Corporate
History
We were
incorporated in the State of Nevada on July 3, 2008 under the name
“Multiplayer Online Dragon, Inc.” Effective November 5,
2010, we effected an 8 for 1 forward stock split, increasing the
issued and outstanding shares of our common stock from 12,000,000
shares to 96,000,000 shares. On October 29, 2014, we effected a 1
for 10 reverse stock split, decreasing the issued and outstanding
shares of our common stock from 97,000,000 to
9,700,000.
On November 26,
2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation, a Delaware
corporation, (“NSC”) and NaturalShrimp Global, Inc., a
Delaware corporation, (“NS Global”) and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On January 30,
2015, we consummated the acquisition of the Assets pursuant to the
Agreement. In accordance with the terms of the Agreement, we issued
75,520,240 shares of our common stock to NSH as consideration for
the Assets. As a result of the transaction, NSH acquired 88.62% of
our issued and outstanding shares of common stock; NSC and NS
Global became our wholly-owned subsidiaries, and we changed our
principal business to a global shrimp farming company.
In connection with
our receipt of approval from the Financial Industry Regulatory
Authority (“FINRA”), effective March 3, 2015, we
amended our Articles of Incorporation to change our name to
“NaturalShrimp Incorporated.”
Business
Overview
We are a
biotechnology company and have developed a proprietary technology
that allows us to grow Pacific White shrimp (Litopenaeus vannamei,
formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS Global, one of
our wholly-owned subsidiaries, owns less than 1% of NaturalShrimp
International A.S. in Europe. Our European-based partner,
NaturalShrimp International A.S., Oslo, Norway, is the European
Holding company for GambaNatural de Espana, S.L.
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., a Texas corporation,
(“NAS”). The purpose of the NAS formalized the business
relationship between our Company and F&T Water Solutions LLC
for the joint development of certain water technologies. The
technologies shall include, without limitation, any and all
inventions, patents, intellectual property and know-how dealing
with enclosed aquatic production systems worldwide. This includes
construction, operation, and management of enclosed aquatic
production, other than shrimp, facilities throughout the world,
co-developed by both parties at our facility located outside of La
Coste, Texas. 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 this proprietary art.
Evolution of Technology and Revenue Expectations
Historically,
efforts to raise shrimp in a high-density, closed system at the
commercial level have been met with either modest success or
outright failure through “BioFloc Technology.”
Infectious agents such as parasites, bacteria and viruses are the
most damaging and most difficult to control. Bacterial infection
can in some cases be combated through the use of antibiotics
(although not always), and in general, the use of antibiotics is
considered undesirable and counter to “green”
cultivation practices. Viruses can be even worse, in that they are
immune to antibiotics. Once introduced to a shrimp population,
viruses can wipe out entire farms and shrimp populations, even with
intense probiotic applications.
Our primary
solution against infectious agents is our “Vibrio Suppression
Technology.” We believe this system creates higher
sustainable densities, consistent production, improved growth and
survival rates and improved food conversion without the use of
antibiotics, probiotics or unhealthy anti-microbial chemicals.
Vibrio Suppression Technology helps to exclude and suppress harmful
organisms that usually destroy “BioFloc” and other
enclosed technologies.
In 2001, we began
research and development of a high density, natural aquaculture
system that is not dependent on ocean water to provide quality,
fresh shrimp every week, fifty-two weeks per year. The initial
NaturalShrimp system was successful, but the Company determined
that it would not be economically feasible due to high operating
costs. Over the next several years, using the knowledge we gained
from developing the first system, we developed a shrimp production
system that eliminated the high costs associated with the previous
system. We have continued to refine this technology, eliminating
bacteria and other problems that affect enclosed systems, and now
have a successful shrimp growing process. We have produced
thousands of pounds of shrimp over the last few years in order to
develop a design that will consistently produce quality shrimp that
grow to a large size at a specific rate of growth. This included
experimenting with various types of natural live and synthesized
feed supplies before selecting the most appropriate nutritious and
reliable combination. It also included utilizing monitoring and
control automation equipment to minimize labor costs and to provide
the necessary oversight for proper regulation of the shrimp
environment. However, there were further enhancements needed to our
process and technology in order to begin production of shrimp on a
commercially viable scale and to generate revenues.
Our current system
consists of a reception tank where the shrimp are acclimated, then
moved to a larger grow-out tank for the rest of the twenty-four
week cycle. During 2016, we engaged in additional engineering
projects with third parties to further enhance our indoor
production capabilities. The Company contracted F&T Water
Solutions and RGA Labs, Inc. (“RGA Labs”) to complete
final engineering and building of an initial patent-pending
modified electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. We believe that the design will present a viable pathway to
begin generating revenue and producing shrimp on a commercially
viable scale. The design is completed and was installed in early
June 2018 by RGA Labs. The first post larvae (PL) arrived from the
hatchery at the end of June 2018, and we expect we will harvest the
first lot before the end the first quarter of 2019. The focus of
this harvest will be to market, sample, and refine production
specifications.
Results of Operations
Comparison
of the Three Months Ended December 31, 2018 to the Three Months
Ended December 31, 2017
Revenue
We have not earned
any significant revenues since our inception and although we expect
revenues to begin in six to nine months, we do not expect them to
be significant at that time.
Expenses
Our expenses for
the three months ended December 31, 2018 are summarized as follows,
in comparison to our expenses for the three months ended December
31, 2017:
|
Three Months Ended
December 31,
|
|
|
|
Salaries and
related expenses
|
$
109,623
|
$
95,544
|
Rent
|
2,953
|
3,221
|
Professional
fees
|
70,535
|
82,120
|
Other general and
administrative expenses
|
40,710
|
69,887
|
Facility
operations
|
22,479
|
5,835
|
Depreciation
|
17,726
|
17,726
|
Total
|
$
264,026
|
$
274,333
|
Operating expenses
for the three months ended December 31, 2018 were $264,026,
representing a decrease of 4% compared to operating expenses of
$274,333 for the same period in 2017. The slight decrease in
expenses is the result of a decrease in general and administrative
costs, offset by an increase in salaries and facility operations,
as the Company is progressing with their testing and planning to
begin commercial operations.
Comparison of the Nine Months Ended December 31, 2018 to the Nine
Months Ended December 31, 2017
Revenue
We have not earned
any significant revenues since our inception and although we expect
revenues to begin in six to nine months, we do not expect them to
be significant at that time.
Expenses
Our expenses for
the nine months ended December 31, 2018 are summarized as follows,
in comparison to our expenses for the nine months ended December
31, 2017:
|
Nine Months Ended
December 31,
|
|
|
|
Salaries and
related expenses
|
$
314,788
|
$
250,039
|
Rent
|
8,983
|
8,011
|
Professional
fees
|
193,478
|
200,015
|
Other general and
administrative expenses
|
136,540
|
407,988
|
Facility
operations
|
66,442
|
21,241
|
Depreciation
|
53,171
|
53,170
|
Total
|
$
773,402
|
$
940,464
|
Operating expenses
for the nine months ended December 31, 2018 were $773,402,
representing a decrease of 18% compared to operating expenses of
$940,464 for the same period in 2017. The primary reason for the
change is that in the nine months ended December 31, 2017 there was
$220,000 amortization of the remaining prepaid expenses arising
from shares issued in January 2017 to a consultant for services to
be provided over six months. This decrease in expenses is offset by
an increase in salaries and facility operations, as the Company is
progressing with their testing and planning to begin commercial
operations.
Liquidity, Financial Condition and Capital Resources
As of December 31,
2018, we had cash on hand of approximately $24,000 and a working
capital deficiency of approximately $5,728,000
.
as compared
to cash on hand of $24,280 and a working capital deficiency of
approximately $6,764,000 as of March 31, 2018. The decrease in
working capital deficiency for the nine months ended December 31,
2018 is mainly due to an approximate $650,000 increase in current
liabilities reflecting the reclassification to current liabilities
of certain lines of credit based on their maturity dates and an
increase in accounts payable and accrued interest of approximately
$75,000, offset by a slight decrease in the convertible debentures
due to their settlement through conversions into common stock and
the addition of new debentures, and a decrease in the fair value of
the derivative liability arising from the convertible debentures.
in the warrant liability
Working
Capital Deficiency
Our working capital
deficiency as of December 31, 2018, in comparison to our working
capital deficiency as of March 31, 2018, can be summarized as
follows:
|
|
|
|
|
|
Current
assets
|
$
201,110
|
$
260,179
|
Current
liabilities
|
5,928,741
|
7,024,615
|
Working capital
deficiency
|
$
5,727,631
|
$
6,764,436
|
The decrease in
current assets is mainly due to the funding of three Back end notes
receivable in the amount of $150,000, offset by the addition of a
new Back end note receivable of $90,000. The total current
liabilities have decreased approximately $1,096,000, one reason for
which is due to an approximate $650,000 increase in current
liabilities reflecting the reclassification to current liabilities
of certain lines of credit based on their maturity dates.
Additionally, there are small increases in both accounts payable
and accrued expenses balances. These increases to the current
liabilities are balanced out by decreases as a result of new
convertible debentures entered into during the current period of
$742,000, reduced by a redemption and cancellation of convertible
debentures of $138,000, offset by conversions of the convertible
debentures and related accrued interest of approximately
$1,076,000. In relation to the reductions in the convertible
debentures, $2,522,000 of the derivative liability was reclassed to
equity which along with the reduced fair value of the remaining
derivative liability of $1,116,000, offset by an increase of
$1,897,000 of additions to the derivative liability upon issuance
of the new convertible debentures, resulted in a total decrease in
the derivative liability of $1,772,000. Also, the warrant liability
decreased based on warrant exercises, offset by an increase in fair
value of $47,000 when remeasured at period end.
Cash
Flows
Our cash flows for
the nine months ended December 31, 2018, in comparison to our cash
flows for the nine months ended December 31, 2017, can be
summarized as follows:
|
Nine Months Ended
December 31,
|
|
|
|
Net cash used in
operating activities
|
$
(672,676
)
|
$
(680,610
)
|
Net cash used in
investing activities
|
(80,754
)
|
-
|
Net cash provided
by financing activities
|
753,618
|
608,130
|
Decrease in
cash
|
$
(188
)
|
$
(72,480
)
|
The net cash used
in operating activities in the nine months ended December 31, 2018,
was fairly consistent compared to the same period in 2017. However,
there were significant increases between periods in the non-cash
charges of the amortization of the debt discount and the financing
costs related to the issuance of new convertible debentures, offset
by the difference in the changes in fair value of the derivative
and warrant liabilities between the two periods, as well as an
increase in accrued interest during 2018 as compared to 2017, and
the impact of the decrease in prepaid assets occurring in 2017. The
net cash used in investing activities in the nine months ended
December 31, 2018, related mainly to costs paid on construction in
process on the new facility. The net cash provided by financing
activities increased between periods, as the Company received
proceeds of $150,000 from the funding of Back end notes receivable
in the nine month period in 2018 and approximately $165,000 from
the sale of common stock under the Equity Financing agreement,
while the Company made approximately $92,000 of payments on debt
with related parties in the nine months period in 2017. The cash
provided by financing activities arising from proceeds on
convertible debentures decreased by approximately $164,000 in the
nine months ended December 31, 2018 as compared to 2017, offset by
an approximately $104,000 decrease in payments by the Company on
outstanding convertible debentures.
Our cash position
was approximately $24,000 as of December 31, 2018. Management
believes that our cash on hand and working capital are not
sufficient to meet our current anticipated cash requirements
through fiscal 2019, as described in further detail under the
section titled “
Going
Concern
” below.
Recent
Financing Arrangements and Developments During the
Period
In order for the
Company to continue its business operations and provide growth to
its shareholders the Company requires financing in the form of
debt, equity, credit and other forms of financing. As of September
19, 2018, the date of effectiveness of the Company’s Form S-1
Registration Statement, the Company had 87,056,880 shares of common
stock issued and outstanding. As of the date hereof, the Company
has 296,807,419 shares of common stock issued and outstanding (the
“Outstanding Share Increase”). A significant portion of
the Outstanding Share Increase and dilution therefrom is a result
of the financing transactions the Company has entered into in
connection with and in furtherance of the Company’s business
operations as disclosed herein and in the Management Discussion and
Analysis section of this Form S-1 Registration Statement. The
Company’s issuance of additional convertible promissory
notes, common stock purchase warrants, or common stock will
continue to increase the amount of shares of common stock issued
and outstanding and thereby dilute our shareholders.
Lines of Credit
On November 3,
2015, the Company entered into a short-term note agreement with
Community National Bank for a total value of $50,000. On July 18,
2018 the outstanding principal balance of $25,298 was exchanged for
an 8% promissory note with a maturity date of July 18, 2021. The
balance of the note agreement at both December 31, 2018 and March
31, 2018 was $25,298.
The Company also
has a working capital line of credit with Extraco Bank. On April
30, 2018, the Company renewed the line of credit for $475,000. The
line of credit bears an interest rate of 5.0% that is compounded
monthly on unpaid balances and is payable monthly. The line of
credit matures on April 30, 2019 and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. The balance of the line of credit is $472,675 at
both December 31, 2018 and March 31, 2018.
The Company also
has additional lines of credit with Extraco Bank for $100,000 and
$200,000, which were renewed on January 19, 2018 and April 30,
2018, respectively, with maturity dates of January 19, 2019 and
April 30, 2019, respectively. These lines of credit bear an
interest rate of 4.5% (increased to 6.5% and 5%, respectively, upon
renewal in 2017) that is compounded monthly on unpaid balances and
is payable monthly. These lines of credit are secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the lines of credit
was $276,958 at both December 31, 2018 and March 31,
2018.
The Company also
has a working capital line of credit with Capital One Bank for
$50,000. The line of credit bears an interest rate of prime plus
25.9 basis points, which totaled 31.4% as of December 31, 2018. The
line of credit is unsecured. The balance of the line of credit was
$9,580 at both December 31, 2018 and March 31, 2018.
