Nevada
|
|
74-3262176
|
(State
or other Jurisdiction of Incorporation or
Organization)
|
|
(I.R.S.
Employer Identification No.)
|
5080 Spectrum Dr., Suite 1000
Addison, Texas
|
|
75001
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
|
|
|
|
Large accelerated
filer
|
☐
|
Accelerated filer
|
☐
|
|
|
|
|
Non-accelerated
filer
|
☐
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
☑
|
|
|
|
|
|
|
Emerging Growth
Company
|
☐
|
|
Page
|
|
|
|
|
PART I. FINANCIAL
INFORMATION
|
|
|
|
|
|
3
|
||
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
28
|
||
|
|
|
40
|
||
|
|
|
41
|
||
|
|
|
PART II. OTHER
INFORMATION
|
|
|
|
|
|
43
|
||
|
|
|
43
|
||
|
|
|
43
|
||
|
|
|
43
|
||
|
|
|
43
|
||
|
|
|
43
|
||
|
|
|
44
|
||
|
|
|
48
|
|
December 31,
2018
|
March
31,
2018
|
ASSETS
|
(unaudited)
|
|
Current
assets
|
|
|
Cash
|
$24,468
|
$24,280
|
Notes
receivable
|
143,200
|
207,200
|
Inventory
|
4,200
|
-
|
Prepaid
expenses
|
29,242
|
28,699
|
|
|
|
Total
current assets
|
201,110
|
260,179
|
|
|
|
Fixed
assets
|
|
|
Land
|
202,293
|
202,293
|
Buildings
|
1,328,161
|
1,328,161
|
Machinery
and equipment
|
934,595
|
929,245
|
Autos
and trucks
|
14,063
|
14,063
|
Furniture
and fixtures
|
22,060
|
22,060
|
Accumulated
depreciation
|
(1,345,484)
|
(1,292,313)
|
|
|
|
Fixed
assets, net
|
1,155,688
|
1,203,509
|
|
|
|
Other
assets
|
|
|
Intercompany
|
-
|
-
|
Construction-in-process
|
246,454
|
171,050
|
Deposits
|
10,500
|
10,500
|
|
|
|
Total
other assets
|
256,954
|
181,550
|
|
|
|
Total
assets
|
$1,613,752
|
$1,645,238
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$537,354
|
$528,538
|
Accrued
interest, including related parties of $257,587 and $233,322,
respectively
|
307,158
|
240,377
|
Other
accrued expenses
|
584,407
|
497,321
|
Short-term
Promissory Note and Lines of credit
|
791,823
|
143,523
|
Current
maturities of bank loan
|
7,687
|
7,497
|
Convertible
debentures, less debt discount of $402,132 and $691,558,
respectively
|
484,550
|
516,597
|
Convertible
debentures, related party
|
87,600
|
87,600
|
Notes
payable - related parties
|
1,271,162
|
1,271,162
|
Derivative
liability
|
1,683,000
|
3,455,000
|
Warrant
liability
|
174,000
|
277,000
|
|
|
|
Total
current liabilities
|
5,928,741
|
7,024,615
|
|
|
|
Bank
loan, less current maturities
|
223,037
|
228,916
|
Lines
of credit
|
-
|
651,453
|
|
|
|
Total
liabilities
|
6,151,778
|
7,904,984
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
Stockholders'
deficit
|
|
|
Series
A Convertible Preferred stock, $0.0001 par value, 5,000,000 shares
authorized 5,000,000 and 0 shares issued and outstanding at
September 30, 2018 and March 31, 2018, respectively
|
500
|
-
|
Common
stock, $0.0001 par value, 300,000,000 shares authorized 254,321,787
and 97,656,095 shares issued and outstanding at December 31, 2018
and March 31, 2018, respectively
|
25,432
|
9,766
|
Additional
paid in capital
|
31,772,141
|
27,743,352
|
Accumulated
deficit
|
(36,336,099)
|
(34,012,864)
|
|
|
|
Total
stockholders' deficit
|
(4,538,026)
|
(6,259,746)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$1,613,752
|
$1,645,238
|
|
For the Three Months Ended
|
For the Nine Months Ended
|
||
|
December 31,
2018
|
December 31,
2017
|
December 31,
2018
|
December 31,
2017
|
|
|
|
|
|
Sales
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Facility
operations
|
22,479
|
5,835
|
66,442
|
21,241
|
General
and administrative
|
223,821
|
250,772
|
654,119
|
866,053
|
Depreciation
|
17,726
|
17,726
|
53,171
|
53,170
|
|
|
|
|
|
Total
operating expenses
|
264,026
|
274,333
|
773,732
|
940,464
|
|
|
|
|
|
Net
Operating loss before other income (expense)
|
(264,026)
|
(274,333)
|
(773,732)
|
(940,464)
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
Interest
expense
|
(68,634)
|
(63,870)
|
(205,561)
|
(124,386)
|
Amortization
of debt discount
|
(342,724)
|
(231,834)
|
(1,051,707)
|
(401,313)
|
Financing
costs
|
(77,390)
|
(385,576)
|
(1,361,735)
|
(895,640)
|
Change
in fair value of derivative liability
|
(211,500)
|
(332,000)
|
1,116,500
|
(239,000)
|
Change
in fair value of warrant liability
|
-
|
(406,000)
|
(47,000)
|
(436,000)
|
|
|
|
|
|
Total
other income (expense)
|
(700,248)
|
(1,419,280)
|
(1,549,503)
|
(2,096,339)
|
|
|
|
|
|
Loss
before income taxes
|
(964,274)
|
(1,693,613)
|
(2,323,235)
|
(3,036,803)
|
|
|
|
|
|
Provision
for income taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Net
loss
|
$(964,274)
|
$(1,693,613)
|
$(2,323,235)
|
$(3,036,803)
|
|
|
|
|
|
|
|
|
|
|
Loss
per share - Basic
|
$(0.01)
|
$(0.02)
|
$(0.02)
|
$(0.03)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
165,284,849
|
94,701,159
|
129,672,152
|
93,345,203
|
|
For the
Nine Months Ended
|
|
|
December
31,
2018
|
December
31,
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net
loss
|
$(2,323,235)
|
$(3,036,803)
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
Depreciation
expense
|
53,171
|
53,170
|
Amortization
of debt discount
|
1,051,707
|
401,313
|
Change
in fair value of derivative liability
|
(1,116,500)
|
239,000
|
Change
in fair value of warrant liability
|
47,000
|
436,000
|
Financing
costs related to convertible debentures
|
1,361,735
|
895,640
|
Shares
issued for services
|
-
|
100,000
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
Inventory
|
(4,200)
|
-
|
Prepaid
expenses and other current assets
|
(543)
|
42,448
|
Accounts
payable
|
(1,403)
|
43,129
|
Other
accrued expenses
|
103,732
|
108,846
|
Accrued
interest
|
145,641
|
36,646
|
|
|
|
Cash used in operating activities
|
(682,895)
|
(680,611)
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Cash
paid for fixed assets
|
(5,350)
|
-
|
Cash
paid for construction in progress
|
(75,404)
|
-
|
|
|
|
Cash used in investing activities
|
(80,754)
|
-
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Payments
on bank loan
|
(5,689)
|
(4,684)
|
Payment
of related party notes payable
|
-
|
-
|
Repayment
Line of Credit Short-term
|
(3,153)
|
(2,486)
|
Notes
receivable
|
150,000
|
-
|
Proceeds
from sale of stock
|
15,400
|
25,000
|
Proceeds
from issuance of stock under equity financing
agreement
|
164,516
|
-
|
Proceeds
from convertible debentures
|
565,800
|
730,200
|
Proceeds
from convertible debentures, related party
|
-
|
180,000
|
Payments
on convertible debentures
|
(123,037)
|
(227,500)
|
Payments
on convertible debentures, related party
|
-
|
(92,400)
|
|
|
|
Cash provided by financing activities
|
763,837
|
608,130
|
|
|
|
Net change in cash
|
188
|
(72,481)
|
|
|
|
Cash at beginning of period
|
24,280
|
88,195
|
|
|
|
Cash at end of period
|
$24,468
|
$15,714
|
|
|
|
|
|
|
Interest paid
|
$96,018
|
$87,740
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
Shares
issued upon conversion
|
$1,128,068
|
$-
|
Shares
issued upon exercise of warrants
|
$150,000
|
$-
|
Notes
receivable for convertible debentures
|
$90,000
|
$131,200
|
Common
shares exchanged for Series A Preferred Shares
|
$500
|
$-
|
Cashless
exercise of warrants
|
$-
|
$67,000
|
|
|
|
Derivative
liability balance at March 31, 2018
|
$3,455,000
|
Additions to
derivative liability for new debt
|
1,897,000
|
Reclass to equity
upon conversion/cancellation
|
(2,552,500)
|
Change in fair
value
|
(1,116,500)
|
Balance at December
31, 2018
|
$1,683,000
|
Buildings
|
27.5
– 39 years
|
Other
Depreciable Property
|
5
– 10 years
|
Furniture
and Fixtures
|
3
– 10 years
|
12 months
ending:
|
|
December 31,
2019
|
$7,687
|
December 31,
2020
|
223,037
|
|
$230,724
|
|
Three Months Ended
December 31,
|
|
|
2018
|
2017
|
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
|
|
Nine Months Ended
December 31,
|
|
|
2018
|
2017
|
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
|
|
December
31,
|
March
31,
|
|
2018
|
2018
|
Current
assets
|
$201,110
|
$260,179
|
Current
liabilities
|
5,928,741
|
7,024,615
|
Working capital
deficiency
|
$5,727,631
|
$6,764,436
|
|
Nine Months Ended
December 31,
|
|
|
2018
|
2017
|
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)
|
Exhibit
Number
|
Description
|
(2)
|
Plan
of acquisition, reorganization, arrangement, liquidation or
succession
|
Asset Purchase
Agreement, dated November 26, 2014, by and between Multiplayer
Online Dragon, Inc. and NaturalShrimp Holdings, Inc. (incorporated
by reference to our Current Report on Form 8-K filed on December 3,
2014).
|
|
(3)
|
(i)
Articles of Incorporation; and (ii) Bylaws
|
Articles of
Incorporation (incorporated by reference to our Registration
Statement on Form S-1 originally filed on June 11,
2009).
|
|
Amendment to
Articles of Incorporation (incorporated by reference to our Amended
Quarterly Report on Form 10-Q/A filed on May 19,
2014).
|
|
3.1(c)
|
Amendment to
Articles of Incorporation*
|
Bylaws
(incorporated by reference to our Registration Statement on Form
S-1 originally filed on June 11, 2009).
|
|
(4)
|
Instruments
Defining the Rights of Security Holders, Including
Indentures
|
4.1
|
Specimen Common
Stock Certificate (incorporated by reference to our Registration
Statement on Form S-1 filed on December 29, 2008)
|
4.2
|
Form of
Registrant’s 10% Senior Convertible Promissory Note
(incorporated by reference to our Registration Statement on Form
8-K filed on October 17, 2013)
|
(10)
|
Material
Agreements
|
Business Loan
Agreement, dated September 13, 2005, by and among NaturalShrimp
Holdings, Inc., Amarillo National Bank, NSC, NaturalShrimp
International, Inc., NaturalShrimp San Antonio, L.P., Shirley
Williams, Gerald Easterling, Mary Ann Untermeyer, and High Plain
Christian Ministries Foundation, as amended, modified and assigned
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Secured Promissory
Note, dated September 13, 2005, issued by NaturalShrimp Holdings,
Inc. to Amarillo National Bank in the original principal amount of
$1,500,000, as amended, modified and assigned (incorporated by
reference to our Current Report on Form 8-K filed on February 11,
2015).
|
|
Assignment
Agreement, dated March 26, 2009, by and between Baptist Community
Services, Amarillo National Bank and NaturalShrimp Holdings, Inc.
