INTERESTS OF NAMED EXPERTS AND COUNSEL
The
consolidated financial statements for the Company as of March 31,
2018 and 2017 and for the years then ended included in this
prospectus have been audited by Turner, Stone & Company,
L.L.P., an independent registered public accounting firm, to the
extent and for the periods set forth in our report and are
incorporated herein in reliance upon such report given upon the
authority of said firm as experts in auditing and
accounting.
The
legality of the shares offered under this registration statement
will be passed upon by Lucosky Brookman LLP.
INFORMATION WITH RESPECT TO THE REGISTRANT
Corporate History
We were incorporated in the State of Nevada on July 3, 2008 under
the name “Multiplayer Online Dragon, Inc.” Effective
November 5, 2010, we effected an 8 for 1 forward stock split,
increasing the issued and outstanding shares of our common stock
from 12,000,000 shares to 96,000,000 shares. On October 29, 2014,
we effected a 1 for 10 reverse stock split, decreasing the issued
and outstanding shares of our common stock from 97,000,000 to
9,700,000.
On November 26, 2014, we entered into an Asset Purchase Agreement
(the “Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation
(“NSC”), a Delaware corporation, and NaturalShrimp
Global, Inc. (“NS Global”), a Delaware corporation, and
certain real property located outside of San Antonio, Texas (the
“Assets”).
On January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In connection with our receipt of approval from the Financial
Industry Regulatory Authority (“FINRA”), effective
March 3, 2015, we amended our Articles of Incorporation to change
our name to “NaturalShrimp Incorporated.”
Business Overview
We are a biotechnology company and have developed a proprietary
technology that allows us to grow Pacific White shrimp (Litopenaeus
vannamei, formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS Global, one of our wholly-owned subsidiaries, owns less than 1%
of NaturalShrimp International A.S. in Europe. European-based,
NaturalShrimp International A.S., Oslo, Norway, was responsible for
the construction cost of its facility and operating capital
needs.
The first facility built in Spain for NaturalShrimp International
A.S. is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas.
The Company has three wholly-owned subsidiaries, including NSC, NS
Global and NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology.” Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology.” We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
In 2001, we began research and development of a high density,
natural aquaculture system that is not dependent on ocean water to
provide quality, fresh shrimp every week, fifty-two weeks a year.
The initial NaturalShrimp system was successful, but the Company
determined that it would not be economically feasible due to high
operating costs. Over the next several years, using the knowledge
we gained from developing the first system, we developed a shrimp
production system that eliminated the high costs associated with
the previous system. We have continued to refine this technology,
eliminating bacteria and other problems that affect enclosed
systems, and now have a successful shrimp growing process. We have
produced thousands of pounds of shrimp over the last few years in
order to develop a design that will consistently produce quality
shrimp that grow to a large size at a specific rate of growth. This
included experimenting with various types of natural live and
synthesized feed supplies before selecting the most appropriate
nutritious and reliable combination. It also included utilizing
monitoring and control automation equipment to minimize labor costs
and to provide the necessary oversight for proper regulation of the
shrimp environment. However, there were further enhancements needed
to our process and technology in order to begin production of
shrimp on a commercially viable scale and to generate
revenues.
Our current system consists of a reception tank where the shrimp
are acclimated, then moved to a larger grow-out tank for the rest
of the twenty-four week cycle. During 2016, we engaged in
additional engineering projects with third parties to further
enhance our indoor production capabilities. For example, through
our relationship with Trane, Inc., a division of Ingersoll-Rand Plc
(“Trane”), Trane has provided a detailed audit to use
data to build and verify the capabilities of then initial Phase 1
prototype of a Trane-proposed three tank system at our La Coste,
Texas facility. The Company contracted F&T Water Solutions and
RGA Labs, Inc. (“RGA Labs”) to complete final
engineering and building of the initial patent-pending modified
Electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. The design will present a viable pathway to begin
generating revenue and producing shrimp on a commercially viable
scale. The design is completed and was installed in early June 2018
by RGA Labs, and final financing for the system is expected to be
provided by one of the Company’s existing institutional
investors. The first post larvae (PL) arrived from the hatchery at
the end of June 2018, and the Company expects it will take
approximately six to nine months to begin producing and shipping
shrimp.
