UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-K
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| ☒ | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2018
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| ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000-54146
RICH PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) | |||
Wyoming (State or other jurisdiction of incorporation or organization) |
46-3259117 (I.R.S. Employer Identification No.)
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9595 Wilshire Blvd., Suite 900, Beverly Hills, California (Address of principal executive offices) |
90212 (Zip Code) | ||
(424) 230-7001 Registrant's telephone number
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| Securities registered pursuant to Section 12(b) of the Exchange Act: | |||
Title of Each Class None |
Name of Each Exchange on Which Registered None | ||
Securities registered pursuant to Section 12(g) of the Exchange Act: None | |||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer," "non-accelerated filer", “smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| Emerging growth | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter: $1,689,940.
As of July 11, 2018, there were 1,883,867,821 shares of the registrant's common stock outstanding. The common stock is the registrant's only class of stock currently outstanding.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words "anticipates", "believes", "estimates", "expects", "plans", "projects", "targets" and similar expressions. Statements in this report concerning the following are forward looking statements:
• future financial and operating results;
• our ability to fund operations and business plans, and the timing of any funding or corporate development transactions we may pursue;
• the ability of our suppliers to provide products or services in the future of an acceptable quality on a timely and cost-effective basis;
• expectations concerning market acceptance of our products;
• current and future economic and political conditions;
• overall industry and market trends;
• management’s goals and plans for future operations; and
• other assumptions described in this report underlying or relating to any forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except to the extent required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that may cause actual results to differ from those projected include the risk factors specified below.
USE OF DEFINED TERMS
Except where the context otherwise requires and for the purposes of this report only:
• "we," "us," "our" and "Company" refer to the business of Rich Pharmaceuticals, Inc.;
• "Exchange Act" refers to the United States Securities Exchange Act of 1934, as amended;
• "SEC" refers to the United States Securities and Exchange Commission;
• "Securities Act" refers to the United States Securities Act of 1933, as amended;
• "U.S. dollars," "dollars" and "$" refer to the legal currency of the United States.
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PART I
Business Overview
The Company is developing RP-323 for the treatment of Hodgkin’s lymphoma (HL), Acute Myelogenous Leukemia (AML), and to cause elevation of white blood cells (WBC) in patients depleted of these elements due to various conditions.
The Technology
The priority drug development efforts of the Company are focused on the use of RP-323, a naturally occurring compound that has a number of properties that are uniquely suited for the treatment of patients with Hodgkin’s lymphoma (HL), and Acute Myelocytic Leukemia (AML). Company scientists had worked with RP-323 in the laboratory for many years studying its ability to convert cancer cells to normal cells, a process called differentiation. It was also observed in some instances to cause cancer cell death. These observations were the basis of the proposal to test RP-323 in relapsed AML patients in China and later in the US and resulted in findings that were sufficiently encouraging to support further interest in this drug to treat AML. During the course of these preliminary clinical studies RP-323 was found to be extremely potent in causing a marked and favorable increase in white blood cells (WBC) in blood, key elements in fighting infections. These results were also observed in cancer patients whose WBC were depleted due to the toxic effects of chemotherapeutic drugs used during the course of their therapy. Later, in a US phase I safety study conducted at Cancer Institute of NJ (CINJ), it was discovered the use of RP-323 in HL when a patient’s tumor was reduced by 2 cm.
Clinical Studies in Acute Myelocytic Leukemia
Based on the known properties of RP-323, it was first administered in a pilot study in China, either alone or in combination with standard drugs, and caused temporary remission of AML in some patients’ refractory to standard therapy. Several patients recovered sufficiently with RP-323 treatment to return to their normal occupations, symptom-free. Interest in these findings led to a Phase 1 investigator-sponsored trial in 35 patients by a leading oncologist at a leading cancer hospital in New Jersey, the University of Medicine and Dentistry of New Jersey (UMDNJ). This study determined the maximum tolerated dose of RP-323 and described its relatively mild side effects. The results of this Phase 1 trial led to interest by the same investigator to initiate a Phase 2 study. The use of RP-323 in treatment of refractory AML is expected to qualify for a “fast track” designation at the United States Food and Drug Administration (FDA), and the Company expects to apply for “orphan drug” status. An “orphan drug” is a pharmaceutical agent that has been developed specifically to treat a rare medical condition, the condition itself being referred to as an orphan disease. The Company’s clinical plans are to complete the required clinical studies and provide a basis for market approval for the treatment of AML. The Company estimates the budget for reaching market approval for the treatment of AML to be $40 million. However, should the Company be able to obtain “orphan drug” status from the FDA, that timeline could be accelerated and budget reduced to $20 million. All plans are subject to the Company obtaining adequate financing, or partnering with a third party, to fund the cost of the studies. The Company cannot provide any assurances that it will be able to obtain such financing or partnering arrangement.
Clinical Results in Elevation of White Blood Cells
Clinical studies in over 100 cancer patients demonstrated the potent ability of RP-323 to stimulate the production of white blood cells (WBC) and neutrophils. Both the treatments for various diseases and the disease themselves can result in extremely low numbers of these elements. Their elevation is essential to prevent post-treatment infections common to these patients. In comparative studies in animals, RP-323 is significantly more potent than marketed drugs used for this purpose. The effect of RP-323 on the elevation of these and other blood elements will be measured during treatment of AML.
Hodgkin’s Lymphoma
Hodgkin’s lymphom is a cancer that is found most frequently in two different age groups: 15 – 35 and over 55, and occurs in both sexes although it is more common in males and individuals with HIV. The overall incidence of Hodgkin’s lymphoma is approximately 2.7 per 100,000 persons. Malignant Reed Sternberg cells invade and destroy the architecture of the lymph nodes and infiltrate major organs such as the liver and spleen. Radiation and chemotherapy are used routinely but these treatments can later result in morbidity and mortality as a result of causing second malignancies. More effective and safer treatments are needed for this disease.
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Market Opportunities
AML
It is estimated that 40,000 people in the US have AML and an additional 14,000 are diagnosed annually with a yearly death rate of over 10,000. Based on this incidence, the potential market for RP-323 for the treatment of AML is approximately $1 to 2 billion peak sales annually in the US and more than $5 billion worldwide.
White Blood Cell
Currently marketed drugs for elevating key infection-fighting blood elements are used in supportive cancer care, inflammation, nephrology and bone disease. In 2012, this market exceeded $3 billion. The clinical use of RP-323 for these purposes is expected to have several key therapeutic advantages over marketed drugs, along with a clean safety profile and observed high efficacy is expected to result in a 15 to 30 percent market share and peak annual sales of $0.5 to $1 billion. Amgen would be the Company’s largest competitor in this market.
HL
In the U.S. 185,793 suffer from Hodgkin's lymphoma (2011); the worldwide market potential for Hodgkin's lymphoma is estimated to be $1-2 billion.
Patent
The Company has been assigned United States Patent No. 6,063,814, entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents,” and utility patent application titled “Compositions and Methods of Use Of Phorbol Esters For The Treatment of Neoplasms (Acute Myeloid Leukemia).” The patent is intended to provide the Company with exclusive rights to the use of intravenous RP-323 for therapeutic purposes. Provided that the Company can obtain additional funding, the Company intends to expand its patents through the addition of indications for use and adding protection in appropriate countries.
Government Regulations
The research, pre-clinical development, clinical trials, product manufacturing and marketing which may be conducted by the Company is subject to regulation by the FDA and similar health authorities in foreign countries. The proposed products and technologies of the Company also may be subject to certain other federal, state and local government regulations, including, without limitation, the Federal Food, Drug and Cosmetic Act, and their state, local and foreign counterparts. Although there can be no such assurance, the Company does not believe that compliance with such laws and regulations has, nor is presently expected to have, a material adverse effect on the business of the Company. However, the Company cannot predict the extent of the adverse effect on its business or the financial and other cost that might result from any government regulations arising out of future legislative, administrative or judicial action.
Generally, the steps required before a pharmaceutical or therapeutic biological agent may be marketed in the United States include: (i) pre-clinical laboratory tests, in vivo pre-clinical studies in animals, toxicity studies and formulation studies; (ii) the submission to the FDA of an IND application for human clinical testing, that must become effective before human clinical trials commence; (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug; (iv) the submission of a marketing application to the FDA; and (v) FDA approval of the marketing application prior to any commercial sale or shipment of the drug.
Pre-clinical studies include laboratory evaluation of the product, conducted under Good Laboratory Practice (GLP) regulations, and animal studies to assess the pharmacological activity and the potential safety and effectiveness of the drug. The results of the pre-clinical studies are submitted to the FDA in the IND. Unless the FDA objects to an IND, it becomes effective 30 days following submission and the clinical trial described in the IND may then begin.
Every clinical trial must be conducted under the review and oversight of an institutional review board (IRB) at each institution participating in the trial. The IRB evaluates, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution.
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Clinical trials are typically conducted in three sequential phases, although the phases may overlap. Phase I represents the initial introduction of the drug to a small group of healthy subjects to test for safety, dosage tolerance, and the essential characteristics of the drug. Phase II involves studies in a limited number of patients to test the safety and efficacy of the drug at different dosages. Phase III trials involve large-scale evaluation of safety and effectiveness, usually (though not necessarily) in comparison with placebo or an existing treatment.
The results of the pre-clinical and clinical trials are submitted to the FDA as part of an application to market the drug. The marketing application also includes information pertaining to the chemistry, formulation, manufacture of the drug and each component of the
final product. The FDA review of a marketing application takes from one to two years on average to complete, though reviews of treatments for cancer and other life-threatening diseases may be accelerated. However, the process may take substantially longer if the FDA has questions or concerns about a product. Following review, the FDA may ultimately decide that an application does not satisfy regulatory and statutory criteria for approval. In some cases, the FDA may approve a product but require additional clinical tests following approval (i.e., Phase IV).
In addition to obtaining FDA approval for each product, each domestic drug manufacturing establishment must be registered with, and approved by, the FDA. Domestic manufacturing establishments are subject to inspections by the FDA and must comply with Good Manufacturing Practice ("GMP"). To supply products for use in the United States, foreign manufacturing establishments must comply with GMP and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in such countries under reciprocal agreements with the FDA.
If marketing approval of any Company product is granted, the Company must continue to comply with FDA requirements not only for manufacturing, but also for labeling, advertising, record keeping, and reporting to the FDA of adverse experiences and other information. In addition, the Company must comply with federal and state health care anti-kickback laws and other health care fraud and abuse laws that affect the marketing of pharmaceuticals. Failure to comply with applicable laws and regulations could subject the Company to administrative or judicial enforcement actions, including but not limited to product seizures, injunctions, civil penalties, criminal prosecution, refusals to approve new products or withdrawal of existing approvals, as well as increased product liability exposure, any of which could have a material adverse effect on tile company's business, financial condition, or results of operations.
For clinical investigation and marketing outside the United States, the Company also is subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary widely for European countries both within and outside the European Community ("EU"). Outside the United States, the Company's ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authority. At present, foreign marketing authorizations are applied for at a national level, although within the EU certain registration procedures are available to companies wishing to market their products in more than one EU member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. The system for obtaining marketing authorizations within the EU registration system is a dual one in which certain products, such as biotechnology and high technology products and those containing new active substances, will have access to a central regulatory system that provides registration throughout the entire EU. Other products will be registered by national authorities in individual EU member states, operating on a principle of mutual recognition. This foreign regulatory approval process includes, at least, all of the risks associated with FDA approval set forth above. The Company could possibly have greater difficulty in obtaining any such approvals and also might find it more difficult to protect its intellectual property abroad.
Compliance with Environmental Laws
The Company's business may be subject to regulation under federal, state, local, and foreign laws regarding environmental protection and hazardous substance control. The Company believes that its compliance with these laws will have no adverse impact upon its capital expenditures, earnings or competitive position. Federal, state and foreign agencies and legislative bodies have expressed interest in the further environmental regulation of the biotechnology industry. The Company is unable to estimate the extent and impact of such, if any, future federal, state, local legislation or administrative environmental action.
Seasonality
We do not expect that our business will experience any seasonality.
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Our Employees
We have one full time contracted position and 3 part-time contracted positions as of the date of this Annual Report.
Backlog
We do not have any order backlog as of the date of this Annual Report.
Available Information
Our annual and quarterly reports, along with all other reports and amendments filed with or furnished to the SEC are available on the SEC maintained Internet site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The address of that site is www.sec.gov. In addition the SEC maintains a Public Reference Room where you can obtain these materials, which is located at 100 F Street, N.E., Washington, D.C. 20549. To obtain more information on the operation of the Public Reference Room call the SEC at 1-800-SEC-0330.
July 2013 Business Change
Prior to July 18, 2013, the Company was a shell company with no or nominal operations after unsuccessfully pursuing a boiler business. On July 18, 2013, the Company entered into a Memorandum of Understanding and Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC (“Imagic”) and Richard L. Chang’s Holdings, LLC to acquire certain assets including United States Patent No. 6,063,814 entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents” and all related intellectual property associated with the patent.