The Company also
has a working capital line of credit with Chase Bank for $25,000.
The line of credit bears an interest rate of prime plus 10 basis
points, which totaled 15.50% as of December 31, 2018. The line of
credit is secured by assets of the Company’s subsidiaries.
The balance of the line of credit is $11,197 at both December 31,
2018 and March 31, 2018.
Convertible Debentures
On July 31, 2017,
the Company entered into a 5% Securities Purchase Agreement with an
accredited investor. The agreement calls for the purchase of up to
$135,000 in convertible debentures, due 12 months from issuance,
with an original issue discount (“OID”) of $13,500. The
first convertible debenture was issued in the principal amount of
$45,000 for a purchase price of $40,500 (an OID of $4,500), with
additional closings to occur at the sole discretion of the holder.
The convertible debentures are convertible into shares of the
Company’s common stock at a conversion price of sixty percent
(60%) of the lowest trading price over the 25 trading days
preceding the date of conversion, subject to adjustment. With each
tranche under the July 31, 2017 convertible debentures, the Company
shall issue a warrant to purchase an amount of shares of its common
stock equal to the face value of each respective tranche divided by
$0.60 as a commitment fee. The Company issued a warrant to purchase
75,000 shares of the Company’s common stock with the first
closing, with an exercise price of $0.60. The warrant has an
anti-dilution provision for future issuances, whereby the exercise
price would reset. The exercise price was adjusted to $0.15, and
the number of warrants issued to 300,000, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. On October 2, 2017, the Company
entered into a second closing of the July 31, 2017 debenture, in
the principal amount of $22,500 for a purchase price of $20,250,
with $1,500 deducted for legal fees, resulting in net cash proceeds
of $18,750. On February 5, 2018, the Company entered into an
amendment to the July 31, 2017 debenture, whereby in exchange for a
payment of $6,500, except for a conversion of up to 125,000 shares
of the Company’s shares of common stock, the noteholder shall
only be entitled to effectuate a conversion under the note on or
after March 2, 2018. On February 20, 20 18, the holder converted
$4,431 of the January debentures into 125,000 shares of common
stock of the Company. During March 2018, the holder converted an
additional $17,113 of the July debentures into 630,000 shares of
common stock of the Company. During April 2018, in three separate
conversions, the remainder of the first closing was fully converted
into 1,225,627 shares of common stock of the Company. During May
and June 2018, in two separate conversions, the remainder of the
second closing was fully converted into 2,810,725 shares of common
stock of the Company.
On August 28, 2017,
the Company entered into a 12% convertible promissory note with an
accredited investor in the principal amount of $110,000, with an
original issue discount of $10,000, which matured on February 28,
2018. The note is convertible into shares of the Company’s
common stock at a variable conversion rate equal to the lesser of
sixty percent (60%) of the lowest trading price over the 20 trading
days prior to the issuance of the note or sixty percent (60%) of
the lowest trading price over the 20 trading days prior to
conversion, subject to adjustment. In connection with the note, the
Company issued 50,000 warrants, exercisable at $0.20, with a
five-year term. The exercise price is adjustable upon certain
events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants issued increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. Additionally, in connection with the
note, the Company also issued 343,750 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $58,438, based on the market value of the shares of
common stock at the closing date of $0.17, and was recognized as
part of the debt discount. The shares are to be returned to the
Treasury of the Company in the event the debenture is fully repaid
prior to the date which is 180 days following the issue date. The
note was sold to the holder of the January 29, 2018 note (below) on
February 8, 2018, with an amendment entered into to extend the note
until March 5, 2018. On February 22, 2018, in connection with the
sale of the note to the January 29, 2019 note holder, 171,965 of
the shares were returned to the Company and cancelled. The
remaining shares are not required to be returned to the Company, as
the note was not redeemed prior to the date 180 days following the
issue date. In exchange for a cash payment of $5,000 and the
issuance of 50,000 shares of common stock, on March 5, 2018, the
holder agreed to not convert any of the outstanding debt into
common stock of the Company until April 8, 2018. The new holder
issued a waiver as to the maturity date of the note and a technical
default provision. During April through June 2018, in a number of
separate conversions, the August debenture was fully converted into
8,332,582 shares of common stock of the Company.
On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
Additionally, in connection with the second closing, the Company
issued 332,500 shares of common stock of the Company as a
commitment fee. The commitment shares fair value was calculated as
$35,877, based on the market value of the shares of common stock at
the closing date of $0.11, and was recognized as part of the debt
discount. The shares are to be returned to the Treasury of the
Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. Subsequent to year
end the note holders issued a waiver as to the maturity date of the
two notes and a technical default provision. The notes have
subsequently been fully converted. During May 2018, the second
closing was fully converted into 5,072,216 shares of common stock
of the Company.
On September 11,
2017, the Company entered into a 12% convertible promissory note
with an accredited investor in the principal amount of $146,000,
with an original issue discount of $13,500, which matured on June
11, 2018. The note is convertible into shares of the
Company’s common stock at a variable conversion rate equal to
the lesser of the lowest trading price over the 25 trading days
prior to the issuance of the note or fifty percent (50%) of the
lowest trading price over the 25 trading days prior to conversion,
subject to adjustment. In connection with the note, the Company
issued 243,333 warrants, exercisable at $0.15, with a five-year
term. The exercise price is adjustable upon certain events, as set
forth in the agreement, including for future dilutive issuance. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. During April and June 2018, in three
separate conversions, $85,000 of the note was converted into
9,200,600 shares of common stock of the Company. During July and
September 2018, in two separate conversions, an additional $20,654
of principal and $3,700 accrued interest of the note was converted
into 5,436,049 shares of common stock of the Company. During the
third fiscal quarter of 2019, in five separate conversions, the
remaining principal was fully converted, along with $1,475 accrued
interest of the note into 27,186,186 shares of common stock of the
Company.
On September 12,
2017, the Company entered into a 12% convertible promissory note
with an accredited investor in the principal amount of $96,500 with
an original issue discount of $4,500, which had an original
maturity date of June 12, 2018. The note is able to be prepaid
prior to the maturity date, at a cash redemption premium, at
various stages as set forth in the agreement. The note is
convertible commencing 180 days after issuance date (or upon an
event of default), or March 11, 2018, at a variable conversion rate
of sixty percent (60%) of the market price, defined as the lowest
trading price during the 20 trading days prior to conversion,
subject to adjustment. On March 20, 2018, the holder converted
$32,500 of the September 12, 2017 debentures into 1,031,746 shares
of common stock of the Company. During April 2018, in two separate
conversions, the debenture was fully converted into 2,611,164
shares of common stock of the Company.
On September 28,
2017, the Company entered into a Securities Purchase Agreement with
an accredited investor, pursuant to which the Company agreed to
sell a 12% Convertible Note in the principal amount of $55,000 with
a maturity date of September 28, 2018, for a purchase price of
$51,700, and $2,200 deducted for legal fees, resulting in net cash
proceeds of $49,500. The effective closing date of the Securities
Purchase Agreement and Convertible Note was October 17, 2017. The
note is convertible into shares of the Company’s common stock
at the holders’ option, at any time, at a conversion price
equal to the lower of (i) the closing sale price of the
Company’s common stock on the closing date, or (ii) sixty
percent (60%) of either the lowest sale price for the
Company’s common stock during the 20 consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower, provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price. During April and May 2018, in a number
of separate conversions, approximately $43,000 of the debenture
plus accrued interest was converted into 3,800,000 shares of common
stock of the Company. During the second quarter of fiscal 2019, in
a number of separate conversions, the debenture plus accrued
interest was fully converted into 4,517,493 shares of common stock
of the Company.
On November 14,
2017, the Company entered into two 8% convertible redeemable notes
with an accredited investor, in the aggregate principal amount of
$112,000, convertible into shares of common stock of the Company,
with maturity dates of November 14, 2018. As of December 31, 2018,
the Buyer Note is still outstanding, and therefore, as the second
note has not been funded, it is not considered past its maturity
date. Each note was in the principal amount of $56,000, with an
original issue discount of $2,800, resulting in a purchase price
for each note of $53,200. The first of the two notes was paid for
by the buyer in cash upon closing, with the second note initially
paid for by the issuance of an offsetting $53,200 secured
promissory note issued to the Company by the buyer (“Buyer
Note”). The Buyer Note is due on July 14, 2018. The notes are
convertible into shares of the Company’s common stock at a
conversion rate of fifty-seven percent (57%) of the lowest of
trading price over last 20 trading days prior to conversion, or the
lowest closing bid price over the last 20 trading days prior to
conversion, with the discount increased (i.e., the conversion rate
decreased) to forty-seven percent (47%) in the event of a DTC
chill, with the second note not being convertible until the buyer
has settled the Buyer Note in cash payment. During the first six
months the convertible redeemable notes are in effect, the Company
may redeem the notes at amounts ranging from 120% to 140% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of each note. During May and June 2018, in
three separate conversions, the debenture was fully converted into
4,834,790 shares of common stock of the Company.
On December 20,
2017, the Company entered into two 8% convertible redeemable notes
with an accredited investor, in the aggregate principal amount of
$240,000, convertible into shares of common stock of the Company,
with the same buyers as the November 14, 2017 debenture. Both notes
are due on December 20, 2018. If the note is not paid by its
maturity date the outstanding principal due on the note increases
by 10%. The note also contains a cross default provision to all
other outstanding notes. The first note was issued in the principal
amount of $160,000, with a $4,000 original issue discount,
resulting in a purchase price of $156,000. The second note was
issued in the principal amount of $80,000, with an original issue
discount of $2,000, for a purchase price of $78,000. The first of
the two notes was paid for by the buyer in cash upon closing, with
the second note initially paid for by the issuance of an offsetting
$78,000 secured promissory note issued to the Company by the buyer
(“Buyer Note”). The Buyer Note was due on August 20,
2018, and the Company received the funding on July 11, 2018, for
cash proceeds of $74,000. The notes are convertible into shares of
the Company’s common stock at a conversion rate of sixty
percent (60%) of the lower of: (i) lowest trading price or (ii)
lowest closing bid price of the Company’s common stock over
the last 20 trading days prior to conversion, with the discount
increased (i.e., the conversion rate decreased) to fifty percent
(50%) in the event of a DTC chill, with the second note not being
convertible until the buyer has settled the Buyer Note in cash
payment. During the first six months the convertible redeemable
notes are in effect, the Company may redeem the notes at amounts
ranging from 120% to 136% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 90 days to 180 days from the date of issuance of each
note. On August 7, 2018, the holder converted $25,000 of the
December 20, 2017 debentures into 4,363,013 shares of common stock
of the Company. During the third fiscal quarter of 2019, in four
separate conversions, the holder converted $86,000 of the December
20, 2017 debentures and approximately $6,000 of accrued interest
into 27,288,948 shares of common stock of the Company.
On January 29,
2018, the Company entered into three (3) 12% convertible redeemable
promissory notes with an accredited investor in the aggregate
principal amount of $120,000, with maturity dates of January 29,
2019. The notes are convertible into shares of the Company’s
common stock at a conversion rate of sixty percent (60%) of the
lowest closing bid price over the last 20 trading days prior to
conversion, with the discount increased (i.e., the conversion rate
decreased) to fifty percent (50%) in the event of a DTC chill. The
interest rate upon an event of default, as defined in the notes
including a cross default to all other outstanding notes, is 24%
per annum. If the note is not paid by its maturity date the
outstanding principal due on the note increases by 10%. Each note
was issued in the principal amount of $40,000, with $2,000 deducted
for legal fees, for net proceeds of $38,000. The first note was
paid for by the buyer in cash upon closing, with the second and
third notes initially paid by the issuance of offsetting $40,000
secured promissory notes issued to the Company by the buyer (the
“Buyer Notes”). The Buyer Notes are due on September
29, 2018. The first of the Buyers Notes was funded on July 26,
2018. During the first 180 days the notes are in effect, the
Company may redeem the note at amounts ranging from 115% to 140% of
the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 30 days to 180 days from
the date of issuance of the note. Upon any sale event, as defined
in the note, at the holder’s request, the Company will redeem
the note for 150% of the principal and accrued interest. During the
second fiscal quarter of 2019, in three separate conversions, the
first debenture was fully converted into 12,607,777 shares of
common stock of the Company. During the third fiscal quarter of
2019, in three separate conversions, the second debenture was fully
converted into 12,551,676 shares of common stock of the Company. On
November 11, 2019, the third debenture was fully converted into
2,666,667 shares of common stock of the Company.
On January 30,
2018, Company entered into a 12% convertible redeemable promissory
note with an accredited investor for the principal amount of
$80,000, which matures on January 30, 2019. The note is convertible
into shares of the Company’s common stock at a conversion
rate of sixty-one percent (61%) of the lowest closing bid price
over the last 15 trading days prior to conversion. The interest
rate upon an event of default, as defined in the note, is 22% per
annum, and the note becomes immediately due and payable in an
amount equal to 150% of the principal and interest due on the note
upon an event of default. If the Company fails to deliver
conversion shares within two (2) days following a conversion
request, the note will become immediately due and payable at an
amount of twice the default amount. During the first 180 days the
note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 30 days to 180 days from the date of issuance of the
note. The Company redeemed the note on July 27, 2018, for
approximately $123,000.
On March 9, 2018,
the Company entered into a 12% convertible note for the principal
amount of $43,000, with the holder of the January 30, 2018
debenture, convertible into shares of common stock of the Company,
which matures on March 9, 2019. Upon an event of default, as
defined in the note, the note becomes immediately due and payable,
in an amount equal to 150% of all principal and accrued interest
due on the note, with default interest of 22% per annum (the
“Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default. During the second fiscal quarter of
2019, in two separate conversions, the holder converted $29,464 of
principal into 4,500,000 shares of common stock of the Company. On
November 26, 2018, the holder converted $16,168 of principal into
4,500,000 shares of common stock of the Company.