Overview of Industry
Shrimp is a well-known and globally-consumed commodity,
constituting one of the most important types of seafood and a
staple protein source for much of the world. According to the USDA
Foreign Agricultural Service, the world consumes approximately 9
billion pounds of shrimp annually with over 1.7 billion pounds
consumed in the United States alone. Approximately 65% of the
global supply of shrimp is caught by ocean trawlers and the other
35% is produced by open-air shrimp farms, mostly in developing
countries.
Shrimp boats catch shrimp through the use of large, boat-towed
nets. These nets are quite toxic to the undersea environment as
they disturb and destroy ocean-bottom ecosystems; these nets also
catch a variety of non-shrimp sea life, which is typically killed
and discarded as part of the shrimp harvesting process.
Additionally, the world’s oceans can only supply a finite
amount of shrimp each year, and in fact, single-boat shrimp yields
have fallen by approximately 20% since 2010 and continue to
decrease. The shrimping industry’s answer to this problem has
been to deploy more (and larger) boats that deploy ever-larger
nets, which has in the short-term been successful at maintaining
global shrimp yields. However, this benefit cannot continue
forever, as eventually global demand has the potential of
outstripping the oceans’ ability to maintain the natural
ecosystem’s balance, resulting in a permanent decline in
yields. When taken in light of global population growth and the
ever-increasing demand for nutrient-rich foods such as shrimp, this
is clearly an unsustainable production paradigm.
Shrimp farming, known in the industry as “aquaculture,”
has ostensibly stepped in to fill this demand/supply imbalance.
Shrimp farming is typically done in open-air lagoons and man-made
shrimp ponds connected to the open ocean. Because these ponds
constantly exchange water with the adjacent sea, the farmers are
able to maintain the water chemistry that allows the shrimp to
prosper. However, this method of cultivating shrimp also carries
severe ecological peril. First of all, most shrimp farming is
primarily conducted in developing countries, where poor shrimp
farmers have little regard for the global ecosystem. Because of
this, these farmers use large quantities of antibiotics and other
chemicals that maximize each farm’s chance of producing a
crop, putting the entire system at risk. For example, a viral
infection that crops up in one farm can spread to all nearby farms,
quite literally wiping out an entire region’s production. In
1999, the White Spot virus invaded shrimp farms in at least five
Latin American countries: Honduras, Nicaragua, Guatemala, Panama
and Ecuador and in 2013-14 EMS (Early Mortality Syndrome) wiped out
most of the Asia Pacific region and Mexico. Secondly, there is also
a finite amount of coastline that can be used for shrimp production
– eventually shrimp farms that are dependent on the open
ocean will have nowhere to expand. Again, this is an ecologically
damaging and ultimately unsustainable system for producing
shrimp.
In both the cases, the current method of shrimp production is
unsustainable. As global populations rise and the demand for shrimp
continues to grow, the current system is bound to fall short.
Shrimp trawling cannot continue to increase production without
completely depleting the oceans’ natural shrimp population.
Trends in per-boat yield confirm that this industry has already
crossed the overfishing threshold, putting the global open-ocean
shrimp population in decline. While open-air shrimp aquaculture may
seem to address this problem, it is also an unsustainable system
that destroys coastal ecological systems and produces shrimp with
very high chemical contamination levels. Closed-system shrimp
farming is clearly a superior alternative, but its unique
challenges have prevented it from becoming a widely-available
alternative – until now.
Of the 1.7 billion pounds of shrimp consumed annually in the United
States, over 1.3 billion pounds are imported – much of this
from developing countries’ shrimp farms. These farms are
typically located in developing countries and use high levels of
antibiotics and pesticides that are not allowed under USDA
regulations. As a result, these shrimp farms produce chemical-laden
shrimp in an ecologically unsustainable way.
Unfortunately, most consumers here in the United States are not
aware of the origin of their store-bought shrimp or worse, that
which they consume in restaurants. This is due to a USDA rule that
states that only bulk-packaged shrimp must state the shrimp’s
country of origin; any “prepared” shrimp, which
includes arrangements sold in grocery stores and seafood markets,
as well as all shrimp served in restaurants, can simply be sold
“as is.” Essentially, this means that most U.S.
consumers may be eating shrimp laden with chemicals and
antibiotics. NaturalShrimp’s product is free of pesticide
chemicals and antibiotics, a fact that we believe is highly
attractive and beneficial in terms of our eventual marketing
success.
