amortization of the Right of Use asset since inception of the lease and recognition of the Lease liability and Right of Use asset, and therefore there is no gain or loss recognized upon cancellation of the lease. .

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES

 

Executive Employment Agreements –Gerald Easterling

 

On April 1, 2015, the Company entered into an employment agreement with Gerald Easterling at the time as the Company’s President, effective as of April 1, 2015 (the “Employment Agreement”).

 

The Employment Agreement is terminable at will and each provide for a base annual salary of $96,000. In addition, the Employment Agreement provides that the employee is entitled, at the sole and absolute discretion of the Company’s Board of Directors, to receive performance bonuses. Mr. Easterling will also be entitled to certain benefits including health insurance and monthly allowances for cell phone and automobile expenses.

 

The Employment Agreement provides that in the event the employee is terminated without cause or resigns for good reason (as defined in their Employment Agreement), 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.

 

The 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.

 

On August 15, 2019, the late Mr. Bill Williams resigned from his position as Chairman of the Board and Chief Executive Officer of the Company, effective August 31, 2019. Mr. Easterling replaced him as the Chief Executive Officer of the Company. On July 15, 2020, the Company issued a promissory note to Ms. Williams in the amount of $383,604 to settle the amounts agreed to in the separation agreement for accrued compensation and debt (see Note 10).

 

 
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RGA Labs, Inc.

 

On February 18, 2020, RGA Labs, Inc. (“RGA”) filed suit against the Company in the Illinois Circuit Court (23rd District) alleging that the Company owed RGA money pursuant to a written contract for the design and manufacture of certain water treatment equipment commissioned by the Company. The Company disputed the allegations and has counterclaimed against RGA for additional costs and expenses incurred by the Company in correcting, repairing and retro-fitting the equipment to enable it to work in the Company’s facilities. As a result of RGA’s failure to respond to written discovery served by the Company and failure of RGA to satisfy requirements imposed by an order compelling response, the court issued an order prohibiting RGA from introducing any evidence at the time of trial other than the original agreement between RGA and the Company. Further, the Court sustained the Company’s objection to RGA’s written discovery obviating the Company’s obligation to respond. The parties are required to mediate the case prior to trial which mediation has not been scheduled at this time.

 

Gary Shover

 

A shareholder of NaturalShrimp Holdings, Inc. (“NSH”), Gary Shover, filed suit against the Company on August 11, 2020 in the Northern District of Texas, Dallas Division, alleging breach of contract for the Company’s failure to exchange common shares of the Company for shares Mr. Shover owns in NSH. The Company has filed its answer to the complaint and is seeking to settle the matter with Mr. Shover with the approval of the Federal District Court. A settlement stipulation has been prepared and approved by the parties and has been filed with the Court along with a proposed order. After a conference call between counsel for the parties, counsel for the Company agreed to amend the stipulation, motion to approve stipulation and the declarations filed in support of the motion to provide a more detailed statement of fact to assist the court in its determination, although as of the date of this filing, the Company is not aware of the date of such determination.

 

NOTE 13 – SUBSEQUENT EVENTS

 

On May 26, 2021, the Company entered into a sublease for a new office space in Texas, on two floors. The lease will commence on August 1, 2021 for a monthly rent of $7,000, and terminate on October 31, 2025, for one of the spaces, and commence in the second half of 2022 for monthly rent of $1,727, and terminate on October 31, 2025, for the second space. On June 2, 2021, the Company paid a deposit of $52,362 which shall be applied to the last six months of the sublease term, and $17,454 security deposit, which is included in Prepaid expenses on the accompanying consolidated condensed balance sheet. The lease liability and right of use asset will be recognized upon the commencement of the lease on August 1, 2021.

 

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:

 

·

our ability to continue developing and expanding our research and development plant in La Coste, Texas and our production facility in Webster City, Iowa;

·

our ability, once our research and development plant is rebuilt, to successfully commercialize our equipment and shrimp farming operations to produce a market-ready product in a timely manner and in enough quantity;

·

absence of contracts with customers or suppliers;

·

our ability to maintain and develop relationships with customers and suppliers;

·

our ability to successfully integrate acquired businesses or new brands;

·

the impact of competitive products and pricing;

·

supply constraints or difficulties;

·

the retention and availability of key personnel;

·

general economic and business conditions;

·

substantial doubt about our ability to continue as a going concern;

·

our continued ability to raise funding through institutional investors at the pace and quantities required to scale our plant needs to commercialize our products;

·

our ability to successfully recruit and retain qualified personnel in order to continue our operations;

·

our ability to successfully implement our business plan;

·

our ability to successfully acquire, develop or commercialize new products and equipment;

·

the commercial success of our products;

·

business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the outbreak of COVID-19 or any of its variants);

·

intellectual property claims brought by third parties; and

·

the impact of any industry regulation.