On March 20, 2018,
the Company entered into a convertible note for the principal
amount of $84,000, convertible into shares of common stock of the
Company, which matures on December 20, 2018. The note bears
interest at 12% for the first 180 days, which increases to 18%
after 180 days, and 24% upon an event of default. On September 20,
2018 the outstanding principal and $5,040 in accrued interest of
the note was purchased from the noteholder by a third party, for
$126,882. The additional $37,842 represents the redemption amount
owing to the original noteholder, and increases the principal
amount due to the new noteholder, and was recognized as financing
cost. Upon an event of default, as defined in the note, the note
becomes immediately due and payable, in an amount equal to 150% of
all principal and accrued interest due on the note. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 255,675 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $28,124, based on the market value of
the shares of common stock at the closing date of $0.11, and was
recognized as part of the debt discount. During the third fiscal
quarter of 2019, in two separate conversions, the holder converted
$91,592 of principal into 16,870,962 shares of common stock of the
Company.
On March 21, 2018,
the Company entered into a convertible note for the principal
amount of $39,199, which includes an OID of $4,199, convertible
into shares of common stock of the Company, which matures on
December 20, 2018. The note bears interest at 12% for the first 180
days, which increases to 18% after 180 days, and 24% upon an event
of default. Upon an event of default, as defined in the note, the
note becomes immediately due and payable, in an amount equal to
150% of all principal and accrued interest due on the note. The
note is convertible on the date beginning 180 days after issuance
of the note, at the lowest of 60% of the lowest trading price for
the last 20 days prior to the issuance date of this note, or 60% of
the lowest tradingprice for the last 20 days prior to conversion.
The discount is increased upon certain events set forth in the
agreement regarding the obtainability of the shares, such as a DTC
"chill". Additionally, if the Company ceases to be a reporting
company, or after 181 days the note cannot be converted into freely
traded shares, the discount is increased an additional 15%. Per the
agreement, the Company is required at all times to have authorized
and reserved ten times the number of shares that is actually
issuable upon full conversion of the note. Additionally, the
Company also issued 119,300 shares of common stock of the Company
as a commitment fee. The commitment shares fair value was
calculated as $13,123, based on the market value of the shares of
common stock at the closing date of $0.11, and was recognized as
part of the debt discount. On December 6, 2018, the holder
converted $20,160 of principal into 6,000,000 shares of common
stock of the Company.
On April 10, 2018,
the Company entered into two 10% convertible notes in the aggregate
principal amount of $110,000, convertible into shares of common
stock of the Company, with maturity dates of April 10, 2019. The
interest upon an event of default, as defined in the note, is 24%
per annum. Each note was in the face amount of $55,000, with $2,750
for legal fees deducted upon funding. The first of the notes was
paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $55,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The interest rate increases to 24% upon an event
of default, as set forth in the agreement, including a cross
default to all other outstanding notes, and if the debenture is not
paid at maturity the principal due increases by 10%. If the Company
loses its bid price the principal outstanding on the debenture
increases by 20%, and if the Company’s common stock is
delisted, the principal increases by 50%. An event of default also
occurs if the Company’s common stock has a closing bid price
of less than $0.03 per share for at least five consecutive days, or
the aggregate dollar trading volume of the Company’s common
stock is less than $20,000 in any five consecutive days. The
Company’s common stock closing bid price fell below $0.03 on
June 18, 2018 and continued for over five consecutive days, and the
Company is therefore in default on the note. The Company obtained a
waiver from the holder on this technical default. Due to the
default the holder cancelled the Back-End and Buyer notes as of
September 30, 2018. The notes are convertible into shares of the
Company’s common stock at a price per share equal to 57% of
the lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 47%, upon a DTC "chill". The
Company has not maintained the required share reservation under the
terms of the note agreement. The Back-End note is not convertible
until the buyer has settled the Buyer Notes in a cash payment.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from
130% to 145% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 60 days
to 180 days from the date of issuance of the debenture. During the
third fiscal quarter of 2019, in four separate conversions, the
note was fully converted into 18,832,713 shares of common stock of
the Company.
On April 27, 2018,
the Company entered into a convertible note for the principal
amount of $53,000 for a purchase price of $50,000, convertible into
shares of common stock of the Company, which matures on January 27,
2019. The note bears interest at 12% for the first 180 days, which
increases to 18% after 180 days, and 24%. The interest rate
increases to 24% upon an event of default, as set forth in the
agreement, including a cross default to all other outstanding
notes. Additionally, in the majority of events of default, except
for the non-payment of the note upon maturity, the note becomes
immediately due and payable at an amount at 150% of the principal
plus accrued interest due. The note is convertible on the date
beginning 180 days after issuance of the note, at the lowest of 60%
of the lowest trading price for the last 20 days prior to the
issuance date of this note, or 60% of the lowest trading price for
the last 20 days prior to conversion. The discount rate is adjusted
based on various situations regarding the ability to deliver the
shares of common stock, such as in the event of a "DTC chill" or
the Company ceases to be a reporting company. Per the agreement,
the Company is required at all times to have authorized and
reserved ten times the number of shares that is actually issuable
upon full conversion of the note. The Company has not maintained
the required share reservation under the terms of the note
agreement. The Company believes it has sufficient available shares
of the Company’s common stock in the event of conversion for
these notes. During the third fiscal quarter of 2019, in two
separate conversions, the holder converted $35,000 of principal
into 13,246,753 shares of common stock of the Company.
On June 5, 2018,
the Company entered into a convertible note for the principal
amount of $125,000 for a purchase price of $118,800, convertible on
the date beginning 180 days after issuance of the note, into shares
of common stock of the Company, which matures on June 5, 2019. The
note bears interest at 12%, which increases to 18% upon an event of
default, as defined in the agreement. The note is convertible at
60% of the lowest trading price for the last 20 days prior to
conversion, with the discount increased 5% in the event the Company
does not have sufficient shares authorized and outstanding to issue
the shares upon conversion request. The conversion price is
adjusted upon a future dilutive issuance, to the lower of the
conversion price or a 25% discount to the aggregate per share
common share price. Per the agreement, the Company is required at
all times to have authorized and reserved four times the number of
shares that is actually issuable upon full conversion of the note.
The Company has not maintained the required share reservation under
the terms of the note agreement. The Company believes it has
sufficient available shares of the Company’s common stock in
the event of conversion for these notes. During the first 180 days
the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption
date’s passage of time ranging from 90 days to 180 days from
the date of issuance of the debenture. After 180 days, the note is
redeemable, with the holders prior written consent, at 150% of the
principal and accrued interest balance.
On July 27, 2018,
the Company entered into two 10% convertible notes in the aggregate
principal amount of $186,000, convertible into shares of common
stock of the Company, with maturity dates of July 27, 2019. The
interest upon an event of default, as defined in the note, is 24%
per annum. Each note was in the face amount of $93,000, with $3,000
OID, for a purchase price of $90,000. The first of the notes was
paid for by the buyer in cash upon closing, with the other note
("Back-End note") initially paid for by the issuance of an
offsetting $93,000 secured promissory note issued to the Company by
the buyer (“Buyer Note”). The Buyer Note is due on
December 12, 2018. The interest rate increases to 24% upon an event
of default, as set forth in the agreement, including a cross
default to all other outstanding notes, and if the debenture is not
paid at maturity the principal due increases by 10%. If the Company
loses its bid price the principal outstanding on the debenture
increases by 20%, and if the Company’s common stock is
delisted, the principal increases by 50%. The notes are convertible
into shares of the Company’s common stock at a price per
share equal to 60% of the lowest closing bid price for the last 20
days. The discount is increased an additional 10%, to 50%, upon a
“DTC chill". The Company has not maintained the required
share reservation under the terms of the note agreement. The
Back-End note is not convertible until the buyer has settled the
Buyer Notes in a cash payment. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 120% to 136% of the principal and
accrued interest balance, based on the redemption date’s
passage of time ranging from 90 days to 180 days from the date of
issuance of the debenture.
On August 24, 2018,
the Company entered into a 10% convertible note in the principal
amount of $55,000, convertible into shares of common stock of the
Company, which matures August 24, 2019. The interest rate increases
to 24% per annum upon an event of default, as set forth in the
agreement, including a cross default to all other outstanding
notes, and if the debenture is not paid at maturity the principal
due increases by 10%. If the Company loses its bid price the
principal outstanding on the debenture increases by 20%, and if the
Company’s common stock is delisted, the principal increases
by 50%. The notes are convertible into shares of the
Company’s common stock at a price per share equal to 57% of
the lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 47%, upon a “DTC chill".
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from
130% to 145% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 60 days
to 180 days from the date of issuance of the
debenture.
On September 14,
2018, the Company entered into a 12% convertible promissory note
for $112,500, with an OID of $10,250, which matures on March 14,
2019. There is a right of prepayment in the first 180 days, but
there is no right to repay after 180 days. Per the agreement, the
Company is required at all times to have authorized and reserved
three times the number of shares that is actually issuable upon
full conversion of the note. The Company has not maintained the
required share reservation under the terms of the note agreement.
The Company believes it has sufficient available shares of the
Company’s common stock in the event of conversion for these
notes. The interest rate increases to a default rate of 24% for
events as set forth in the agreement, including if the market
capitalization is below $5 million, or there are any dilutive
issuances. There is also a cross default provision to all other
notes. In the event of default, the outstanding principal balance
increases to 150%, and if the Company fails to maintain the
required authorized share reserve, the outstanding principal
increases to 200%. Additionally, If the Company enters into a
3(a)(9) or 3(a)(10) issuance of shares there are liquidation
damages of 25% of principal, not to be below $15,000. The Company
must also obtain the noteholder's written consent before issuing
any new debt. Additionally, if the note is not repaid by the
maturity date the principal balance increases by $15,000. The
market capitalization is below $5 million and therefore the note
was in default as of September 30, 2018. The holder has issued a
waiver to the Company on this default provision. The note is
convertible into shares of the Company’s common stock at a
variable conversion rate that is equal to the lesser of 60% of the
lowest trading price for the last 20 days prior to the issuance of
the note or 60% of the lowest market price over the 20 days prior
to conversion. The conversion price shall be adjusted upon
subsequent sales of securities at a price lower than the original
conversion price. There are additional 10% adjustments to the
conversion price for events set forth in the agreement, including
if the conversion price is less than $0.01, if the Company is not
DTC eligible, the Company is no longer a reporting company, or the
note cannot be converted into free trading shares on or after nine
months from issue date.Per the agreement, the Company is required
at all times to have authorized and reserved three times the number
of shares that is actually issuable upon full conversion of the
note. Additionally, in connection with the debenture the Company
also issued 3,000,000 shares of common stock of the Company as a
commitment fee. The fair value of the commitment shares was
calculated as $34,500, based on the market value of the shares of
common stock at the closing date of $0.012, and was recognized as
part of the debt discount. The shares are to be returned to the
Treasury of the Company in the event the debenture is fully repaid
prior to the date which is 180 days following the issue date, but
are not required to be returned if there is an event of default. On
December 13, 2018, the holder converted $11,200 of principal into
4,000,000 shares of common stock of the Company.
On October 30,
2018, the Company entered into an 8% convertible promissory note
for $113,300, with an OID of $10,300, which matures on October 30,
2019. During the first 180 days the convertible redeemable note is
in effect, the Company may redeem the note at a prepayment
percentage of 123% of the outstanding principal and accrued
interest. Per the agreement, the Company is required at all times
to have authorized and reserved four times the number of shares
that is actually issuable upon full conversion of the note. The
interest rate increases to a default rate of 24% for events as set
forth in the agreement. In the event of default, the outstanding
principal balance increases to 150%, and if the Company fails to
maintain the required authorized share reserve or is unable to
issue the requested shares upon a conversion notice, the
outstanding principal increases to 200%. The note is convertible
after 180 days at a variable conversion rate that is 75% of the
average of the lowest two trading prices over the 15 days prior to
conversion. The conversion feature meets the definition of a
derivative and therefore requires bifurcation and is accounted for
as a derivative liability.
On January 16,
2019, the Company entered into an 10% convertible promissory note
for $205,436.60, with an OID of $18,6867, for a purchase price of
$186,750.55, which matures on October 16, 2019. During the first
180 days the convertible redeemable note is in effect, the Company
may redeem the note at a prepayment percentage of 120% to 130% of
the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. Per the agreement,
the Company is required at all times to have authorized and
reserved three times the number of shares that is actually issuable
upon full conversion of the note. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. If the Company
enters into a 3(a)(9) or 3(a)(10) issuance of shares there are
liquidation damages of 25% of principal, not to be below $15,000.
The Company must also obtain the noteholder's written consent
before issuing any issue new debt. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities.
On February 4,
2019, the Company issued a 10% convertible promissory note for
$85,500, with an OID of $7,500, for a purchase price of $75,000,
which matures on November 4, 2019. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem
the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. Per the agreement, the
Company is required at all times to have authorized and reserved
three times the number of shares that is actually issuable upon
full conversion of the note. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. If the Company
enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are
liquidation damages of 25% of principal, not to be below $15,000.
The Company must also obtain the noteholder's written consent
before issuing any issue new debt. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities.
Sale and Issuance of Common Stock
On August 15, 2018,
the Company authorized 5,000,000 of their Preferred Stock to be
designated as Series A Convertible Preferred Stock (“Series A
PS”), with a par value of $0.001. The Series A PS holders
shall have 60 to 1 voting rights such that each share shall vote as
60 shares of common stock. The Series A PS holders shall not be
entitled to receive dividends, if and when declared by the Board.