Technology
Intensive, Indoor, Closed-System Shrimp Production
Technology
Historically, efforts to raise shrimp in a high-density, closed
system at the commercial level have been met with either modest
success or outright failure through “BioFloc
Technology”. Infectious agents such as parasites, bacteria
and viruses are the most damaging and most difficult to control.
Bacterial infection can in some cases be combated through the use
of antibiotics (although not always), and in general, the use of
antibiotics is considered undesirable and counter to
“green” cultivation practices. Viruses can be even
worse, in that they are immune to antibiotics. Once introduced to a
shrimp population, viruses can wipe out entire farms and shrimp
populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio
Suppression Technology”. We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
Automated Monitoring and Control System
The Company’s “Automated Monitoring and Control
System” uses individual tank monitors to automatically
control the feeding, oxygenation, and temperature of each of the
facility tanks independently. In addition, a facility computer
running custom software communicates with each of the controllers
and performs additional data acquisition functions that can report
back to a supervisory computer from anywhere in the world. These
computer-automated water controls optimize the growing conditions
for the shrimp as they mature to harvest size, providing a
disease-resistant production environment.
The principal theories behind the Company’s system are
characterized as:
●
High-density
shrimp production
These principles form the foundation for the Company and our
potential distributors so that consumers can be provided with
continuous volumes of live and fresh shrimp at competitive
prices.
Research and Development
In 2001, the Company began research and development (R&D) of a
high density, natural aquaculture system that is not dependent on
ocean water to provide quality, fresh shrimp every week, fifty-two
weeks a year. The initial NaturalShrimp system was successful but
the Company determined that it would not be economically feasible
due to high operating costs. Over the next several years, using the
knowledge we gained from the first R&D system, we developed a
shrimp production system that eliminated the high costs associated
with the previous system. We have continued to refine this
technology, eliminating bacteria and other problems that affect
enclosed systems and now have a successful shrimp growing
process.
We have produced thousands of pounds of shrimp over the last few
years in order to develop a design that will consistently produce
quality shrimp that grow to a large size at a specific rate of
growth. This included experimenting with various types of natural
live and synthesized feed supplies before selecting the most
appropriate nutritious and reliable combination. It also included
utilizing monitoring and control automation equipment to minimize
labor costs and to provide the necessary oversight for proper
regulation of the shrimp environment.
After the implementation of the first R&D facility in La Coste,
Texas, the Company has also made significant improvements that
minimize the transfer of shrimp, which will reduce shrimp stress
and labor costs. Our current system consists of a reception tank
where the shrimp are acclimated, then moved to a larger grow-out
tank for the rest of the twenty-four week cycle.
On September 7, 2016, we entered into a Letter of Commitment with
Trane, Inc. (“Trane”), a division of Ingersoll-Rand
Plc, whereby Trane shall proceed with a detailed audit to use data
to verify the capabilities of an initial Phase 1 prototype of a
Trane-proposed three tank system at our La Coste, Texas facility.
The prototype consists of a modified Electrocoagulation (EC) system
for the human grow-out, harvesting and processing of fully mature,
antibiotic-free Pacific White Leg shrimp. Trane was authorized to
proceed with such detailed audit to utilize data for purposes of
verifying the capabilities of the EC system, including the ammonia
and chlorine capture and sequestering and pathogen kill. The
detailed audit delivered (i) a report on the inspection of the
existing infrastructure determining if proper fit, adequate
security, acceptable utility service, environmental protection and
equipment sizing are achievable; (ii) provide firm fixed pricing
for the EC system, electrode selection and supply, waste removal,
ventilation of the off-gassing of the equipment; and (iii) a
formalized plan for commissioning and on-site investigation of
hardware design to simplify build-out of Phase 2 and future phases.
The detailed audit was utilized by RGA Labs to build and install
the initial system in La Coste Texas pilot plant the first week of
July 2018. Management expects to utilize the results of the
detailed audit actual operating data as part of the Company’s
financing and underwriting package at the Company's La Coste, Texas
facility. Installation of the system is expected to be provided by
an outside general contractor, and lease financing for the system
is expected to be provided by an outside leasing firm.