  

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

 

 
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As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to NaturalShrimp Incorporated and its wholly-owned subsidiaries: NaturalShrimp Corporation (“NSC”) and NaturalShrimp Global, Inc. (“NS Global”) and Natural Aquatic Systems, Inc. Unless otherwise specified, all dollar amounts are expressed in United States Dollars.

 

Corporate History

 

We were incorporated in the State of Nevada on July 3, 2008 under the name “Multiplayer Online Dragon, Inc.” Effective November 5, 2010, we effected an 8-for-1 forward stock split, increasing the issued and outstanding shares of our common stock from 12,000,000 shares to 96,000,000 shares. On October 29, 2014, we effected a 1-for-10 reverse stock split, decreasing the issued and outstanding shares of our common stock from 97,000,000 to 9,700,000.

 

On November 26, 2014, we entered into an Asset Purchase Agreement (the “Agreement”) with NaturalShrimp Holdings, Inc. a Delaware corporation (“NSH”), pursuant to which we agreed to acquire substantially all of the assets of NSH which assets consisted primarily of all of the issued and outstanding shares of capital stock of NSC and NS Global, and certain real property located outside of San Antonio, Texas (the “Assets”).

 

On January 30, 2015, we consummated the acquisition of the Assets pursuant to the Agreement. In accordance with the terms of the Agreement, we issued 75,520,240 shares of our common stock to NSH as consideration for the Assets. As a result of the transaction, NSH acquired 88.62% of our issued and outstanding shares of common stock; NSC and NS Global became our wholly-owned subsidiaries, and we changed our principal business to a global shrimp farming company.

 

In connection with our receipt of approval from the Financial Industry Regulatory Authority (“FINRA”), effective March 3, 2015, we amended our Articles of Incorporation to change our name to “NaturalShrimp Incorporated.”

 

Business Overview

 

We are a biotechnology company and has developed proprietary platform technologies that allow us to grow Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus vannamei) in an ecologically controlled, high-density, low-cost environment, and in fully contained and independent production facilities. Our system uses technology which allows us to produce a naturally grown shrimp “crop” weekly and accomplishes this without the use of antibiotics or toxic chemicals. We have developed several proprietary technology assets, including a knowledge base that allows us to produce commercial quantities of shrimp in a closed system with a computer monitoring system that automates, monitors, and maintains proper levels of oxygen, salinity, and temperature for optimal shrimp production. Our initial production facility is located outside of San Antonio, Texas.

 

NS Global, one of our wholly-owned subsidiaries, owns less than 1% of Norway Seafood A.S, (formerly NaturalShrimp International A.S.) in Oslo, Norway. This entity was our original European-based partner and was responsible for the construction cost of its facility and initial operating capital.

 

The first facility built in Spain for NaturalShrimp International A.S. is GambaNatural de España, S.L. The land for the first facility was purchased in Medina del Campo, Spain, and construction of the 75,000 sq. ft. facility was completed in 2016. Medina del Campo is approximately seventy-five miles northwest of Madrid, Spain.

 

On October 16, 2015, we formed Natural Aquatic Systems, Inc. (“NAS”).  The purpose of NAS is to formalize the business relationship between our Company and F&T Water Solutions LLC (“F&T”) for the joint development of certain water technologies.  The technologies shall include, without limitation, any and all inventions, patents, intellectual property, and know-how dealing with enclosed aquatic production systems worldwide.  This includes construction, operation, and management of enclosed aquatic production, other than shrimp, facilities throughout the world, co-developed by both parties at our facility located outside of La Coste, Texas. On December 25, 2018, we were awarded U.S. Patent “Recirculating Aquaculture System and Treatment Method for Aquatic Species” covering all indoor aquatic species that utilizes proprietary art.