Upon the dissolution, liquidation or winding up of the Company, the
holders of Series A PS shall be entitled to receive out of the
assets of the Company the sum of $0.00l per share before any
payment or distribution shall be made on the common stock, or any
other class of capital stock of the Company ranking junior to the
Series A PS. The Series A PS is convertible, after two years from
the date of issuance, with the consent of a majority of the Series
A PS holders, into the same number of shares of common stock of the
Company as are outstanding at the time.
On August 21, 2018,
the NaturalShrimp Holdings, Inc.(“NSH”) shareholders
exchanged 75,000,000 of the shares of common stock of the Company
which they held, into 5,000,000 newly issued Series A PS. The
shares of common stock were returned to the treasury and
cancelled.
On April 12, 2018,
the Company sold 220,000 shares of its common stock at $0.077 per
share, for a total financing of $15,400.
During the nine
months ended December 31, 2018, the Company issued 197,218,287
shares of the Company’s common stock upon conversion of
approximately $1,033,000 of their outstanding convertible debt and
approximately $43,000 of accrued interest.
The Company issued
6,719,925 shares of their common stock on July 17, 2018, upon
cashless exercise of the warrants granted in connection with the
first closing of the July Debenture, and on August 28, 2018,
4,494,347 shares were issued upon cashless exercise of the warrants
granted in connection with the second closing. (Note
5).
Equity Financing Agreement
On August 21, 2018,
the Company entered into an Equity Financing Agreement
(“Equity Financing Agreement”) and Registration Rights
Agreement (“Registration Rights Agreement”) with GHS
Investments LLC, a Nevada limited liability company
(“GHS”). Under the terms of the Equity Financing
Agreement, GHS agreed to provide the Company with up to $7,000,000
upon effectiveness of a registration statement on Form S-1 (the
“Registration Statement”) filed with the U.S.
Securities and Exchange Commission (the “Commission”).
The Registration Statement was filed, and deemed effective on
September 19, 2018.
Following
effectiveness of the Registration Statement, the Company has the
discretion to deliver puts to GHS and GHS will be obligated to
purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $300,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to purchase
and the Company may not put shares of the Company’s Common
Stock to GHS that would result in GHS’s beneficial ownership
equaling more than 9.99% of the Company’s outstanding Common
Stock. The price of each put share shall be equal to eighty percent
(80%) of the Market Price (as defined in the Equity Financing
Agreement). Puts may be delivered by the Company to GHS until the
earlier of thirty-six (36) months after the effectiveness of the
Registration Statement or the date on which GHS has purchased an
aggregate of $7,000,000 worth of Common Stock under the terms of
the Equity Financing Agreement. Additionally, in accordance with
the Equity Financing Agreement, the Company shall issue GHS a
promissory note in the principal amount of $15,000 to offset
transaction costs (the “Note”). The Note bears interest
at the rate of 8% per annum, is not convertible and is due 180 days
from the issuance date of the Note.
On October 3, 2018,
the Company put to GHS for the issuance of 2,814,682 shares of
common stock, at $0.0088, for a total of $24,769. On October 22,
2018, the Company put to GHS for the issuance of 3,525,917 shares
of common stock, at $0.0048, for a total of $16,924. On November
13, 2018, the Company put to GHS for the issuance of 6,779,397
shares of common stock, at $0.0046, for a total of $31,456. On
December 10, 2018, the Company put to GHS for the issuance of
6,880,004 shares of common stock, at $0.0133, for a total of
$91,366.
GHS has purchased
all of the 20,000,000 shares of the Company’s common stock in
the Form S-1 Registration Statement effective September 19, 2018
(the “September Registration Statement”) and therefore
the offering under the September Registration Statement is no
longer ongoing.
Shareholder Notes Payable
On April 20, 2017,
the Company issued a Six Percent (6%) Unsecured Convertible Note to
Dragon Acquisitions LLC, an affiliate of the Company (“Dragon
Acquisitions”) in the principal amount of $140,000. William
Delgado, our Treasurer, Chief Financial Officer, and director, is
the managing member of Dragon Acquisitions. The note accrues
interest at the rate of six percent (6%) per annum, and matures one
(1) year from the date of issuance. Upon an event of default, the
default interest rate will be increased to twenty-four percent
(24%), and the total amount of principal and accrued interest shall
become immediately due and payable at the holder’s
discretion. The note is convertible into shares of the
Company’s common stock at a conversion price of $0.30 per
share, subject to adjustment. $52,400 of the note was repaid during
the year ended March 31, 2018.
Going Concern
The unaudited
consolidated financial statements contained in this quarterly
report on Form 10-Q have been prepared, assuming that the Company
will continue as a going concern. The Company has accumulated
losses through the period to December 31, 2018 of approximately
$36,336,000 as well as negative cash flows from operating
activities of approximately $683,000. During the nine months ended
December 31, 2018, the Company received net cash proceeds of
approximately $566,000 from the issuance of new convertible
debentures, $150,000 from the payments on notes receivable, and
$15,400 from the sale of the Company’s common stock. The
Company had approximately $1,033,000 of their convertible
debentures converted into 197,218,287 shares of their common stock,
reducing their current obligations. The Company also entered into
an Equity Financing Agreement whereby the Company has the
discretion to deliver puts to the investor for purchases of shares
of the Company’s common stock, with each put not to exceed
200% of their average trading dollar volume for the previous 10
days, for up to $7,000,000 over the next 36 months. The Company
issued 20,000,000 commons shares for cash proceeds of approximately
$163,000 under the Equity Financing Agreement through December 31,
2018. Subsequent to December 31, 2018, the Company received
approximately $262,000 in net proceeds from the issuance of new
convertible debentures. Presently, the Company does not have
sufficient cash resources to meet its plans in the twelve months
following December 31, 2018. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
Management is in the process of evaluating various financing
alternatives in order to finance the continued build-out of our
equipment and for general and administrative expenses. These
alternatives include raising funds through public or private equity
markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful
with our fund raising initiatives, management believes that the
Company will be able to secure the necessary financing as a result
of ongoing financing discussions with third party investors and
existing shareholders.
The consolidated
financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going
concern. The Company’s continuation as a going concern is
dependent on its ability to obtain additional financing as may be
required and ultimately to attain profitability. If the Company
raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and
such securities might have rights, preferences or privileges senior
to the rights, preferences and privileges of the Company’s
common stock. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict
its future plans for developing its business and achieving
commercial revenues. If the Company is unable to obtain the
necessary capital, the Company may have to cease
operations.
Future Financing
We will require
additional funds to implement our growth strategy for our business.
In addition, while we have received capital from various private
placements that have enabled us to fund our operations, these funds
have been largely used to develop our processes, although
additional funds are needed for other corporate operational and
working capital purposes. As previously noted, the Company entered
into an Equity Financing Agreement whereby the Company will have
access to up to $7,000,000 through the sale of shares of the
Company’s common stock to an investor, with each sale not to
exceed 200% of their average trading dollar volume over the
previous 10 days over the next 36 months. Subsequent to December
31, 2018 we have raised approximately an additional $262,000, net
of OID, from the issuance of new convertible debentures. However,
not including funds needed for capital expenditures or to pay down
existing debt and trade payables, we anticipate that we will need
to raise an additional $950,000 to cover all of our operational
expenses over the next 12 months, not including any capital
expenditures needed as part of any commercial scale-up of our
equipment. These funds may be raised through equity financing, debt
financing, or other sources, which may result in further dilution
in the equity ownership of our shares. There can be no assurance
that additional financing will be available to us when needed or,
if available, that such financing can be obtained on commercially
reasonable terms. If we are not able to obtain the additional
necessary financing on a timely basis, or if we are unable to
generate significant revenues from operations, we will not be able
to meet our other obligations as they become due, and we will be
forced to scale down or perhaps even cease our
operations.
Off-Balance Sheet Arrangements
We have no
off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to stockholders.
Effects of Inflation
We do not believe
that inflation has had a material impact on our business, revenues
or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant
accounting policies are more fully described in the notes to our
financial statements included herein for the quarter ended December
31, 2018 and in the notes to our consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2018.
Recently Adopted Accounting Pronouncements
Our recently
adopted accounting pronouncements are more fully described in Note
2 to our financial statements included herein for the quarter ended
December 31, 2018.
Use of Generally Accepted Accounting Principles
(“GAAP”) Financial Measures
We use United
States GAAP financial measures in the section of this report
captioned “Management’s Discussion and Analysis or Plan
of Operation” (MD&A), unless otherwise noted. All of the
GAAP financial measures used by us in this report relate to the
inclusion of financial information. This discussion and analysis
should be read in conjunction with our financial statements and the
notes thereto included elsewhere in this annual report. All
references to dollar amounts in this section are in United States
dollars, unless expressly stated otherwise. Please see Item 1A
– “Risk Factors” for a list of our risk
factors.
Comparison
of the Fiscal Year Ended March 31, 2018 and the Fiscal Year Ended
March 31, 2017
Revenue
We have not earned
any significant revenues since our inception and we do not
anticipate earning revenues in the near future.
Expenses
Our expenses for
the year ended March 31, 2018 are summarized as follows, in
comparison to our expenses for the year ended March 31,
2017:
|
|
|
|
|
Salaries and
related expenses
|
$
352,757
|
$
348,655
|
Rent
|
11,197
|
12,997
|
Professional
fees
|
278,037
|
139,284
|
Other general and
administrative expenses
|
443,508
|
408,246
|
Facility
operations
|
27,789
|
70,930
|
Depreciation
|
70,894
|
60,459
|
Total
|
$
1,184,182
|
$
1,040,571
|
Operating expenses
for the year ended March 31, 2018 were $1,184,182, representing an
increase of 14% compared to operating expenses of $1,040,571 for
the same period in 2017. The primary reason for the change is the
increase in professional fees, including increases in accounting
and consultant fees. This increase was offset by reduced facility
fees.
Liquidity, Financial Condition and Capital Resources
As of March 31,
2018, we had cash on hand of $24,280 and a working capital
deficiency of approximately $6,764,000, as compared to cash on hand
of $88,195 and a working capital deficiency of $2,384,695 as of
March 31,, 2017. The increase in working capital deficiency for the
year ended March 31, 2018 is mainly due to an increase in
convertible debentures of approximately $1,477,000 net of debt
discounts of approximately $692,000, an increase in the fair value
of the derivative liability arising from the convertible debentures
of $2,538,000 and an increase in the warrant liability of $249,000,
and the decrease in cash, as well as an increase in accounts
payable and accrued expenses.
Working
Capital Deficiency
Our working capital
deficiency as of March 31, 2018, in comparison to our working
capital deficiency as of March 31, 2017, can be summarized as
follows:
|
|
|
|
|
|
Current
assets
|
$
260,179
|
$
312,195
|
Current
liabilities
|
7,024,615
|
2,696,890
|
Working capital
deficiency
|
$
6,764,435
|
$
2,384,695
|
The decrease in
current assets is mainly due to the current period expense
recognition of $220,000 out of prepaid expenses for shares issued
for services in connection with a six-month agreement with a
consultant, as well as an approximate $64,000 decrease in cash,
offset by the addition of new notes receivable. The increase in
current liabilities is primarily due to an increase in the carrying
amount of the convertible debentures in the current period, net of
the related debt discounts, as detailed above. The new convertible
debentures entered into during the current year also contained
embedded derivatives, which were bifurcated and further increased
the fair value of the derivative liability, which was $3,455,000 as
of March 31, 2018 as compared to $218,000 as of March 31, 2017.
Additionally, the warrant liability increased by $249,000 due to
additional warrants issued as well as the reset provision which
increased the number of warrants outstanding. Approximately
$485,000 of the convertible debentures outstanding at March 31,
2018, were converted subsequent to year end, and the related
derivative liability reclassed to equity.
Cash
Flows
Our cash flows for
the year ended March 31, 2018, in comparison to our cash flows for
the year ended March 31, 2017, can be summarized as
follows:
|
|
|
|
|
Net cash used in
operating activities
|
$
(765,793
)
|
$
(722,215
)
|
Net cash used in
investing activities
|
(171,050
)
|
-
|
Net cash provided
by financing activities
|
872,928
|
804,252
|
Increase (decrease)
in cash and cash equivalents
|
$
(63,915
)
|
$
82,037
|
The increase in net
cash used in operating activities in the year ended March 31, 2018,
compared to the same period in 2017, mainly relates to a decrease
in prepaid expenses and shares issued for services from fiscal
2017, offset by the non-cash charges of the amortization of the
debt discount, changes in fair value of the derivative and warrant
liabilities, financing costs in fiscal 2018. Additionally, there
was an approximate $2,339,000 gain on settlement of debt in the
year ended March 31, 2017. The net cash used in investing
activities in the year ended March 31, 2018 related to costs paid
on construction in process on the new facility. The net cash
provided by financing activities increased between periods, with
the cash provided by financing activities during the year ended
March 31, 2018 arising from proceeds on convertible debentures and
the sale of common stock of the Company, offset by payments on
outstanding convertible debentures. In comparison, the cash
provided by financing activities during the year ended March 31,
2017 arose mainly from borrowings on notes payable with related
parties.
Our cash position
was approximately $24,000 as of March 31, 2018. Management believes
that our cash on hand and working capital are not sufficient to
meet our current anticipated cash requirements through fiscal 2019,
as described in further detail under the section titled
“
Going
Concern
” below.
Recent
Financing Arrangements and Developments During the
Period
Short-Term Debt and Lines of Credit
On November 3,
2015, the Company entered into a short-term note agreement with
Community National Bank for a total value of $50,000. The
short-term note has a stated interest rate of 5.25%, maturity date
of December 15, 2017 and had an initial interest only payment on
February 3, 2016. The short-term note is guaranteed by an officer
and director. The balance of the line of credit at both March 31,
2018 and 2017 was $25,298.