Target Markets and Sales Price
Our goal is to establish production systems and distribution
centers in metropolitan areas of the United States, as well as
international distribution networks through joint venture
partnerships throughout the world. This should allow the Company to
capture a significant portion of world shrimp sales by offering
locally grown, environmentally “green,” naturally
grown, fresh shrimp at competitive wholesale prices.
The United States population is approximately 325 million people
with an annual shrimp consumption of 1.7 billion pounds, of which
less than 400 million pounds are domestically produced. According
to IndexMundi.com, the wholesale price for frozen, commodity grade
shrimp has risen 15% since January 2015 (shell-on headless, 26-30
count; which is comparable to our target growth size). With world
shrimp problems, this price is expected to rise more in the next
few years.
We strive to build a profitable global shrimp production company.
We believe our foundational advantage is that we can deliver fresh,
organically grown, gourmet-grade shrimp, 52 weeks a year to retail
and wholesale buyers in major market areas at competitive, yet
premium prices. By locating regional production and distribution
centers in close proximity to consumer demand, we can provide a
fresh product to customers within 24 hours after harvest, which is
unique in the shrimp industry. We can be the “first to
market” and perhaps “sole weekly provider” of
fresh shrimp and capture as much market share as production
capacity can support.
For those customers that want a frozen product, we may be able to
provide this in the near future and the product will still be
differentiated as a “naturally grown, sustainable
seafood” that will meet the increasing demand of socially
conscious consumers.
Our patented technology and eco-friendly, bio-secure production
processes enable the delivery of a chemical and antibiotic free,
locally grown product that lives up to the Company’s mantra:
“Always Fresh, Always Natural,” thereby solving the
issue of “unsafe” imported seafood.
Product Description
Nearly all of the shrimp consumed today are shipped frozen. Shrimp
are typically frozen from six to twenty-four months before
consumption. Our system is designed to harvest a different tank
each week, which provides for fresh shrimp throughout the year. We
strive to create a niche market of “Always Fresh, Always
Natural” shrimp. As opposed to many of the foreign shrimp
farms, we can also claim that our product is 100% free of
antibiotics. The ability to grow shrimp locally, year round allows
us to provide this high-end product to specialty grocery stores and
upscale restaurants throughout the world. We rotate the stocking
and harvesting of our tanks each week, which allows for weekly
shrimp harvests. Our product is free of all pollutants and is fed
only all-natural feeds.
The seafood industry lacks a consistent “Source
Verification” method to track seafood products as they move
through countries and customs procedures. With worldwide
overfishing leading to declining shrimp freshness and
sustainability around the world, it is vital for shrimp providers
to be able to realistically identify the source of their product.
We have well-managed, sustainable facilities that are able to track
shrimp from hatchery to plate using environmentally responsible
methods.
Shrimp Growth Period
Our production system is designed to produce shrimp at a harvest
size of twenty-one to twenty-five shrimp per pound in a period of
twenty-four weeks. The Company currently purchases post-larva
shrimp that are approximately ten days old (PL 10). In the future,
we plan to build our own hatcheries to control the supply of shrimp
to each of our facilities. Our full-scale production systems
include grow-out and nursery tanks, projected to produce fresh
shrimp fifty-two weeks per year.
Distribution and Marketing
We plan to build these environmentally “green”
production systems near major metropolitan areas of the United
States. Today, we have one pilot production facility in La Coste,
Texas (near San Antonio) and plan to begin construction of a
full-scale production facility in La Coste and plans for Nevada and
New York. Over the next five years, our plan is to increase
construction of new facilities each year. In the fifth year, we
plan for a new system to be completed each month, expanding first
into the largest shrimp consumption markets of the United
States.
Unique Product
We plan to sell and distribute the vast majority of our shrimp
production through distributors which have established customers
and sufficient capacity to deliver a fresh product within hours
following harvest. We believe we have the added advantage of being
able to market our shrimp as fresh, natural and locally grown using
sustainable, eco-friendly technology, a key differentiation from
all existing shrimp producers. Furthermore, we believe that our
ability to advertise our product in this manner along with the fact
that it is a locally grown product, provides us with a marketing
advantage over the competition.