 

 
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On December 15, 2020, we entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for us to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems, and other improvements located on such real property) of Iowa’s First. The consideration was $10,000,000, consisting of $5,000,000 in cash, paid at closing on December 17, 2020, (ii) $3,000,000 payable in 36 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date, and (iii) $2,000,000 payable in 48 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date. The Company also agreed to issue 500,000 shares of Common Stock as a finder’s fee, with a fair value of $135,000 based on the market value of the Common Stock as of the closing date of the acquisition.

 

The facility was originally designed as an aquaculture facility, with the company having production issues. The Company’s has begun a modification process to convert the plant to produce shrimp, which will allow them to scale faster without having to build new facilities. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company’s Electrocoagulation (EC) platform technology.

 

On May 19, 2021, the Company entered into a Patents Purchase Agreement (the “Patents Agreement”) with F&T. The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest. Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issued 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000.  The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021.  As of June 30, 2021, the shares of common stock have not been issued and are therefore classified in Shares payable. 

 

The Company has three wholly-owned subsidiaries including, NSC and NS Global and NAS.

 

Evolution of Technology

 

Historically, efforts to raise shrimp in a high-density, closed system at the commercial level have been met with either modest success or outright failure through “BioFloc Technology.” Infectious agents such as parasites, bacteria and viruses are the most damaging and most difficult to control. Bacterial infection can in some cases be combated through the use of antibiotics (although not always), and in general, the use of antibiotics is considered undesirable and counter to “green” cultivation practices. Viruses can be worse, in that they are immune to antibiotics. Once introduced to a shrimp population, viruses can wipe out entire farms and shrimp populations, even with intense probiotic applications.

 

Our primary solution against infectious agents is our “Vibrio Suppression Technology.” We believe this system creates higher sustainable densities, consistent production, improved growth and survival rates and improved food conversion without the use of antibiotics, probiotics, or unhealthy anti-microbial chemicals. Vibrio Suppression Technology helps to exclude and suppress harmful organisms that usually destroy “BioFloc” and other enclosed technologies.

 

In 2001, we began research and development of a high density, natural aquaculture system that is not dependent on ocean water to provide quality, fresh shrimp every week, fifty-two weeks a year. Our initial system was successful, but we determined that it would not be economically feasible due to high operating costs. Over the next several years, using the knowledge we gained from developing the first system, we developed a shrimp production system that eliminated the high costs associated with the previous system. We have continued to refine this technology, eliminating bacteria and other problems that affect enclosed systems, and now have a successful shrimp growing process. We have produced thousands of pounds of shrimp over the last few years in order to develop a design that will consistently produce quality shrimp that grow to a large size at a specific rate of growth. This included experimenting with various types of natural live and synthesized feed supplies before selecting the most appropriate nutritious and reliable combination. It also included utilizing monitoring and control automation equipment to minimize labor costs and to provide the necessary oversight for proper regulation of the shrimp environment. However, there were further enhancements needed to our process and technology in order to begin production of shrimp on a commercially viable scale and to generate revenues.

 

 
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Our current system consists of a nursery tank where the shrimp are acclimated, then moved to a larger grow-out tank for the rest of the twenty-four-week cycle. During 2016, we engaged in additional engineering projects with third parties to further enhance our indoor production capabilities. For example, through our relationship with Trane, Inc., a division of Ingersoll-Rand Plc (“Trane”), Trane provided a detailed audit to use data to build and verify the capabilities of then initial Phase 1 prototype of a Trane-proposed three tank system at our La Coste, Texas facility. The Company working with F&T Water Solutions contracted RGA Labs, Inc. (“RGA Labs”) to build the initial NaturalShrimp patented Electrocoagulation system for the grow-out, harvesting and processing of fully mature, antibiotic-free Pacific White Leg shrimp. The design provided a viable pathway to begin generating revenue and producing shrimp on a commercially viable scale. The equipment was installed in early June 2018 by RGA Labs, and final financing for the system was provided by one of the Company’s institutional investors. The first post larvae (PL) arrived from the hatchery on July 3, 2018. The Company used the shrimp for sampling to key potential customers and special events such as the Texas Restaurant Association trade show. The Company also received two production PL lots from Global Blue Technologies on March 21, 2019 and April 17, 2019 and from American Penaeid, Inc. on August 7, 2019. Because the shrimp displayed growth that was slower than normal, the Company had a batch tested by an independent lab at the University of Arizona. The shrimp tested positive for Infectious hypodermal and hematopoietic necrosis (“IHHNV”) and the Texas Parks and Wildlife Department was notified that the facility was under quarantine. On August 26, 2019, the Company was forced to terminate all lots due to the infection. On August 30, 2019, the Company received notice that it was in compliance again and the quarantine had been lifted and the Company began restocking shrimp in the refurbished facility sections. During the aforementioned quarantine, the Company decided to begin an approximately $2,000,000 facility renovation demolishing the interior 16 wood structure lined tanks (720,000 gallons). The Company began replacing the previous tanks with 40 new fiberglass tanks (600,000 gallons) at a cost of approximately $400,000 allowing complete production flexibility with more smaller tanks.