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Fifth Forbearance
Agreement, dated January 30, 2015, by and between the Company,
NaturalShrimp Holdings, Inc. and Baptist Community Services
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Stock Pledge
Agreement, dated January 30, 2015, by and between the Company and
Baptist Community Services (incorporated by reference to our
Current Report on Form 8-K filed on February 11,
2015).
|
|
Agreement Regarding
Loan Documents, dated January 30, 2015, by and between the Company
and NaturalShrimp Holdings, Inc. (incorporated by reference to our
Current Report on Form 8-K filed on February 11,
2015).
|
|
Exclusive Rights
Agreement, dated August 19, 2014, between NaturalShrimp Holdings,
Inc., its subsidiaries and F&T Water Solutions, LLC
(incorporated by reference to our Current Report on Form 8-K filed
on February 11, 2015).
|
|
Members Agreement,
dated August 19, 2014, between NaturalShrimp Holdings, Inc.,
F&T Water Solutions, LLC and the members of Natural Aquatic
Systems, LLC (incorporated by reference to our Current Report on
Form 8-K filed on February 11, 2015).
|
|
Form of
Subscription Agreement (incorporated by reference to our Current
Report on Form 8-K filed on May 7, 2015).
|
Form of Promissory
Note with Shirley K. Williams, Kay Chafin and Jack Heald
(incorporated by reference to our Annual Report on Form 10-K filed
on July 28, 2015).
|
|
Form of Loan
Agreement with Bill G. Williams (incorporated by reference to our
Annual Report on Form 10-K filed on July 28, 2015).
|
|
Form of Security
Agreement with Kay Chafin and Jack Heald (incorporated by reference
to our Annual Report on Form 10-K filed on July 28,
2015).
|
|
Form of Line of
Credit Agreement with Extraco Bank (incorporated by reference to
our Annual Report on Form 10-K filed on July 28,
2015).
|
|
Employment
Agreement dated April 1, 2015 with Bill G. Williams (incorporated
by reference to our Current Report on Form 8-K filed on May 7,
2015).
|
|
Employment
Agreement dated April 1, 2015 with Gerald Easterling (incorporated
by reference to our Current Report on Form 8-K filed on May 7,
2015).
|
|
Form of Private
Placement Subscription Agreement and 6% Unsecured Convertible Note
with Dragon Acquisitions LLC. (incorporated by reference to our
Annual Report on Form 10-K filed on June 29, 2017)
|
|
Form of Promissory
Note dated January 10, 2017 with Community National Bank
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on February 14, 2017).
|
|
Form of Guaranty
made by Gerald Easterling to Community National Bank (incorporated
by reference to our Quarterly Report on Form 10-Q filed on February
14, 2017).
|
|
Payoff Letter,
Termination and Release dated January 13, 2017 from Baptist
Community Services (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 14, 2017).
|
|
Securities Purchase
Agreement dated January 23, 2017 with Vista Capital Investments,
LLC. (incorporated by reference to our Annual Report on Form 10-K
filed on June 29, 2017)
|
|
Warrant to Purchase
Shares of Common Stock issued January 23, 2017 to Vista Capital
Investments, LLC. (incorporated by reference to our Annual Report
on Form 10-K filed on June 29, 2017)
|
|
Convertible Note
dated January 23, 2017 issued to Vista Capital Investments, LLC.
(incorporated by reference to our Annual Report on Form 10-K filed
on June 29, 2017)
|
|
Securities Purchase
Agreement dated March 16, 2017 with Peak One Opportunity Fund, L.P.
(incorporated by reference to our Annual Report on Form 10-K filed
on June 29, 2017)
|
|
Convertible
Debenture dated March 28, 2017 issued to Peak One Opportunity Fund,
L.P.
|
|
6% Convertible Note
dated January 20, 2017 issued Dragon Acquisitions LLC (incorporated
by reference to our Quarterly Report on Form 10-Q filed as Exhibit
10.1 on February 14, 2018)
|
|
Securities Purchase
Agreement dated March 16, 2017 with Peak One Opportunity Fund, L.P.
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.2 on February 14, 2018)
|
|
Amendment #1 to the
Securities Purchase Agreement Entered into on March 16, 2017, dated
July 5, 2017, with Peak One Opportunity Fund, L.P. (incorporated by
reference to our Quarterly Report on Form 10-Q filed as Exhibit
10.3 on February 14, 2018)
|
|
6% Convertible Note
dated March 11, 2017 issued to Dragon Acquisitions LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.4 on February 14, 2018)
|
|
6% Convertible Note
dated April 20, 2017 issued to Dragon Acquisitions LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.5 on February 14, 2018)
|
|
Securities Purchase
Agreement dated July 31, 2017, with Crown Bridge Partners LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.6 on February 14, 2018)
|
|
5% Convertible Note
dated July 31, 2017, issued to Crown Bridge Partners LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.7 on February 14, 2018)
|
Common Stock
Purchase Warrant dated July 31, 2017, issued to Crown Bridge
Partners LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.8 on February 14, 2018)
|
|
Securities Purchase
Agreement dated August 28, 2017 with Labrys Fund, LP (incorporated
by reference to our Quarterly Report on Form 10-Q filed as Exhibit
10.9 on February 14, 2018)
|
|
12% Convertible
Note dated August 28, 2017, with Labrys Fund, LP (incorporated by
reference to our Quarterly Report on Form 10-Q filed as Exhibit
10.10 on February 14, 2018)
|
|
Common Stock
Purchase Warrant dated August 28, 2017, issued to Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.11 on February 14, 2018)
|
|
12% Convertible
Note dated September 11, 2017 issued to Auctus Funds, LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.12 on February 14, 2018)
|
|
Common Stock
Purchase Warrant dated September 11, 2017 issued to Auctus Funds,
LLC (incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.13 on February 14, 2018)
|
|
12% Convertible
Note dated September 12, 2017 issued to JSJ Investments, Inc.
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.14 on February 14, 2018)
|
|
Securities Purchase
Agreement dated September 28, 2017 with EMA Financial, LLC
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.15 on February 14, 2018)
|
|
12% Convertible
Note issued to EMA Financial, LLC dated September 28, 2017
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.16 on February 14, 2018)
|
|
Common Stock
Purchase Warrant dated October 2, 2017, issued to Crown Bridge
Partners LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.17 on February 14, 2018)
|
|
Securities Purchase
Agreement dated October 31, 2017 with Labrys Fund, LP (incorporated
by reference to our Quarterly Report on Form 10-Q filed as Exhibit
10.18 on February 14, 2018)
|
|
12% Convertible
Note dated October 31, 2017, issued to Labrys Fund, LP
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.19 on February 14, 2018)
|
|
Securities Purchase
Agreement dated November 9, 2017 with GS Capital Partners, LLC.
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.20 on February 14, 2018)
|
|
8% Convertible
Secured Redeemable Note issued to GS Capital Partners, LLC dated
November 14, 2017 (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.21 on February 14,
2018)
|
|
8% Convertible
Secured Redeemable Note issued to GS Capital Partners, LLC dated
November 14, 2017 (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.22 on February 14,
2018)
|
|
8% Collateralized
Secured Promissory Note dated November 14, 2017, from GS Capital
Partners, LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.23 on February 14, 2018)
|
|
Securities Purchase
Agreement dated December 20, 2017 with GS Capital Partners, LLC.
(incorporated by reference to our Quarterly Report on Form 10-Q
filed as Exhibit 10.24 on February 14, 2018)
|
|
8% Convertible
Secured Redeemable Note issued to GS Capital Partners, LLC dated
December 20, 2017 (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.25 on February 14,
2018)
|
|
8% Convertible
Secured Redeemable Note issued to GS Capital Partners, LLC dated
December 20, 2017 (incorporated by reference to our Quarterly
Report on Form 10-Q filed as Exhibit 10.26 on February 14,
2018)
|
8% Collateralized
Secured Promissory Note dated November 14, 2017, from GS Capital
Partners, LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed as Exhibit 10.27 on February 14, 2018)
|
|
10.52
|
12% Convertible
Note dated April 27, 2018 from BlueHawk Capital, LLC (incorporated
by reference to our Annual Report on Form 10-K filed as Exhibit
10.52 on July 13, 2018)
|
10.53
|
Securities Purchase
Agreement dated March 20, 2018 with BlueHawk Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.53 on July 13, 2018)
|
10.54
|
12% Collateralized
Secured Promissory Note dated January 29, 2018 from Adar Bays,
LLC(incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.54 on July 13, 2018)
|
10.55
|
12% Collateralized
Secured Promissory Note dated January 29, 2018 from Adar Bays,
LLC(incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.55 on July 13, 2018)
|
10.56
|
Debt Purchase
Agreement dated February 8, 2018 between Labrys Fund LP and Adar
Bays, LLC(incorporated by reference to our Annual Report on Form
10-K filed as Exhibit 10.56 on July 13, 2018)
|
10.57
|
12% Convertible
Redeemable Note dated January 29, 2018 from Adar Bays, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.57 on July 13, 2018)
|
10.58
|
12% Convertible
Redeemable Note dated January 29, 2018 from Adar Bays, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.58 on July 13, 2018)
|
10.59
|
Securities Purchase
Agreement dated January 29, 2018 with Adar Bays, LLC (incorporated
by reference to our Annual Report on Form 10-K filed as Exhibit
10.59 on July 13, 2018)
|
10.60
|
Securities Purchase
Agreement dated April 12, 2018 with One44 Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.60 on July 13, 2018)
|
10.61
|
10% Collateralized
Secured Promissory Note dated April 12, 2018 with One44 Capital,
LLC (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.61 on July 13, 2018)
|
10.62
|
First Amendment to
the Convertible Promissory Note dated July 31, 2017 with Crown
Bridge Partners, LLC (incorporated by reference to our Annual
Report on Form 10-K filed as Exhibit 10.62 on July 13,
2018)
|
10.63
|
Securities Purchase
Agreement dated March 20, 2018 with Jefferson Street Capital, LLC
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.63 on July 13, 2018)
|
10.64
|
12% Secured
Convertible Promissory Note dated March 20, 2018 with Jefferson
Street Capital, LLC (incorporated by reference to our Annual Report
on Form 10-K filed as Exhibit 10.64 on July 13, 2018)
|
10.65
|
12% Convertible
Promissory Note dated March 9, 2018 with Power Up Lending Group
Ltd. (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.65 on July 13, 2018)
|
10.66
|
12% Convertible
Promissory Note dated January 30, 2018 with Power Up Lending Group
Ltd. (incorporated by reference to our Annual Report on Form 10-K
filed as Exhibit 10.66 on July 13, 2018)
|
10.67
|
Securities Purchase
Agreement dated January 30, 2018 with Power Up Lending Group Ltd.
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.67 on July 13, 2018)
|
10.68
|
Securities Purchase
Agreement dated March 9, 2018 with Power Up Lending Group Ltd.