Harvesting, Packaging and Shipment
Each location is projected to include production,
harvesting/processing and a general shipping and receiving area, in
addition to warehousing space for storage of necessary supplies and
products required to grow, harvest, package and otherwise make
ready for delivery, a fresh shrimp crop on a weekly basis to
consumers in each individual market area within 24 hours following
harvest.
The seafood industry lacks a consistent source verification method
to track seafood products as they move through countries and
customs procedures. With worldwide overfishing leading to declining
shrimp freshness and sustainability around the world, it is vital
for shrimp providers to be able to realistically identify the
source of their product. Our future facilities will be designed to
track shrimp from hatchery to plate using environmentally
responsible methods.
International
We own one hundred percent of NaturalShrimp Global, Inc. which was
formed to create international partnerships. Each international
partnership is expected to use the Company’s proprietary
technology to penetrate shrimp markets throughout the world
utilizing existing food service distribution channels.
Because our system is enclosed and also indoors, it is not affected
by weather or climate and does not depend on ocean proximity. As
such, we believe we will be able to provide, naturally grown,
high-quality, fresh shrimp to major market customers each week.
This will allow distribution companies to leverage their existing
customer relationships by offering an uninterrupted supply of high
quality, fresh and locally grown shrimp. We will utilize
distributors that currently supply fresh seafood to upscale
restaurants, country clubs, specialty super markets and retail
stores whose clientele expect and appreciate fresh, natural
products.
NaturalShrimp Global, Inc., a wholly owned subsidiary of
NaturalShrimp Incorporated., owns less than one percent of
NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway was
responsible for the construction cost of their facility and
operating capital.
The first facility built in Spain for NaturalShrimp International
A.S. is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
We will seek potential partners throughout open territories as we
are able to obtain the adequate funding to complete the first two
facilities at the La Coste location.
Go to Market Strategy and Execution
Our strategy is to develop regional production and distribution
centers near major metropolitan areas throughout the United States
and internationally. Today, we have 53,000 sq. ft. of R&D
facilities, which includes, a pilot production system,
greenhouse/reservoirs and utility buildings in La Coste, TX (near
San Antonio). We intend to begin construction of a new
free-standing facility with the next generation shrimp production
system in place on the property in 2018.
The reasoning behind building additional shrimp production systems
in La Coste is availability of trained production personnel, our
research and development team, and an opportunity to develop the
footprint and model for additional facilities. Our current plan is
to develop six regional production and distribution centers near
major markets starting in 2019, adding one system per month in a
selected production center, depending on market
demand.
We have sold product to restaurants up to $12.00 per pound and to
retail consumers at $16.50 to $21.00 per pound, depending on size,
which helps to validate our pricing strategy. Additionally, from
2011 to 2013, we had two successful North Texas test markets which
distributed thousands of pounds of fresh product to customers
within 24 hours following harvest. The fresh product was priced
from $8.40 to $12.00 per pound wholesale, heads on, net price to
the Company.
Current Systems and Expansion
The pilot plant is located in La Coste, Texas and is being
retrofitted with new patent-pending technology that the Company has
been developing with Trane’s engineering audit and F&T
Water Solutions, and RGA Labs. This facility, when completely
retrofitted with the new technology, is projected to produce
approximately 6,000 pounds every month. The next facility in La
Coste will be substantially larger than the current system. The
target yield of shrimp for the new facility will be approximately
6,000 pounds per week. Both facilities combined are projected to
produce over 7,000 pounds of shrimp per week in La Coste. By
staging the stocking and harvests from tank to tank, it enables us
to produce weekly and therefore deliver fresh shrimp every
week.
After the completion of the next system in La Coste, our long-term
plan is to build additional production systems in Las Vegas,
Chicago and New York. These locations are targeted to begin
construction in fiscal 2019, and the funding for these plans are
projected to come from profits, agricultural guaranty programs, and
investors. These cities are not surrounded by commercial shrimp
production and we believe there will be a high demand for fresh
shrimp in all of these locations. In addition, the Company will
continue to use the land it owns in La Coste to build as many
systems as the Texas market demands.