 

On March 18, 2020, our research and development plant in La Coste, Texas was destroyed by a fire. The Company believed that it was caused by a natural gas leak, but the fire was so extensive that the cause was undetermined. No one was injured as a result of the fire. The majority of the damage was to our pilot production plant, which comprised approximately 35,000 square feet of the total size of all facilities at the La Coste location of approximately 53,000 square feet, but the fire did not impact the separate greenhouse, reservoirs, or utility buildings. We received total insurance proceeds in the amount of $917,210, the full amount of our claim. These funds were utilized to rebuild a 40,000 square foot production facility at the La Coste facility and to repurchase the equipment needed to replace what was lost in the fire. Had this facility fire not occurred, the Company had expected that the first shrimp tanks harvest target date would have been April 2020.

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020

 

Revenue

 

We have not earned any significant revenues since our inception and, although we expect revenues to begin in six to nine months, we can provide no assurances as to how significant they will be at that time.

 

Expenses

 

Our expenses for the three months ended June 30, 2021 are summarized as follows, in comparison to our expenses for the three months ended June 30, 2020:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Salaries and related expenses

 

$ 632,321

 

 

$ 110,715

 

Professional fees

 

 

597,246

 

 

 

128,308

 

Other general and administrative expenses

 

 

410,610

 

 

 

93,322

 

Rent

 

 

4,085

 

 

 

3,634

 

Facility operations

 

 

239,325

 

 

 

11,372

 

Depreciation and amortization

 

 

354,503

 

 

 

10,781

 

Total

 

$ 2,238,090

 

 

$ 358,132

 

 

 
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Operating expenses for the three months ended June 30, 2021 were $2,238,090, which is a 525% increase over operating expenses of $358,132 for the same period in 2020. The overall change in expenses is mainly the result of a ramp up of costs based on the increase in the activity in planning operations, as well as the acquisition and addition of the Vero Blue facility. Salaries increased by approximately $522,000, due to the new employees, as well as the $300,000 bonus paid to the CFO. Professional fees increased by approximately $469,000, due to attorneys work with the Company on acquisitions and equity offerings and SEC filings, as well as consultant and accounting fees. The operating costs in 2020 were also decreased due to the slowdown of the progressing of testing and planning to begin commercial operations due to the fire at the Texas plant. The depreciation in the three months ended June 30, 2021, increased due to the new fixed assets acquired from Vero Blue, and the amortization in the current period is the result of the patent acquisition on May 19, 2021.

 

Liquidity, Financial Condition and Capital Resources

 

As of June 30, 2021, we had cash on hand of approximately $5,973,000 and working capital of approximately $4,445,000. as compared to cash on hand of approximately $,156,000 and a working capital deficiency of approximately $3,614,000 as of March 31, 2021. The increase in working capital for the three months ended June 30, 2021, is mainly due to the increase in cash on-hand and decrease in convertible debentures, notes payable – related parties, lines of credit, as well as the forgiveness of the PPP loan.

 

Working Capital/(Deficiency)

 

Our working capital as of June 30, 2021, in comparison to our working capital deficiency as of March 31, 2021, can be summarized as follows:

 

 

 

June 30,

 

 

March 31,

 

 

 

2021

 

 

2021

 

Current assets

 

$ 6,551,456

 

 

$ 811,134

 

Current liabilities

 

 

2,106,522

 

 

 

4,425,511

 

Working capital/(deficiency)

 

$ 4,444,934

 

 

$ (3,614,377 )

 

Current assets increased mainly because of the addition to cash as a result of the equity offerings during the three months ended June 30, 2021, of approximately $17,274,000, a portion of which was used in the patent and NAS acquisitions, as well as redemption of Series D Preferred shares.  The decrease in current liabilities is primarily due to the payoff of bank loans and lines of credit, convertible debt, notes payable to related parties, and the forgiveness of the PPP loan. 