(incorporated by reference to our Annual Report on Form 10-K filed
as Exhibit 10.68 on July 13, 2018)
|
Equity Financing
Agreement with GHS Investments LLC (incorporated by reference to
our Current Report on Form 8-K filed as Exhibit 10.1 on August 27,
2018)
|
|
Registration Rights
Agreement with GHS Investments LLC (incorporated by reference to
our Current Report on Form 8-K filed as Exhibit 10.2 on August 27,
2018)
|
|
12% Convertible
Promissory Note dated June 5, 2018 with JSJ Investments, Inc.
(incorporated by to our Quarterly Report on Form 10-Q filed as
Exhibit 10.71 on November 13, 2018)
|
|
12% Convertible
Promissory Note dated June 5, 2018 with JSJ Investments,
Inc. (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.72 on November 13, 2018)
|
|
10% Convertible
Secured Redeemable Note issued to GS Capital Partners, LLC dated
July 27, 2018 (incorporated by to our Quarterly Report on Form
10-Q filed as Exhibit 10.73 on November 13, 2018)
|
|
10% Collateralized
Secured Promissory Note dated July 27, 2018, from GS Capital
Partners, LLC (incorporated by to our Quarterly Report on Form
10-Q filed as Exhibit 10.74 on November 13, 2018)
|
|
Securities Purchase
Agreement dated August 24, 2018 with One44 Capital,
LLC (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.75 on November 13, 2018)
|
|
10% Convertible
Redeemable Note issued August 24, 2018 with One44 Capital,
LLC (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.76 on November 13, 2018)
|
|
Securities Purchase
Agreement dated September 14, 2018 with Labrys Fund
LP (incorporated by to our Quarterly Report on Form 10-Q filed
as Exhibit 10.77 on November 13, 2018)
|
|
12% Convertible
Promissory Note dated September 14, issued to Labrys Fund,
LP (incorporated by to our Quarterly Report on Form 10-Q filed
as Exhibit 10.78 on November 13, 2018)
|
|
Securities Purchase
Agreement dated October 30, 2018 with Power Up Lending Group
Ltd (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.79 on November 13, 2018)
|
|
8% Convertible
Promissory Note dated October 30, 2018 with Power Up Lending Group
Ltd (incorporated by to our Quarterly Report on Form 10-Q
filed as Exhibit 10.80 on November 13, 2018)
|
10.81*
|
10%
Convertible Promissory Note dated January 16, 2019 with GHS
Investments LLC
|
10.82*
|
Securities
Purchase Agreement dated January 16, 2019 with GHS Investments
LLC
|
10.83*
|
10%
Convertible Promissory Note dated February 4, 2019 with GHS
Investmenst LLC
|
10.84*
|
Securities
Purchase Agreement dated February 4, 2019 with GHS Investments
LLC
|
(31)
|
Rule 13a-14(a)/15d-14(a) Certifications
|
31.1*
|
|
31.2*
|
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of
the Principal Financial Officer
and Principal Accounting Officer
|
(32)
|
Section 1350 Certifications
|
32.1*
|
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of
the Principal Executive Officer
|
32.2*
|
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of
the Principal Financial Officer
and Principal Accounting Officer
|
(101)*
|
Interactive Data Files
|
/s/ Bill G.
Williams
|
|
|
/s/ William
Delgado
|
|
Bill G.
Williams
|
|
|
William Delgado |
|
Chief Executive
Officer (Principal Executive Officer)
|
Date:
February 13, 2019
|
|
Chief Financial
Officer (Principal Financial Officer and Principal Accounting
Officer) |
Date:
February 13, 2019
|
1.
|
I have
reviewed this quarterly report on Form 10-Q of NaturalShrimp
Incorporated;
|
|
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this report;
|
|
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
|
|
|
|
|
4.
|
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a–15(e) and
15d–15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a–15(f) and 15d–15(f))
for the registrant and have:
|
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
|
|
(b)
|
designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
|
|
(c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
|
|
(d)
|
disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
|
|
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
|
|
|
(a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
|
|
(b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
|
1.
|
I have
reviewed this quarterly report on Form 10-Q of NaturalShrimp
Incorporated;
|
|
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this report;
|
|
|
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
|
|
|
|
|
4.
|
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a–15(e) and
15d–15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a–15(f) and 15d–15(f))
for the registrant and have:
|
|
|
(a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
|
|
(b)
|
designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
|
|
(c)
|
evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
|
|
(d)
|
disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
and
|
|
|
|
5.
|
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
|
|
|
(a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
|
|
(b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
|
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Dec. 31, 2018 |
Feb. 13, 2019 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | NaturalShrimp Inc | |
Entity Central Index Key | 0001465470 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2018 | |
Current Fiscal Year End Date | --03-31 | |
Amendment Flag | false | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 296,807,419 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2019 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2018 |
Mar. 31, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred Stock Shares, Par Value | $ 0.0001 | $ 0.0001 |
Preferred Stock Shares, Authorized | 5,000,000 | 5,000,000 |
Preferred Stock Shares, Issued | 5,000,000 | 0 |
Preferred Stock Shares, Outstanding | 5,000,000 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 300,000,000 | 300,000,000 |
Common stock, issued | 254,321,787 | 97,656,095 |
Common stock, outstanding | 254,321,787 | 97,656,095 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Income Statement [Abstract] | ||||
Sales | $ 0 | $ 0 | $ 0 | $ 0 |
Operating expenses: | ||||
Facility operations | 22,479 | 5,835 | 66,442 | 21,241 |
General and Administrative | 223,821 | 250,772 | 654,119 | 866,053 |
Depreciation | 17,726 | 17,726 | 53,171 | 53,170 |
Total operating expenses | 264,026 | 274,333 | 773,732 | 940,464 |
Net Operating loss before other income (expense) | (264,026) | (274,333) | (773,732) | (940,464) |
Other income (expense): | ||||
Interest expense | (68,634) | (63,870) | (205,561) | (124,386) |
Amortization of debt discount | (342,724) | (231,834) | (1,051,707) | (401,313) |
Financing costs | (77,390) | (385,576) | (1,361,735) | (895,640) |
Change in fair value of derivative liability | (211,500) | (332,000) | 1,116,500 | (239,000) |
Change in fair value of warrant liability | 0 | (406,000) | (47,000) | (436,000) |
Total other income (expense) | (700,248) | (1,419,280) | (1,549,503) | (2,096,339) |
Loss before income taxes | (964,274) | (1,693,613) | (2,323,235) | (3,036,803) |
Provision for income taxes | 0 | 0 | 0 | 0 |
Net Loss | $ (964,274) | $ (1,693,613) | $ (2,323,235) | $ (3,036,803) |
Loss per share - Basic | $ (0.01) | $ (0.02) | $ (0.02) | $ (0.03) |
Weighted average shares outstanding - Basic | 165,284,849 | 94,701,159 | 129,672,152 | 93,345,203 |
1. NATURE OF THE ORGANIZATION AND BUSINESS |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF THE ORGANIZATION AND BUSINESS | Nature of the Business
NaturalShrimp Incorporated (“NaturalShrimp” “the Company”), a Nevada corporation, is a biotechnology company and has developed a proprietary technology that allows it to grow Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus vannamei) in an ecologically controlled, high-density, low-cost environment, and in fully contained and independent production facilities. The Company’s system uses technology which allows it to produce a naturally-grown shrimp “crop” weekly and accomplishes this without the use of antibiotics or toxic chemicals. The Company has developed several proprietary technology assets, including a knowledge base that allows it to produce commercial quantities of shrimp in a closed system with a computer monitoring system that automates, monitors and maintains proper levels of oxygen, salinity and temperature for optimal shrimp production. Its initial production facility is located outside of San Antonio, Texas.
The Company has three wholly-owned subsidiaries including NaturalShrimp Corporation, NaturalShrimp Global, Inc. and Natural Aquatic Systems, Inc.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the three and nine months ended December 31, 2018, the Company had a net loss of approximately $964,000 and $2,323,000, respectively. At December 31, 2018, the Company had an accumulated deficit of approximately $36,336,000 and a working capital deficit of approximately $5,728,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of this filing. The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. During the nine months ended December 31, 2018, the Company received net cash proceeds of approximately $566,000 from the issuance of new convertible debentures and $15,400 from the sale of the Company’s common stock. The Company had approximately $1,033,000 of principal 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 (Note 6) whereby the Company has the discretion to deliver puts to the investor for purchases of shares of the Company’s common stock, at 80% of the market price, for up to $7,000,000 over 36 months from the date of the Eqauity Financing Agreement. The Company issued 20,000,000 shares of common stock 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. Management believes that private placements of equity capital and/or additional debt financing will be needed to fund the Company’s long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of its current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations
The Company plans to improve the growth rate of the shrimp and the environmental conditions of its production facilities. If management is unsuccessful in these efforts, discontinuance of operations is possible. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | ||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation
The accompanying unaudited financial information as of and for the three and nine months ended December 31, 2018 and 2017 has been prepared in accordance with GAAP in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended March 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on July 13, 2018.
The condensed consolidated balance sheet at March 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Consolidation
The consolidated financial statements include the accounts of NaturalShrimp Incorporated and its wholly-owned subsidiaries, NaturalShrimp Corporation, NaturalShrimp Global and Natural Aquatic Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic and Diluted Earnings/Loss per Common Share
Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statements are computed in accordance with ASC 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period. For the nine months ended December 31, 2018, the Company had approximately $974,000 in principal on convertible debentures whose approximately 96,842,000 underlying shares are convertible at the holders’ option at conversion prices ranging from 34% - 75% of the defined trading price and approximately 10,637,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2017, the Company had $977,000 in convertible debentures whose underlying shares were convertible at the holders’ option at initial fixed conversion prices ranging from 50% to 60% of the defined trading price and 3,087,000 warrants with an exercise price of 50% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.
Fair Value Measurements
ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
The Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2018 and 2017.
The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the nine months ended December 31, 2018:
At December 31, 2018, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.02; a risk-free interest rate ranging from 2.45% to 2.63%, and expected volatility of the Company’s common stock ranging from 315.25% to 448.43%, and the various estimated reset exercise prices weighted by probability.
Fixed Assets
Equipment is carried at historical value or cost and is depreciated over the estimated useful lives of the related assets. Depreciation on buildings is computed using the straight-line method, while depreciation on all other fixed assets is computed using the Modified Accelerated Cost Recovery System (MACRS) method, which does not materially differ from GAAP. Estimated useful lives are as follows:
Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The consolidated statements of operations reflect depreciation expense of approximately $18,000 and $53,000 for both the three and nine months ended December 31, 2018 and 2017, respectively.
Commitments and Contingencies
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The new standard went into effect for annual reporting periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company adopted ASU 2014-09 on April 1, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.
During the nine months ended December 31, 2018, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date of December 31, 2018, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 10 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements. |
3. SHORT-TERM NOTE AND LINES OF CREDIT |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
SHORT-TERM NOTE AND LINES OF CREDIT | On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000. On July 18, 2018 the outstanding principal balance of $25,298 was exchanged for an 8% promissory note with a maturity date of July 18, 2021. The balance of the note agreement at both 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. The lines of credit bear an interest rate of 4.5% (increased to 6.5% and 5%, respectively, upon renewal in 2017) that is compounded monthly on unpaid balances and is payable monthly. They are secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the lines of credit was $276,958 at both 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.
|
4. BANK LOAN |
9 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||
Bank Loan | |||||||||||||||||||||
BANK LOAN | On January 10, 2017, the Company entered into a promissory note with Community National Bank for $245,000, at an annual interest rate of 5% and a maturity date of January 10, 2020 (the “CNB Note”). The CNB Note is secured by certain real property owned by the Company in LaCoste, Texas, and is also personally guaranteed by the Company’s President, as well as certain shareholders of the Company. As consideration for the guarantee, the Company issued 600,000 of its common stock to the shareholders, which was recognized as debt issuance costs with a fair value of $264,000, based on the market value of the Company’s common stock of $0.44 on the date of issuance. As the fair value of the debt issuance costs exceeded the face amount of the promissory note, the excess of the fair value was recognized as financing costs in the statement of operations. The resulting debt discount is to be amortized over the term of the CNB Note under the effective interest method. As the debt discount is in excess of the face amount of the promissory note, the effective interest rate is not determinable, and as such, all of the discount was immediately expensed.