On July 19, 2013, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Agreement”) with our prior officer and directors, Li Deng Ke and Xiong Chao Jun. Pursuant to the Agreement, we transferred all assets and business operations associated with our boiler business to Messrs. Ke and Jun. In exchange, Messrs. Ke and Jun agreed to assume and cancel all liabilities relating to our former business, including shareholder and officer loans amounting to $24,318. In connection with this Agreement, Messrs. Ke and Jun further sold 1,275,000 shares of their common stock in our company to Mr. Chang, and Mr. Chang cancelled 1,200,517 of those shares he received and returned them to our treasury.
In connection with the Agreement and Assignment Agreement, Sean Webster resigned in his position as an officer and director with our company. In his stead, Ben Chang was appointed as our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director. Under the direction of our newly appointed officer and director, the Company engaged in its new business to pursue the development of RP-323 (12–O-tetradecanoylphorbol-13-acetate) for the treatment of Acute Myelogenous Leukemia (AML) and Stroke (for the treatment of loss of function caused by Stroke.)
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An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this Annual Report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled "Special Notes Regarding Forward-Looking Statements" for a discussion of what types of statements are forward-looking statements as well as the significance of such statements in the context of this report.
Risks Related To Our Business
We are a development stage company and may never commercialize any of our products or services or earn a profit. Prior to July 19, 2013, we were a “shell” company with no or nominal operations. We recently became funded and commenced operations. We are a start up company in the business of developing treatments for Acute Myelogenous Leukemia (AML). We currently have no products ready for commercialization, have not generated any revenue from operations and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our technology. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue from our technology or attain profitability, we will not be able to sustain operations. Because of the numerous risks and uncertainties associated with developing and commercializing our technology, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our common stock. An investor in our common stock must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of medical treatments. We may never successfully commercialize our technology, and our business may fail.
We will need to raise substantial additional capital to commercialize our technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts. As of the date of this Annual Report on Form 10K, we have limited cash resources. Due to our expectation that we will continue to incur losses in the future, we will be required to raise additional capital to complete the development and commercialization of our technology. During the next 12 months and potentially thereafter, we will have to raise additional funds to continue the development and commercialization of our technology. When we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our technologies, restrict our operations or obtain funds by entering into agreements on unattractive terms.
Our ability to successfully commercialize our technology will depend largely upon the extent to which third-party payors reimburse the costs for our treatment in the future. Physicians and patients may decide not to order our products unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid pay a substantial portion of the price of the treatment. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that our product candidates are:
• not experimental or investigational;
• effective;
• medically necessary;
• appropriate for the specific patient;
• cost-effective;
• supported by peer-reviewed publications; and
• included in clinical practice guidelines.
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Market acceptance, sales of products based upon our technology, and our profitability may depend on reimbursement policies and health care reform measures. Several entities conduct technology assessments of medical treatments and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a treatment or procedure. The levels at which government authorities and third-party payors, such as private health insurers and health maintenance organizations, may reimburse the price patients pay for such products could affect whether we are able to commercialize our products. Our technology may receive negative assessments that may impact our ability to receive reimbursement of the treatment. Since each payor makes its own decision as to whether to establish a policy to reimburse a treatment, seeking these approvals may be a time-consuming and costly process. We cannot be sure that reimbursement in the U.S. or elsewhere will be available for any of our products in the future. If reimbursement is not available or is limited, we may not be able to commercialize our products.
If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for our product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our treatment or reduce the payment rate for our treatment, which would reduce our revenue.
The commercial success of our product candidates will depend upon the degree of market acceptance of these products among physicians, patients, health care payors and the medical community. The use of our treatment technology has never been commercialized for any indication. Even if approved for sale by the appropriate regulatory authorities, physicians may not order treatment based upon out technology, in which event we may be unable to generate significant revenue or become profitable. Acceptance of our technology will depend on a number of factors including:
• acceptance of products based upon our technology by physicians and patients;
• successful integration into clinical practice;
• adequate reimbursement by third parties;
• cost effectiveness;
• potential advantages over alternative treatments; and
• relative convenience and ease of administration.
We will need to make leading physicians aware of the benefits of using our technology through published papers, presentations at scientific conferences and favorable results from our clinical studies. In addition, we will need to gain support from thought leaders who believe that our treatment will provide superior results. Ideally, we will need these individuals to publish support papers and articles which will be necessary to gain acceptance of our products. There is no guarantee that we will be able to obtain this support. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to order our treatment for their patients and consequently our revenue and profitability will be limited.
If our potential treatments are unable to compete effectively with current and future treatments targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated. The medical treatment industry for AML and stroke is intensely competitive and characterized by rapid technological progress. In each of our potential product areas, we face significant competition from large biotechnology, medical diagnostic and other companies. The technologies associated with the medical industry are evolving rapidly and there is intense competition within such industry. Certain companies have established technologies that may be competitive to our technology and any future products that we develop. Some of these competing companies may use different approaches or means to obtain results, which could be more effective or less expensive than our treatments. Moreover, these and other future competitors have or may have considerably greater resources than we do in terms of technology, sales, marketing, commercialization and capital resources. These competitors may have substantial advantages over us in terms of research and development expertise, experience in clinical studies, experience in regulatory issues, brand name exposure and expertise in sales and marketing as well as in operating central laboratory services. Many of these organizations have financial, marketing and human resources greater than ours; therefore, there can be no assurance that we can successfully compete with present or potential competitors or that such competition will not have a materially adverse effect on our business, financial position or results of operations.
Since our technology is under development, we cannot predict the relative competitive position of any product based upon the technology. However, we expect that the following factors will determine our ability to compete effectively: safety and efficacy; product price; turnaround time; ease of administration; performance; reimbursement; and marketing and sales capability.
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If our clinical studies do not prove the superiority of our technologies, we may never sell our products and services. The results of our clinical studies may not show that treatment results using our technology are superior to existing treatment. In that event, we will have to devote significant financial and other resources to further research and development, and commercialization of products using our technologies will be delayed or may never occur.
If we do not receive regulatory approvals, we may not be able to develop and commercialize our technology. We will need FDA approval to market products based on our technology in the United States and approvals from foreign regulatory authorities to market products based on our technology outside the United States. We have not yet filed an application with the FDA to obtain approval to market any of our proposed products. If we fail to obtain regulatory approval for the marketing of products based on our technology, we will be unable to sell such products and will not be able to sustain operations. The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of products based on our technology, as well as the evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. Securing regulatory approval for products based upon our technology may require the submission of extensive preclinical and clinical data and supporting information to regulatory authorities to establish such products’ safety and effectiveness for each indication. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals.
Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decide after review of an application that the data submitted is insufficient to allow approval of any product based upon our technology. If regulatory authorities do not accept or approve our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatory authorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authorities believe is sufficient. Depending on the extent of these studies, approval of applications may be delayed by several years, or may require us to expend more resources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval, which might cause us to cease operations.
If we are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage. We will rely on patent protection as well as a combination of copyright and trade secret protection, and other contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we fail to protect our intellectual property, we will be unable to prevent third parties from using our technologies and they will be able to compete more effectively against us. We cannot assure you that the patent issued to us will not be challenged, invalidated or held unenforceable. We cannot guarantee you that we will be successful in defending challenges made in connection with our patent and any future patent applications. In addition to our patent and any future patent applications, we will rely on contractual restrictions to protect our proprietary technology. We will require our employees and third parties to sign confidentiality agreements and employees to also sign agreements assigning to us all intellectual property arising from their work for us. Nevertheless, we cannot guarantee that these measures will be effective in protecting our intellectual property rights.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology. The inventor of the intellectual property which was assigned to the Company in July 2013 by Imagic, LLC and Richard L. Chang’s Holdings, LLC is presently in declaratory relief litigation with Biosuccess Biotech, Co. LTD. (“Biosuccess”), a company who was previously assigned licensing rights in the intellectual property. In connection with this litigation, on January 17, 2014, the Company received notice of a complaint filed by Biosuccess against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (our CEO and a director) in the United States District Court, Central District of California Western Division (the “District Court”). The Complaint includes allegations of patent and copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unfair competition and other causes of actions against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (the “Litigation”). The Complaint seeks relief which includes compensatory damages, attorneys’ fees and costs, an award of treble damages, and such other relief as the court may deem just and proper. As previously disclosed on January 4, 2016, the Litigation has been settled through a confidential mediation process supervised by the Federal Court and the Litigation has been dismissed with prejudice by the Federal Court. The Company incurred substantial legal fees in defending the Litigation.
Also, our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. There may be third-party patents, patent applications and other intellectual property relevant to our potential products that may block or compete with our products or processes. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions. In addition, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies if any, awarded against us would not be substantial. Claims of intellectual property infringement may require us to enter into royalty or license agreements with third parties that may not be available on acceptable terms, if at all. We may also become subject to injunctions against the further development and use of our technology, which would have a material adverse effect on our business, financial condition and results of operations. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
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Our financial statements have been prepared assuming that the Company will continue as a going concern. We have generated losses to date and have limited working capital. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report included herein. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.
We do not expect to pay dividends for the foreseeable future, and we may never pay dividends and, consequently, the only opportunity for investors to achieve a return on their investment is if a trading market develops and investors are able to sell their shares for a profit or if our business is sold at a price that enables investors to recognize a profit. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.
Corporate and Other Risks
Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director. Our Company’s certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director.
We are responsible for the indemnification of our officers and directors. Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
Certain provisions of our Certificate of Incorporation may make it more difficult for a third party to effect a change-of-control. Our certificate of incorporation authorizes the Board of Directors to issue up to 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.
The issuance of Preferred Stock to our Chief Executive Officer provides him with voting control which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company. Our Chief Executive Officer has 6,000,000 shares of Preferred Stock which provide him with 100 to 1 voting rights over shares of common stock. This ownership provides him with voting control over matters which require shareholder approval. This concentration of voting power could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. If you acquire shares of our common stock, you may have no effective voice in the management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.
We are dependent for our success on a few key individuals. Our success depends on the skills, experience and performance of key members of our management team. Each of those individuals may voluntarily terminate his relationship with the Company at any time. Were we to lose one or more of these key individuals, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our executive officers.
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Capital Market Risks
Our common stock recently commenced trading and has limited volume and high price volatility, so you may be unable to sell your shares to raise money or otherwise desire to liquidate your shares. The Company’s common stock commenced trading March 14, 2014 on the OTC Markets. The trading volume has been very limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTC stocks and certain major brokerage firms restrict their brokers from recommending OTC stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect our underlying value. The market price of our common stock is subject to wide fluctuations, and may be subject to further fluctuations based on announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.
The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to Securities and Exchange Commission (“SEC”) Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.
We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock. Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.
We may be unable to list our common stock on NASDAQ or on any securities exchange. Although we may apply to list our common stock on NASDAQ or the American Stock Exchange in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. If our common stock begins trading, until such time as we would qualify for listing on NASDAQ, the American Stock Exchange or another trading venue, our common stock would trade on OTC Markets or OTC Bulletin Board or another over-the-counter quotation system where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors. Consequently, if our common stock begins trading, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.
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Future sales and issuances of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price. There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.
Conversion of our convertible notes into common stock could result in additional dilution to our stockholders. We have issued convertible notes which are convertible into shares of our common stock at conversion prices which are at a discount to the then current trading price of our common stock. Additionally, upon the occurrence of certain events of default (including conditions outside of our control) the note holders are entitled to increased repayment and interest rates, as well as other remedies. The note holders have anti-dilution and conversion reset provisions which are triggered by the issuance of lower priced securities.
The Company has issued a significant number of shares of common stock as a result of the conversion of these convertible notes and expects to continue to issue a significant number of shares in the future. As shares of our common stock are issued due to the conversion of some or all of the convertible notes in the future, the ownership interests of existing stockholders will continue to be diluted and such dilution is expected to be significant.
Events of Default under our convertible notes could result in a judgment against the Company and a foreclosure on all of our assets. We have issued convertible notes which have remedies to the note holder which include a confession of judgment against us in the event of a default. We are currently in default under these convertible notes for our failure to timely file our public reports with the Securities and Exchange Commission. The exercise of rights by the note holder for this event of default could result in a judgment against us and the foreclosure upon all of our assets which would have a material adverse effect on the Company and the price of its shares.
The Company’s common stock was the subject of an unauthorized spam stock promotion. In April 2014, the Company was made aware of spam stock promotion regarding shares of the Company. The Company received complaints, and was forwarded emails and links to social media sites, relating to unsolicited messages containing false and misleading information regarding the Company and its stock price. The spam mails touted RCHA as "the opportunity of the year" that could go past "2 or 3 dollars". The Company did not, and does not, authorize, endorse or sponsor these illegal spam stock promotions or any of the information contained in the emails. However, the spam stock promotions caused the OTC Markets to place a skull and crossbones next to the Company’s stock symbol on the OTC Markets website warning investors with respect to the Company’s stock, and may have caused reputational damage to the Company and its stock. The Company does not have the ability to stop or restrict any future spam stock promotions which may occur and any such future promotions could have an adverse effect on the Company and its share price.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Our corporate offices are located at 9595 Wilshire Blvd, Suite 900, Beverly Hills, California 90212, where we have shared use of the office space and conference rooms comprised of approximately 450 square feet. We believe the leased office space is in good condition and adequate to meet our current and anticipated requirements.