The Company also
has a working capital line of credit with Extraco Bank. On April
30, 2018, the Company renewed the line of credit for $475,000. The
line of credit bears an interest rate of 5.0% that is compounded
monthly on unpaid balances and is payable monthly. The line of
credit matures on April 30, 2019, and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. The balance of the line of credit is $472,675 and
$473,029 at March 31, 2018 and March 31, 2017, respectively,
included in non-current liabilities.
The Company also
has additional lines of credit with Extraco Bank for $100,000 and
$200,000, which were renewed on January 19, 2018 and April 30,
2018, respectively, with maturity dates of January 19, 2019 and
April 30, 2019, respectively. The lines of credit bear an interest
rate of 4.5% (increased to 6.5% and 5%, respectively, upon renewal
in 2017) that is compounded monthly on unpaid balances and is
payable monthly. They are secured by certificates of deposit and
letters of credit owned by directors and shareholders of the
Company. The balance of the lines of credit was $278,470 at both
March 31, 2018 and 2017.
The Company also
has a working capital line of credit with Capital One Bank for
$50,000. The line of credit bears an interest rate of prime plus
25.9 basis points, which totaled 30.7% as of March 31, 2018. The
line of credit is unsecured. The balance of the line of credit was
$9,580 at both March 31, 2018 and 2017.
The Company also
has a working capital line of credit with Chase Bank for $25,000.
The line of credit bears an interest rate of prime plus 10 basis
points, which totaled 14.75% as of March 31, 2018. The line of
credit is secured by assets of the Company’s subsidiaries.
The balance of the line of credit is $10,237 and $11,197 at March
31, 2018 and March 31, 2017, respectively.
Bank Loan
On January 10,
2017, we entered into a promissory note agreement with Community
National Bank in the principal amount of $245,000, with an annual
interest rate of 5% and a maturity date of January 10, 2020 (the
“CNB Note”). The CNB Note is secured by certain real
property owned by the Company in La Coste, Texas, and is also
personally guaranteed by the Company’s President and Chairman
of the Board, as well as certain non-affiliated shareholders of the
Company.
Convertible Debentures
On January 23,
2017, the Company entered into a Securities Purchase Agreement and
issued a Convertible Note in the original principal amount of
$262,500 to an accredited investor, along with a Warrant to
purchase 350,000 shares of the Company’s common stock, in
exchange for a purchase price of $250,000. The Company received
$50,000 upon closing, with additional consideration to be paid to
the Company in such amounts and at such dates as the holder may
choose in its sole discretion. The warrants are exercisable over a
period of five (5) years at an exercise price of $0.60, subject to
adjustment. The exercise price was adjusted to $0.15, and the
warrants issued increased to 280,000, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. The note is convertible into shares
of the Company’s common stock at a conversion price of $0.35
per share, subject to adjustment. The maturity date of the note
shall be two years form the date of each payment of consideration
thereunder. A one-time interest charge of twelve percent (12%)
shall be applied on the issuance date and payable on the maturity
date. During the year ended March 31, 2018, the holder converted
the $50,000 of the January debentures to common shares of the
Company.
On March 28, 2017,
the Company entered into a Securities Purchase Agreement with an
accredited investor related to the purchase and sale of certain
convertible debentures in the aggregate principal amount of up to
$400,000 for an aggregate purchase price of up to $360,000. The
agreement contemplates three separate convertible debentures, with
each maturing three years following the date of issuance. On March
28, 2017, the Company issued the first convertible debenture in the
principal amount of $100,000 for a purchase price of $90,000.
Pursuant to the Securities Purchase Agreement, the closing of the
second convertible debenture was to occur upon mutual agreement of
the parties, at any time within sixty (60) to ninety (90) days
following the original signing closing date, in the principal
amount of $150,000 for a purchase price of $135,000. On July 5,
2017, the Securities Purchase Agreement was amended to reduce the
maximum aggregate principal amount of the convertible debentures to
$325,000, for an aggregate purchase price of up to $292,500, and to
reduce the principal amount of the second convertible debenture to
$75,000 for a purchase price of $67,500. The closing of the second
convertible debenture occurred on July 5, 2017. In connection with
the closing of the second convertible debenture, the Company issued
75,000 shares of restricted common stock to the holder as a fee in
consideration of the expenses incurred in consummating the
transaction. The closing of the third convertible debenture was to
occur upon mutual agreement of the parties within sixty (60) to
ninety (90) days following the second closing, in the principal
amount of $150,000 for a purchase price of $135,000. The third
closing has not occurred. The convertible debentures are
convertible into shares of the Company’s common stock at a
fixed conversion price of $0.30 for the first one hundred eighty
(180) days. After one hundred eighty (180) days, or in an event of
default, the conversion price will be the lower of $0.30 or sixty
percent (60%) of the lowest closing bid price over the 20 trading
days preceding the date of conversion. On September 22, 2017, the
Company exercised its option to redeem the first closing of the
March debenture, for a redemption price at $130,000, 130% of the
principal amount. The principal of $100,000 was derecognized with
the additional $30,000 paid upon redemption recognized as a
financing cost. On December 28, 2017, the Company exercised its
option to redeem the second closing of the March debenture, for a
redemption price at $97,500, 130% of the principal amount. Upon
redemption, the principal of $75,000 was relieved, with the
additional $22,500 paid recognized as a financing
cost.
On July 31, 2017,
the Company entered into a 5% Securities Purchase Agreement with an
accredited investor. The agreement calls for the purchase of up to
$135,000 in convertible debentures, due 12 months from issuance,
with an original issue discount of $13,500. The first convertible
debenture was issued in the principal amount of $45,000 for a
purchase price of $40,500 (an original issue discount of $4,500),
with additional closings to occur at the sole discretion of the
holder. The convertible debentures are convertible into shares of
the Company’s common stock at a conversion price of sixty
percent (60%) of the lowest trading price over the 25 trading days
preceding the date of conversion, subject to adjustment. With each
tranche under the July 31, 2017 convertible debentures, the Company
shall issue a warrant to purchase an amount of shares of its common
stock equal to the face value of each respective tranche divided by
$0.60 as a commitment fee. The Company issued a warrant to purchase
75,000 shares of the Company’s common stock with the first
closing, with an exercise price of $0.60. The warrant has an
anti-dilution provision for future issuances, whereby the exercise
price would reset. The exercise price was adjusted to $0.15, and
the number of warrants issued to 300,000, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. On October 2, 2017, the Company
entered into a second closing of the July 31, 2017 debenture, in
the principal amount of $22,500 for a purchase price of $20,250,
with $1,500 deducted for legal fees, resulting in net cash proceeds
of $18,750. On February 5, 2018, the Company entered into an
amendment to the July 31, 2017 debenture, whereby in exchange for a
payment of $6,500, except for a conversion of up to 125,000 shares
of the Company’s common shares, the noteholder shall only be
entitled to effectuate a conversion under the note on or after
March 2, 2018. On February 20, 2018, the holder converted $4,431 of
the January debentures into 125,000 common shares of the Company.
During March, 2018, the holder converted an additional $17,113 of
the July debentures into 630,000 common shares of the
Company.
On August 28, 2017,
the Company entered into a 12% convertible promissory note with an
accredited investor in the principal amount of $110,000, with an
original issue discount of $10,000, which matures on February 28,
2018. The note is convertible into shares of the Company’s
common stock at a variable conversion rate equal to the lesser of
sixty percent (60%) of the lowest trading price over the 20 trading
days prior to the issuance of the note or sixty percent (60%) of
the lowest trading price over the 20 trading days prior to
conversion, subject to adjustment. In connection with the note, the
Company issued 50,000 warrants, exercisable at $0.20, with a
five-year term. The exercise price is adjustable upon certain
events, as set forth in the agreement, including for future
dilutive issuance. The exercise price was adjusted to $0.15 and the
warrants issued increased to 66,667, upon a warrant issuance
related to a new convertible debenture on September 11, 2017. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly. Additionally, in connection with the
note, the Company also issued 343,750 shares of common stock of the
Company as a commitment fee. The commitment shares fair value was
calculated as $58,438, based on the market value of the common
shares at the closing date of $0.17, and was recognized as part of
the debt discount. The shares are to be returned to the Treasury of
the Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. On October 31,
2017, there was a second closing to the August debenture, in the
principal amount of $66,000, maturing on April 30, 2018. The second
closing has the same conversion terms as the first closing, however
there were no additional warrants issued with the second closing.
Additionally, in connection with the second closing, the Company
issued 332,500 shares of common stock of the Company as a
commitment fee. The commitment shares fair value was calculated as
$35,877, based on the market value of the common shares at the
closing date of $0.11, and was recognized as part of the debt
discount. The shares are to be returned to the Treasury of the
Company in the event the debenture is fully repaid prior to the
date which is 180 days following the issue date. Subsequent to year
end the note holders issued a waiver as to the maturity date of the
two notes and a technical default provision. The notes have
subsequently been fully converted.
On September 11,
2017, the Company entered into a 12% convertible promissory note
with an accredited investor in the principal amount of $146,000,
with an original issue discount of $13,500, which matures on June
11, 2018. The note is convertible into shares of the
Company’s common stock at a variable conversion rate equal to
the lesser of the lowest trading price over the 25 trading days
prior to the issuance of the note or fifty percent (50%) of the
lowest trading price over the 25 trading days prior to conversion,
subject to adjustment. In connection with the note, the Company
issued 243,333 warrants, exercisable at $0.15, with a five-year
term. The exercise price is adjustable upon certain events, as set
forth in the agreement, including for future dilutive issuance. The
warrants exercise price was subsequently reset to 50% of the market
price during the third quarter of fiscal 2018, and the warrants
issued increased accordingly.
On September
12, 2017, the Company entered into a 12% convertible promissory
note with an accredited investor in the principal amount of $96,500
with an original issue discount of $4,500, which matures on June
12, 2018. The note is able to be prepaid prior to the maturity
date, at a cash redemption premium, at various stages as set forth
in the agreement. The note is convertible commencing 180 days after
issuance date (or upon an event of default), or March 11, 2018, at
a variable conversion rate of sixty percent (60%) of the market
price, defined as the lowest trading price during the 20 trading
days prior to conversion, subject to adjustment. On March 20, 2018,
the holder converted $32,500 of the September 12, 2017 debentures
into 1,031,746 common shares of the Company. Subsequent to year
end, the remainder of the outstanding note has been fully
converted.
On September 28,
2017, the Company entered into a Securities Purchase Agreement with
an accredited investor, pursuant to which the Company agreed to
sell a 12% Convertible Note in the principal amount of $55,000 with
a maturity date of September 28, 2018, for a purchase price of
$51,700, and $2,200 deducted for legal fees, resulting in net cash
proceeds of $49,500. The effective closing date of the Securities
Purchase Agreement and Convertible Note was October 17, 2017. The
note is convertible into shares of the Company’s common stock
at the holders’ option, at any time, at a conversion price
equal to the lower of (i) the closing sale price of the
Company’s common stock on the closing date, or (ii) sixty
percent (60%) of either the lowest sale price for the
Company’s common stock during the 20 consecutive trading days
including and immediately preceding the closing date, or the
closing bid price, whichever is lower, provided that, if the price
of the Company’s common stock loses a bid, then the
conversion price may be reduced, at the holder’s absolute
discretion, to a fixed conversion price of $0.00001. If at any time
the adjusted conversion price for any conversion would be less than
par value of the Company’s common stock, then the conversion
price shall equal such par value for any such conversion and the
conversion amount for such conversion shall be increased to include
additional principal to the extent necessary to cause the number of
shares issuable upon conversion equal the same number of shares as
would have been issued had the Conversion Price not been subject to
the minimum par value price.
On November 14,
2017, the Company entered into two 8% convertible redeemable notes
with an accredited investor, in the aggregate principal amount of
$112,000, convertible into shares of common stock of the Company,
with maturity dates of November 14, 2018. Each note was in the
principal amount of $56,000, with an original issue discount of
$2,800, resulting in a purchase price for each note of $53,200. The
first of the two notes was paid for by the buyer in cash upon
closing, with the second note initially paid for by the issuance of
an offsetting $53,200 secured promissory note issued to the Company
by the buyer (“Buyer Note”). The Buyer Note is due on
July 14, 2018. The notes are convertible into shares of the
Company’s common stock at a conversion rate of fifty-seven
percent (57%) of the lowest of trading price over last 20 trading
days prior to conversion, or the lowest closing bid price over the
last 20 trading days prior to conversion, with the discount
increased (i.e., the conversion rate decreased) to forty-seven
percent (47%) in the event of a DTC chill, with the second note not
being convertible until the buyer has settled the Buyer Note in
cash payment. During the first six months the convertible
redeemable notes are in effect, the Company may redeem the notes at
amounts ranging from 120% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of
time ranging from 90 days to 180 days from the date of issuance of
each note.
On December 20,
2017, the Company entered into two 8% convertible redeemable notes
with an accredited investor, in the aggregate principal amount of
$240,000, convertible into shares of common stock of the Company,
with the same buyers as the November 14, 2017 debenture. Both notes
are due on December 20, 2018. The first note was issued in the
principal amount of $160,000, with a $4,000 original issue
discount, resulting in a purchase price of $156,000. The second
note was issued in the principal amount of $80,000, with an
original issue discount of $2,000, for a purchase price of $78,000.
The first of the two notes was paid for by the buyer in cash upon
closing, with the second note initially paid for by the issuance of
an offsetting $78,000 secured promissory note issued to the Company
by the buyer (“Buyer Note”). The Buyer Note is due on
August 20, 2018. The notes are convertible into shares of the
Company’s common stock at a conversion rate of sixty percent
(60%) of the lower of: (i) lowest trading price or (ii) lowest
closing bid price of the Company’s common stock over the last
20 trading days prior to conversion, with the discount increased
(i.e., the conversion rate decreased) to fifty percent (50%) in the
event of a DTC chill, with the second note not being convertible
until the buyer has settled the Buyer Note in cash payment. During
the first six months the convertible redeemable notes are in
effect, the Company may redeem the notes at amounts ranging from
120% to 136% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 90 days
to 180 days from the date of issuance of each note.