Maturities on Bank loan is as follows:
|
5. CONVERTIBLE DEBENTURES |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Convertible Debentures | |
CONVERTIBLE DEBENTURES |
July Debenture
On July 31, 2017, the Company entered into a 5% Securities Purchase Agreement. The agreement calls for the purchase of up to $135,000 in convertible debentures, due 12 months from issuance, with a $13,500 original issue discount (“OID”). The first closing of this agreement was for the principal of $45,000 with a purchase price of $40,500 (an OID of $4,500), with additional closings at the sole discretion of the holder. On October 2, 2017, the Company entered into a second closing of the July 31, 2017 debenture, in the principal amount of $22,500 for a purchase price of $20,250, with $1,500 deducted for legal fees, resulting in net cash proceeds of $18,750. The July 31 debenture is convertible at a conversion price of 60% of the lowest trading price during the twenty-five days prior to the conversion date and is also subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company. A further adjustment occurs if the trading price at any time is equal to or lower than $0.10, whereby an additional 10% discount to the market price shall be factored into the conversion rate, as well as an adjustment to occur upon subsequent sales of securities at a price lower than the original conversion price. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
On February 5, 2018, the Company entered into an amendment to the July Debenture, whereby in exchange for a payment of $6,500 the note holder, except for a conversion of up to 125,000 shares of the Company’s shares of common stock, would be only entitled to effectuate a conversion under the note on or after March 2, 2018.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $61,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.33 at issuance date; a risk-free interest rate of 1.23% and expected volatility of the Company’s common stock, of 192.43%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $45,500, including the commitment fees, was immediately expensed as financing costs.
On February 20, 2018, the holder converted $4,431 of the January debentures into 125,000 shares of common stock of the Company. As a result of the conversion the derivative liability relating to the portion converted was remeasured immediately prior to the conversion with a fair value of $11,000, with an increase of $4,000 recognized, with the fair value of the derivative liability related to the converted portion being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate of 1.87% and expected volatility of the Company’s common stock, of 353.27%, and the various estimated reset exercise prices weighted by probability.
During March 2018, the holder converted an additional $17,113 of the July debentures into 630,000 shares of common stock of the Company. As a result of the conversion the derivative liability was remeasured immediately prior to the conversion with a fair value of $138,000, with an increase of $74,000 recognized, with the fair value of the derivative liability related to the converted portion being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.11; a risk-free interest rate of 1.77% and expected volatility of the Company’s common stock, of 375.93%, and the various estimated reset exercise prices weighted by probability.
During April 2018, in three separate conversions, the remainder of the first closing was fully converted into 1,225,627 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $25,000 recognized, with the fair value of the derivative liability related to the converted portion, of $66,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.07 to $0.09; a risk-free interest rate of 1.73% to 1.87% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability.
During May and June 2018, in two separate conversions, the remainder of the second closing was fully converted into 2,810,725 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $25,000 recognized, with the fair value of the derivative liability related to the converted portion of $67,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.03 to $0.04; a risk-free interest rate of 1.91% to 1.93% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability.
Additionally, with each tranche under the note, the Company shall issue a warrant to purchase an amount of shares of its common stock equal to the face value of each respective tranche divided by $0.60 as a commitment fee. The Company issued a warrant to purchase 75,000 shares of the Company’s common stock with the first closing and 37,500 with the second closing, with an exercise price of $0.60. The warrants have an anti-dilution provision for future issuances, whereby the exercise price would reset. The warrants exercise price was subsequently reset to 50% of the market price during the third quarter of fiscal 2018, and the warrants issued increased accordingly. As a result of the dilutive issuance adjustment provision, the warrants have been classified out of equity as a warrant liability. The Company issued 6,719,925 shares of their common stock on July 17, 2018, upon cashless exercise of the warrants granted in connection with the first closing of the July Debenture, and on August 28, 2018, 4,494,347 shares were issued upon cashless exercise of the warrants granted in connection with the second closing. As a result of the exercise, the fair value of the warrants at the date of exercise was reclassed into equity. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.02 at both exercise dates; a risk-free interest rate of 2.73 and 2.77% and expected volatility of the Company’s common stock, of 351.29 and 342.70%, resulting in an aggregate fair value of $150,000.
August Debenture
On August 28, 2017, the Company entered into a 12% convertible promissory note for $110,000, with an OID of $10,000, which matures on February 28, 2018. The note is convertible at a variable conversion rate that is the lesser of 60% of the lowest trading price for last 20 days prior to issuance of the note or 60% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional adjustments to the conversion price for events set forth in the agreement, including if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after nine months from issue date. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability. The note was sold to the holder of the January 29, 2018 note (below) on February 8, 2018, with an amendment entered into to extend the note until March 5, 2018. In exchange for a cash payment of $5,000 and the issuance of 50,000 shares of common stock, on March 5, 2018, the holder agreed to not convert any of the outstanding debt into common stock of the Company until April 8, 2018. The new holder issued a waiver as to the maturity date of the note and a technical default provision.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $150,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.12% and expected volatility of the Company’s common stock, of 190.70%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $116,438, was immediately expensed as financing costs.
During April through June 2018, in a number of separate conversions, the August debenture was fully converted into 8,332,582 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $112,000 recognized, with the fair value of the derivative liability related to the converted portion, of $316,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.09 to $0.02; a risk-free interest rate of 1.72% to 1.94% and expected volatility of the Company’s common stock of 248.71% to 375.93%, and the various estimated reset exercise prices weighted by probability
In connection with the note, the Company issued 50,000 warrants, exercisable at $0.20, with a five-year term. The exercise price is adjustable upon certain events, as set forth in the agreement, including for future dilutive issuance. The exercise price was adjusted to $0.15 and the warrants outstanding increased to 66,667, upon a warrant issuance related to a new convertible debenture on September 11, 2017. The warrants exercise price was subsequently reset to 50% of the market price during the third quarter of fiscal 2018, and the warrants issued increased accordingly. As a result of the dilutive issuance adjustment provision, the warrants have been classified out of equity as a warrant liability. The Company estimated the fair value of the warrant liability using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.74% and expected volatility of the Company’s common stock, of 276.90%, resulting in a fair value of $8,000.
Additionally, in connection with the debenture the Company also issued 343,750 shares of common stock of the Company as a commitment fee. The commitment shares fair value was calculated as $58,438, based on the market value of the shares of common stock at the closing date of $0.17, and was recognized as part of the debt discount. The shares are to be returned to the Treasury of the Company in the event the debenture is fully repaid prior to the date which is 180 days following the issue date. On February 22, 2018, in connection with the sale of the note to the January 29, 2019 note holder, 171,965 of the shares were returned to the Company and cancelled. The remaining shares are not required to be returned to the Company, as the note was not redeemed prior to the date 180 days following the issue date.
On October 31, 2017, there was a second closing to the August debenture, in the principal amount of $66,000, maturing on April 30, 2018. The second closing has the same conversion terms as the first closing, however there were no additional warrants issued with the second closing. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability. Subsequent to year end the holder issued a waiver as to the maturity date of the note and a technical default provision.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $94,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.11 at issuance date; a risk-free interest rate of 1.28% and expected volatility of the Company’s common stock, of 193.79%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $69,877, was immediately expensed as financing costs.
Additionally, in connection with the second closing, the Company also issued 332,500 shares of common stock of the Company as a commitment fee. The commitment shares fair value was calculated as $35,877, based on the market value of the shares of common stock at the closing date of $0.11, and was recognized as part of the debt discount. The shares are to be returned to the Treasury of the Company in the event the debenture is fully repaid prior to the date which is 180 days following the issue date.
During May 2018, the second closing was fully converted into 5,072,216 shares of common stock of the Company. As a result of the conversion the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $42,000 recognized, with the fair value of the derivative liability related to the converted portion, of $196,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.03; a risk-free interest rate of 1.87% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability
September 11, 2017 Debenture
On September 11, 2017, the Company entered into a convertible promissory note for $146,000, with an OID of $13,500, which matured on June 11, 2018. The note bears interest at 12%, which increases to 24% upon an event of default. The note is convertible at a variable conversion rate that is the lower of the trading price for last 25 days prior to issuance of the note or 50% of the lowest market price over the 25 days prior to conversion. Furthermore, the conversion rate may be adjusted downward if, within three business days of the transmittal of the notice of conversion, the common stock has a closing bid which is 5% or lower than that set forth in the notice of conversion. There are additional adjustments to the conversion price for events set forth in the agreement, if any third party has the right to convert monies at a discount to market greater than the conversion price in effect at that time then the holder, may utilize such greater discount percentage. Per the agreement, the Company is required at all times to have authorized and reserved seven times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $269,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.16% and expected volatility of the Company’s common stock, of 190.70%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $168,250, was immediately expensed as financing costs.
In connection with the note, the Company issued 243,333 warrants, exercisable at $0.15, with a five-year term. The exercise price is adjustable upon certain events, as set forth in the agreement, including for future dilutive issuance. The warrants exercise price was subsequently reset to 50% of the market price during the third quarter of fiscal 2018, and the warrants issued increased accordingly. As a result of the dilutive issuance adjustment provision, the warrants have been classified out of equity as a warrant liability. The Company estimated the fair value of the warrant liability using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.13 at issuance date; a risk-free interest rate of 1.71% and expected volatility of the Company’s common stock, of 276.90%, resulting in a fair value of $32,000.
During April and June 2018, in three separate conversions, $85,000 of the note was converted into 9,200,600 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. As a result of the conversions in the second quarter of 2019, the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $82,000 recognized, with the fair value of the derivative liability related to the converted portion, of $61,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, $0.01; a risk-free interest rate of 2.00% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability. As a result of the conversions in the first quarter of 2019, the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $124,000 recognized, with the fair value of the derivative liability related to the converted portion, of $263,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.03 to $0.10; a risk-free interest rate of 1.73% to 1.94% and expected volatility of the Company’s common stock, of 248.71% to 375.93%, and the various estimated reset exercise prices weighted by probability.
During the third fiscal quarter of 2019, in five separate conversions, the remaining principal was fully converted, along with $1,475 accrued interest of the note into 27,186,186 shares of common stock of the Company. As a result of the conversions in the third quarter of 2019, the derivative liability was remeasured immediately prior to the conversions with an overall increase of $15,000 recognized, with the fair value of the derivative liability related to the converted portion, of $131,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, of $0.01 and $0.02; a risk-free interest rate of 2.36% to 2.41% and expected volatility of the Company’s common stock, of 193.06% to 448.43%, and the various estimated reset exercise prices weighted by probability.