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is currently trading at $0.0002 per common share on July 13, 2018, on the OTC Markets under the symbol “RCHA”. The table below lists the high and low closing prices per share of our common stock for each quarter of the years ended March 31, 2018 and March 31, 2017, as quoted on the OTC Markets.
| For The Year Ended March 31, 2018 | High | Low | ||
| Fourth Quarter (January 1, 2018 to March 31, 2018) | .0008 | .0002 | ||
| Third Quarter (October 1, 2017 to December 31, 2017) | .0017 | .0004 | ||
| Second Quarter (July 1, 2017 to September 30, 2017) | .0078 | .0005 | ||
| First Quarter (April 1, 2017 to June 30, 2017) | .004 | .0002 | ||
| For The Year Ended March 31, 2017 | High | Low | ||
| Fourth Quarter (January 1, 2017 to March 31, 2017) | .0003 | .0001 | ||
| Third Quarter (October 1, 2016 to December 31, 2016) | .0002 | .0001 | ||
| Second Quarter (July 1, 2016 to September 30, 2016) | .0005 | .0002 | ||
| First Quarter (April 1, 2016 to June 30, 2016) | .0013 | .0003 |
Holders
As of July 13, 2018, there are approximately 34 shareholders of record of our common stock based upon the shareholders’ listing provided by our transfer agent. Our transfer agent is Empire Stock Transfer Inc., 1859 Whitney Mesa Dr., Henderson, NV 89014, and its phone number is 702-818-5898.
Reincorporation in Wyoming
On February 28, 2018, stockholders holding approximately 86% of the voting power of the company took action by written consent for the purpose of (i) changing the Company’s state of incorporation from Nevada to Wyoming; (ii) increasing the amount of authorized common stock of the Company to 40,000,000,000 of shares of common stock, par value $0.001 per share; and (iii) approving a provision in the Company’s articles of incorporation to provide for action by majority written consent of the stockholders.
Dividends
We have never paid cash dividends on our common stock. We intend to keep future earnings, if any, to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Our future payment of dividends will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors that our board of directors may deem relevant. Our retained earnings deficit currently limits our ability to pay dividends.
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Securities Authorized for Issuance Under Equity Compensation Plans
On September 6, 2013, our Board of Directors adopted the Rich Pharmaceuticals, Inc. 2013 Stock Option/Stock Issuance Plan (the “Plan”). The Plan was subsequently amended to increase the number of shares reserved under the Plan to12,000,000. The Plan is intended to promote the interests of our Company by providing eligible person with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in Company as an incentive for them to remain in the service of the Company. The maximum number of shares available to be issued under the Plan is currently 600,000 shares, subject to adjustments for any stock splits, stock dividends or other specified adjustments which may take place in the future. A complete description of the Plan, as amended, is included as an exhibit to our Current Reports on Form 8-K filed with the SEC on June 4, 2013, October 6, 2014 and April 8, 2015.
On March 30, 2017, the Company’s Board of Directors approved the adoption of the Rich Pharmaceuticals, Inc. 2017 Stock Option/Stock Issuance Plan (the "2017 Plan”) and the reservation of 600,000,000 shares of Company common stock for issuance under the 2017 Plan. The 2017 Plan is intended to aid the Company in recruiting and retaining key employees, directors or consultants and to motivate them by providing incentives through the granting of awards of stock options or other stock based awards. The 2017 Plan is administered by the board of directors. Directors, officers, employees and consultants of the Company and its affiliates are eligible to participate under the 2017 Plan. The foregoing is only a brief description of the material terms of the 2017 Plan, and does not purport to be a complete description of the 2017 Plan, and such description is qualified in its entirety by reference to the 2017 Plan which is filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 4, 2017.
Equity Compensation Plan Information
The table below sets forth information as of March 31, 2018 with respect to compensation plans under which our common stock is authorized for issuance:
| Plan Category | Number
of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average
exercise price of outstanding options |
Number
of securities remaining available for future issuance under equity compensation plans |
| Equity Compensation Plans Approved By security holders | None | Not Applicable | Not Applicable |
| Equity Compensation Plans Not Approved By Security Holders—2013 Equity Incentive Plan | 600,000 | $.0001 | 0 |
| Equity Compensation Plans Not Approved By Security Holders—2017 Equity Incentive Plan | 600,000,000 | $.0001 | 20,000,000 |
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company we are not required to provide the information required by this item.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." below. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this report. See "Forward-Looking Statements," above.
Overview and Financial Condition
Results of Operations
Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017
We had $115,000 in revenues during the period ending March 31, 2018 and $0.00 in the period ending March 31, 2017. In July 2013, the Company entered the start-up phase of its operations.
Operating expenses for the year ending March 31, 2018 were $1,451,388 which consisted primarily of wages and taxes of $555,414; research and development of $332,634; and office expenses of $177,483. Operating expenses for the year ending March 31, 2017 were $951,817, which consisted primarily of office expenses of $123,619; professional fees of $220,411; wages and taxes of $362,626. Operating expenses increased significantly compared to the year ending March 31, 2017 due to increased research and development activity.
We had a net loss of $1,692,341 for the year ending March 31, 2018 compares to a net loss of $3,241,329 for the year ending March 31, 2017. The decrease in the net loss was due to significantly reduced change in the value of our derivative liabilities.
Liquidity and Capital Resources
We have primarily financed our operations through the sale of convertible notes payable.
As of March 31, 2018, our Company had cash of $6,222 and total assets of $37,429. We had total liabilities of $6,396,089 and a working capital deficit of ($6,371,573) and Stockholders’ deficit totaled ($6,358,660) as of March 31, 2018.
Net cash used in operating activities was $508,479 for the year ended March 31, 2018, and was $553,394 for the period ending March 31, 2017. The net cash used by operating activities was related to increase in the value of our derivative liabilities over the previous period.
Net cash provided by financing activities was $491,098 for the year ended March 31, 2018, and was $604,297 for the period ended March 31, 2017. The net cash provided by financing activities was mainly attributable to proceeds from the sale of equity, warrants and convertible notes.
Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our financial statements and our independent public accountants have included a similar discussion in their opinion on our financial statements through March 31, 2018. We will be required to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.
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Capital Expenditures
Our current plans do not call for our Company to expend significant amounts for capital expenditures for the foreseeable future beyond relatively insignificant expenditures for office furniture and information technology related equipment as we add employees to our Company.
Critical Accounting Policies Involving Management Estimates and Assumptions
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include those related to the allowance for doubtful accounts; valuation of inventories; valuation of goodwill, intangible assets and property and equipment; valuation of stock based compensation expense, the valuation of warrants and conversion features; and other contingencies. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions.
The following is a discussion of certain of the accounting policies that require management to make estimates and assumptions where the impact of those estimates and assumptions may have a substantial impact on our financial position and results of operations.
Income Taxes:
We account for income taxes using the asset and liability method, which recognizes deferred tax assets and liabilities, determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. In addition, FASB guidance requires us to recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained.
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
We review the terms of convertible debt and equity instruments it issues to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount.
The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
Stock Based Compensation:
We measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized in the Consolidated Statement of Operations over the period during which the employee is required to provide service in exchange for the award – the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments.
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Recent Accounting Pronouncements
See “Note 1 – Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" of Part II of this report.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of the year ended March 31, 2018, nor do we have any as of the date of this Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company we are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements are included beginning on page F-1 of this report:
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders
of Rich Pharmaceuticals, Inc.
Beverly Hills, California
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Rich Pharmaceuticals, Inc. (“the Company”) as of March 31, 2018 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 12 to the financial statements, the Company has a significant working capital deficit, has not yet received significant revenue from sales, and has incurred significant losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 12. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Fruci & Associates II, PLLC
We have served as the Company’s auditor since 2017.
Spokane, Washington | |
| July 16, 2018 | |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Rich Pharmaceuticals, Inc.
Beverly Hills, California
We have audited the accompanying balance sheet of Rich Pharmaceuticals, Inc., as of March 31, 2017 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended March 31, 2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rich Pharmaceuticals, Inc., as of March 31, 2017, and the results of its operations and cash flows for the year ended March 31, 2017, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that Rich Pharmaceuticals, Inc. will continue as a going concern. As discussed in Note 11 to the financial statements, the Company has incurred losses from operations, has limited working capital and is in need of additional capital to grow its operations so that it can become profitable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 11. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KLJ & Associates, LLP
KLJ & Associates, LLP
Edina, Minnesota
September 1, 2017
| F-2 |
BALANCE SHEETS
| March 31, 2018 | March 31, 2017 | ||||||
| ASSETS | |||||||
| Current Assets | |||||||
| Cash and equivalents | $ | 6,222 | $ | 40,903 | |||
| Prepaid expenses | 2,994 | — | |||||
| Notes receivable | 15,300 | 10,000 | |||||
| Total Current Assets | 24,516 | 50,903 | |||||
| Property and equipment, net | 913 | 2,125 | |||||
| Securities available for sale | 12,000 | — | |||||
| TOTAL ASSETS | $ | 37,429 | $ | 53,028 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current Liabilities | |||||||
| Accounts payable | $ | 327,146 | $ | 296,635 | |||
| Accounts payable – related party | 393,953 | 53,000 | |||||
| Accrued expenses | 1,844,207 | 937,783 | |||||
| Due to related parties | 16,319 | 49,395 | |||||
| Note payable | 900,000 | 920,000 | |||||
| Convertible notes payable, net of debt discount of $312,669 and $356,819 | 815,040 | 514,075 | |||||
| Derivative liabilities | 2,099,424 | 2,607,959 | |||||
| Total Current Liabilities | 6,396,089 | 5,378,847 | |||||
| Total Liabilities | 6,396,089 | 5,378,847 | |||||
| Commitments and Contingencies | — | — | |||||
| Stockholders’ Deficit | |||||||
| Preferred stock, $.001 par value, 10,000,000 shares authorized, 6,000,000 shares issued and outstanding, respectively | 6,000 | 6,000 | |||||
| Common stock, $0.001 par value, 40,000,000,000 shares authorized, 1,709,057,821 and 101,446,215 shares issued and outstanding, | 1,709,058 | 101,446 | |||||
| Common stock to be issued | 100,000 | — | |||||
| Additional paid-in capital | 5,963,392 | 7,011,504 | |||||
| Accumulated deficit | (14,137,110 | ) | (12,444,769 | ) | |||
| Total Stockholders’ Deficit | (6,358,660 | ) | (5,325,819 | ) | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 37,429 | $ | 53,028 | |||
See accompanying notes to financial statements.
| F-3 |
STATEMENTS OF OPERATIONS
| Year Ended March 31, 2018 | Year Ended March 31, 2017 | ||||||
| REVENUES | $ | 115,000 | $ | — | |||
| OPERATING EXPENSES | |||||||
| Consulting expenses | 127,050 | 45,554 | |||||
| Office expenses | 177,483 | 123,619 | |||||
| Depreciation expense | 1,212 | 1,606 | |||||
| Wages and taxes | 555,414 | 362,626 | |||||
| Professional fees | 144,270 | 220,411 | |||||
| Regulatory fees | 55,889 | 19,018 | |||||
| Research and development | 332,634 | 71,930 | |||||
| Stock-based compensation | — | 48,016 | |||||
| Travel, meals and entertainment | 57,436 | 59,037 | |||||
| TOTAL OPERATING EXPENSES | 1,451,388 | 951,817 | |||||
| LOSS FROM OPERATIONS | (1,336,388 | ) | (951,817 | ) | |||
| OTHER INCOME (EXPENSE) | |||||||
| Amortization of debt discount | (956,871 | ) | (272,184 | ) | |||
| Change in value of derivative liability | 1,549,678 | (1,112,538 | ) | ||||
| Derivative expense | (549,807 | ) | (608,949 | ) | |||
| Interest expense | (663,633 | ) | (224,828 | ) | |||
| Interest expense – related party | (614 | ) | (536 | ) | |||
| Gain on sale of securities available for sale | 52,000 | — | |||||
| Gain (Loss) on extinguishment of debt | 213,294 | (70,477 | ) | ||||
| (355,953 | ) | (2,289,512 | ) | ||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
(1,692,341 | ) | (3,241,329 | ) | |||
| PROVISION FOR INCOME TAXES | — | — | |||||
| NET INCOME (LOSS) | $ | (1,692,341 | ) | $ | (3,241,329 | ) | |
| NET INCOME (LOSS) PER SHARE: BASIC AND DILUTED | $ | (0.002 | ) | $ | (0.08 | ) | |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | 763,471,959 | 41,403,529 | |||||
See accompanying notes to financial statements.