On January 29,
2018, the Company entered into three (3) 12% convertible redeemable
promissory notes with an accredited investor in the aggregate
principal amount of $120,000, with maturity dates of January 29,
2019. The notes are convertible into shares of the Company’s
common stock at a conversion rate of sixty percent (60%) of the
lowest closing bid price over the last 20 trading days prior to
conversion, with the discount increased (i.e., the conversion rate
decreased) to fifty percent (50%) in the event of a DTC chill. The
interest rate upon an event of default, as defined in the notes, is
24% per annum. Each note was issued in the principal amount of
$40,000, with $2,000 deducted for legal fees, for net proceeds of
$38,000. The first note was paid for by the buyer in cash upon
closing, with the second and third notes initially paid by the
issuance of offsetting $40,000 secured promissory notes issued to
the Company by the buyer (the “Buyer Notes”). The Buyer
Notes are due on September 29, 2018. During the first 180 days the
notes are in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 30 days to 180 days from the date of issuance of the
note. Upon any sale event, as defined in the note, at the
holder’s request, the Company will redeem the note for 150%
of the principal and accrued interest.
On January 30,
2018, Company entered into a 12% convertible redeemable promissory
note with an accredited investor for the principal amount of
$80,000, which matures on January 30, 2019. The note is convertible
into shares of the Company’s common stock at a conversion
rate of sixty-one percent (61%) of the lowest closing bid price
over the last 15 trading days prior to conversion. The interest
rate upon an event of default, as defined in the note, is 22% per
annum, and the note becomes immediately due and payable in an
amount equal to 150% of the principal and interest due on the note
upon an event of default. If the Company fails to deliver
conversion shares within two (2) days following a conversion
request, the note will become immediately due and payable at an
amount of twice the default amount. During the first 180 days the
note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time
ranging from 30 days to 180 days from the date of issuance of the
note.
On March 9, 2018,
the Company entered into a 12% convertible note for the principal
amount of $43,000, with the holder of the January 30, 2018
debenture, convertible into shares of common stock of the Company,
which matures on March 9, 2019. Upon an event of default, as
defined in the note, the note becomes immediately due and payable,
in an amount equal to 150% of all principal and accrued interest
due on the note, with default interest of 22% per annum (the
“Default Amount”). If the Company fails to deliver
conversion shares within 2 days of a conversion request, the note
becomes immediately due and payable at an amount of twice the
Default Amount. The note is convertible on the date beginning 180
days after issuance of the note, at 61% of the lowest closing bid
price for the last 15 days. Per the agreement, the Company is
required at all times to have authorized and reserved six times the
number of shares that is actually issuable upon full conversion of
the note. Failure to maintain the reserved number of shares is
considered an event of default.
On March 20, 2018,
the Company entered into a convertible note for the principal
amount of $84,000, convertible into shares of common stock of the
Company, which matures on December 20, 2018. The note bears
interest at 12% for the first 180 days, which increases to 18%
after 180 days, and 24% upon an event of default. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 255,675 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $28,124, based on the market value of
the common shares at the closing date of $0.11, and was recognized
as part of the debt discount.
On March 21, 2018,
the Company entered into a convertible note for the principal
amount of $39,199, which includes an OID of $4,199, convertible
into shares of common stock of the Company, which matures on
December 20, 2018. The note bears interest at 12% for the first 180
days, which increases to 18% after 180 days, and 24% upon an event
of default. The note is convertible on the date beginning 180 days
after issuance of the note, at the lowest of 60% of the lowest
trading price for the last 20 days prior to the issuance date of
this note, or 60% of the lowest trading price for the last 20 days
prior to conversion. The discount is increased upon certain events
set forth in the agreement regarding the obtainability of the
shares, such as a DTC "chill". Additionally, if the Company ceases
to be a reporting company, or after 181 days the note cannot be
converted into freely traded shares, the discount is increased an
additional 15%. Per the agreement, the Company is required at all
times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 119,300 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $13,123, based on the market value of
the common shares at the closing date of $0.11, and was recognized
as part of the debt discount.
Sale and Issuance of Common Stock
On May 2, 2017, the
Company sold 100,000 shares of its common stock to an accredited
investor at $0.25 per share, for total proceeds of
$25,000.
On October 10,
2017, the Company issued 200,000 shares of its common stock to
consultants in consideration for consulting services provided to
the Company.
Shareholder Notes Payable
Since inception,
the Company has entered into several working capital notes payable
to Bill Williams, an executive officer, director, and shareholder
of the Company, for a total of $486,500. These notes are demand
notes, had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes at March 31,
2018 and 2017 was $426,404 and $426,404, respectively, and is
classified as a current liability on the consolidated balance
sheets. At March 31, 2018 and 2017, accrued interest payable was
$206,920 and $172,808, respectively. We repaid $0 during the years
ended March 31, 2018 and 2017
In 2009, the
Company made and entered into an unsecured note payable to Randall
Steele, a shareholder of NSH, in the principal amount of $50,000.
The note accrues interest at six percent (6%) and matured on
January 20, 2011. As of December 31, 2017, and March 31, 2017, the
balance of the note was $50,000, and is classified as a current
liability on our consolidated balance sheets.
On January 1, 2016,
the Company entered into a note payable agreement with NSH, the
Company’s majority shareholder. Between January 16, 2016 and
March 31, 2017, the Company borrowed $736,111 under this agreement.
The note payable has no set monthly payment or maturity date, and
has a stated interest rate of two percent (2%). There was no
borrowing under this loan during the year ended March 31,
2018.
Between January 1,
2017 and March 31, 2017, the Company entered into two Private
Placement Subscription Agreements and issued two Six Percent (6%)
Unsecured Convertible Notes to Dragon Acquisitions LLC, an
affiliate of the Company (“Dragon Acquisitions”).
William Delgado, our Treasurer, Chief Financial Officer, and
director, is the managing member of Dragon Acquisitions. The first
note was issued on January 20, 2017, in the principal amount of
$20,000, and the second note was issued on March 14, 2017, in the
principal amount of $20,000. The notes accrue interest at the rate
of six percent (6%) per annum, and mature one (1) year from the
date of issuance. Upon an event of default, the default interest
rate will be increased to twenty-four percent (24%), and the total
amount of principal and accrued interest shall become immediately
due and payable at the holder’s discretion. The notes are
convertible into shares of the Company’s common stock at a
conversion price of $0.30 per share, subject to adjustment. The
notes were repaid in full between March and May 2017.
On April 20, 2017,
the Company issued an additional Six Percent (6%) Unsecured
Convertible Note to Dragon Acquisitions in the principal amount of
$140,000. The note accrues interest at the rate of six percent (6%)
per annum, and matures one (1) year from the date of issuance. Upon
an event of default, the default interest rate will be increased to
twenty-four percent (24%), and the total amount of principal and
accrued interest shall become immediately due and payable at the
holder’s discretion. The note is convertible into shares of
the Company’s common stock at a conversion price of $0.30 per
share, subject to adjustment. $52,400 of the note has been repaid
during the year ended March 31, 2018.
Going Concern
The audited
consolidated financial statements contained in this annual report
on Form 10-K have been prepared, assuming that the Company will
continue as a going concern. The Company has accumulated losses
through the period to March 31, 2018 of approximately $34,013,000
as well as negative cash flows from operating activities of
approximately $767,000. Presently, the Company does not have
sufficient cash resources to meet its plans in the twelve months
following March 31, 2018. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
Management is in the process of evaluating various financing
alternatives in order to finance the continued build-out of our
equipment and for general and administrative expenses. These
alternatives include raising funds through public or private equity
markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful
with our fund raising initiatives, management believes that the
Company will be able to secure the necessary financing as a result
of ongoing financing discussions with third party investors and
existing shareholders.
The consolidated
financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going
concern. The Company’s continuation as a going concern is
dependent on its ability to obtain additional financing as may be
required and ultimately to attain profitability. If the Company
raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and
such securities might have rights, preferences or privileges senior
to the rights, preferences and privileges of the Company’s
common stock. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able
to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict
its future plans for developing its business and achieving
commercial revenues. If the Company is unable to obtain the
necessary capital, the Company may have to cease
operations.
Future Financing
We will require
additional funds to implement our growth strategy for our business.
In addition, while we have received capital from various private
placements that have enabled us to fund our operations, these funds
have been largely used to develop our processes, although
additional funds are needed for other corporate operational and
working capital purposes. Subsequent to year end we have raised
approximately an additional $224,000, net of OID, from convertible
debentures. However, not including funds needed for capital
expenditures or to pay down existing debt and trade payables, we
anticipate that we will need to raise an additional $950,000 to
cover all of our operational expenses over the next 12 months, not
including any capital expenditures needed as part of any commercial
scale-up of our equipment. These funds may be raised through equity
financing, debt financing, or other sources, which may result in
further dilution in the equity ownership of our shares. There can
be no assurance that additional financing will be available to us
when needed or, if available, that such financing can be obtained
on commercially reasonable terms. If we are not able to obtain the
additional necessary financing on a timely basis, or if we are
unable to generate significant revenues from operations, we will
not be able to meet our other obligations as they become due, and
we will be forced to scale down or perhaps even cease our
operations.
Off-Balance Sheet Arrangements
We have no
off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to stockholders.
Effects of Inflation
We do not believe
that inflation has had a material impact on our business, revenues
or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant
accounting policies are more fully described in the notes to our
financial statements included in this Annual Report on Form 10-K
for the fiscal year ended March 31, 2018. We believe that the
accounting policies below are critical for one to fully understand
and evaluate our financial condition and results of
operations.
Fair
Value Measurement
The fair value
measurement guidance clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that
market participants would use in the valuation of an asset or
liability. It establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
the fair value measurement guidance are described
below:
Level 1 -
Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical assets or
liabilities;
Level 2 - Quoted
prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the
full term of the asset or liability; or
Level 3 - Prices or
valuation techniques that require inputs that are both significant
to the fair value measurement and unobservable (supported by little
or no market activity).
The Company did not
have any Level 1 or Level 2 assets and liabilities at March 31,
2018 and 2017.
The Derivative
liabilities are Level 3 fair value measurements.
Basic
and Diluted Earnings/Loss per Common Share
Basic and diluted
earnings or loss per share (“EPS”) amounts in the
consolidated financial statements are computed in accordance with
ASC 260 – 10 “
Earnings per Share
”, which
establishes the requirements for presenting EPS. Basic EPS is based
on the weighted average number of common shares outstanding.
Diluted EPS is based on the weighted average number of common
shares outstanding and dilutive common stock equivalents. Basic EPS
is computed by dividing net income or loss available to common
stockholders (numerator) by the weighted average number of common
shares outstanding (denominator) during the period. For the year
ended March 31, 2018, the Company had $1,292,000 in convertible
debentures whose underlying shares are convertible at the
holders’ option at conversion prices ranging from 50 - 60% of
the defined trading price and approximately 4,625,000 warrants with
an exercise price of 50% to 57% of the market price of the
Company’s common stock, which were not included in the
calculation of diluted EPS as their effect would be anti-dilutive.
Included in the diluted EPS for the year ended March 31, 2017, the
Company had $150,000 in convertible debentures whose underlying
shares are convertible at the holders’ option at initial
fixed conversion prices ranging from $0.30 to $0.35.
Income
Taxes
Deferred income tax
assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and
liabilities.
In addition, the
Company’s management performs an evaluation of all uncertain
income tax positions taken or expected to be taken in the course of
preparing the Company’s income tax returns to determine
whether the income tax positions meet a “more likely than
not” standard of being sustained under examination by the
applicable taxing authorities. This evaluation is required to be
performed for all open tax years, as defined by the various
statutes of limitations, for federal and state
purposes.
On December 22,
2017, the President of the United States signed and enacted into
law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law,
effective for tax years beginning on or after January 1, 2018,
except for certain provisions, resulted in significant changes to
existing United States tax law, including various provisions that
are expected to impact the Company. The Tax Reform Law reduces the
federal corporate tax rate from 35% to 21% effective January 1,
2018. The Company will continue to analyze the provisions of the
Tax Reform Law to assess the impact on the Company’s
consolidated financial statements.
Impairment
of Long Lived Assets and LongLived Assets
The Company will
periodically evaluate the carrying value of longlived assets to be
held and used when events and circumstances warrant such a review
and at least annually. The carrying value of a longlived asset is
considered impaired when the anticipated undiscounted cash flow
from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the
amount by which the carrying value exceeds the fair value of the
longlived asset. Fair value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the
risk involved. Losses on longlived assets to be disposed of are
determined in a similar manner, except that fair values are reduced
for the cost to dispose.
Recent Accounting Standards
During the year
ended March 31, 2018 and through the date of this report, there
were several new accounting pronouncements issued by the Financial
Accounting Standards Board (“FASB”). Each of these
pronouncements, as applicable, has been or will be adopted by the
Company. Management does not believe the adoption of any of these
accounting pronouncements has had or will have a material impact on
the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In May 2014, FASB
issued Accounting Standards Update (“ASU”) No. 2014-09,
“Revenue from Contracts with Customers,” which requires
an entity to recognize the amount of revenue to which it expects to
be entitled for the transfer of promised goods or services to
customers. ASU 2014-09 will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The
new standard is effective for annual reporting periods for public
business entities beginning after December 15, 2017, including
interim periods within that reporting period. The new standard
permits the use of either the retrospective or cumulative effect
transition method. The Company is currently evaluating the effect
that ASU 2014-09 will have on its financial statements and related
disclosures. As there have been no significant revenues to date,
the Company does not expect the adoption to have a material impact
and no transition method will be necessary upon
adoption.