September 12, 2017 Debenture
On September 12, 2017, the Company entered into a 12% convertible promissory note for principal amount of $96,500 with a $4,500 OID, which matures on June 12, 2018. The note is able to be prepaid prior to the maturity date, at a cash redemption premium, at various stages as set forth in the agreement. The note is convertible commencing 180 days after issuance date (or upon an event of Default), or March 11, 2018, with a variable conversion rate at 60% of market price, defined as the lowest trading price during the twenty days prior to the conversion date. Additionally, the conversion price adjusts if the Company is not able to issue the shares requested to be converted, or upon any future financings have more favorable terms. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
On March 20, 2018, the holder converted $32,500 of the September 12, 2017 debentures into 1,031,746 shares of common stock of the Company. As a result of the conversion the derivative liability was remeasured immediately prior to the conversion with a fair value of $318,000, with an increase of $165,000 recognized, with the fair value of the derivative liability related to the converted portion of $107,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09; a risk-free interest rate of 1.81% and expected volatility of the Company’s common stock, of 375.93%, and the various estimated reset exercise prices weighted by probability.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $110,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.13 at issuance date; a risk-free interest rate of 1.16% and expected volatility of the Company’s common stock, of 190.70%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $18,000 was immediately expensed as financing costs.
During April 2018, in two separate conversions, the debenture was fully converted into 2,611,164 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $43,000 recognized, with the fair value of the derivative liability related to the converted portion, of $206,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.06 to $0.08; a risk-free interest rate of 1.73% to 1.82% and expected volatility of the Company’s common stock, of 375.93%, and the various estimated reset exercise prices weighted by probability
October 17, 2017 Debenture
On September 28, 2017, the Company entered into a Securities Purchase Agreement, pursuant to which the Company agreed to sell a 12% Convertible Note for $55,000 with a maturity date of September 28, 2018, for a purchase price of $51,700, and $2,200 deducted for legal fees, resulting in net cash proceeds of $49,500. The effective closing date of the Securities Purchase Agreement and Note is October 17, 2017. The note is convertible at the holders’ option, at any time, at a conversion price equal to the lower of (i) the closing sale price of the Company’s common stock on the closing date, or (ii) 60% of either the lowest sale price for the Company’s common stock during the twenty (20) consecutive trading days including and immediately preceding the closing date, or the closing bid price, whichever is lower , provided that, if the price of the Company’s common stock loses a bid, then the conversion price may be reduced, at the holder’s absolute discretion, to a fixed conversion price of $0.00001. If at any time the adjusted conversion price for any conversion would be less than par value of the Company’s common stock, then the conversion price shall equal such par value for any such conversion and the conversion amount for such conversion shall be increased to include additional principal to the extent necessary to cause the number of shares issuable upon conversion equal the same number of shares as would have been issued had the Conversion Price not been subject to the minimum par value price. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures at issuance at $91,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.11 at issuance date; a risk-free interest rate of 1.41% and expected volatility of the Company’s common stock, of 193.79%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $41,500 was immediately expensed as financing costs.
During April and May 2018, in a number of separate conversions, approximately $43,000 of the debenture plus accrued interest was converted into 3,800,000 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $50,000 recognized, with the fair value of the derivative liability related to the converted portion, of $85,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.03 to $0.05; a risk-free interest rate of 1.80% to 1.91% and expected volatility of the Company’s common stock of 248.71% to 375.93%, and the various estimated reset exercise prices weighted by probability.
During the second quarter of fiscal 2019, in a number of separate conversions, the debenture plus accrued interest was fully converted into 4,517,493 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease in the fair value of $15,000 recognized, with the fair value of the remaining derivative liability of $31,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.02; a risk-free interest rate of 2.02% to 2.14% and expected volatility of the Company’s common stock of 193.06 % to 248.71%, and the various estimated reset exercise prices weighted by probability.
November 14, 2017 Debenture
On November 14, 2017, the Company entered into two 8% convertible redeemable notes, in the aggregate principal amount of $112,000, convertible into shares of common stock of the Company, with maturity dates of November 14, 2018. Each note was in the face amount of $56,000, with an original issue discount of $2,800, resulting in a purchase price for each note of $53,200. The first of the two notes was paid for by the buyer in cash upon closing, with the second note initially paid for by the issuance of an offsetting $53,200 secured promissory note issued to the Company by the buyer (“Buyer Note”). The Buyer Note was cancelled on May 15, 2018, based on the trading volume of the Company stock, per the terms of the debenture. The notes are convertible at 57% of the lowest of trading price for last 20 days, or lowest closing bid price for last 20 days, with the discount increased to 47% in the event of a DTC chill, with the second note not being convertible until the buyer has settled the Buyer Note in cash payment. The Buyer Note is included in Notes Receivable in the accompanying financial statements.
During the first six months, the convertible redeemable notes are in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 90 days to 180 days from the date of issuance of each debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the two convertible debentures at issuance at $164,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.10 at issuance date; a risk-free interest rate of 1.59% and expected volatility of the Company’s common stock, of 192.64%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $63,200 was immediately expensed as financing costs.
During May and June 2018, in three separate conversions, the first debenture was fully converted into 4,834,790 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease of $47,000 recognized, with the fair value of the derivative liability related to the converted portion, of $106,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.03 to $0.04; a risk-free interest rate of 2.08% to 2.14% and expected volatility of the Company’s common stock, of 321.92%, and the various estimated reset exercise prices weighted by probability.
December 20, 2017 Debenture
On December 20, 2017, the Company entered into two 8% convertible redeemable notes, in the aggregate principal amount of $240,000, convertible into shares of common stock, of the Company, with the same buyers as the November 14, 2017 debenture. Both notes are due on December 20, 2018. If the note is not paid by its maturity date the outstanding principal due on the note increases by 10%. The note also contains a cross default to all other outstanding notes. The first note has face amount of $160,000, with a $4,000 OID, resulting in a purchase price of $156,000. The second note has a face amount of $80,000, with an OID of $2,000, for a purchase price of $78,000. The first of the two notes was paid for by the buyer in cash upon closing, with the second note initially paid for by the issuance of an offsetting $78,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The Buyer Note is included in Notes Receivable in the accompanying financial statements. The Buyer Note was due on August 20, 2018. The Buyer Note was settled on July 11, 2018, for a purchase price of $74,000, net of fees. The notes are convertible at 60% of the lower of: (i) lowest trading price or (ii) lowest closing bid price, of the Company’s common stock for the last 20 trading days prior to conversion, with the discount increased to 50% in the event of a DTC chill, with the second note not being convertible until the buyer has settled the Buyer Note in cash payment.
During the first six months, the convertible redeemable notes are in effect, the Company may redeem the note at amounts ranging from 120% to 136% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 90 days to 180 days from the date of issuance of each debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the two convertible debentures at issuance at $403,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.15 at issuance date; a risk-free interest rate of 1.72% and expected volatility of the Company’s common stock, of 215.40%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $181,000 was immediately expensed as financing costs.
On August 7, 2018, the holder converted $25,000 of the December 20, 2017 debentures and $1,178 of accrued interest into 4,363,013 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall decrease in the fair value of $260,000 recognized, with the fair value of the derivative liability related to the converted portion, of $36,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.02; a risk-free interest rate of 2.06% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability.
During the third fiscal quarter of 2019, in four separate conversions, the holder converted $86,000 of the December 20, 2017 debentures and approximately $6,000 of accrued interest into 27,288,948 shares of common stock of the Company. As a result of the conversions the derivative liability was remeasured immediately prior to the conversions with an overall increase in the fair value of $91,000 recognized, with the fair value of the derivative liability related to the converted portion, of $145,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, ranging from $0.01 to $0.02; a risk-free interest rate ranging from 2.31% to 2.41% and expected volatility of the Company’s common stock, ranging from 193.06% to 448.43%, and the various estimated reset exercise prices weighted by probability.
On December 31, 2018, the remaining outstanding principal for the December 20, 2017 notes were settled by payment from another lender. The Company and the other lender are still finalizing the terms of the new convertible debenture for the repayment of the December 20, 2017 note.
January 29, 2018 Debenture
On January 29, 2018, the Company entered into three 12% convertible notes of the Company in the aggregate principal amount of $120,000, convertible into shares of common stock of the Company, with maturity dates of January 29, 2019. The interest upon an event of default, as defined in the note, including a cross default to all other outstanding notes, is 24% per annum. If the note is not paid by its maturity date the outstanding principal due on the note increases by 10%. Each note was in the face amount of $40,000, with $2,000 legal fees, for net proceeds of $38,000. The first of the three notes was paid for by the buyer in cash upon closing, with the other two notes initially paid for by the issuance of an offsetting $40,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The Buyer Notes are due on September 29, 2018. The first of the Buyer’s Notes was funded on July 26, 2018, for cash proceeds of $38,000. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. Failure to maintain the reserved number of shares is considered an event of default if not cured within three days of a notice of conversion. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes.
The notes are convertible at 60% of the lowest closing bid price for the last 20 days, with the discount increased to 50% in the event of a DTC chill. The second and third notes not being convertible until the buyer has settled the Buyer Notes in a cash payment. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days, the convertible redeemable notes are in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 30 days to 180 days from the date of issuance of each debenture. Upon any sale event, as defined, at the holder’s request the Company will redeem the note for 150% of the principal and accrued interest.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the three convertible debentures at issuance at $185,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.12 at issuance date; a risk-free interest rate of 1.80% and expected volatility of the Company’s common stock, of 215.40%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $71,000 was immediately expensed as financing costs.
During the second fiscal quarter of 2019, in three separate conversions, the first debenture was fully converted into 7,137,222 shares of common stock of the Company. As a result of the conversions the derivative liability related to the first debenture was remeasured immediately prior to the conversions with an overall decrease in the fair value of $37,000 recognized, with the fair value of the derivative liability related to the converted portion, of $64,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.01 to $0.02; a risk-free interest rate of 2.17% to 2.22% and expected volatility of the Company’s common stock, of 193.06% to 321.92%, and the various estimated reset exercise prices weighted by probability.
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. As a result of the conversions the derivative liability related to the second debenture was remeasured immediately prior to the conversions with no change in the fair value calculated to be recognized due to the insignificant changes in the valuation assumptions, with the fair value of the derivative liability related to the converted portion, of $53,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion of $0.01; a risk-free interest rate of 2.38% and expected volatility of the Company’s common stock, of 193.06%, and the various estimated reset exercise prices weighted by probability.
On November 11, 2018, the third debenture was fully converted into 2,666,667 shares of common stock of the Company. As a result of the conversion the derivative liability related to the third debenture was remeasured immediately prior to the conversion with an overall increase in the fair value of $18,000 recognized, with the fair value of the derivative liability related to the converted portion, of $71,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.02; a risk-free interest rate of 2.38% and expected volatility of the Company’s common stock, of 448.43%, and the various estimated reset exercise prices weighted by probability.
January 30, 2018 Debenture
On January 30, 2018, the Company entered into a 12% convertible note for the principal amount of $80,000, convertible into shares of common stock of the Company, which matures on January 30, 2019. Upon an event of default, as defined in the note, the note becomes immediately due and payable, in an amount equal to 150% of all principal and accrued interest due on the note, with default interest of 22% per annum (the “Default Amount”). If the Company fails to deliver conversion shares within 2 days of a conversion request, the note becomes immediately due and payable at an amount of twice the Default Amount. The note is convertible at 61% of the lowest closing bid price for the last 15 days. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. Failure to maintain the reserved number of shares is considered an event of default if not cured within three days of a notice of conversion. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days, the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 30 days to 180 days from the date of issuance of the debenture. The note was redeemed on July 27, 2018, for approximately $123,000, with the approximately $40,000 redemption amount being recognized as financing costs. Upon redemption, the fair value of the related derivative liability was remeasured immediately prior to the redemption with an overall decrease in the fair value of $90,000 recognized, and the derivative liability fair value of $119,000 reclassed to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of redemption, of $0.01; a risk-free interest rate of 1.93% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the convertible debenture at issuance at $163,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.08 at issuance date; a risk-free interest rate of 1.88% and expected volatility of the Company’s common stock, of 215.40%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $83,000 was immediately expensed as financing costs.