| F-4 |
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 31, 2016 TO MARCH 31, 2018
| Preferred Stock | Common Stock | Additional Paid-in | Common | Accumulated | Total
Stockholders’ Equity | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Issued | Deficit | (Deficit) | ||||||||||||||||||||||||
| Balance, March 31, 2016 | 6,000,000 | $ | 6,000 | 10,818,213 | $ | 10,818 | $ | 6,794,920 | $ | — | $ | (9,203,440 | ) | $ | (2,391,702 | ) | |||||||||||||||
| Stock options granted for services | — | — | — | — | 48,016 | — | 48,016 | ||||||||||||||||||||||||
| Warrants issued for services | — | — | — | — | 45,466 | — | 45,466 | ||||||||||||||||||||||||
| Stock issued for debt conversion | — | — | 90,628,002 | 90,628 | 60,314 | — | 150,942 | ||||||||||||||||||||||||
| Derivative liability closed to APIC | — | — | — | — | 62,788 | — | 62,788 | ||||||||||||||||||||||||
| Net loss for the year ended March 31, 2017 | — | — | — | — | — | — | (3,241,329 | ) | (3,241,329 | ) | |||||||||||||||||||||
| Balance, March 31, 2017 | 6,000,000 | $ | 6,000 | 101,446,215 | $ | 101,446 | $ | 7,011,504 | $ | — | $ | (12,444,769 | ) | $ | (5,325,819 | ) | |||||||||||||||
| Stock issued for debt conversion | — | — | 1,607,611,606 | 1,607,612 | (1,217,656 | ) | — | — | 389,956 | ||||||||||||||||||||||
| Derivative liability closed to APIC | — | — | — | — | 169,544 | — | — | 169,544 | |||||||||||||||||||||||
| Stock to be issued | — | — | — | — | — | 100,000 | — | 100,000 | |||||||||||||||||||||||
| Net loss for the year ended March 31, 2018 | — | — | — | — | — | — | (1,692,341 | ) | (1,692,341 | ) | |||||||||||||||||||||
| Balance, March 31, 2018 | 6,000,000 | $ | 6,000 | 1,709,057,821 | $ | 1,709,058 | $ | 5,963,392 | $ | 100,000 | $ | (14,137,110 | ) | $ | (6,358,660 | ) | |||||||||||||||
See accompanying notes to financial statements.
| F-5 |
STATEMENTS OF CASH FLOWS
| Year Ended March 31, 2018 | Year Ended March 31, 2017 | ||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
| Net loss for the period | $ | (1,692,341 | ) | $ | (3,241,329 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||
| Depreciation expense | 1,212 | 1,606 | |||||
| Amortization of debt discount | 956,871 | 272,184 | |||||
| Change in value of derivative liability | (1,549,678 | ) | 1,112,538 | ||||
| Derivative expense | 549,807 | 608,949 | |||||
| Loss on extinguishment of debt | (213,294 | ) | 70,477 | ||||
| Interest converted into stock | — | 11,010 | |||||
| Warrants issued for services | — | 45,466 | |||||
| Stock-based compensation | — | 48,016 | |||||
| Changes in operating assets and liabilities: | |||||||
| Increase (decrease) in prepaid expenses | (2,994 | ) | 2,800 | ||||
| Increase (decrease) in bank overdraft | — | (2,948 | ) | ||||
| Increase in accounts payable | 371,464 | 110,204 | |||||
| Increase in accrued expenses | 1,070,474 | 407,633 | |||||
| Net Cash Used by Operating Activities | (508,479 | ) | (553,394 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITY: |
|||||||
| Increase in notes receivable | (5,300 | ) | (10,000 | ) | |||
| Increase in securities available for sale | (12,000 | ) | — | ||||
| Net Cash Used by Investing Activities | (17,300 | ) | (10,000 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|||||||
| Loans received (repaid) from/to related parties | (33,076 | ) | (27,518 | ) | |||
| Proceeds from sale of common stock and warrants | 100,000 | — | |||||
| Proceeds from (repayment) of note payable | (20,000 | ) | 20,000 | ||||
| Proceeds from issuance of convertible notes payable | 444,174 | 611,815 | |||||
| Net Cash Provided by Financing Activities | 491,098 | 604,297 | |||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (34,681 | ) | 40,903 | ||||
| Cash and cash equivalents, beginning of period | 40,903 | — | |||||
| Cash and cash equivalents, end of period | $ | 6,222 | $ | 40,903 | |||
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||
| Interest paid | $ | — | $ | — | |||
| Income taxes paid | $ | — | $ | — | |||
| SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION: | |||||||
| Accounts payable converted into note payable | $ | — | $ | 900,000 | |||
| Warrants issued for accrued expenses | $ | — | $ | 36,000 | |||
| Original issue discounts recorded on notes payable | $ | 24,850 | $ | 30,000 | |||
| Debt discounts recorded on convertible notes payable | $ | 887,871 | $ | 543,858 | |||
| Debt/interest converted into common stock and contributed capital | $ | 391,958 | $ | 389,100 | |||
See accompanying notes to financial statements.
| F-6 |
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
On February 28, 2018 the Company changed its corporate domicile from Nevada to Wyoming. On August 9, 2010 the Company was incorporated as Nepia Inc. in the State of Nevada. From August 9, 2010 to July 18, 2013, the Company was in the business of developing, manufacturing, and selling small boilers aimed at farmers primarily in Southeast Asia. Beginning on July 19, 2013, the Company acquired bio-pharmaceutical intellectual property for the treatment of acute myeloid leukemia (AML) and is entering into phase II human studies. The goal is to perfect this indication for marketing purposes for distribution world-wide. On August 26, 2013, as a consequence of our new business direction, the Company changed its name to Rich Pharmaceuticals, Inc. (“Rich” or “the Company”).
On July 18, 2013, the Company designated, from our 10,000,000 authorized shares of preferred stock, par value $0.001, 6,000,000 shares of Series “A” Preferred Stock. Our Series “A” Preferred Stock has voting rights of 100 votes per share and votes with common shares as a single class.
On July 18, 2013, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents” and all related intellectual property associated with the patent. In consideration for the intellectual property the Company issued 41,384 common shares, and 6,000,000 Series “A” Preferred shares. The common and preferred shares were valued at $123,973. The Company further agreed to use its best efforts to complete a financing resulting in proceeds of at least $2,000,000. If the Company was unable to raise $400,000 according to the terms of the Assignment Agreement, the patent reverts back to Imagic, LLC and its principals. On January 17, 2014, the right of reversion was terminated in exchange for a payment of $20,000.
On July 19, 2013, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Sale Agreement”) with our prior officers and directors. Pursuant to the Sale Agreement, the Company transferred all assets and business operations associated with our boiler business in exchange for assumption of all obligations associated with that business and cancellation of loans amounting to $28,818. The cancellation of debt was recorded as additional paid-in capital. In consequence to the Sale Agreement two former officers sold 265,646 common shares held by them to our new officer/director. In turn, our new officer/director agreed to cancel 250,128 of those shares he received and returned them to treasury for retirement. Certain other shareholders also agreed to cancel 131,261 common shares. (All shares stated at post-split amounts.)
On September 5, 2013, the Company increased the authorized common shares, par value $0.0010, from 900,000 shares to 375,030,000 shares. Correspondingly, the Company affirmed a forward split of 4.167 for 1 in which each shareholder was issued 4.167 common shares for each share held. All share and per share date included in these financial statements has been retrospectively adjusted to account for the stock split.
Effective February 11, 2016, the Company approved a reverse stock split of the common stock, par value $0.001 per share at a ratio of 1 for 100 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the reverse stock split for all periods.
Effective June 7, 2017, the Company approved a reverse stock split of the common stock, par value $0.001 per share at a ratio of 1 for 20 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the reverse stock split for all periods.
| F-7 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. At March 31, 2018 and March 31, 2017 the Company had $6,222 and $40,903, respectively, of unrestricted cash.
Basis of Presentation
The financial statements of the Company have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America and are presented in U.S. dollars. The Company has adopted a March 31 fiscal year end.
Property and Equipment
Property and equipment is recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives of the assets are as follows: Computer equipment, 3 years.
Long-Lived and Intangible Assets
The Company accounts for long-lived and intangible assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, amounts due to related parties, stock deposits, and a convertible note payable. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
The Company accounts for financial instruments in accordance with guidance from ASU 820 – Fair Value Measurements and Disclosures. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1 – Observable inputs such as quoted prices in active markets;
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| F-8 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (continued)
The Company did not have any level 1 or level 3 financial instruments at March 31, 2018 or March 31, 2017. As of March 31, 2018, the derivative liabilities were considered a level 2 item; see Note 9.
The Company has securities available for sale which are not evaluated using the above hierarchy due to common control issues, these securities are carried at the transaction price. (See Note 3)
For any delinquent convertible notes, the Company increases the term of the note by 180 days for calculation of Black Scholes valuation only, until the note is paid in full.
Use of Estimates
The preparation of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Revenue Recognition
The Company will recognize revenue when products are fully delivered or services have been provided and collection is reasonably assured.
Research and Development
The Company will charge research and development costs to expense when incurred. The research and development costs include payments made to unrelated third party vendors for their work on enhancements to existing technology, or research into new potentially patentable products or processes.
Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. On September 6, 2013, the Company approved the adoption of Rich Pharmaceuticals, Inc. 2013 Stock Option/Stock Issuance Plan (the "2013 Plan”). The 2013 Plan is intended to aid in recruiting and retaining key employees, directors or consultants and to motivate them by providing incentives through the granting of awards of stock options or other stock based awards. The 2013 Plan is administered by the board of directors. Directors, officers, employees and consultants and our affiliates are eligible to participate under the 2013 Plan. A total of 195,002 common shares have been reserved for awards under the 2013 Plan. During the year ended March 31, 2015, the Company granted 9,875 stock options to officers, directors, employees and consultants. During the period ended March 31, 2016, the Company granted 195,000 stock options to officers, directors, employees and consultants. During the period ended March 31, 2017, the Company granted 29,000,000 stock options to officers, directors, employees and consultants. The Company made the following modifications to the exercise prices of its options: January 12, 2015, the Company modified the exercise price on all outstanding stock options to $3.40; April 6, 2015, the Company modified the exercise price on all outstanding stock options to $1.60 per share; August 4, 2015, the Company modified the exercise price on all outstanding stock options to $0.20 per share. (All shares are stated at post-split amounts).
| F-9 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic Loss Per Share
The basic earnings (loss) per share is calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. Total potentially dilutive instruments are: 9,446,533 common share warrants, and 29,228,627 common shares upon exercise of outstanding options, and 9,397,575,000 common shares upon conversion of all convertible notes. In periods of net losses the dilutive loss per share is the same as the basic loss per share because the effect of the dilutive shares in periods of loss is antidilutive.
Recent Accounting Pronouncements
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for the annual period ending June 30, 2019 and interim periods within that annual period. Early adoption is permitted. The Company does not expect ASU 2017-09 will have a significant impact on its financial statements upon adoption.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is evaluating the effect that ASU 2017-11 will have on its financial statements and related disclosures.
On June 20, 2018, the FASB issued ASC 2018-7, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. This guidance largely aligns the accounting for share-based payments issued to employees and nonemployees. Under this guidance the existing employee guidance in Topic 718 will also be applied to all nonemployee stock-based transactions, as long as the transaction is not effectively a form of financing. The Company currently accounts for nonemployee stock-based compensation as if the Company had paid cash for the services which is consistent with the ASC 2018-7 guidance.
| F-10 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company accounts for employee stock-based compensation in accordance with the guidance of ASC Topic 718: Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option, whichever can be more clearly determined.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment, recorded at cost, consisted of the following as of March 31, 2018 and March 31, 2017:
| March 31, 2018 | March 31, 2017 | ||||||
| Computer equipment & furniture | $ | 5,160 | $ | 5,160 | |||
| Less: accumulated depreciation | (4,247 | ) | (3,035 | ) | |||
| Property and equipment, net | $ | 913 | $ | 2,125 | |||
The useful life of the computer equipment and furniture is 3 years.
Depreciation expense was $1,212 and $1,606 for the periods ended March 31, 2018 and 2017, respectively.
NOTE 3 – SECURITIES AVAILABLE FOR SALE
The Company received 15,000,000 common stock shares of an entity that is majority owned by a non-majority stockholder of the Company as partial payment for access to the Company’s intellectual property. This holding represents about 11% of the ownership of the invested company. The Company stipulated that it will distribute a certain number of these shares to its shareholders as dividends upon necessary approvals, however, the cost to affect this distribution is prohibitive at this time, and the Company will re-evaluate the ability to make the distribution in the future. The Company classifies its equity securities held as available for sale, and as such, they are carried at fair value. Changes in fair value of available for sale securities will be reported as a component of other comprehensive income and evaluated at the end of each quarter. The shares currently do not have a firm trading price and thus they are carried at their par value until such time as the shares have established a trading price in the market.