 

Cash Flows

 

Our cash flows for the three months ended June 30, 2021, in comparison to our cash flows for the three months ended June 30, 2020, can be summarized as follows:

 

 

 

Three Months Ended June 30,

 

 

 

2021

 

 

2020

 

Net cash used in operating activities

 

$ (2,140,788 )

 

$ (1,187,035 )

Net cash used in investing activities

 

 

(4,160,944 )

 

 

791,052

 

Net cash provided by financing activities

 

 

12,118,553

 

 

 

1,399,211

 

Net change in cash

 

$ 5,816,822

 

 

$ 1,003,228

 

 

The increase in net cash used in operating activities in the three months ended June 30, 2021, compared to the same period in 2020 is largely attributable to the increase in the net loss, plus the increase in accounts payable, and the decrease from the prior period in the amount of payments towards deposits on fixed assets,

 

The net cash used in investing activities in the three months ended June 30, 2021 includes $2,000,000 in the patent acquisition and $1,000,000 in the acquisition of shares of the non-controlling interest, as well as approximately $750,000 for construction in process. The prior year’s cash spent on investing activities consisted mainly of the $917,210 of cash proceeds received from the insurance settlement for the fire to the pilot production plant, offset by cash paid for machinery and equipment.

 

 
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The net cash provided by financing activities increased by approximately $10,719,000 between periods. For the current period, the Company received approximately $17,277,000 from the sale of common stock and warrants, offset by amounts paying off the convertible note, notes payable with related parties and bank loans, and the amount paid on the redemption of Series D Preferred Shares. In the same period in the prior year, the financing activities primarily arose from the proceeds received from the sale of Series B convertible Preferred Shares and the $103,200 received from the PPP loan.

 

Our cash position was approximately $5,973,000 as of June 30, 2021. Management believes that our cash on hand and working capital are not sufficient to meet our current anticipated cash requirements for additional anticipated capital expenditures, operating expenses and scale-up of operations for the next twelve months.

 

Recent Financing Arrangements and Developments During the Period

 

Short-Term Debt and Lines of Credit

 

The Company has a working capital line of credit with Extraco Bank. On April 30, 2020, the line of credit was renewed with a maturity date of April 30, 2021 for a balance of $372,675. The line of credit bore an interest rate of 5.0%, that was compounded monthly and to be paid with the principal on the maturity date. The line of credit matured on April 30, 2021 and was secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On May 5, 2021, the Company paid off the line of credit. The balance of the line of credit was $372,675 at March 31, 2021.

 

The Company also had an additional line of credit with Extraco Bank for $200,000, which was renewed with a maturity date of April 30, 2021, for a balance of $177,778. The line of credit bore interest at a rate of 5%, that was compounded monthly and to be paid with the principal on the maturity date. The line of credit was secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On April 15, 2021, the line of credit was paid off in full. The balance of the line of credit was $177,778 at March 31, 2021.

 

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 29.15% as of June 30, 2021. The line of credit is unsecured. The balance of the line of credit was $9,580 at both June 30, 2021 and March 31, 2021.

 

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 13.25% as of June 30, 2021. 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, 2021 and March 31, 2021.

 

Bank Loan

 

On April 10, 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $103,200 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, and utilities. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. On April 16, 2021, the Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan on April 26, 2021.

 

 
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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. On January 10, 2020, the loan was modified, with certain terms amended. The modified note is for the principal balance of $222,736, with initial monthly payments of $1,730 through February 1, 2037, when all unpaid principal and interest will be due and payable. The loan has an initial yearly rate of interest of 5.75% , which may change beginning on February 1, 2023 and each 36 months thereafter, to the Wall Street Journal Prime Rate plus 1%, but never below 4.25%. The monthly payments may change on the same dates as the interest changes. The Company is also allowed to make payments against the principal at any time. The balance of the CNB Note is $212,810 at June 30, 2021, $8,990 of which was in current liabilities, and $222,736 at March 31, 2021, of which $8,904 was in current liabilities.