On March 9, 2018, the Company entered into a 12% convertible note for the principal amount of $43,000, with the holder of the January 30, 2018 debenture, convertible into shares of common stock of the Company, which matures on March 9, 2019. Upon an event of default, as defined in the note, the note becomes immediately due and payable, in an amount equal to 150% of all principal and accrued interest due on the note, with default interest of 22% per annum (the “Default Amount”). If the Company fails to deliver conversion shares within 2 days of a conversion request, the note becomes immediately due and payable at an amount of twice the Default Amount. The note is convertible on the date beginning 180 days after issuance of the note, at 61% of the lowest closing bid price for the last 15 days. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. Failure to maintain the reserved number of shares is considered an event of default. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 30 days to 180 days from the date of issuance of the debenture. On August 24, 2018 the outstanding principal and $2,304 in accrued interest of the note was purchased from the noteholder by a third party, for $71,000. The additional $25,696 represents the redemption amount owing to the original noteholder and increases the principal amount due to the new noteholder and was recognized as financing cost.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the convertible debenture at issuance at $94,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.03% and expected volatility of the Company’s common stock, of 215.40%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $54,000 was immediately expensed as financing costs.
During the second fiscal quarter of 2019, in two separate conversions, the holder converted $29,464 of principal into 4,500,000 shares of common stock of the Company. As a result of the conversions the derivative liability related to the first debenture was remeasured immediately prior to the conversions with an overall decrease in the fair value of $60,000 recognized, with the fair value of the derivative liability related to the converted portion, of $33,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.01; a risk-free interest rate of 2.33% to 2.37% and expected volatility of the Company’s common stock, of 223.20%, and the various estimated reset exercise prices weighted by probability.
On November 26, 2018, the holder converted $16,168 of principal into 4,732,902 shares of common stock of the Company. As a result of the conversion the derivative liability related to the first debenture was remeasured immediately prior to the conversion with an overall increase in the fair value of $7,000 recognized, with the fair value of the derivative liability related to the converted portion, of $28,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.01; a risk-free interest rate of 2.41% and expected volatility of the Company’s common stock, of 448.43%, and the various estimated reset exercise prices weighted by probability.
March 20, 2018 Debenture
On March 20, 2018, the Company entered into a convertible note for the principal amount of $84,000, convertible into shares of common stock of the Company, which matures on December 20, 2018. The note bears interest at 12% for the first 180 days, which increases to 18% after 180 days, and 24% upon an event of default. Upon an event of default, as defined in the note, the note becomes immediately due and payable, in an amount equal to 150% of all principal and accrued interest due on the note. The note is convertible on the date beginning 180 days after issuance of the note, at the lower of 60% of the lowest trading price for the last 20 days prior to the issuance date of this note, or 60% of the lowest trading price for the last 20 days prior to conversion. In the event of a "DTC chill", the conversion rate is adjusted to 40% of the market price. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 125% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the issuance to 180 days from the date of issuance of the debenture. On September 20, 2018 the outstanding principal and $5,040 in accrued interest of the note was purchased from the noteholder by a third party, for $126,882. The additional $37,842 represents the redemption amount owing to the original noteholder and increases the principal amount due to the new noteholder and was recognized as financing cost.
Additionally, the Company also issued 255,675 shares of common stock of the Company as a commitment fee. The commitment shares fair value was calculated as $28,124, based on the market value of the shares of common stock at the closing date of $0.11, and was recognized as part of the debt discount.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the convertible debenture at issuance at $191,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.06 at issuance date; a risk-free interest rate of 2.09% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $144,124 (including the fair value of the shares of common stock issued) was immediately expensed as financing costs.
During the third fiscal quarter of 2019, in two separate conversions, the holder converted $91,592 of principal into 16,870,962 shares of common stock of the Company. As a result of the conversions the derivative liability related to the debenture was remeasured immediately prior to the conversions with an overall increase in the fair value of $27,000 recognized, with the fair value of the derivative liability related to the converted portion, of $163,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, of $0.01 and $0.02; a risk-free interest rate of 2.40% to 2.45% and expected volatility of the Company’s common stock, of 448.43%, and the various estimated reset exercise prices weighted by probability.
March 21, 2018 Debenture
On March 21, 2018, the Company entered into a convertible note for the principal amount of $39,199, which includes an OID of $4,199, convertible into shares of common stock of the Company, which matures on December 20, 2018. The note bears interest at 12% for the first 180 days, which increases to 18% after 180 days, and 24% upon an event of default. Upon an event of default, as defined in the note, the note becomes immediately due and payable, in an amount equal to 150% of all principal and accrued interest due on the note. The note is convertible on the date beginning 180 days after issuance of the note, at the lowest of 60% of the lowest trading price for the last 20 days prior to the issuance date of this note, or 60% of the lowest trading price for the last 20 days prior to conversion. The discount is increased upon certain events set forth in the agreement regarding the obtainability of the shares, such as a "DTC chill". Additionally, if the Company ceases to be a reporting company, or after 181 days the note cannot be converted into freely traded shares, the discount is increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 125% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the issuance to 180 days from the date of issuance of the debenture. On September 20, 2018 the outstanding principal and $2,352 in accrued interest of the note was purchased from the noteholder by a third party, for $62,326. The additional $20,775 represents the redemption amount owing to the original noteholder and increases the principal amount due to the new noteholder and was recognized as financing cost.
Additionally, the Company also issued 119,300 shares of common stock of the Company as a commitment fee. The commitment shares fair value was calculated as $13,123, based on the market value of the shares of common stock at the closing date of $0.11, and was recognized as part of the debt discount.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the two convertible debentures at issuance at $89,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.06 at issuance date; a risk-free interest rate of 2.09% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $67,123 (including the fair value of the shares of common stock issued) was immediately expensed as financing costs.
On December 6, 2018, the holder converted $20,160 of principal into 6,000,000 shares of common stock of the Company. As a result of the conversion the derivative liability related to the debenture was remeasured immediately prior to the conversion with an overall increase in the fair value of $14,000 recognized, with the fair value of the derivative liability related to the converted portion, of $36,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.02; a risk-free interest rate of 2.41% and expected volatility of the Company’s common stock, of 448.43%, and the various estimated reset exercise prices weighted by probability.
April 10, 2018 Debenture
On April 10, 2018, the Company entered into two 10% convertible notes in the aggregate principal amount of $110,000, convertible into shares of common stock of the Company, with maturity dates of April 10, 2019. The interest upon an event of default, as defined in the note, is 24% per annum. Each note was in the face amount of $55,000, with $2,750 for legal fees deducted upon funding. The first of the notes was paid for by the buyer in cash upon closing, with the other note ("Back-End Note") initially paid for by the issuance of an offsetting $55,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The interest rate increases to 24% upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes, and if the debenture is not paid at maturity the principal due increases by 10%. If the Company loses its bid price the principal outstanding on the debenture increases by 20%, and if the Company’s common stock is delisted, the principal increases by 50%. An event of default also occurs if the Company’s common stock has a closing bid price of less than $0.03 per share for at least five consecutive days, or the aggregate dollar trading volume of the Company’s common stock is less than $20,000 in any five consecutive days. The Company’s common stock closing bid price fell below $0.03 on June 18, 2018 and continued for over five consecutive days, and the Company is therefore in default on the note. The Company has obtained a waiver from the holder on this technical default. Due to the default the holder cancelled the Back-End and Buyer notes as of September 30, 2018. Upon cancellation the remaining unamortized debt discount of $27,500 was immediately expensed. Also, as a result of the cancellation, the fair value of the derivative liability related to the Back-End note was remeasured with a decrease in the fair value of $128,000 recognized, and the fair value of the derivative liability related to the note of $91,500 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.01; a risk-free interest rate of 2.36% and expected volatility of the Company’s common stock, of 223.20%, and the various estimated reset exercise prices weighted by probability.
The notes are convertible into shares of the Company’s common stock at a price per share equal to 57% of the lowest closing bid price for the last 20 days. The discount is increased an additional 10%, to 47%, upon a “DTC chill". The Company has not maintained the required share reservation under the terms of the note agreement. The Back-End note is not convertible until the buyer has settled the Buyer Notes in a cash payment. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 130% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the two convertible debentures at issuance at $348,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.09% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $243,500 was immediately expensed as financing costs.
During the third fiscal quarter of 2019, in four separate conversions, the note was fully converted into 18,832,713 shares of common stock of the Company. As a result of the conversions the derivative liability related to the debenture was remeasured immediately prior to the conversions with an overall decrease in the fair value of $5,500 recognized, with the fair value of the derivative liability related to the converted portion, of $86,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, of $0.02; a risk-free interest rate of 2.28% to 2.39% and expected volatility of the Company’s common stock, of 193.06% to 448.43%, and the various estimated reset exercise prices weighted by probability.
As of September 30, 2018, the Back End note and the related collateralized note receivable were cancelled, as per the terms of the note, and the Company’s stock price fell below $0.03. Upon cancellation, the related derivative was reclassed to equity, and the remaining unamortized debt discount was immediately expensed.
April 27, 2018 Debenture
On April 27, 2018, the Company entered into a convertible note for the principal amount of $53,000 for a purchase price of $50,000, convertible into shares of common stock of the Company, which matures on January 27, 2019. The note bears interest at 12% for the first 180 days, which increases to 18% after 180 days, and 24%. The interest rate increases to 24% upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes. Additionally, in the majority of events of default, except for the non-payment of the note upon maturity, the note becomes immediately due and payable at an amount at 150% of the principal plus accrued interest due.
The note is convertible on the date beginning 180 days after issuance of the note, at the lowest of 60% of the lowest trading price for the last 20 days prior to the issuance date of this note, or 60% of the lowest trading price for the last 20 days prior to conversion. The discount rate is adjusted based on various situations regarding the ability to deliver the shares of common stock, such as in the event of a "DTC chill" or the Company ceases to be a reporting company. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $159,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $109,000 was immediately expensed as financing costs.
During the third fiscal quarter of 2019, in two separate conversions, the holder converted $35,000 of principal into 13,246,753 shares of common stock of the Company. As a result of the conversions the derivative liability related to the debenture was remeasured immediately prior to the conversions with an overall increase in the fair value of $13,000 recognized, with the fair value of the derivative liability related to the converted portion, of $79,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, of $0.01 to $0.02; a risk-free interest rate of 2.34% to 2.43% and expected volatility of the Company’s common stock, of 193.06% to 448.43%, and the various estimated reset exercise prices weighted by probability.
June 5, 2018 Debenture
On June 5, 2018, the Company entered into a convertible note for the principal amount of $125,000 for a purchase price of $118,800, convertible on the date beginning 180 days after issuance of the note, into shares of common stock of the Company, which matures on June 5, 2019. The note bears interest at 12%, which increases to 18% upon an event of default, as defined in the agreement. The note is convertible at 60% of the lowest trading price for the last 20 days prior to conversion, with the discount increased 5% in the event the Company does not have sufficient shares authorized and outstanding to issue the shares upon conversion request. The conversion price is adjusted upon a future dilutive issuance, to the lower of the conversion price or a 25% discount to the aggregate per share common share price. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 90 days to 180 days from the date of issuance of the debenture. After 180 days, the note is redeemable, with the holder’s prior written consent, at 150% of the principal and accrued interest balance.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $375,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.04 at issuance date; a risk-free interest rate of 2.32% and expected volatility of the Company’s common stock, of 292.85%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $256.200 was immediately expensed as financing costs.