During the year ended March 31, 2018, the Company paid for $27,000 of consulting fees with 1,000,000 shares of the securities available for sale. The Company also paid for $54,000 of advertising and promotion fees with 2,000,000 shares of the securities available for sale, recognizing an additional $52,000 gain on this transaction. The total gain on the sale of securities available for sale during the year ended March 31, 2018 was $52,000.
| F-11 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 4 – INTANGIBLE ASSETS
On July 18, 2013, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents” and all related intellectual property associated with the patent. In consideration for the intellectual property the Company issued 41,384 common shares and 6,000,000 Series “A” Preferred Stock. These shares were valued at a total of $123,973. The Company has also paid additional funds to third parties to further the development of this asset and terminate the right of reversion totaling $45,000. The Company analyzed the assets at March 31, 2014 and determined that the value could not be supported and impaired the assets to $0.
On October 6, 2014, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Compositions and methods of use of Phorbol Esters for the treatment of Hodgkin’s Lymphoma”, and all related intellectual property, inventions and trade secrets, data and clinical study results. In consideration for the intellectual property the Company issued 110,396 common shares. These shares were valued at a total of $7,904,355; however, since the asset was acquired from a related party the Company valued the asset at the cost of the asset to the related party, $82,120, and treated the excess value as a deemed dividend reducing additional paid in capital. The Company analyzed the assets at March 31, 2015 and determined that the value could not be supported and impaired the assets to $0.
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consisted of the following as of March 31, 2018 and 2017:
| March 31, 2018 | March 31, 2017 | ||||||
| Wages and taxes | $ | 1,274,745 | $ | 829,231 | |||
| Accrued interest | 569,462 | 108,552 | |||||
| Total accrued expenses | $ | 1,844,207 | $ | 937,783 | |||
NOTE 6 – RELATED PARTY DEBT AND TRANSACTIONS
During the year ended March 31, 2015, the Company received a $6,000 loan from a shareholder. During the period ended March 31, 2017 the Company received an additional $6,280 from this related party. The loan is unsecured and bears 8% interest and has an original due date of January 8, 2016. There is a total due of $12,280 as of March 31, 2018 and March 31, 2017. Interest accrued on the note as of March 31, 2018 was $1,517. The Company is in default on the balance of this note.
During the period ending March 31, 2016, the Company received $22,200 in unsecured non-interest bearing loans from related parties and during the period ending March 31, 2017 received an additional $14,450, the Company has repaid $36,650 of these loans leaving a total due of $0 as of March 31, 2018. These loans are deemed to be short-term and are payable at the discretion of the Company.
Periodically, related parties incur expenses for the Company and are expected to be repaid for those expenditures. As of March 31, 2018, the balance owed to related parties for these types of expenses is $2,522. These liabilities do not have stated interest rates or due dates, but are payable at the discretion of the Company.
| F-12 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 6 – RELATED PARTY DEBT AND TRANSACTIONS (CONTINUED)
The Company has a consulting agreement with a related party to provide research into new technologies as well as essential development of current products. The amounts owed to this related party for past work is a part of accounts payable and totals $393,953 and $53,000 for the periods ending March 31, 2018 and 2017, respectively.
On September 6, 2013, the Company entered into an Employment Agreement with our Chief Executive Officer, Chief Financial Officer, President and Secretary. The Employment Agreement provides for a term of two years, and has been extended for an additional two years; annual compensation of $275,000, a signing bonus of $68,750, and options to purchase up to 1,500 shares of common stock at an exercise price of $40.00 per share. The CEO earned $275,000 and $275,000 for the years ended March 31, 2018 and 2017 (respectively) as a result of this agreement, these amounts contribute to the $943,862 and $645,945 of officer compensation which is included in accrued expenses, as of March 31, 2018 and March 31, 2017.
The Company received $100,000 cash and 15,000,000 common stock shares of an entity that is majority owned by a non-majority stockholder of the Company as partial payment for access to the Company’s intellectual property. This receipt is classified as income in the period it was earned. (See Note 3)
During the year ended March 31, 2017, the Company loaned $10,000 to an entity owned by a related party. During the year ended March 31, 2018, the Company loaned an additional $5300 to this entity, for a balance receivable of $15,300. This loan is short-term and has no stated interest.
NOTE 7 – NOTE PAYABLE
On May 31, 2016, the Company issued a secured promissory note in the amount of $900,000. The note is due on August 1, 2017 and bears interest at 10% per annum. The loan replaced an account payable to a legal professional to cover past due amounts and penalties for non-payment. The note is guaranteed personally by two shareholders and collateralized by assets of the company and guarantors. The principal balance was $880,000 and accrued interest was $164,718 as of March 31, 2018.
On February 21, 2017, the Company issued a non-secured promissory note in the amount of $20,000. The note is due on August 21, 2017 and bears interest at 8% per annum. The loan was in payment for professional fees related to an equity financing agreement dated February 21, 2017, thus no cash was received by the Company. Accrued interest was $1,767 as of March 31, 2018.
NOTE 8 – CONVERTIBLE NOTE PAYABLE
On February 5, 2015, the Company issued a convertible promissory note in the amount of $54,000. The note is due on November 9, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending March 31, 2016 the note holder converted $33,020 in principal into 619,652 shares of common stock, and incurred a default fee of $27,000 leaving a remaining balance of $47,980. On February 22, 2017, this note was purchased for a renegotiated face value of $59,799, incurring additional financing fees of $11,819. (Details are provided under the note dated February 22, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
| F-13 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On March 9, 2015, the Company issued a convertible note payable in the amount of $55,000. The note bears 8% interest and was originally due on December 9, 2015, with a revised due date of June 23, 2017. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending March 31, 2016 the note holder converted $38,785 in principal and $5,135 in accrued interest into 2,886,693 shares of common stock. During the period ending June 30, 2016 the note holder converted $7,377 in principal and $422 in accrued interest into 2,324,229 shares of common stock leaving a remaining balance of $ 8,838. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $8,838, (details are provided under the note dated February 22, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On March 26, 2015, the Company issued a convertible note payable in the amount of $29,680 including an original issue discount of $1,680. The note bears 8% interest and is due on March 23, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) days prior to the conversion date. During the period ending March 31, 2016 the note holder converted $10,929 in principal into 796,236 shares of common stock leaving a remaining balance of $18,751. Accrued interest was $5,350 as of March 31, 2018. The Company is in default on the balance of this note.
On May 5, 2015, the Company issued a convertible note payable in the amount of $68,900 including an original issue discount of $3,900. The note bears 8% interest and is due on May 5, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 42% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. . During the period ending March 31, 2016 the note holder converted $8,461 in principal and $566 in accrued interest into 906,763 shares of common stock. During the period ending March 31, 2017 the note holder converted $60,439 in principal and $6,839 in accrued interest into 44,551,004 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2017.
On May 6, 2015, the Company issued a convertible note payable in the amount of $10,500. The note bears 8% interest and is due on February 8, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the thirty (30) trading day period ending on the latest complete trading day prior to the conversion date. The Company incurred a default fee of $5,250, leaving a balance of $15,750 as of March 31, 2017. On February 22, 2017, this note was purchased for a renegotiated face value of $20,900, incurring additional financing fees of $5,150. (Details are provided under the note dated February 22, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
| F-14 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On August 28, 2015, the Company issued a convertible note payable in the amount of $15,000. The note bears 8% interest and is due on August 28, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending March 31, 2017 the note holder converted $15,000 in principal and $939 in accrued interest into 4,351,619 shares of common stock leaving a remaining balance of $0. As of March 31, 2017 the principal and accrued interest balance is $0.
On September 4, 2015, the Company issued a convertible note payable in the amount of $19,000. The note bears 8% interest and is due on June 4, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $20,280, incurring additional financing fees of $1,280. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On December 29, 2015, the Company issued a convertible note payable in the amount of $57,378. The note bears 8% interest rate and was originally due on December 30, 2016, with a revised due date of June 23, 2017. The loan becomes convertible on December 29, 2015, the issue date of the note. The loan can then be converted into shares of the Company’s common stock at a rate of 65% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twelve (12) trading day period prior to the conversion date. During the period ending March 31, 2016 the note holder converted $59,934 in principal and $1,222 in accrued interest into 1,796,394 shares of common stock, and incurred a default penalty of $4,165, leaving a remaining balance of $1,609. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $1,609. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On January 22, 2016, the Company issued a convertible note payable in the amount of $60,500. The note bears 10% interest and is due on October 22, 2016. The loan becomes convertible on January 22, 2016. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty (20) trading day period prior to the conversion date. On April 4, 2017, this note was purchased for a renegotiated face value of $71,457. (Details provided under the note dated April 4, 2017 below). As of March 31, 2018 the principal and accrued interest balance is $0.
On February 25, 2016, the Company issued a convertible note payable in the amount of $27,500. The note bears 8% interest rate and is due on February 25, 2017. The loan becomes convertible on February 25, 2016, the issue date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 65% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twelve (12) trading day period ending on the latest complete trading day prior to the conversion date.. During the period ending March 31, 2017 the note holder converted $16,745 in principal and $1,380 in interest into 3,325,000 shares of common stock leaving a remaining balance of $10,755. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $10,755. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
| F-15 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On March 24, 2016, the Company issued a convertible note payable in the amount of $7,500. The note bears 8% interest rate and is due on March 24, 2017. The loan becomes convertible on March 24, 2016, the issue date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 65% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twelve (12) trading day period ending on the latest complete trading day prior to the conversion date. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $7,500. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On May 25, 2016, the Company issued a convertible note payable in the amount of $30,000. The note bears 8% interest and is due on May 25, 2017. The loan becomes convertible 180 days after issuance or November 21, 2016. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $38,107, incurring additional financing fees of $8,107. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On June 8, 2016, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $84,250. The note bears interest at the rate of 8% and must be repaid on or before June 8, 2017. The note and any accrued interest may be converted into shares of Company common stock at a conversion price equal to 50% of the lowest trading price during the 20-day period prior to conversion. On February 20, 2017, this note was consolidated with other outstanding convertible notes and purchased for a renegotiated face value of $134,214, incurring additional financing fees of $49,964. (Details are provided under the note dated February 20, 2017 below). As of March 31, 2017 the principal and accrued interest balance is $0.
On June 23, 2016, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $56,000. The note bears interest at the rate of 8% and must be repaid on or before June 23, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock at a conversion price equal to 50% of the lowest trading price during the 20-day period prior to conversion. As of March 31, 2018 the accrued interest balance is $7,929. The Company is in default on this note.
On July 7, 2016, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $58,000. The note bears interest at the rate of 8% and must be repaid on or before July 7, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, 180 days after issuance or January 3, 2017, at a conversion price equal to 50% of the lowest trading price during the 20-day period prior to conversion. During the period ended March 31, 2018, the lender converted $28,945 in principal and $1,902 in accrued interest into 69,039,300 common shares, leaving a remaining principal balance of $29,055. As of March 31, 2018 the accrued interest balance is $4,028. The Company is in default on this note.
| F-16 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On October 20, 2016, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $32,000. The note bears interest at the rate of 8% and must be repaid on or before October 20, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, 180 days after issuance or January 3, 2017, at a conversion price equal to 50% of the lowest trading price during the 20-day period prior to conversion. As of March 31, 2018, the accrued interest balance is $3,696. The Company is in default on this note.
On November 17, 2016, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $56,000. The note bears interest at the rate of 8% and must be repaid on or before June 23, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, 180 days after issuance or January 3, 2017, at a conversion price equal to 50% of the lowest trading price during the 20-day period prior to conversion. As of March 31, 2018, the accrued interest balance is $7,929. The Company is in default on this note.
On January 5, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $335,000. The note bears interest at the rate of 10%, contains a $30,000 OID, and must be repaid by October 5, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or January 5, 2017, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. During the period ended March 31, 2018, the lender converted $0 in principal and $74,707 in accrued interest into 656,380,000 common shares, leaving a remaining principal balance of $335,000. As of March 31, 2018, the accrued interest is $174,751, and the OID balance is $0. The Company is in default on this note.
On February 20, 2017, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $563,028 which is partially funded, the current balance consolidates unpaid convertible notes dated March 9, 2015; September 4, 2015; December 29, 2015; February 25, 2016; March 24, 2016; May 25, 2016; June 8, 2016; June 23, 2016; July 7, 2016; October 20, 2016; November 17, 2016. The note bears interest at the rate of 8%, and must be repaid by October 25, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or February 20, 2017, at a conversion price equal to 60% of the lowest trading price during the 20-day period prior to conversion. During the period ended March 31, 2017 the lender converted $34,370 in principal and $1,124 in accrued interest into 29,775,000 shares of common stock. During the period ended March 31, 2018 the lender converted $86,857 in principal and $13,143 in accrued interest into 277,300,000 common shares, leaving a principal balance of $124,095. As of March 31, 2018, the accrued interest is $66,239. The Company is in default on this note.