In February 2016,
FASB issued ASU No. 2016-02,
Leases
(Topic 842). The standard
requires all leases that have a term of over 12 months to be
recognized on the balance sheet with the liability for lease
payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over
the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an
operating or a financing lease. Costs of an operating lease will
continue to be recognized as a single operating expense on a
straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019, and must be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. Early adoption is permitted. We are currently
evaluating the timing of adoption and the potential impact of this
standard on our financial position, but we do not expect it to have
a material impact on our results of operations.
Changes
In and Disagreements with Accountants
None.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Set forth below are
the present directors and executive officers of the Company. Except
as set forth below, there are no other persons who have been
nominated or chosen to become directors, nor are there any other
persons who have been chosen to become executive officers. Other
than as set forth below, there are no arrangements or
understandings between any of the directors, officers and other
persons pursuant to which such person was selected as a director or
an officer.
Name
|
|
Position
|
|
|
|
|
|
Bill G.
Williams
|
83
|
Chairman of the
Board, Chief Executive Officer
|
2015
|
Gerald
Easterling
|
70
|
President,
Secretary, Director
|
2015
|
William
Delgado
|
59
|
Treasurer, Chief
Financial Officer, Director
|
2014
|
The Board of
Directors is comprised of only one class. All of the directors
serve for a term of one year and until their successors are elected
at the Company’s annual shareholders meeting and are
qualified, subject to removal by the Company’s shareholders.
Each executive officer serves, at the pleasure of the Board of
Directors, for a term of one year and until his successor is
elected at a meeting of the Board of Directors and is
qualified.
Our Board of
Directors believes that all members of the Board and all executive
officers encompass a range of talent, skill, and experience
sufficient to provide sound and prudent guidance with respect to
our operations and interests. The information below with respect to
our directors and executive officers includes each
individual’s experience, qualifications, attributes, and
skills that led our Board of Directors to the conclusion that he or
she should serve as a director and/or executive
officer.
Biographies
Set forth below are
brief accounts of the business experience during the past five
years of each director, executive officer and significant employee
of the Company.
Bill G. Williams – Co-Founder, Chairman of the Board and
Chief Executive Officer
Mr. Williams has
served as Chairman of the Board and CEO of NSH since its inception
in 2001. From 1997 to 2003, he was Chairman and CEO of Direct
Wireless Communications, Inc. and its successor Health Discovery
Corporation, a public company listed on the OTCBB exchange. From
1990 to 1997, Mr. Williams was Chairman and CEO of Cafe Quick
Enterprises, which uses a unique, patented air impingement
technology to cook fresh and frozen food in vending machines. From
1985 to 1990, Mr. Williams was Chairman and CEO of Ameritron
Corporation, a multi-business holding company. Mr. Williams has
also served a member of the board of directors of NaturalShrimp
Corporation and NaturalShrimp Global, Inc. since 2001.
We believe Mr.
Williams is qualified to serve on our board of directors because of
his business experiences, including his experience as a director of
companies in similar industries, as described above.
Gerald Easterling – Co-Founder, President and
Director
Mr. Easterling has
served as President and a director of NSH since its inception in
2001. Mr. Easterling has experience in the food business and
related industries. In the five years prior to the formation of
NSH, Mr. Easterling was Chairman of the Board of Excel Vending
Companies. He also was President and Director of Cafe Quick
Enterprises and has been a member of the board since 1988. Mr.
Easterling has also served a member of the board of directors of
NaturalShrimp Corporation and NaturalShrimp Global, Inc. since
2001.
We believe Mr.
Easterling is qualified to serve on our board of directors because
of his business experiences, including his experience as a director
of companies in similar industries, as described
above.
Thomas Untermeyer – Co-Founder and Chief Technology
Consultant
Mr. Untermeyer is a
co-founder of NSH, has served as an engineering consultant to NSH
since 2001, and is the Company’s Chief Technology Officer.
Mr. Untermeyer holds a Bachelor of Science in electrical
engineering from St. Mary’s University. Mr. Untermeyer is the
inventor of the initial technology behind the computer-controlled
shrimp-raising system used by the Company.
William J. Delgado – Treasurer, Chief Financial Officer
(former President of Multiplayer Online Dragon, Inc.) and
Director
Mr. Delgado has
served as Director of the Company since May 19, 2014. Since August
2004, Mr. Delgado has served as a Director, President, Chief
Executive Officer and Chief Financial Officer of Global Digital
Solutions, Inc. (“GDSI”), a publicly traded company
that provides cyber arms manufacturing, complementary security and
technology solutions and knowledge-based, cyber-related, culturally
attuned social consulting in unsettled areas. Effective August 12,
2013, Mr. Delgado assumed the position of Executive Vice President
of GDSI. He began his career with Pacific Telephone in the Outside
Plant Construction. He moved to the network engineering group and
concluded his career at Pacific Bell as the Chief Budget Analyst
for the Northern California region. Mr. Delgado founded All Star
Telecom in late 1991, specializing in OSP construction and
engineering and systems cabling. All Star Telecom was sold to
International FiberCom in April 1999. After leaving International
FiberCom in 2002, Mr. Delgado became President/CEO of Pacific
Comtel in San Diego, California, which was acquired by GDSI in
2004. Mr. Delgado holds a BS with honors in Applied Economics from
the University of San Francisco and Graduate studies in
Telecommunications Management at Southern Methodist
University.
We believe Mr.
Delgado is qualified to serve on our board of directors because of
his business experiences, including his experience in management
and as a director of public companies, as described
above.
Family Relationships
There are no other
family relationships between or among any of our directors,
executive officers and any incoming directors or executive
officers.
Involvement in Certain Legal Proceedings
No director,
executive officer, significant employee or control person of the
Company has been involved in any legal proceeding listed in Item
401(f) of Regulation S-K in the past 10 years.
Committees of the Board
Our Board of
Directors held one formal meeting in the fiscal year-ended March
31, 2018. Otherwise, all proceedings of the Board of Directors were
conducted by resolutions consented to in writing by the directors
and filed with the minutes of the proceedings of the directors.
Such resolutions consented to in writing by the directors entitled
to vote on that resolution at a meeting of the directors are,
according to the Nevada Revised Statutes and the bylaws of our
Company, as valid and effective as if they had been passed at a
meeting of the directors duly called and held. We do not presently
have a policy regarding director attendance at
meetings.
We do not currently
have a standing audit, nominating or compensation committee of the
Board of Directors, or any committee performing similar functions.
Our Board of Directors performs the functions of audit, nominating
and compensation committees.
Audit Committee
Our Board of
Directors has not established a separate audit committee within the
meaning of Section 3(a)(58)(A) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Instead, the
entire Board of Directors acts as the audit committee within the
meaning of Section 3(a)(58)(B) of the Exchange Act and will
continue to do so until such time as a separate audit committee has
been established.
Audit Committee Financial Expert
We currently have
not designated anyone as an “audit committee financial
expert,” as defined in Item 407(d)(5) of Regulation S-K as we
have not yet created an audit committee of the Board of
Directors.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of
the Securities Exchange Act requires our executive officers and
directors, and persons who own more than 10% of our common stock,
to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to
provide us with copies of those filings.
Based solely on our
review of the copies of such forms received by us, or written
representations from certain reporting persons, we believe that
during the fiscal year ended March 31, 2018, one of our officers,
directors and greater than 10% percent beneficial owners failed to
comply on a timely basis with all applicable filing requirements
under Section 16(a) of the Exchange Act.
On January 20,
2017, the Company issued a convertible note in the principal amount
of $20,000 to Dragon Acquisitions, an affiliate of the Company
whose managing member is William Delgado, the Chief Financial
Officer of the Company. On March 14, 2017, the Company issued a
convertible note in the principal amount of $20,000 to Dragon
Acquisitions. On April 20, 2017, the Company issued a convertible
note in the principal amount of $140,000 to Dragon Acquisitions.
These notes are convertible into shares of the Company’s
common stock at a conversion price of $0.30 per share. William
Delgado, a director and executive officer of the Company and
managing member of Dragon Acquisitions, should have filed a Form 4
in connection with the issuance of each of the foregoing
convertible notes.
Nominations to the Board of Directors
Our directors play
a critical role in guiding our strategic direction and oversee the
management of the Company. Board candidates are considered based
upon various criteria, such as their broad-based business and
professional skills and experiences, a global business and social
perspective, concern for the long-term interests of the
stockholders, diversity, and personal integrity and
judgment.
In addition,
directors must have time available to devote to Board activities
and to enhance their knowledge in the growing business.
Accordingly, we seek to attract and retain highly qualified
directors who have sufficient time to attend to their substantial
duties and responsibilities to the Company.
In carrying out its
responsibilities, the Board will consider candidates suggested by
stockholders. If a stockholder wishes to formally place a
candidate’s name in nomination, however, he or she must do so
in accordance with the provisions of the Company’s Bylaws.
Suggestions for candidates to be evaluated by the proposed
directors must be sent to the Board of Directors, c/o NaturalShrimp
Incorporated, 5080 Spectrum Drive, Suite 1000 Addison, Texas
75001.
Director Nominations
As of March 31,
2018, we did not effect any material changes to the procedures by
which our shareholders may recommend nominees to our Board of
Directors.
Board Leadership Structure and Role on Risk Oversight
Bill G. Williams
currently serves as the Company’s principal executive officer
and Chairman of the Company’s Board of Directors. The Company
determined this leadership structure was appropriate for the
Company due to our small size and limited operations and resources.
The Board of Directors will continue to evaluate the
Company’s leadership structure and modify as appropriate
based on the size, resources and operations of the Company. It is
anticipated that the Board of Directors will establish procedures
to determine an appropriate role for the Board of Directors in the
Company’s risk oversight function.
Compensation Committee Interlocks and Insider
Participation
No interlocking
relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has
any interlocking relationship existed in the past.
Code of Ethics
The Company has
adopted a written code of ethics that governs the Company’s
employees, officers and directors. A copy of such code of ethics is
available upon written request to the Company.
Executive
Compensation
General Philosophy
Our Board of
Directors is responsible for establishing and administering the
Company’s executive and director compensation.
Executive Compensation
The following
summary compensation table indicates the cash and non-cash
compensation earned from the Company during the fiscal years ended
March 31, 2018 and 2017 by the current and former executive
officers of the Company and each of the other two highest paid
executives or directors, if any, whose total compensation exceeded
$100,000 during those periods.
Name and
Principal Position
|
|
|
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
|
|
Bill G.
Williams,
|
2018
|
$
36,000
|
-
|
-
|
-
|
-
|
$
3,880
|
$
39,880
|
Chairman of the
Board, CEO
|
2017
|
$
96,000
|
-
|
-
|
-
|
-
|
-
|
$
96,000
|
Gerald
Easterling,
|
2018
|
$
76,000
|
-
|
-
|
-
|
-
|
$
6,120
|
$
82,120
|
President
|
2017
|
$
96,000
|
-
|
-
|
-
|
-
|
-
|
$
96,000
|
William
Delgado
|
2018
|
$
0
|
-
|
-
|
-
|
-
|
-
|
$
0
|
Chief
Financial Officer
|
2017
|
$
0
|
-
|
-
|
-
|
-
|
-
|
$
0
|
(1)
|
As of March 31,
2018, Mr. Williams is owed accrued salary of $60,612. In addition,
Mr. Williams is entitled to receive medical insurance
reimbursement, of which $3,880 was paid during the fiscal year
ending March 31, 2018, and for which $776 is accrued as of March
31, 2018. Mr. Williams is also entitled to an automobile allowance
of $500 per month, of which none was paid, and for which is $10,500
is accrued at March 31, 2018.
|
(2)
|
As of March 31,
2018, Mr. Easterling is owed accrued salary of $86,754. In
addition, Mr. Easterling is entitled to receive medical insurance
reimbursement, of which $6,120 was paid during the fiscal year
ending March 31,2018 and for which $0 is accrued as of March 31,
2018. Mr. Easterling is also entitled to an automobile allowance of
$500 per month, of which none was paid, and for which $12,000 is
accrued at March 31, 2018.
|
Employment
Agreements
We have employment
agreements in place with Bill G. Williams, our Chief Executive
Officer, and Gerald Easterling, our President.
Bill G.
Williams
On April 1, 2015,
the Company entered into an employment agreement with Bill G.
Williams as the Company’s Chief Executive Officer. The
agreement is terminable at will and provides for a base annual
salary of $96,000. In addition, the agreement provides that the Mr.
Williams is entitled, at the sole and absolute discretion of the
Company’s Board of Directors, to receive performance bonuses.
Mr. Williams will also be entitled to certain benefits including
health insurance and monthly allowances for cell phone and
automobile expenses.
The agreement
provides that in the event Mr. Williams is terminated without cause
or resigns for good reason (each as defined in the agreement), Mr.
Williams will receive, as severance, his base salary for a period
of 60 months following the date of termination. In the event of a
change of control of the Company, Mr. Williams may elect to
terminate the agreement within 30 days thereafter and upon such
termination would receive a lump sum payment equal to 500% of his
base salary. The agreement contains certain restrictive covenants
relating to non-competition, non-solicitation of customers and
non-solicitation of employees for a period of one year following
termination of the agreement.
Gerald
Easterling
On April 1, 2015,
the Company entered into an employment agreement with Gerald
Easterling as the Company’s President. The agreement is
terminable at will and provides for a base annual salary of
$96,000. In addition, the agreement provides that the Mr.
Easterling is entitled, at the sole and absolute discretion of the
Company’s Board of Directors, to receive performance bonuses.
Mr. Easterling will also be entitled to certain benefits including
health insurance and monthly allowances for cell phone and
automobile expenses.
The agreement
provides that in the event Mr. Easterling is terminated without
cause or resigns for good reason (each as defined in the
agreement), Mr. Easterling will receive, as severance, his base
salary for a period of 60 months following the date of termination.