Competition
There are a number of companies conducting research and development
projects in their attempt to develop closed-system technologies in
the U.S., some with reported production and sales. Florida Organic
Aquaculture uses a Bio-Floc Raceway System to intensify shrimp
growth, while Marvesta Shrimp Farms tanks in water from the
Atlantic to use in their indoor system. Since these are
privately-held companies, it is not possible to know, with
certainty, their state of technical development, production
capacity, need for water exchange, location requirements, financial
status and other matters. To the best of our knowledge, none are
producing significant quantities of shrimp relative to their local
markets, and such fresh shrimp sales are likely confined to an area
near the production facility.
Additionally, any new competitor would face significant barriers
for entry into the market and would likely need years of research
and development to develop the proprietary technology necessary to
produce similar shrimp at a commercially viable level. We believe
our technology and business model sets us apart from any current
competition. It is possible that additional competitors will arise
in the future, but with the size and growth of the worldwide shrimp
market, many competitors could co-exist and thrive in the fresh
shrimp industry.
Intellectual Property
We intend to take appropriate steps to protect our intellectual
property. We have registered the trademark
“NATURALSHRIMP” which has been approved and was
published in the Official Gazette on June 5, 2012. There are
potential technical processes for which the Company may be able to
file a patent. However, there are no assurances that such
applications, if filed, would be issued and no right of enforcement
is granted to a patent application. Therefore, the Company has
filed a provisional patent with the U.S. Patent Office and plans to
use a variety of other methods, including copyright registrations
as appropriate, trade secret protection, and confidentiality and
non-compete agreements to protect its intellectual property
portfolio.
Source and Availability of Raw Materials
Raw materials are received in a timely manner from established
suppliers. Currently, we buy our feed from Zeigler, a leading
producer of aquatic feed. Post larvae (“PL”) shrimp are
purchased from Shrimp Improvement Systems (SIS) in Florida and
Global Blue Technologies in Texas.
There have not been any issues regarding the availability of our
raw materials. We have favorable contacts and past business
dealings with other major shrimp feed producers if current
suppliers are not available.
Government Approvals and Regulations
We are subject to government regulation and require certain
licenses. The following list includes regulations to which we are
subject and/or the permits and licenses we currently
hold:
●
Texas Parks and
Wildlife Department (TPWD) - “Exotic species permit” to
raise exotic shrimp (non-native to Texas). The La Coste facility is
north of the coastal shrimp exclusion zone (east and south of H-35,
where it intersects Hwy 21 down to Laredo) and therefore outside of
TPWD’s major area of concern for exotic shrimp. Currently
Active - Expires December 31, 2018.
●
Texas
Department of Agriculture (TDA) - “Aquaculture License”
for aquaculture production facilities. License to “operate a
fish farm or cultured fish processing plant.” Currently
Active – Expires June 30, 2018.
●
Texas
Commission on Environmental Quality (TCEQ) - Regulates facility
wastewater discharge. According to the TCEQ permit classification
system, we are rated Level 1 – Recirculation system with no
discharge. Currently Active – No expiration.
●
San
Antonio River Authority - No permit required, but has some
authority over any effluent water that could impact surface and
ground waters.
●
OSHA
- No permit required but has right to inspect
facility.
●
HACCP
(Hazard Analysis and Critical Control Point) - Not needed unless we
process shrimp on site. Training and preparation of HACCP plans
remain to be completed. There are multiple HACCP plans listed at
http://seafood.ucdavis.edu/haccp/Plans.htm and other web sites that
can be used as examples.
●
Texas
Department of State Health Services - Food manufacturer license #
1011080.
●
Aquaculture
Certification Council (ACC) and Best Aquaculture Practices (BAP) -
Provide shrimp production certification for shrimp marketing
purposes to mainly well-established vendors. ACC and BAP
certifications require extensive record keeping. No license is
required at this time.
We are subject to certain regulations regarding the need for field
employees to be certified. We strictly adhere to these regulations.
The cost of certification is an accepted part of expenses.
Regulations may change and become a cost burden, but compliance and
safety are our main concern.
We are subject to certain regulations regarding the need for field
employees to be certified. We strictly adhere to these regulations.
The cost of certification is an accepted part of expenses.
Regulations may change and become a cost burden, but compliance and
safety are our main concern.