July 27, 2018 Debenture
On July 27, 2018, the Company entered into two 10% convertible notes in the aggregate principal amount of $186,000, convertible into shares of common stock of the Company, with maturity dates of July 27, 2019. The interest upon an event of default, as defined in the note, is 24% per annum. Each note was in the face amount of $93,000, with $3,000 OID, for a purchase price of $90,000. The first of the notes was paid for by the buyer in cash upon closing, with the other note ("Back-End note") initially paid for by the issuance of an offsetting $93,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The Buyer Note is due on December 12, 2018. The interest rate increases to 24% upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes, and if the debenture is not paid at maturity the principal due increases by 10%. If the Company loses its bid price the principal outstanding on the debenture increases by 20%, and if the Company’s common stock is delisted, the principal increases by 50%. Per the agreement, the Company is required at all times to have authorized and reserved 16,900,000 shares of common stock of the Company. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes.
The notes are convertible into shares of the Company’s common stock at a price per share equal to 60% of the lowest closing bid price for the last 20 days. The discount is increased an additional 10%, to 50%, upon a “DTC chill". The Back-End note is not convertible until the buyer has settled the Buyer Notes in a cash payment. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 136% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 90 days to 180 days from the date of issuance of the debenture.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $374,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.01 at issuance date; a risk-free interest rate of 2.43% and expected volatility of the Company’s common stock, of 292.85%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $194,000 was immediately expensed as financing costs.
August 24, 2018 Debenture
On August 24, 2018, the Company entered into a 10% convertible note in the principal amount of $55,000, convertible into shares of common stock of the Company, which matures August 24, 2019. The interest rate increases to 24% per annum upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes, and if the debenture is not paid at maturity the principal due increases by 10%. If the Company loses its bid price the principal outstanding on the debenture increases by 20%, and if the Company’s common stock is delisted, the principal increases by 50%.
The notes are convertible into shares of the Company’s common stock at a price per share equal to 57% of the lowest closing bid price for the last 20 days. The discount is increased an additional 10%, to 47%, upon a “DTC chill". The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 130% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $375,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.02 at issuance date; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 295.23%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $95,750 was immediately expensed as financing costs.
September 14, 2018 Debenture
On September 14, 2018, the Company entered into a 12% convertible promissory note for $112,500, with an OID of $10,250, which matures on March 14, 2019. There is a right of prepayment in the first 180 days, but there is no right to repay after 180 days. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The interest rate increases to a default rate of 24% for events as set forth in the agreement, including if the market capitalization is below $5 million, or there are any dilutive issuances. There is also a cross default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. Additionally, if the note is not repaid by the maturity date the principal balance increases by $15,000. The market capitalization is below $5 million and therefore the note was in default, however, the holder has issued a waiver to the Company on this default provision.
The note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser of 60% of the lowest trading price for the last 20 days prior to the issuance of the note or 60% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional 10% adjustments to the conversion price for events set forth in the agreement, including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after nine months from issue date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
Additionally, in connection with the debenture the Company also issued 3,000,000 shares of common stock of the Company as a commitment fee. The fair value of the commitment shares was calculated as $34,500, based on the market value of the shares of common stock at the closing date of $0.012, and was recognized as part of the debt discount. The shares are to be returned to the Treasury of the Company in the event the debenture is fully repaid prior to the date which is 180 days following the issue date but are not required to be returned if there is an event of default.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $189,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.01 at issuance date; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock, of 224.70%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $121,000 was immediately expensed as financing costs.
On December 13, 2018 the holder converted $11,200 of principal into 4,000,000 shares of common stock of the Company. As a result of the conversion the derivative liability related to the first debenture was remeasured immediately prior to the conversion with an overall increase in the fair value of $26,000 recognized, with the fair value of the derivative liability related to the converted portion, of $20,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of conversion, of $0.02; a risk-free interest rate of 2.43% and expected volatility of the Company’s common stock of 448.43% , and the various estimated reset exercise prices weighted by probability.
October 30, 2018 Debenture
On October 30, 2018, the Company entered into an 8% convertible promissory note for $113,300, with an OID of $10,300, which matures on October 30, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 123% of the outstanding principal and accrued interest. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. The interest rate increases to a default rate of 24% for events as set forth in the agreement. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve or is unable to issue the requested shares upon a conversion notice, the outstanding principal increases to 200%.
The note is convertible after 180 days at a variable conversion rate that is 75% of the average of the lowest two trading prices over the 15 days prior to conversion. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $173,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.01 at issuance date; a risk-free interest rate of 2.66% and expected volatility of the Company’s common stock, of 294.17%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $73,000 was immediately expensed as financing costs.
The derivative liability arising from all of the above discussed debentures was revalued at December 31, 2018, resulting in an increase of the fair value of the remaining derivative liability of $6,000 for the three months, and a decrease of $182,000for the nine months ended December 31, 2018. During the three and nine months ended December 31, 2018, there was a reclass of $812,000 and $2,430,000 of the derivative fair value to equity upon the conversions of approximately $435,000 and $1,032,000 of principal, and a decrease in the fair value of $205,000 and a decrease of $847,000 immediately prior to conversion . The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.018; a risk-free interest rate ranging from 2.45% to 2.63%, and expected volatility of the Company’s common stock ranging from 315.25% to 448.43%, and the various estimated reset exercise prices weighted by probability.
The warrant liability relating to all of the outstanding warrant issuances discussed above was revalued at December 31, 2018, resulting in an estimated fair value of $174,000, for an increase to the fair value of $47,000 for both the three and nine months ended December 31, 2018. The key valuation assumptions used consists, in part, of the price of the Company’s common stock of $0.018; a risk-free interest rate of 2.46%, and expected volatility of the Company’s common stock of 350.16%.
|
6. STOCKHOLDERS' DEFICIT |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS' DEFICIT |
Preferred Stock
On August 15, 2018, the Company authorized 5,000,000 of their Preferred Stock to be designated as Series A Convertible Preferred Stock (“Series A PS”), with a par value of $0.001. The Series A PS shall have 60 to 1 voting rights such that each share shall vote as to 60 shares of common stock. The Series A PS holders shall not be entitled to receive dividends, if and when declared by the Board. Upon the dissolution, liquidation or winding up of the Company, the holders of Series A PS shall be entitled to receive out of the assets of the Company the sum of $0.00l per share before any payment or distribution shall be made on the common stock, or any other class of capital stock of the Company ranking junior to the Series A PS. The Series A PS is convertible, after two years from the date of issuance, with the consent of a majority of the Series A PS holders, into the same number of shares of common stock of the Company as are outstanding at the time.
On August 21, 2018, the NaturalShrimp Holdings, Inc.(“NSH”) shareholders exchanged 75,000,000 of the shares of common stock of the Company which they held, into 5,000,000 newly issued Series A PS. The shares of common stock were returned to the treasury and cancelled. The Series A PS do not have any redemption feature and are therefore classified in permanent equity. The conversion feature was evaluated, and as at the commitment date the fair value of the shares of common stock exchanged was greater than the fair value of the shares into which they would be converted, it was determined there was no beneficial aspect to the conversion feature.
Common Stock
On 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 its 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 its 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.
|
7. RELATED PARTY TRANSACTIONS |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Notes Payable – Related Parties
On April 20, 2017, the Company entered into a convertible debenture with an affiliate of the Company whose managing member is the Treasurer, Chief Financial Officer, and a director of the Company, for $140,000. The convertible debenture matures one year from date of issuance, and bears interest at 6%. Upon an event of default, as defined in the debenture, the principal and any accrued interest becomes immediately due, and the interest rate increases to 24%. The convertible debenture is convertible at the holder’s option at a conversion price of $0.30. As of December 31, 2018, and March 31, 2018, the Company has paid $52,400 on this note, with $87,600 remaining outstanding.
NaturalShrimp Holdings, Inc.
On January 1, 2016 the Company entered into a note payable agreement with NSH, a shareholder. Between January 16, 2016 and March 7, 2016, the Company borrowed $134,750 under this agreement. An additional $601,361 was borrowed under this agreement in the year ended March 31, 2017, for a total of $736,111. The note payable has no set monthly payment or maturity date with a stated interest rate of 2%. Interest expense on the note was approximately $3,700 and $11,000 during the three and nine months ended December 31, 2018, respectively. At December 31, 2018 and March 31, 2018, accrued interest payable was $32,504 and $21,462, respectively.
Shareholder Notes
The Company has entered into several working capital notes payable to multiple shareholders of NSH and Bill Williams, an officer, a director, and a shareholder of the Company, for a total of $486,500. These notes had stock issued in lieu of interest and have no set monthly payment or maturity date. The balance of these notes at both December 31, 2018 and March 31, 2018 was $426,404 and is classified as a current liability on the consolidated balance sheets. Interest expense on the note was approximately $8,500 and $26,000 during the three and nine months ended December 31, 2018, respectively. At December 31, 2018 and March 31, 2018, accrued interest payable was $232,504 and $206,920, respectively.
Shareholders
In 2009, the Company entered into a note payable to Randall Steele, a shareholder of NSH, for $50,000. The note bears interest at 6.0% and was payable upon maturity on January 20, 2011. The note is unsecured. The balance of the note at December 31, 2018 and March 31, 2018 was $50,000, respectively, and is classified as a current liability on the consolidated balance sheets. Interest expense on the note was $750 and $2,250 during the three and nine months ended December 31, 2018, respectively.
Beginning in 2010, the Company started entering into several working capital notes payable with various shareholders of NSH for a total of $290,000 and bearing interest at 8%. The balance of these notes at December 31, 2018 and March 31, 2018 was $5,000 and is classified as a current liability on the consolidated balance sheets. At December 31, 2018 and March 31, 2018, accrued interest payable was $1,900 and $1,600, respectively. |
8. CONCENTRATION OF CREDIT RISK |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATION OF CREDIT RISK | The Company maintains cash balances at one financial institution. Accounts at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of December 31, 2018, and March 31, 2018, the Company’s cash balance did not exceed FDIC coverage.
|
9. COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Executive Employment Agreements – Bill Williams and Gerald Easterling
On April 1, 2015, the Company entered into employment agreements with each of Bill G. Williams, as the Company’s Chief Executive Officer, and Gerald Easterling as the Company’s President, effective as of April 1, 2015 (the “Employment Agreements”).
The Employment Agreements are each terminable at will and each provide for a base annual salary of $96,000. In addition, the Employment Agreements each provide that the employee is entitled, at the sole and absolute discretion of the Company’s Board of Directors, to receive performance bonuses. Mr. Williams and Mr. Easterling each will also be entitled to certain benefits including health insurance and monthly allowances for cell phone and automobile expenses.
Each Employment Agreement provides that in the event employee is terminated without cause or resigns for good reason (each as defined in their Employment Agreements), the employee will receive, as severance the employee’s base salary for a period of 60 months following the date of termination. In the event of a change of control of the Company, the employee may elect to terminate the Employment Agreement within 30 days thereafter and upon such termination would receive a lump sum payment equal to 500% of the employee’s base salary.