On February 21, 2017, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $15,000. The note bears interest at the rate of 8%, and must be repaid by October 25, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or February 21, 2017, at a conversion price equal to 60% of the lowest trading price during the 20-day period prior to conversion. As of March 31, 2018, the accrued interest is $11,032.
The Company is in default on this note.
On February 22, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $59,799, which refinances an unpaid convertible note dated February 5, 2015. The note bears interest at the rate of 10%, and must be repaid by October 25, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or February 22, 2017, at a conversion price equal to 60% of the lowest trading price during the 20-day period prior to conversion. This loan incurred default penalties for late filing of financial documents of $31,407 during the period ended March 31, 2018. The lender converted $59,799 of principle, $4,795 of interest, and $31,407 of penalties into 311,043,058 shares of common stock, leaving a loan and accrued interest balance of $0, as of March 31, 2018.
| F-17 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On February 22, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $20,900, which refinances an unpaid convertible note dated May 6, 2015. The note bears interest at the rate of 10%, and must be repaid by October 22, 2017. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or February 22, 2017, at a conversion price equal to 60% of the lowest trading price during the 20-day period prior to conversion. This loan incurred default penalties for late filing of financial documents of $34,156 during the quarter ended September 30, 2017. The lender converted $20,900 of principle, $23,913 of interest, and $34,156 of penalties into 293,848,193 shares of common stock, leaving a loan balance and accrued interest balance of $0 as of March 31, 2018.
On April 4, 2017, the Company issued an 8% Convertible Redeemable Promissory Note in the principal amount of $71,457, which refinances an unpaid convertible note dated January 22, 2016. The note bears interest at the rate of 8%, and must be repaid by January 4, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or April 4, 2017, at a conversion price equal to 60% of the lowest trading price during the 20-day period prior to conversion. As of March 31, 2018, the accrued interest is $46,957. The Company is in default on this note.
On April 18, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $109,500. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by January 30, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or April 4, 2017, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $67,234, and the OID balance is $0. The Company is in default on this note.
On November 3, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $34,500. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by August 3, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or November 3, 2017, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $1,408, and the OID balance is $1,335.
On December 18, 2017, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $43,850. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by September 18, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or December 18, 2017, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $1,511, and the OID balance is $2,375.
| F-18 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 8 – CONVERTIBLE NOTE PAYABLE (CONTINUED)
On January 10, 2018, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $67,500. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by October 10, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or January 10, 2018, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $1,461, and the OID balance is $3,999.
On February 15, 2018, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $78,500. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by November 15, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or February 15, 2018, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $1,110, and the OID balance is $5,444.
On March 15, 2018, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $56,500. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by December 15, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or March 15, 2018, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion. As of March 31, 2018, the accrued interest is $343, and the OID balance is $4,444.
During the year ended March 31, 2018, the Company incurred $456,494 under convertible loan default provisions. This amount has been included as interest expense.
NOTE 9 – DERIVATIVE LIABILITIES
In accordance with ASC 815, the Company has bifurcated the conversion feature of their convertible notes and recorded a derivative liability on the date each note became convertible. The derivative liability was then revalued on each reporting date.
As detailed in Note 7 (above) the Company has issued several convertible notes in varying amounts and terms, with the following loans becoming convertible during the periods ending March 31, 2018 and March 31, 2017: $29,680 note dated March 26, 2015; $60,500 note dated January 22, 2016 $56,000 note dated June 23, 2016; $58,000 note dated July 7, 2016; $32,000 note dated October 20, 2016; $56,000 note dated November 17, 2016; $335,000 note dated January 5, 2017; $563,028 note dated February 20, 2017; $15,000 note dated February 21, 2017; $59,799 note dated February 22, 2017; $20,900 note dated February 22, 2017; $71,457 note dated April 4, 2017; $115,000 note dated April 18, 2017; $34,500 note dated November 3, 2017; $43,850 note dated December 18, 2017; $67,500 note dated January 10, 2018; $78,500 note dated February 15, 2018; $56,500 note dated March 15, 2018.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the above convertible debt. During the period ended March 31, 2018, the Company recorded a total change in the fair market value of the derivative liabilities of $1,549,678.
| F-19 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 9 – DERIVATIVE LIABILITIES (CONTINUED)
The Company uses the Black-Scholes option pricing model to value the derivative liability upon the initial conversion date and at each reporting period. Included in the model to value the derivative liabilities of the above loans are the following assumptions: stock price at valuation date of $0.0003, exercise price of $0.00015 - $0.00012, dividend yield of zero, years to maturity of 0.0137 – .70959, a risk free rate of 1.63% - 2.09%, and annualized volatility of 278% - 456%. The above loans were all discounted in full. Based on the valuations on the initial valuation dates for the period ending March 31, 2018, the Company recognized debt discounts related to the conversion features totaling $887,871 and a derivative expense of $549,807 related to the excess value of the derivative liabilities. Once the loans are fully converted, the remaining derivative liability is reclassified to equity as additional paid-in capital , $169,544 was reclassified during the year ended March 31, 2018. As of March 31, 2018, unamortized debt discount, including original issue discounts totaled $312,669. The derivative liabilities totaled $2,099,424 as of March 31, 2018, of which $- related to long-term debt.
NOTE 10 – EQUITY TRANSACTIONS
The Company has 40,000,000,000 common shares authorized with a par value of $0.001 per share as of February 28, 2018.
The Company has 10,000,000 preferred shares authorized with a par value of $ 0.001 per share.
The following is a summary of the inputs used to determine the value of the warrants issued in connection with common stock using the Black-Scholes option pricing model.
| Date | March 30, 2017 |
| Warrants | 9,200,000 |
| Stock price on grant date | $0.002 |
| Exercise price | $0.002 |
| Expected life | 5 year |
| Volatility | 120% |
| Risk-free rate | 1.96% |
| Calculated value | $15,278 |
| Fair value allocation of proceeds | $45,466 |
| Unamortized option expense | $0 |
The following is a summary of the warrant activity for the period March 31, 2017 to March 31, 2018:
| Number of warrants | Weighted average exercise price | |||||||||
| Outstanding, March 31, 2017 | 9,446,533 | $ | 0.102 | |||||||
| Granted | — | — | ||||||||
| Exercised | — | — | ||||||||
| Outstanding, March 31, 2018 | 9,446,533 | $ | 0.102 | |||||||
On February 28, 2018, the Company effected an increase in authorized common stock to 40,000,000,000 shares.
| F-20 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 10 – EQUITY TRANSACTIONS (CONTINUED)
Effective June 7, 2017, the Company approved a reverse stock split of the common stock, par value $0.001 per share at a ratio of 1 for 20 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the reverse stock split for all periods.
During the period ended March 31, 2018, the Company issued common stock to satisfy convertible debt conversions at a price below par value as obligated by contract. During this period the Company issued 1,522,860,551 common shares at a below par rate, incurring an adjustment to additional paid in capital of $1,227,890.
During August 2017, the Company received $100,000 from a related party as consideration for a stock subscription agreement dated October 16, 2017. The agreement stipulates issuance of 333,333,333 common stock and an additional warrants to purchase another 333,333,333 common shares at $0.0003 per share for a five year term. As of March 31, 2018, the Company has available shares to fulfill this obligation but are awaiting the transfer agent’s instructions, thus the $100,000 collected on this agreement is recorded as common stock to be issued in the financial statements until such instructions become available to complete this transaction.
During the period ended March 31, 2017, the Company received, as listed, conversion notices from various note holders. The Company issued the following common shares to satisfy the conversion of the following debt and interest:
| Date | Debt/Interest Converted | Common Stock Issued | Price per Share |
| April 1, 2016 | $2,197 | 488,316 | $ 0.00450 |
| April 4, 2016 | $4,847 | 862,500 | $ 0.00562 |
| April 7, 2016 | $1,750 | 486,111 | $ 0.00360 |
| April 14, 2016 | $4,158 | 962,500 | $ 0.00432 |
| April 15, 2016 | $1,318 | 488,311 | $ 0.00270 |
| April 26, 2016 | $1,705 | 631,489 | $ 0.00270 |
| May 4, 2016 | $2,067 | 485,901 | $ 0.00426 |
| May 31, 2016 | $ 828 | 230,003 | $ 0.00360 |
| June 2, 2016 | $9,120 | 1,500,000 | $ 0.00608 |
| June 2, 2016 | $4,401 | 1,467,017 | $ 0.00300 |
| June 14, 2016 | $5,847 | 1,461,795 | $ 0.00400 |
| June 17,2016 | $5,691 | 1,422,808 | $ 0.00400 |
| June 29, 2016 | $6,580 | 1,063,518 | $ 0.00618 |
| August 23, 2016 | $2,567 | 1,106,487 | $ 0.00232 |
| August 29, 2016 | $2,570 | 1,107,806 | $ 0.00232 |
| September 6, 2016 | $2,547 | 1,097,634 | $ 0.00232 |
| September 20, 2016 | $2,443 | 1,263,383 | $ 0.00194 |
| September 26, 2016 | $2,946 | 1,269,672 | $ 0.00232 |
| September 28, 2016 | $2,947 | 1,270,172 | $ 0.00232 |
| September 30, 2016 | $3,949 | 2,553,336 | $ 0.00154 |
| October 7, 2016 | $3,381 | 2,914,578 | $ 0.00116 |
| October 14, 2016 | $3,380 | 2,913,784 | $ 0.00116 |
| October 21, 2016 | $3,385 | 2,917,784 | $ 0.00116 |
| October 26, 2016 | $3,382 | 2,915,828 | $ 0.00116 |
| October 31, 2016 | $5,037 | 4,341,852 | $ 0.00116 |
| November 7 , 2016 | $5,015 | 4,323,647 | $ 0.00116 |
| November 22, 2016 | $5,513 | 4,753,008 | $ 0.00116 |
| November 29, 2016 | $5,515 | 4,754,647 | $ 0.00116 |
| December 6, 2016 | $4,058 | 3,497,965 | $ 0.00116 |
| January 10, 2017 | $6,301 | 6,301,150 | $ 0.00100 |
| February 22, 2017 | $4,290 | 3,575,000 | $ 0.00120 |
| March 13, 2017 | $4,080 | 3,400,000 | $ 0.00120 |
| March 21, 2017 | $4,920 | 4,100,000 | $ 0.00120 |
| March 22, 2017 | $5,160 | 4,300,000 | $ 0.00120 |
| March 24, 2017 | $5,460 | 4,550,000 | $ 0.00120 |
| March 30, 2017 | $5,645 | 4,800,000 | $ 0.00118 |
| March 31, 2017 | $5,939 | 5,050,000 | $ 0.00118 |
| March 31, 2017 Total | $150,939 | 90,628,002 |
| F-21 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 10 – EQUITY TRANSACTIONS (CONTINUED)
During the period ended March 31, 2018, the Company received, as listed, conversion notices from various note holders. The Company issued the following common shares to satisfy the conversion of the following debt and interest:
| Date | Debt/Interest Converted | Common Stock Issued | Price per Share |
| April 5, 2017 | $6,233 | 5,300,000 | $0.00118 |
| April 10, 2017 | $6,586 | 5,600,000 | $0.00118 |
| April 11, 2017 | $6,880 | 5,850,000 | $0.00118 |
| April 18, 2017 | $7,291 | 6,200,000 | $0.00118 |
| April 20, 2017 | $7,644 | 6,500,000 | $0.00118 |
| April 21, 2017 | $16,464 | 14,000,000 | $0.00118 |
| April 25, 2017 | $17,287 | 14,700,000 | $0.00118 |
| April 26, 2017 | $26,600 | 26,600,000 | $0.00100 |
| May 1, 2017 | $8,700 | 14,500,000 | $0.00060 |
| June 13, 2017 | $1,200 | 10,000,000 | $0.00012 |
| June 16, 2017 | $1,930 | 19,299,400 | $0.00010 |
| June 16, 2017 | $1,300 | 11,000,000 | $0.00012 |
| June 20, 2017 | $1,392 | 11,600,000 | $0.00012 |
| June 21, 2017 | $2,314 | 23,139,900 | $0.00010 |
| June 22, 2017 | $1,590 | 13,250,000 | $0.00012 |
| June 22, 2017 | $1,470 | 12,250,000 | $0.00012 |
| June 26, 2017 | $1,800 | 15,000,000 | $0.00012 |
| June 29, 2017 | $1,980 | 16,500,000 | $0.00012 |
| July 3, 2017 | $2,088 | 17,400,000 | $0.00012 |
| July 12, 2017 | $2,088 | 17,400,000 | $0.00012 |
| July 13, 2017 | $2,484 | 13,800,000 | $0.00018 |
| July 14, 2017 | $3,374 | 19,000,000 | $0.00018 |
| July 18, 2017 | $3,374 | 19,000,000 | $0.00018 |
| July 20, 2017 | $3,582 | 19,900,000 | $0.00018 |
| July 24, 2017 | $6,270 | 20,900,000 | $0.0003 |
| July 25, 2017 | $6,870 | 22,900,000 | $0.0003 |
| July 28, 2017 | $7,200 | 24,000,000 | $0.0003 |
| August 2, 2017 | $7,200 | 24,000,000 | $0.0003 |
| August 4, 2017 | $9,000 | 25,000,000 | $0.00036 |
| August 8, 2017 | $11,119 | 26,475,000 | $0.00042 |
| August 11, 2017 | $13,920 | 29,000,000 | $0.00048 |
| August 16, 2017 | $12,810 | 30,500,000 | $0.00042 |
| August 22, 2017 | $6,709 | 19,168,058 | $0.00035 |
| August 25, 2017 | $11,200 | 32,000,000 | $0.00035 |
| August 31, 2017 | $9,600 | 32,000,000 | $0.0003 |
| September 7, 2017 | $9,900 | 36,000,000 | $0.00028 |
| September 15, 2017 | $9,437 | 37,900,000 | $0.00025 |
| September 22, 2017 | $9,910 | 39,800,000 | $0.00025 |
| September 28, 2017 | $10,408 | 41,800,000 | $0.00025 |
| October 3, 2017 | $10,931 | 43,900,000 | $0.00025 |
| October 5, 2017 | $7,582 | 30,448,193 | $0.00025 |
| January 2, 2018 | $9,530 | 47,650,000 | $0.00020 |
| January 12, 2018 | $10,000 | 50,000,000 | $0.00020 |
| January 18, 2018 | $9,875 | 50,000,000 | $0.0001975 |
| January 24, 2018 | $8,250 | 55,000,000 | $0.00015 |
| February 1, 2018 | $7,220 | 57,760,000 | $0.000125 |
| February 9, 2018 | $6,065 | 60,650,000 | $0.00010 |
| February 20, 2018 | $6,367 | 63,670,000 | $0.00010 |
| February 27, 2018 | $6,685 | 66,850,000 | $0.00010 |
| March 2, 2018 | $7,018 | 70,180,000 | $0.00010 |
| March 7, 2018 | $7,369 | 73,690,000 | $0.00010 |
| March 16, 2018 | $7,736 | 77,360,000 | $0.00010 |
| March 22, 2018 | $8,122 | 81,220,000 | $0.00010 |
| March 31, 2018 | $0 | 1,055 | $0.00000 |
| March 31, 2018 Total | $389,954 | 1,607,611,606 |
| F-22 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 10 – EQUITY TRANSACTIONS (CONTINUED)
(2) Effective April 6, 2015, the Company approved the re-pricing of all 135,627 previously granted options under the Company’s 2013 Equity Incentive Plan, which had exercise prices between $1.60 per share and $3.40 per share, to $1.60 per share which was the closing price of the Company’s common stock on April 6, 2015. All of the other terms of the options remained unchanged. (3) Effective August 4, 2015, the Company approved the re-pricing of all 185.627 previously granted options under the Company’s 2013 Equity Incentive Plan, which had exercise prices between $1.60 per share and $0.40 per share, to $0.40 per share which was the closing price of the Company’s common stock on August 4, 2015. All of the other terms of the options remained unchanged. The Company revalued all existing options on January 12, 2015 and again on April 6, 2015, and again on August 4, 2015 using the Black-Scholes option pricing model using the initial terms of the options and the modified terms of the options. The difference in the valuations was recorded as additional expense. The re-pricing of the options resulted in the recognition of an additional $50,448 on January 9, 2015 and an additional $9,316 on April 6, 2015, and an additional $47,463 on August 4, 2015 in related stock based compensation expense for those periods.