 

On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000, with a maturity date of December 15, 2017. 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 note is guaranteed by an officer and director. The balance of the note at June 30, 2021 and March 31, 2021 was $789 and $3,124, respectively.

 

Convertible Debentures

 

On February 26, 2021, the Company entered into a convertible note for the principal amount of $720,000, with an original issue discount of $120,000, convertible into shares of common stock of the Company. The note bears interest of 12% and is due six months from the date of issuance. The note is convertible from the date of issuance, at a fixed conversion rate of $0.36. The conversion rate shall change to $0.10 upon the event of default. 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 $164,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. The amortization of the beneficial conversion feature was $27,273 and the original issuance discount was $20,000, for the year ended March 31, 2021. On April 16, 2021, the Company settled the convertible note, consisting of $720,000 in principal, approximately $13,000 in accrued interest, and approximately $110,000 in redemption fee, for a total of $842,972 . The Company paid $421,486 in cash, and settled the remaining balance through the conversion into the issuance of 1,303,982 common shares.

 

Series B Preferred Equity Offering

 

On April 8, 2021, the Company converted 262 Series B into 3,144,000 shares of the Company’s common stock.

 

Securities Purchase Agreement

 

On April 14, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Purchaser”), for the offering (the “Offering”) of (i) $5,000,000 worth of common stock (“Shares”), par value $0.0001 per share, of the Company (“Common Stock”); at a per share purchase price of $0.55 per Share (ii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of 10,000,000 shares of Common Stock, which are exercisable for a period of five years after issuance at an initial exercise price of $0.75 per share, subject to certain adjustments, as provided in the Warrants; and (iii) 1,000,000 shares of Common Stock (the “Commitment Shares”). Pursuant to the Purchase Agreement, on April 15, 2021, the Company received net proceeds of $4,732,123 from the Purchaser.

 

Further, pursuant to the terms of the Purchase Agreement, from the date thereof until the date that is the twelve-month anniversary of the closing of the Offering, upon any issuance by the Company or any of its subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.

 

Pursuant to the Purchase Agreement, on May 5, 2021, the Purchaser purchased an additional 15,454,456 shares of common stock at a per share purchase price of $0.55 per share (the “Second Closing”), for net proceeds of approximately $8,245,000.

 

 
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Additionally, on May 20, 2021, the Purchaser purchased an additional 2,727,272 shares of common stock at a price per share of $0.55 per share (“Third Closing”), for net proceeds of approximately $1,455,000.

 

GHS Purchase Agreement

 

On June 28, 2021, the Company entered into a securities purchase agreement with GHS (the “June GHS Purchase Agreement”) for the offering of up to (i) $3,000,000 worth of common stock of the Company at a per share purchase price of $0.40 and (ii) $11,000 worth of prefunded common stock purchase warrants to purchase an aggregate of up to 1,100,000 shares of common stock, which are exercisable upon issuance and shall not expire prior to exercise, and are subject to certain adjustments, as provided in the warrants. Pursuant to the June GHS Purchase Agreement, on June 28, 2021, GHS purchased 7,500,000 shares of common stock and 1,100,000 shares of common stock underlying the prefunded warrants, for an aggregate purchase price of $3,011,000, less offering expenses of $90,330, for net proceeds of $2,909,670.

 

Share Exchange Agreement and Redemption

 

On April 14, 2021, the Company, entered into a share exchange agreement (the “Exchange Agreement”) with a holder of the Series D Preferred Stock, whereby, at the closing of the Offering, the Holder agreed to exchange an aggregate of 3,600 shares of the Company’s Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) into 3,739.63 shares of the Company’s Series E Convertible Preferred stock, par value $0.0001 (the “Series E Preferred Stock”). The exchange was completed on April 15, 2021. In accordance with ASC 260-10-S99-2, exchanges of preferred stock that are considered to be extinguishments are to be accounted for as a redemption. Therefore, the difference between the fair value of the Series E Preferred Stock transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the exchange, which was $3,258,189, was accounted for in a manner similar to a dividend.

 

In addition, in relation to the Offering, on April 15, 2021, the Company redeemed the remaining 2,450 of the Series D PS for $3,513,504. In accordance with ASC 260-10-S99-2, the difference between the fair value of the consideration transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the redemption, which was $2,719,538, was accounted for in a manner similar to a dividend.