In the event of a change of control of the Company, Mr. Easterling
may elect to terminate the agreement within 30 days thereafter and
upon such termination would receive a lump sum payment equal to
500% of his base salary.
The agreement
contains certain restrictive covenants relating to non-competition,
non-solicitation of customers and non-solicitation of employees for
a period of one year following termination of the
agreement.
Potential Payments Upon Termination or
Change-in-Control
SEC regulations
state that we must disclose information regarding agreements, plans
or arrangements that provide for payments or benefits to our
executive officers in connection with any termination of employment
or change in control of the Company. Such payments are set forth
above in the section entitled “Employment
Agreements.”
None of our
executive officers or directors received, nor do we have any
arrangements to pay out, any bonus, stock awards, option awards,
non-equity incentive plan compensation, or non-qualified deferred
compensation.
Compensation of Directors
We have no
standard arrangement to compensate directors for their services in
their capacity as directors. Directors are not paid for meetings
attended. However, we intend to review and consider future
proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us, if
and when incurred.
Stock Option Plans - Outstanding Equity Awards at Fiscal Year
End
None.
Pension Table
None.
Retirement Plans
We do not offer any
annuity, pension, or retirement benefits to be paid to any of our
officers, directors, or employees in the event of retirement. There
are also no compensatory plans or arrangements with respect to any
individual named above which results or will result from the
resignation, retirement, or any other termination of employment
with our company, or from a change in the control of our
Company.
Compensation Committee
The Company does
not have a separate Compensation Committee. Instead, the
Company’s Board of Directors reviews and approves executive
compensation policies and practices, reviews salaries and bonuses
for other officers, administers the Company’s stock option
plans and other benefit plans, if any, and considers other
matters.
Risk Management Considerations
We believe that our
compensation policies and practices for our employees, including
our executive officers, do not create risks that are reasonably
likely to have a material adverse effect on our
Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of
March 1, 2019, we had outstanding 296,807,419 shares of common
stock. Each share of common stock is currently entitled to one vote
on all matters put to a vote of our stockholders. The following
table sets forth the number of common shares, and percentage of
outstanding common shares, beneficially owned as of the date hereof
by:
●
each person known
by us to be the beneficial owner of more than five percent of our
outstanding common stock;
●
each of our current
directors;
●
each our current
executive officers and any other persons identified as a
“named executive” in the Summary Compensation Table
above; and
●
all our current
executive officers and directors as a group.
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes general voting power and/or investment power with respect
to securities. Shares of common stock issuable upon exercise of
options or warrants that are currently exercisable or exercisable
within 60 days of the record date, and shares of common stock
issuable upon conversion of other securities currently convertible
or convertible within 60 days, are deemed outstanding for computing
the beneficial ownership percentage of the person holding such
securities but are not deemed outstanding for computing the
beneficial ownership percentage of any other person. Under the
applicable SEC rules, each person’s beneficial ownership is
calculated by dividing the total number of shares with respect to
which they possess beneficial ownership by the total number of
outstanding shares. In any case where an individual has beneficial
ownership over securities that are not outstanding but are issuable
upon the exercise of options or warrants or similar rights within
the next 60 days, that same number of shares is added to the
denominator in the calculation described above. Because the
calculation of each person’s beneficial ownership set forth
in the “Percentage Beneficially Owned” column of the
table may include shares that are not presently outstanding, the
sum total of the percentages set forth in such column may exceed
100%. Unless otherwise indicated, the address of each of the
following persons is 5080 Spectrum Drive, Suite 1000 Addison, Texas
75001, and, based upon information available or furnished to us,
each such person has sole voting and investment power with respect
to the shares set forth opposite his, her or its name.
Name
and Address of Beneficial Owner(1)
|
Common Shares Beneficially
Owned (2)
|
Percentage of Common Shares Beneficially Owned (2)
|
Series A Preferred Shares Beneficially Owned (5)
|
Percentage
of Series A Preferred Shares Beneficially Owned (5)
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Bill
G. Williams (3)(6)
|
520,240
|
(7
)
|
5,000,000
|
100
%
|
Gerald
Easterling (3)(6)
|
520,240
|
(7
)
|
5,000,000
|
100
%
|
Tom
Untermeyer
|
0
|
0.00
%
|
0
|
0.00
%
|
William
Delgado(4)
|
6,270,719
|
2.77
%
|
0
|
0.00
%
|
5% Stockholders
See
Footnotes to this Beneficial Ownership Table
(1)
|
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Pursuant to the rules of the SEC, shares of
common stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of any option, warrant or
right, or through the conversion of a security, are deemed to be
outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be beneficially
owned and outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
|
(2)
|
Based
on 296,807,419 shares of our common stock issued and outstanding as
of March 1, 2019.
See footnote
7.
|
(3)
|
Bill G.
Williams is the indirect owner, together with Gerald Easterling, of
520,240 shares of common stock and 5,000,000 shares of Series A
Preferred Stock of the Company, which are directly held by
NaturalShrimp Holdings, Inc. Mr. Williams is the Chairman of the
Board and the Chief Executive Officer of NaturalShrimp Holdings,
Inc. and has shared voting and dispositive power over the shares
held by NaturalShrimp Holdings, Inc. Mr. Easterling is the
President of NaturalShrimp Holdings, Inc. and has shared voting and
dispositive power over the shares held by NaturalShrimp Holdings,
Inc.
|
(4)
|
William
Delgado is the indirect owner of 6,270,719 shares of common stock,
which are directly held by Dragon Acquisitions LLC. The shares of
common stock beneficially owned by Dragon Acquisitions LLC, and
indirectly owned by William Delgado, include 600,000 shares of
common stock issuable upon conversion of outstanding convertible
notes held by Dragon Acquisitions LLC. Mr. Delgado is the managing
member of Dragon Acquisitions LLC and has shared voting and
dispositive power over the shares held by Dragon Acquisitions
LLC.
|
(5)
|
On August 17, 2018, the Company, pursuant to approval by the
Company’s board of directors, filed a certificate of
designation (the “Certificate of Designation”) with the
state of Nevada in order to designate a class of preferred stock.
The class of preferred stock that was designated is referred to as
Series A Convertible Preferred Stock (the “Series A
Stock”), consists of 5,000,000 shares, and was designated
from the 200,000,000 authorized preferred shares of the Company.
The Series A Stock is not entitled to dividends, but carries
liquidation rights upon the dissolution, liquidation or winding up
of the Company, whether voluntary or involuntary, at which time the
holders of the Series A Stock shall receive the sum of $0.001 per
share before any payment or distribution shall be made on the
Company’s common stock, or any class ranking junior to the
Series A Stock. The shares of Series A Stock shall vote together as
a single class with the holders of the Company’s common stock
for all matters submitted to the holders of common stock, including
the election of directors, and shall carry voting rights of 60
common shares for every share of Series A Stock. Any time after the
two-year anniversary of the initial issuance date of the Series A
Stock, the Series A Stock shall be convertible at the written
consent of a majority of the outstanding shares of Series A Stock,
in an amount of shares of common stock equal to 100% of the then
outstanding shares of common stock at the time of such
conversion.
|
(6)
|
On August 21, 2018, the Company entered into a Stock Exchange
Agreement (the “Exchange Agreement”) with NaturalShrimp
Holdings, Inc. (“NaturalShrimp”), the Company’s
majority shareholder, which is controlled by the Company’s
CEO and President. Pursuant to the Exchange Agreement, the Company
and NaturalShrimp exchanged 75,000,000 shares of common stock for
5,000,000 shares of Series A Stock. The 75,000,000 shares of common
stock will be cancelled and returned to the authorized but unissued
shares of common stock of the Company. Bill G. Williams and Gerald
Easterling share voting and dispositive power of the shares
beneficially owned by NaturalShrimp Holdings,
Inc.
|
(7)
|
*equals less than 1%
|
Transactions with Related Persons
Transactions with Related Persons
Except as set out below, as of March 31, 2018, there have been no
transactions, or currently proposed transactions, in which we were
or are to be a participant and the amount involved exceeds the
lesser of $120,000 or one percent of the average of our total
assets at year-end for the last two completed fiscal years, and in
which any of the following persons had or will have a direct or
indirect material interest:
●
any director or
executive officer of our company;
●
any
person who beneficially owns, directly or indirectly, shares
carrying more than 5% of the voting rights attached to our
outstanding shares of common stock;
●
any
promoters and control persons; and
●
any
member of the immediate family (including spouse, parents,
children, siblings and in laws) of any of the foregoing
persons.
NaturalShrimp Holdings, Inc.
On November 26, 2014, Multiplayer Online Dragon, Inc., a Nevada
corporation (“MYDR”), entered into an Asset Purchase
Agreement (the “Agreement”) with NaturalShrimp
Holdings, Inc. a Delaware corporation (“NSH”), pursuant
to which MYDR was to acquire substantially all of the assets of NSH
which assets consist primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation
(“NSC”), a Delaware corporation, and NaturalShrimp
Global, Inc. (“NS Global”), a Delaware corporation, and
certain real property located outside of San Antonio, Texas (the
“Assets”).
On January 30, 2015, MYDR consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, the MYDR issued 75,520,240 shares of its common stock to
NSH as consideration for the Assets. As a result of the
transaction, NSH acquired 88.62% of MYDR’s issued and
outstanding shares of common stock, NSC and NS Global became
MYDR’s wholly-owned subsidiaries, and MYDR changed its
principal business to a global shrimp farming company.
There were no material relationships between the MYDR and NSH or
between the Company’s or NSH’s respective affiliates,
directors, or officers or associates thereof, other than in respect
of the Agreement. Effective March 3, 2015, MYDR amended its
Articles of Incorporation to change its name to
“NaturalShrimp Incorporated”.
On January 1, 2016 we entered into a note payable agreement with
NSH. Between January 16, 2016 and March 7, 2016, we borrowed
$134,750 under this agreement. An additional $601,361 was borrowed
under this agreement in the year ended March 31, 2017. The note
payable has no set monthly payment or maturity date with a stated
interest rate of 2%.
Bill G. Williams
We have entered into several working capital notes payable to Bill
Williams, an officer, a director, and a shareholder of the Company,
for a total of $486,500 since inception. These notes are demand
notes, had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes at March 31,
2018 and 2017 was $426,404 and $426,404, respectively, and is
classified as a current liability on the consolidated balance
sheets. At March 31, 2018 and 2017, accrued interest payable was
$206,920 and $172,808, respectively. We repaid $0 during the years
ended March 31, 2018 and 2017
William Delgado
Between January 1, 2017 and March 31, 2017, we entered into two
Private Placement Subscription Agreements and issued two Six
Percent (6%) Unsecured Convertible Notes to Dragon Acquisitions,
whose managing member is William Delgado, the Treasurer, Chief
Financial Officer, and a director of the Company. The first note
was issued on January 20, 2017, in the principal amount of $20,000,
and the second note was issued on March 14, 2017, in the principal
amount of $20,000. The notes accrue interest at the rate of six
percent (6%) per annum, and mature one (1) year from the date of
issuance. Upon an event of default, the default interest rate will
be increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The notes are convertible
into shares of our common stock at a conversion price of $0.30 per
share, subject to adjustment. The notes were repaid in full between
March and May 2017.
On April 20, 2017, the Company issued an additional Six Percent
(6%) Unsecured Convertible Note to Dragon Acquisitions in the
principal amount of $140,000. The note accrues interest at the rate
of six percent (6%) per annum, and matures one (1) year from the
date of issuance. Upon an event of default, the default interest
rate will be increased to twenty-four percent (24%), and the total
amount of principal and accrued interest shall become immediately
due and payable at the holder’s discretion. The note is
convertible into shares of the Company’s common stock at a
conversion price of $0.30 per share, subject to adjustment. $52,400
of the note has been repaid during the year ended March 31,
2018.
Gerald Easterling
On January 10, 2017, we entered into a promissory note agreement
with Community National Bank in the principal amount of $245,000,
with an annual interest rate of 5% and a maturity date of January
10, 2020 (the “CNB Note”). The CNB Note is secured by
certain real property owned by the Company in La Coste, Texas, and
is also personally guaranteed by the Company’s President and
Chairman of the Board, as well as certain non-affiliated
shareholders of the Company. As consideration for the guarantee,
the Company issued 600,000 shares of common stock to the
guaranteeing shareholders, not including the Company’s
President and Chairman of the Board, which was recognized as debt
issuance costs. The fair value of this issuance is estimated to be
$264,000, based on the market value of our common stock on the date
of issuance. The balance of the CNB Note is $236,413 as of March
31, 2018.
Named Executive Officers and Current Directors
For information regarding compensation for our named executive
officers and current directors, see “Executive
Compensation”.
Director Independence
Our board of directors consists of Bill G. Williams, Gerald
Easterling and William Delgado. Our securities are quoted on the
OTC Markets Group, which does not have any director independence
requirements. We evaluate independence by the standards for
director independence established by applicable laws, rules, and
listing standards including, without limitation, the standards for
independent directors established by The New York Stock Exchange,
Inc., the NASDAQ National Market, and the Securities and Exchange
Commission.
Subject to some exceptions, these standards generally provide that
a director will not be independent if (a) the director is, or in
the past three years has been, an employee of ours; (b) a member of
the director’s immediate family is, or in the past three
years has been, an executive officer of ours; (c) the director or a
member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than
for service as a director (or for a family member, as a
non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years
has been, employed in a professional capacity by our independent
public accountants, or has worked for such firm in any capacity on
our audit; (e) the director or a member of the director’s
immediate family is, or in the past three years has been, employed
as an executive officer of a company where one of our executive
officers serves on the compensation committee; or (f) the director
or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives
payments from, us in an amount which, in any twelve-month period
during the past three years, exceeds the greater of $1,000,000 or
two percent of that other company’s consolidated gross
revenues. Based on these standards, we have determined that none of
our directors are independent directors.