The following is a summary of the inputs used to determine the value of the options using the Black-Scholes option pricing model.
| Date | April 6, 2015 | June 9, 2015 | December 15, 2015 | March 30, 2017 |
| Options | 102,000 | 50,000 | 43,000 | 29,000,000 |
| Stock price grant date | $1.60 |
$0.40 |
$0.20 |
$0.002 |
| Initial Exercise price | $1.60 |
$0.40 |
$0.20 |
$0.002 |
| Modified Exercise price | $0.20 |
$0.20 |
$0.20 |
- |
| Expected life | 5.0 | 5.0 | 5.0 | 5.0 |
| Volatility | 99% | 99% | 84% | 120% |
| Risk-free rate | 1.31% | 1.74% | 1.70% | 1.93% |
| Calculated value | $120,778 | $14,838 | $5,736 | $48,017 |
| Modified value | $151,221 | $16,347 | $5,736 | $48,017 |
The following is a summary of the option activity for the period March 31, 2017 through March 31, 2018:
| Number of options | Weighted average exercise price | |||||||||
| Outstanding, March 31, 2017 | 29,228,627 | $ | 0.004 | |||||||
| Granted | — | — | ||||||||
| Exercised | — | — | ||||||||
| Expired | — | — | ||||||||
| Outstanding, March 31, 2018 | 29,228,627 | $ | 0.004 | |||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company leases office space on a verbal month-to-month agreement. Monthly rent is about $2,800.
On July 8, 2016, the Company engaged a foreign based company to evaluate the safety and efficacy of RP-323 over a 27 month period. The contract stipulates a commitment of up to $193,255 as the Company utilizes services, with additional fees for pass-through expenses . As of March 31, 2018, the Company has paid $19,326 and accrued $3,934 in payables for services received.
| F-23 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 11 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
The inventor of the intellectual property which was assigned to Rich Pharmaceuticals, Inc. in July 2013 by Imagic, LLC and Richard L. Chang’s Holdings, LLC is presently in declaratory relief litigation with Biosuccess Biotech, Co. LTD. (“Biosuccess”), a company who was previously assigned licensing rights in the intellectual property. In connection with this litigation, on January 17, 2014, the Company received notice of a complaint filed by Biosuccess against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (our CEO and a director) in the United States District Court, Central District of California Western Division (the “District Court”). The Complaint includes allegations of patent and copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unfair competition and other causes of actions against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (the “Litigation”). The Complaint seeks relief which includes compensatory damages, attorneys’ fees and costs, an award of treble damages, and such other relief as the court may deem just and proper. As previously disclosed on January 4, 2016, the Litigation has been settled through a confidential mediation process supervised by the Federal Court and the Litigation has been dismissed with prejudice by the Federal Court. The Company incurred substantial fees in defending the litigation.
On April 1, 2017, the Company entered into a tentative agreement with CannCodex to issue 78,000,000 common shares of stock in exchange for data base assets of CannCodex. However, this agreement was not finalized and subsequently the Company is not responsible for issuance of the stock. Unrelated to this agreement, the Company has issued short-term loans to CannCodex totaling $15,300 as of March 31, 2018.
NOTE 12 – LIQUIDITY AND GOING CONCERN
The Company has a working capital deficit, has not yet received significant revenues from sales of products or services, and has incurred losses since inception. These factors create substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the date that these financial statements were issued. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
NOTE 13 – INCOME TAXES
As of March 31, 2018, the Company had net operating loss carry forwards of approximately $14,137,110 that may be available to reduce future years’ taxable income in varying amounts through 2033. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.
| F-24 |
RICH PHARMACEUTICALS, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2018
NOTE 13 – INCOME TAXES (CONTINUED)
The provision for Federal income tax consists of the following for the years ended March 31, 2018 and 2017:
| March 31, 2018 | March 31, 2017 | ||||||
| Federal income tax benefit attributable to: | |||||||
| Current operations | $ | 575,396 | $ | 1,102,052 | |||
| Less: valuation allowance | (575,396 | ) | (1,102,052 | ) | |||
| Net provision for Federal income taxes | $ | — | $ | — | |||
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of March 31, 2018 and 2017:
| March 31, 2018 | March 31, 2017 | ||||||
| Deferred tax asset attributable to: | |||||||
| Net operating loss carryover | $ | 4,806,617 | $ | 4,231,221 | |||
| Less: valuation allowance | (4,806,617 | ) | (4,231,221 | ) | |||
| Net deferred tax asset | $ | — | $ | — | |||
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $13,970,710 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
NOTE 14 – SUBSEQUENT EVENTS
On April 13, 2018, the Company issued a 10% Convertible Redeemable Promissory Note in the principal amount of $206,100. The note bears interest at the rate of 10%, a 10% original issue discount and the lender will hold $1,500 to cover transaction costs, the note must be repaid by December 15, 2018. The note and any accrued interest may be converted by lender into shares of Company common stock, upon execution or December 13, 2018, at a conversion price equal to 60% of the lowest trading price during the 10-day period prior to conversion.
Subsequent to the period ended March 31, 2018, the Company received, as listed, conversion notices from various note holders. The Company issued the following common shares to satisfy the conversion of the following debt and interest:
| Date | Debt/Interest Converted | Common Stock Issued | Price per Share |
| April 4, 2018 | $8,528 | 85,280,000 | $0.0001 |
| April 10, 2018 | $8,953 | 89,530,000 | $0.0001 |
| Subsequent Total | $17,481 | 174,810,000 |
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2018 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.
| F-25 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer (who is also our principal financial officer) conducted an evaluation of our disclosure controls and procedures, as such terms are defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018.
Management's Annual Report on Internal Controls Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under that framework, our management concluded that our internal control over financial reporting was not effective as of March 31, 2018.
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this annual report.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes In Internal Controls over Financial Reporting.
No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Change in Independent Registered Public Accounting Firm
During the period commencing with the engagement of Anton Chia as its independent registered public accounting firm, on September 5, 2017 and through the Dismissal Date, October 29, 2017, there were no disagreements (as defined in Item 304 of Regulation S-K) with Anton Chia on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Anton Chia, would have caused it to make reference in connection with its opinion to the subject matter of the disagreement. Further, during the period commencing with the engagement of Anton Chia on September 5, 2017 and through the Dismissal Date, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). Anton Chia has not prepared any reports on the audited financial statements of the Company.
On October 31, 2017, the Company’s Board of Directors approved the appointment of Fruci & Associates II, PLLC as the Company’s independent registered public accounting firm. During the Company’s two most recent fiscal years, the subsequent interim periods thereto, and through the Engagement Date, neither the Company nor anyone on its behalf consulted this firm regarding either (1) the application of accounting principles to a specified transaction regarding the Company, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (2) any matter regarding the Company that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
| 19 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name and age of our current director and executive officer, and the principal position held by him:
Name Age Position
Ben Chang 53 President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
Carol Salvador 73 Director
Ben Chang was appointed as our President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director on July 18, 2013. Mr. Chang founded Rich Pharmaceuticals in January 2013. From October 2006 until January 2013, Mr. Chang served as the Chief Financial Officer and subsequently President and Chief Operating Officer of Biosuccess Biotech Co. LTD., a biopharmaceutical company based in Los Angeles, California. During his tenure at Biosuccess, his responsibilities included arranging and leading all corporate and financial operations in North America. Mr. Chang started his life-science career as co-founder of Sun-Rich Chemicals, a product development and distribution organization for nutraceuticals. Mr. Chang has over 25 years of pharmaceutical and executive level experience. Mr. Chang also has experience in international banking, venture capital acquisition, finance, and organizational design and operations. Mr. Chang has a Bachelor of Science Degree in Economics from East Carolina University where he focused on accounting and international business.
Carol Salvador was appointed to the Board of Directors on March 30, 2017. Dr. Salvador brings to the Company management, business and scientific research experience and psychopharmacology expertise. Dr. Salvador created and manages a Clinical, Coaching and Organizational Consulting practice, Affiliates in Psychology and Education for over 30 years. During this period, she was also a principal in the organizational consulting firm of Cogent Resources. Dr. Salvador has consulted to small and medium sized businesses in the for profit and non-profit sectors. Most recently her business consulting has focused on family owned and managed companies. Prior to her career in Applied Psychology, she worked in Biochemistry research at Cornell Medical School and Pharmacology research at Burroughs Welcome which is now part of GSK. She has expertise and holds a certificate in psychopharmacology. Dr. Salvador received her Doctor of Psychology from Rutgers University in Applied Psychology and a B.S. in the Biological Sciences from New York University. In additional to her certification in Psychopharmacology, she completed a post- doctoral fellowship in Community Systems and a post-doctoral program in Organizational Development and Consultation at the William Alanson White Institute.
Terms of Office
The Company’s directors are appointed for a one-year term to hold office until the next annual general meeting of the Company’s shareholders or until removed from office in accordance with the Company’s bylaws and the provisions of the Delaware Corporations Code. The Company’s directors hold office after the expiration of his or her term until his or her successor is elected and qualified, or until he or she resigns or is removed in accordance with the Company’s bylaws and the provisions of the Delaware Corporations Code. The Company’s officers are appointed by the Company’s Board of Directors and hold office until removed by the Board.
| 20 |
Committees of the Board
We do not currently have standing nominating or compensation committees, or committees performing similar functions. Due to the size of our board, our Board of Directors believes that it is not necessary to have standing nominating or compensation committees at this time because the functions of such committees are adequately performed by our Board of Directors. We do not have a nominating or compensation committee charter as we do not currently have such committees. We do not have a policy for electing members to the board. Our current director is not an independent director as defined in the NASD listing standards.