 

Common Shares Issued to Consultants

 

On April 14, 2021, 500,000 shares of common stock were issued to a consultant per an agreement entered into on January 20, 2021 for advisory services for a two-year period. The shares had a fair value of $195,000, based on the market price of $0.39 on the grant date. 62,500 common shares shall vest each quarter through October 1, 2022, at $24,275, with $48,750 vested through the three months ended June 30, 2021.

 

On May 24, 2021, the Company entered into an agreement with a consultant, with a three-month term, that shall automatically renew each three months unless one party terminates the agreement. The compensation shall be $12,500 in cash per month for the first six months and $15,000 per month thereafter. Also included in compensation are 200,000 shares of common stock, with a fair value of $99,600 based upon the market price of $0.50 upon the grant date. The shares of common stock will vest in quarterly installments, with 50,000 to vest immediately. The shares of common stock have not yet been issued, and therefore the 50,000 vested shares, at $24,900, are included in Shares payable.

 

On August 24, 2020, the Company issued 1,500,000 shares of common stock to a consultant per an agreement entered into on June 25, 2020. On December 25, 2020, the Company renewed the agreement for an additional six months. As consideration for the agreement the Company issued 1,500,000 shares of common stock to the consultant. The agreement has a six-month term, and therefore the fair value of $616,500, based on the market value of $0.041 on the grant date, was recognized in Prepaid expense to be amortized over the six-month term. As of the year end March 31, 2021, $308,250 remained in Prepaid expense with $308,250 recognized in consulting expense for the year end March 31, 2021. The remaining $308.250 was expensed in the three months ended June 30, 2021.

 

 
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Going Concern

 

The audited consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared, assuming that the Company will continue as a going concern. The Company has accumulated losses through the period to June 30, 2021 of approximately $62,856,000 as well as negative cash flows from operating activities of approximately $2,141,000. Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following the date of issuance of this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance the continued build-out of our equipment and for general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with our fund-raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.

 

The consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges of the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

Future Financing

 

We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements that have enabled us to fund our operations, these funds have been largely used to develop our processes, although additional funds are needed for other corporate operational and working capital purposes. However, not including funds needed for capital expenditures or to pay down existing debt and trade payables, we anticipate that we will need to raise an additional $2,500,000 to cover all of our capital and operational expenses over the next 12 months, not including any capital expenditures needed as part of any commercial scale-up of our equipment. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that such financing can be obtained on commercially reasonable terms. If we are not able to obtain the additional necessary financing on a timely basis, or if we are unable to generate significant revenues from operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Effects of Inflation

 

We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fully described in the notes to our financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.

 

 
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Fair Value Measurement

 

The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

 

Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

 

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

The Company did not have any Level 1,Level 2 or Level 3 assets and liabilities at June 30, 2021 and March 31, 2021.

 

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, 2021, the Company had 10,000,000 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For ,the three months ended June 30,2020, the Company had approximately $278,000 in convertible debentures whose approximately 1,560,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.124 to $0.25 for fixed conversion rates which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

 

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.

 

Recently Adopted Accounting Pronouncements

 

Our recently adopted accounting pronouncements are more fully described in Note 2 to our financial statements included herein for the quarter ended June 30, 2021.

 

 
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Recently Issued Accounting Standards

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

 

During the year ended March 31, 2021, 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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses  which are indicative of many small companies with small number of staff:

 

·

inadequate segregation of duties consistent with control objectives;

·

lack of independent Board of Directors and absence of Audit Committee to exercise oversight responsibility related to financial reporting and internal control;

·

lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner; and

·

lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during our first quarter ended June 30, 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Except as described below, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

RGA Labs, Inc.

 

On February 18, 2020, RGA Labs, Inc. (“RGA”) filed suit against the Company in the Illinois Circuit Court (23rd District) alleging that the Company owed RGA money pursuant to a written contract for the design and manufacture of certain water treatment equipment commissioned by the Company. The Company disputed the allegations and has counterclaimed against RGA for additional costs and expenses incurred by the Company in correcting, repairing and retro-fitting the equipment to enable it to work in the Company’s facilities. As a result of RGA’s failure to respond to written discovery served by the Company and failure of RGA to satisfy requirements imposed by an order compelling response, the court issued an order prohibiting RGA from introducing any evidence at the time of trial other than the original agreement between RGA and the Company. Further, the Court sustained the Company’s objection to RGA’s written discovery obviating the Company’s obligation to respond. The parties are required to mediate the case prior to trial which occurred on August 10, 2021. The terms of the agreements have been signed.