Market Advantages and Corporate Drivers
The following are what we consider to be our advantages in the
marketplace:
●
Early-mover
Advantage: Commercialized technology in a large growing market with
no significant competition yet identified. Most are early stage
start-ups or early stage companies with limited production and
distribution.
●
Farm-to-Market:
This has significant advantages including reduced transportation
costs and a product that is more attractive to local
consumers.
●
Bio-secured
Building: Our process is a re-circulating, highly-filtered water
technology in an indoor-regulated environment. External pathogens
are excluded.
●
Eco-friendly
“Green” Technology: Our closed-loop, re-circulating
system has no ocean water exchange requirements, does not use
chemical or antibiotics and therefore is sustainable, eco-friendly,
environmentally sound and produces a superior quality shrimp that
is totally natural.
●
Availability
of Weekly Fresh Shrimp: Assures consumers of optimal freshness,
taste, and texture of product which will command premium
prices.
●
Sustainability:
Our naturally grown product does not deplete wild supplies, has no
by-catch kill of marine life, does not damage sensitive ecological
environments and avoids potential risks of imported
seafood.
Subsidiaries
The Company has three wholly-owned subsidiaries including
NaturalShrimp Corporation, NaturalShrimp Global, Inc. and Natural
Aquatic Systems, Inc.
Employees
As of March 1, 2019, we have 5 full-time employees. We
intend to hire additional staff and to engage consultants in
general administration on an as-needed basis. We also intend to
engage experts in general business to advise us in various
capacities. None of our employees are covered by a collective
bargaining agreement, nor are they represented by a labor union. We
have not experienced any work stoppages, and we consider relations
with our employees to be good.
Website
Our
website address is http://www.naturalshrimp.com.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
You should read the following discussion of our financial condition
and results of operations in conjunction with financial statements
and notes thereto included elsewhere in this prospectus. The
following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this
prospectus, particularly in the section labeled “Risk
Factors.”
We desire to take advantage of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
This filing contains a number of forward-looking statements that
reflect management’s current views and expectations with
respect to our business, strategies, products, future results and
events, and financial performance. All statements made in this
filing other than statements of historical fact, including
statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the
future, including statements related to our technology, market
expectations, future revenues, financing alternatives, statements
expressing general optimism about future operating results, and
non-historical information, are forward looking statements. In
particular, the words “believe,” “expect,”
“intend,” “anticipate,”
“estimate,” “may,” variations of such
words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and
their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to
certain risks and uncertainties, including those discussed below.
Our actual results, performance or achievements could differ
materially from historical results as well as those expressed in,
anticipated, or implied by these forward-looking statements. We do
not undertake any obligation to revise these forward-looking
statements to reflect any future events or
circumstances.
Readers should not place undue reliance on these forward-looking
statements, which are based on management’s current
expectations and projections about future events, are not
guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below),
and apply only as of the date of this filing. Our actual results,
performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be
discussed in this Prospectus and in the press releases and other
communications to shareholders issued by us from time to time which
attempt to advise interested parties of the risks and factors which
may affect our business. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. For
additional information regarding forward-looking statements, see
“Forward-Looking Statements.”
These
risks and factors include, by way of example and without
limitation:
●
our ability
to successfully commercialize our equipment and shrimp farming
operations to produce a market-ready product in a timely manner and
in enough quantity;
●
absence of
contracts with customers or suppliers;
●
our ability to
maintain and develop relationships with customers and
suppliers;
●
our ability to
successfully integrate acquired businesses or new
brands;
●
the impact of
competitive products and pricing;
●
supply constraints
or difficulties;
●
the retention and
availability of key personnel;
●
general economic
and business conditions;
●
substantial doubt
about our ability to continue as a going concern;
●
our need to raise
additional funds in the future;
●
our ability to
successfully recruit and retain qualified personnel in order to
continue our operations;
●
our ability to
successfully implement our business plan;
●
our ability to
successfully acquire, develop or commercialize new products and
equipment;
●
the commercial
success of our products;
●
intellectual
property claims brought by third parties; and
●
the impact of any
industry regulation.
Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, or performance. Except as required by
applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to
conform these statements to actual results.