Each Employment Agreement contains certain restrictive covenants relating to non-competition, non-solicitation of customers and non-solicitation of employees for a period of one year following termination of the employee’s Employment Agreement.
|
10. SUBSEQUENT EVENTS |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS |
Subsequent to December 31, 2018, the Company has converted approximately $166,000 of their outstanding convertible debt as of December 31, 2018 and approximately $5,000 of accrued interest and fees, into 26,391,949 shares of the Company’s common stock.
The Company issued 10,000,000 and 6,093,683 shares of their common stock on January 11, 2019 and February 8, 2019, respectively, upon cashless exercise of the warrants granted in connection with the September 11, 2017 Debenture (Note 5).
On January 16, 2018, 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 entered into an 10% convertible promissory note for $85.500, with an OID of $7,500, for a purchase price of $75,000, which matures on November 4, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the "bid" price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any 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. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | ||||||||||||||||||||||||||
Summary Of Significant Accounting Policies | ||||||||||||||||||||||||||
Basis of Presentation | The accompanying unaudited financial information as of and for the three and nine months ended December 31, 2018 and 2017 has been prepared in accordance with GAAP in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended March 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on July 13, 2018.
The condensed consolidated balance sheet at March 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
|
|||||||||||||||||||||||||
Consolidation | The consolidated financial statements include the accounts of NaturalShrimp Incorporated and its wholly-owned subsidiaries, NaturalShrimp Corporation, NaturalShrimp Global and Natural Aquatic Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
|
|||||||||||||||||||||||||
Use of Estimates | Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|
|||||||||||||||||||||||||
Basic and Diluted Earnings/Loss per Common Share | Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statements are computed in accordance with ASC 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period. For the nine months ended December 31, 2018, the Company had approximately $974,000 in principal on convertible debentures whose approximately 96,842,000 underlying shares are convertible at the holders’ option at conversion prices ranging from 34% - 75% of the defined trading price and approximately 10,637,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2017, the Company had $977,000 in convertible debentures whose underlying shares were convertible at the holders’ option at initial fixed conversion prices ranging from 50% to 60% of the defined trading price and 3,087,000 warrants with an exercise price of 50% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. |
|||||||||||||||||||||||||
Fair Value Measurements | ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
The Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2018 and 2017.
The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the nine months ended December 31, 2018:
At December 31, 2018, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.02; a risk-free interest rate ranging from 2.45% to 2.63%, and expected volatility of the Company’s common stock ranging from 315.25% to 448.43%, and the various estimated reset exercise prices weighted by probability.
|
|||||||||||||||||||||||||
Fixed Assets | Equipment is carried at historical value or cost and is depreciated over the estimated useful lives of the related assets. Depreciation on buildings is computed using the straight-line method, while depreciation on all other fixed assets is computed using the Modified Accelerated Cost Recovery System (MACRS) method, which does not materially differ from GAAP. Estimated useful lives are as follows:
Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The consolidated statements of operations reflect depreciation expense of approximately $18,000 and $53,000 for both the three and nine months ended December 31, 2018 and 2017, respectively.
|
|||||||||||||||||||||||||
Commitments and Contingencies | Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. |
|||||||||||||||||||||||||
Recently Issued Accounting Standards | In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The new standard went into effect for annual reporting periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company adopted ASU 2014-09 on April 1, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.
During the nine months ended December 31, 2018, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
|
|||||||||||||||||||||||||
Management's Evaluation of Subsequent Events | The Company evaluates events that have occurred after the balance sheet date of December 31, 2018, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 10 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
9 Months Ended | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | ||||||||||||||||||||||||||
Summary Of Significant Accounting Policies Tables Abstract | ||||||||||||||||||||||||||
Activity of Level 3 liabilities |
|
|||||||||||||||||||||||||
Estimated useful lives |
|
4. BANK LOAN (Tables) |
9 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2018 | |||||||||||||||||||||
Bank Loan Tables Abstract | |||||||||||||||||||||
Maturities on bank loan |
|
1. NATURE OF THE ORGANIZATION AND BUSINESS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2018 |
|
Nature Of Organization And Business | |||||
Net loss | $ (964,274) | $ (1,693,613) | $ (2,323,235) | $ (3,036,803) | |
Accumulated deficit | (36,336,099) | (36,336,099) | $ (34,012,864) | ||
Working capital deficit | $ (5,728,000) | (5,728,000) | |||
Proceeds from convertible debentures | 565,800 | 730,200 | |||
Proceeds from sale of stock | $ 15,400 | $ 25,000 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) |
9 Months Ended |
---|---|
Dec. 31, 2018
USD ($)
| |
Summary Of Significant Accounting Policies Details Abstract | |
Derivative liability balance at March 31, 2018 | $ 3,455,000 |
Additions to derivative liability for new debt | 1,897,000 |
Reclass to equity upon conversion | (2,552,500) |
Change in fair value | (116,500) |
Balance at December 31, 2018 | $ 1,683,000 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) |
9 Months Ended |
---|---|
Dec. 31, 2018 | |
Buildings | Minimum | |
Estimated useful life | 27 years 6 months |
Buildings | Maximum | |
Estimated useful life | 39 years |
Other Depreciable Property | Minimum | |
Estimated useful life | 5 years |
Other Depreciable Property | Maximum | |
Estimated useful life | 10 years |
Furniture and Fixtures | Minimum | |
Estimated useful life | 3 years |
Furniture and Fixtures | Maximum | |
Estimated useful life | 10 years |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2018 |
Dec. 31, 2017 |
|
Summary Of Significant Accounting Policies Details Narrative Abstract | ||||
Depreciation | $ 17,726 | $ 17,726 | $ 53,171 | $ 53,170 |
3. SHORT-TERM NOTE AND LINES OF CREDIT (Details Narrative) - USD ($) |
Dec. 31, 2018 |
Mar. 31, 2018 |
---|---|---|
Line of credit balance | $ 791,823 | $ 143,523 |
Community National Bank | ||
Line of credit balance | 25,298 | 25,298 |
Extraco Bank | ||
Line of credit balance | 472,675 | 472,675 |
Additional Lines of Credit Extraco Bank | ||
Line of credit balance | 276,958 | 276,958 |
Capital One Bank | ||
Line of credit balance | 9,580 | 9,580 |
Chase Bank | ||
Line of credit balance | $ 11,197 | $ 11,197 |
4. BANK LOAN (Details) |
Dec. 31, 2018
USD ($)
|
---|---|
12 months ending: | |
December 31, 2019 | $ 7,687 |
December 31, 2020 | 223,037 |
Total | $ 230,724 |
7. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Dec. 31, 2018 |
Dec. 31, 2018 |
Mar. 31, 2018 |
|
Note payable related party | $ 52,400 | $ 52,400 | $ 87,600 |
NaturalShrimp Holdings, Inc | |||
Interest expense related parties | 3,700 | 11,000 | |
Accrued interest payable | 32,504 | 32,504 | 21,462 |
Multiple Shareholders | |||
Note payable related party | 426,404 | 426,404 | 426,404 |
Interest expense related parties | 8,500 | ||
Accrued interest payable | 232,504 | 232,504 | 206,920 |
Multiple Shareholders | |||
Interest expense related parties | 2,600 | ||
Randall Steele | |||
Note payable related party | 50,000 | 50,000 | 50,000 |
Interest expense related parties | 750 | 2,250 | |
Accrued interest payable | $ 19,000 | $ 19,000 | $ 1,600 |
R(O *+:HY6Q3(DA-; H5SWB.N00X<(E(F;Q.HFL;Y&?-!A
M6!V&YL'S]I:UMS0/* ?V<=
M6_S>=WCR']Z_#]^9*NM&!R=I;"OT#>LBI0$;2_1D[U5EGZ1QP>%BW'1MYZKO
MR_W"R'9X<\CX\.7_ %!+ P04 " #KGDU.FV;S1L0! W! &0 'AL
M+W=O ;?$?+K.G5>UK)DFW-RTS(
M)'_M-WM.LTVSHU241=\;#";],F.5_
M*)8# %FIEBTHL77YT4("@,2P! [@G@I<"\FRJP!,NJ*RTKG8M;!\Y1!FY:5C
ML'WWF#@6B/.%<#&K&8-[&(>N"EZJ !BRH@*W.G8[F82+C]&(F3
6?A1=%9LU([-3[7H0GWATX]J8,SMB*
M>(?B'7HOQ>XFR=@E$,TQQRF&KV.6"(;L2PJ^E>+(_X'S;7BZJ3"-\/2=PO_D
MWV\2["/!_AT!_U#B5DSZ(0E;]52#;>(T.5*:H8N3O/(N WO'XYN\A4_3_DW8
M1G:.G(W'EXW]KXWQ@%*2*QRA%C_88BBH?3C>X-E.8S89WO3S#V++-R[^ E!+
M P04 " #KGDU.>]L$\+8! #2 P &0 'AL+W=O?2ER+.7Q*PA8]56#K.$V.%*;7<9(7WGE@[^,CLO?P<=J_"UNW
MVI&+\?BRL?^5,1Y0RN8&1ZC!#S8;$BH?C@<\VW',1L.;;OI!;/[&^3]02P,$
M% @ ZYY-3BJQAH^V 0 T@, !D !X;"]W;W)K
4\77.ZSWHN+O\^,W)Y?U.NJKTBT4W)%0
M\^B/-U>5G>%&?!*F()X8A:[PJ^06<^HX)V)2:H&I5!4K -S6+97,G$:2R$>M
M?3C/HZ1N 9"/!AU.9'_3$>UI^(5XP3<,GN;>*WYFIM%A?W9E)%%K\H06&WZ
M0HP!:O1$4Y5Z(6DI=&\.A3-TO\=Z24.]8M!55HKEH^CM[]-]AF8G,VW(W+ZE
MY'_)M%,ZTVXEE@K*"8?E'^)-7>M9.@2./;])C
MBVSEE1<+M[.8);?V#.QDY,#^'IM68 N[9> M,@Z\35>&X*')B3.KM8?YH,^I
M5(Q3-*RYWPW[HZXL\*!'#R^Q)E(7<'#0]#KFQE8BP)14X-:JAS&+8#(2@T\F
M;'F#?1?+-!3HLXE@=EIC6ST-AQTE#3B)&C$!\\O)>RLQ]'!_>(UR:1G=8WQ/
MRC %X-(?-X4U6I6#=?H6UO: ?N8H"2G<,G0T AB(YBX3FO4J),LIPN"8+C2*
M7H32>0WLK3JP)'8IX*)YI^*%@KHT.*V"D5,=2>^K2'5NV_,O
MVS1VCL-=]IC#4($W6D]#/YSV$)O3%^:HA^V;KWH:E/NQ7^LT*&VJT&&8_ \Z
M# -]&(8/'H993P[#;/!;/ RVG9=)*(@Q(Q"3(A>W<<4/]B$"1EX8[8S,12/<
MS(K!.<(-M!]B]4 MGD/ D!+^( _'@UCZR,!9.)Y-'^MY[V0G5T&ZKM3#@ZI6G6PN*Q
\W#'^_"E6F.U7U>G[10COX#4N0NB+7.0P9GHKUS2Z-
M)4Q!K8^=>K"%727$VHR9LG-8M%3PZ!WD\!T^(-(5@;(8(7#%^^N(;TNV>^U?
M&R1!/$V^!R_ZE.4\ (*,3R[(40\"K
'$'LFP]R1EO*"+IE7CM-T?7K$730WRD:,IV1XV
MA4D7
#>R;1>)9%8SQ;@ L=TZ0