 

Gary Shover

 

A shareholder of NaturalShrimp Holdings, Inc. (“NSH”), Gary Shover, filed suit against the Company on August 11, 2020 in the Northern District of Texas, Dallas Division, alleging breach of contract for the Company’s failure to exchange common shares of the Company for shares Mr. Shover owns in NSH. The Company has filed its answer to the complaint and is seeking to settle the matter with Mr. Shover with the approval of the Federal District Court. A settlement stipulation has been prepared and approved by the parties and has been filed with the Court along with a proposed order. After a conference call between counsel for the parties, counsel for the Company agreed to amend the stipulation, motion to approve stipulation and the declarations filed in support of the motion to provide a more detailed statement of fact to assist the court in its determination, although as of the date of this filing, the Company is not aware of the date of such determination.

 

Item 1A. Risk Factors 

 

Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1 of our Annual Report on Form 10-K for the year ended March 31, 2021. The risks described in our Form 10-K are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.

 

There have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2021, filed with SEC on June 29, 2021.

 

 
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2021 that were not previously reported in a Current Report on Form 8-K except as follows:

 

On April 14, 2021, 500,000 shares of common stock were issued to a consultant per an agreement entered into on January 20, 2021 for advisory services for a two-year period.  The shares had a fair value of $195,000, based on the market price of $0.39 on the grant date.  62,500 common shares shall vest each quarter through October 1, 2022, at $24,275, with $48,750 vested through the three months ended June 30, 2021. 

 

The above securities were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act. The issuance of the shares to the consultant qualified for exemption under Section 4(a)(2) since the issuance by us did not involve a public offering. The offering was not a “public offering” as defined in 4(a)(2) due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued. We did not undertake an offering in which we 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) since they agreed to and received securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 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, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

 

 

 

 

Incorporated by Reference

 

Exhibit Number

 

Exhibit Description

 

Form

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Certificate of Designation of Series E Preferred Stock

 

8-K

 

3.1

 

4/15/2021

 

4.1

 

Form of Warrant Issued April 2021.

 

8-K

 

4.1

 

4/15/2021

 

10.1

 

Form of Securities Purchase Agreement, dated as of April 14, 2021, by and between the Company and the Purchaser

 

8-K

 

10.1

 

4/15/2021

 

10.2

 

Form of Exchange Agreement, dated as of April 14, 2021 by and between the Company and a holder of the Series D Preferred Stock

 

8-K

 

10.2

 

4/15/2021

 

10.3

 

Securities Purchase Agreement by and between NaturalShrimp Incorporated and F&T Water Solutions, LLC, dated May 19, 2021

 

8-K

 

10.1

 

6/1/2021

 

10.4#

 

Patents Purchase Agreement by and between NaturalShrimp Incorporated and F&T Water Solutions, LLC, dated May 19, 2021.

 

8-K

 

10.2

 

6/1/2021

 

10.3

 

Form of Leak-Out Agreement by and between NaturalShrimp Incorporated and F&T Water Solutions, LLC, dated May 19, 2021.

 

8-K

 

10.3

 

6/1/2021

 

31.1*

 

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

 

 

 

 

 

 

 

31.2*

 

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

 

 

 

 

 

 

 

32.1**

 

Section 1350 Certification of Chief Executive Officer.

 

 

 

 

 

 

 

32.2**

 

Section 1350 Certification of Chief Financial Officer.

 

 

 

 

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

 

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

* Filed herewith.

** Furnished herewith.

 

 # Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NATURALSHRIMP INCORPORATED

 

 

By:

 /s/ Gerald Easterling

 

Gerald Easterling

 

Chief Executive Officer

 

(Principal Executive Officer)

 

Date: August 16, 2021

 

 

By:

/s/ William Delgado

 

William Delgado

 

Chief Financial Officer

 

(Principal Financial Officer and Principal Accounting Officer)

 

Date: August 16, 2021

 

 

 

33

 

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