Readers are urged to carefully review and consider the various
disclosures made by us in this report and in our other reports
filed with the SEC. We undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes in the future
operating results over time, except as required by law. We believe
that our assumptions are based upon reasonable data derived from
and known about our business and operations. No assurances are made
that actual results of operations or the results of our future
activities will not differ materially from our
assumptions.
As used
in this registration statement on Form S-1 and unless otherwise
indicated, the terms “Company,” “we,”
“us,” and “our” refer to NaturalShrimp
Incorporated and its wholly-owned subsidiaries: NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and Natural Aquatic
Systems, Inc. Unless otherwise specified, all dollar amounts are
expressed in United States dollars.
Corporate
History
We
were incorporated in the State of Nevada on July 3, 2008 under the
name “Multiplayer Online Dragon, Inc.” Effective
November 5, 2010, we effected an 8 for 1 forward stock split,
increasing the issued and outstanding shares of our common stock
from 12,000,000 shares to 96,000,000 shares. On October 29, 2014,
we effected a 1 for 10 reverse stock split, decreasing the issued
and outstanding shares of our common stock from 97,000,000 to
9,700,000.
On November 26,
2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NaturalShrimp Corporation, a Delaware
corporation, (“NSC”) and NaturalShrimp Global, Inc., a
Delaware corporation, (“NS Global”) and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On January 30,
2015, we consummated the acquisition of the Assets pursuant to the
Agreement. In accordance with the terms of the Agreement, we issued
75,520,240 shares of our common stock to NSH as consideration for
the Assets. As a result of the transaction, NSH acquired 88.62% of
our issued and outstanding shares of common stock; NSC and NS
Global became our wholly-owned subsidiaries, and we changed our
principal business to a global shrimp farming
company.
In connection with
our receipt of approval from the Financial Industry Regulatory
Authority (“FINRA”), effective March 3, 2015, we
amended our Articles of Incorporation to change our name to
“NaturalShrimp Incorporated.”
Business
Overview
We are a
biotechnology company and have developed a proprietary technology
that allows us to grow Pacific White shrimp (Litopenaeus vannamei,
formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS Global, one of
our wholly-owned subsidiaries, owns less than 1% of NaturalShrimp
International A.S. in Europe. Our European-based partner,
NaturalShrimp International A.S., Oslo, Norway, 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 Te
ch
nology
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, 20
18.
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 LongLived Assets and LongLived Assets
The
Company will periodically evaluate the carrying value of longlived
assets to be held and used when events and circumstances warrant
such a review and at least annually. The carrying value of a
longlived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds
the fair value of the longlived asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on longlived assets to
be disposed of are determined in a similar manner, except that fair
values are reduced for the cost to dispose.
Recent Accounting Standards
During
the year ended March 31, 2018 and through the date of this report,
there were several new accounting pronouncements issued by the
Financial Accounting Standards Board (“FASB”). Each of
these pronouncements, as applicable, has been or will be adopted by
the Company. Management does not believe the adoption of any of
these accounting pronouncements has had or will have a material
impact on the Company’s consolidated financial
statements.
Recently Issued Accounting Standards
In May
2014, FASB issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,”
which requires an entity to recognize the amount of revenue to
which it expects to be entitled for the transfer of promised goods
or services to customers. ASU 2014-09 will replace most existing
revenue recognition guidance in U.S. GAAP when it becomes
effective. The new standard is effective for annual reporting
periods for public business entities beginning after December 15,
2017, including interim periods within that reporting period. The
new standard permits the use of either the retrospective or
cumulative effect transition method. The Company is currently
evaluating the effect that ASU 2014-09 will have on its financial
statements and related disclosures. As there have been no
significant revenues to date, the Company does not expect the
adoption to have a material impact and no transition method will be
necessary upon adoption.
In
February 2016, FASB issued ASU No. 2016-02,
Leases
(Topic 842). The standard
requires all leases that have a term of over 12 months to be
recognized on the balance sheet with the liability for lease
payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over
the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an
operating or a financing lease. Costs of an operating lease will
continue to be recognized as a single operating expense on a
straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019, and must be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. Early adoption is permitted. We are currently
evaluating the timing of adoption and the potential impact of this
standard on our financial position, but we do not expect it to have
a material impact on our results of operations.