It is anticipated that in the future as the Company grows that the Board of Directors will be expanded and form separate compensation and nominating committees, and appoint members to the audit committee, including an audit committee financial expert.
Audit Committee
Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Board of Directors currently performs the services of an audit committee. Our current director cannot be considered an “audit committee financial expert.” We will need to attract an individual with the qualification of an audit committee expert to our Audit Committee. At this time, we have not identified such an individual.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and shareholders holding more than 10% of our outstanding Common Stock to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our Common Stock. Executive officers, directors, and persons who own more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely upon a review of Forms 3, 4, and 5 delivered to us as filed with the SEC during our most recent fiscal year ended March 31, 2018, all of our executive officers and directors, and persons who own more than 10% of our Common Stock timely filed the reports required pursuant to Section 16(a) of the Exchange Act.
Nominations to the Board of Directors
Our directors take a critical role in guiding our strategic direction and oversee the management of the Company. Board candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of the shareholders, diversity, and personal integrity and judgment. In addition, directors must have time available to devote to Board activities and to enhance their knowledge in the growing business. Accordingly, we seek to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to the Company. In carrying out its responsibilities, the Board will consider candidates suggested by shareholders. If a shareholder wishes to formally place a candidate’s name in nomination, however, he or she must do so in accordance with the provisions of the Company’s Bylaws. Suggestions for candidates to be evaluated by the proposed directors must be sent to the Board of Directors, c/o Rich Pharmaceuticals, Inc., to the address set forth on the cover page of this Annual Report.
| 21 |
Board Leadership Structure and Role on Risk Oversight
Mr. Chang currently serves as the Company’s principal executive officer and chairman. The Company determined this leadership structure was appropriate for the Company due to our small size and limited operations and resources. The Board of Directors will continue to evaluate the Company’s leadership structure and modify as appropriate based on the size, resources and operations of the Company.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
Director Qualifications
In evaluating director nominees, our Company considers the following factors:
• The appropriate size of the Board;
• Our needs with respect to the particular talents and experience of our directors;
• The knowledge, skills and experience of nominees;
• Experience with accounting rules and practices; and
• The nominees’ other commitments.
Our Company’s goal is to assemble a Board of Directors that brings our Company a variety of perspectives and skills derived from high quality business, professional and personal experience. Other than the foregoing, there are no stated minimum criteria for director nominees. Specific talents and qualifications that we considered for the members of our Company’s Board of Directors are as follows:
• Mr. Chang has over 25 years of pharmaceutical and executive level experience. Mr. Chang also has experience in international banking, venture capital acquisition, finance, and organizational design and operations.
• Mr. Salvador is a pharmaceutical development expert with more than 50 years of experience and he has led numerous development projects from pre-clinical evaluation stage to product commercialization.
Family Relationships
None.
Code of Ethics
Effective as of July 1, 2014, our board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our president or chief executive officer as well as the individuals performing the functions of our chief financial officer, corporate secretary and controller. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
• full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
• the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
• accountability for adherence to the Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires, among other things, that all of our personnel be afforded full access to our president or chief executive officer with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our personnel are to be afforded full access to our board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our president or chief executive officer.
In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our president or chief executive officer. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by our president or chief executive officer, the incident must be reported to any member of our board of directors or use of a confidential and anonymous hotline phone number. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our Code of Business Conduct and Ethics by another. Our Code of Business Conduct and Ethics is available, free of charge, to any stockholder upon written request to our Corporate Secretary at Rich Pharmaceuticals, Inc., at the address on the cover page of this Annual Report.
| 22 |
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our current directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in "Transactions with Related Persons; Promoters and Certain Control Persons; Director Independence," none of our current directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual compensation in excess of $100,000.
| Stock | Option | Non-equity | Change in Pension Value and Non-Qual. Deferred |
All Other | ||||||||||||||||||||||||||||||||
| Salary | Bonus | Awards | Awards | Incentive | Earnings | Comp. | Total | |||||||||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | Comp. ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| Ben Chang | 2018 | $ | 275,500 | — | — | 0 | — | — | — | 275,000 | ||||||||||||||||||||||||||
| 2017 | $ | 275,000 | — | — | $ | 8,302 | — | — | — | $ | 283,302 | |||||||||||||||||||||||||
Chief Executive Officer/Chief Financial Officer/Director since July 18, 2013.
Employment Agreements
Effective September 6, 2013, the Company entered into an Employment Agreement with Mr. Chang, its Chief Executive Officer, Chief Financial Officer, President and Secretary. The Employment Agreement provided for a term of two (2) years; annual base compensation of $275,000; and the issuance of 3,000,240 options to purchase shares of Company common stock. On July 13, 2017, the Company executed an extension to the Employment Agreement extending it until September 6, 2017, and on December 1, 2017 a one year extension was executed, both with all other terms and conditions remaining the same. The foregoing is only a brief description of the material terms of the Employment Agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreement which is filed as an exhibit to the Company’s Current Report on Form 8K filed with the SEC on September 12, 2013.
Grants of Stock Awards
On April 6, 2015, Ben Chang, our Chief Executive Officer, was issued options to purchase 500,000 shares of Company common stock under the Rich Pharmaceuticals, Inc. 2013 Stock Option/Stock Issuance Plan, as amended. The options have an exercise price of $.01 per share; a term of 5 years; are immediately vested; and may be exercised by cashless exercise.
During the fiscal year ending March 31, 2015, Ben Chang, our Chief Executive Officer, was awarded options to purchase up to 30,000 shares of our Common Stock under our 2013 Plan, as amended. The options vested 100% on grant and provide for a right of cashless exercise. The exercise price of the options is $ 0.01 per share.
Option Exercises and Stock Vested
During the fiscal years ending March 31, 2018 and 2017, there were no option exercises or vesting of stock awards to our named executive officers.
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Outstanding Equity Awards at Fiscal Year End
At March 31, 2018, Ben Chang had 28,000 options issued under the 2013 Plan, as amended, and 5,000,000 options issued under the 2017 Plan, and Carol Salvador had 3,500,000 options issued under the 2017 Plan.
Compensation of Directors
During the fiscal year ending March 31, 2017, our one independent director did not receive any compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of July 10, 2018, information with respect to the securities holdings of (i) our officers and directors, and (ii) all persons (currently none) which, pursuant to filings with the SEC and our stock transfer records, we have reason to believe may be deemed the beneficial owner of more than five percent (5%) of the class of stock. The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations promulgated under the Exchange Act and, accordingly, may include securities owned by or for, among others, the spouse and/or minor children of an individual and any other relative who resides in the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or which each person has the right to acquire within 60 days through the exercise of options or otherwise. Beneficial ownership may be disclaimed as to certain of the securities. This table has been prepared based on the number of shares of common stock outstanding totaling 350,136,570 and the number of shares of preferred stock outstanding totaling 6,000,000, adjusted individually to include all warrants held by such individual which are exercisable within 60 days of July 13, 2017 as shown below.
| Name and Address of Beneficial Owner(1) | Amount and Nature of
Beneficial Ownership |
Percent
of Common Stock(2) |
Amount and Nature of Beneficial Ownership
of |
Percent
of Preferred Stock(2) | ||||||||||||
| Directors and Executive Officers | ||||||||||||||||
| Ben Chang, Chairman and President | 11,158,560 | (3) | * | % | 6,000,000 | (4) | 100 | % | ||||||||
| Carol Salvador, Director | 3,500,000 | (5) | * | 0 | 0 | |||||||||||
| All directors and officers as a group (2 people) | 14,658,560 | (3) | * | % | 6,000,000 | (4) | 100 | % | ||||||||
| 5% or Greater Stockholders | ||||||||||||||||
| None | ||||||||||||||||
* Less than 1 percent.
(1) Unless otherwise noted, the address is c/o Rich Pharmaceuticals, Inc., 9595 Wilshire Blvd, Suite 900, Beverly Hills, California 90212.
(2) Percentage of class beneficially owned is calculated by dividing the amount and nature of beneficial ownership (which includes all options issued to the beneficial owners which are exercisable within 60 days of July 13, 2018) by 1,883,867,821 the total shares of common stock outstanding as of July 13, 2018 and 29,228,627 options exercisable within 60 days of July 13, 2018.
(3) Includes options to purchase up to 1,500 shares of common stock issued under the 2013 Plan and 5,000,000 shares of common stock issued under the 2017 Plan which are exercisable within 60 days after July 13, 2018. Also includes 137,566 shares of common stock held by Imagic, LLC which Mr. Chang is deemed to beneficially own.
(4) The Preferred Stock has 100 to 1 voting rights over shares of common stock.
(5) Includes options to purchase up to 3,500,000 shares of common stock issued under the 2017 Plan which are exercisable within 60 days of July 13, 2018.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
The following includes a summary of any transaction occurring since April 1, 2014, or any proposed transaction, in which any related person had or will have a direct or indirect material interest (other than compensation described under "Executive Compensation" above). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm's-length transactions.
On October 6, 2014, the Company executed an Assignment Agreement (the “Assignment Agreement”) with Richard L. Chang Holding's, LLC (“Holdings LLC”) and Imagic LLC (“Imagic LLC”) pursuant to which Holdings LLC and Imagic LLC exercised the option under the Memorandum of Understanding and Asset Assignment Agreement dated July 26, 2013 to assign any and all interest it had in the indication, patents and intellectual property related to treatment of Hodgkin’s Lymphoma, utility patent application number 61998397, entitled COMPOSITIONS AND METHODS OF USE OF PHORBOL ESTERS FOR THE TREATMENT OF HODGKIN’S LYMPHOMA pursuant to the terms of the Assignment Agreement. The Company issued 220,792,028 shares of restricted Company common stock to Imagic LLC in consideration for the assignment. Imagic LLC is owned and controlled by Ben Chang. The foregoing is only a brief description of the material terms of the Assignment, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the Assignment which is filed as an exhibit to the Current Report on Form 8-K filed with the SEC on October 8, 2014.
During the year ended March 31, 2015, the Company received a $6,000 loan from a shareholder. During the period ended March 31, 2017 the Company received an additional $6,280 from this related party. The loan is unsecured and bears 8% interest and has an original due date of January 8, 2016. There is a total due of $12,280 as of March 31, 2018 and March 31, 2017. Interest accrued on the note as of March 31, 2018 was $1,517. The Company is in default on the balance of this note.
During the period ending March 31, 2016, the Company received $22,200 in unsecured non-interest bearing loans from related parties and during the period ending March 31, 2017 received an additional $14,450, the Company has repaid $36,650 of these loans leaving a total due of $0 as of March 31, 2018. These loans are deemed to be short-term and are payable at the discretion of the Company.
Periodically, related parties incur expenses for the Company and are expected to be repaid for those expenditures. As of March 31, 2018, the balance owed to related parties for these types of expenses is $2,522. These liabilities do not have stated interest rates or due dates, but are payable at the discretion of the Company.
The Company has a consulting agreement with a related party to provide research into new technologies as well as essential development of current products. The amounts owed to this related party for past work is a part of accounts payable and totals $393,953 and $53,000 for the periods ending March 31, 2018 and 2017, respectively.
On September 6, 2013, the Company entered into an Employment Agreement with our Chief Executive Officer, Chief Financial Officer, President and Secretary. The Employment Agreement provides for a term of two years, and has been extended for an additional two years; annual compensation of $275,000, a signing bonus of $68,750, and options to purchase up to 1,500 shares of common stock at an exercise price of $40.00 per share. The CEO earned $275,000 and $275,000 for the years ended March 31, 2018 and 2017 (respectively) as a result of this agreement, these amounts contribute to the $943,862 and $645,945 of officer compensation which is included in accrued expenses, as of March 31, 2018 and March 31, 2017.
The Company received $100,000 cash and 15,000,000 common stock shares of an entity that is majority owned by a non-majority stockholder of the Company as partial payment for access to the Company’s intellectual property. This receipt is classified as income in the period it was earned. (See Note 3)
During the year ended March 31, 2017, the Company loaned $10,000 to an entity owned by a related party. During the year ended March 31, 2018, the Company loaned an additional $5300 to this entity, for a balance receivable of $15,300. This loan is short-term and has no stated interest.
Review, approval or ratification of transactions with related persons
We do not have any other special committee, policy or procedure related to the review, approval or ratification of related party transactions.
Promoters and Control Persons
Mr. Chang as the sole officer, a director and beneficial owner of 100% of the preferred stock would be considered a control person of the Company.
Director Independence
The Board has determined that neither of our directors is independent as the term "independent" is defined by the rules of NASDAQ Rule 5605.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) Audit Fees
On October 31, 2017, the Company’s Board of Directors approved the appointment of Fruci & Associates II, PLLC as the Company’s independent registered public accounting firm.
The aggregate fees billed for professional services rendered by the principal accountants for the audit of the registrant's annual financial statements and review of financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ended March 31, 2018 were $18,000.
(2) Audit-Related Fees
There were no fees billed during the two years ended March 31, 2018 for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under item (1).
(3) Tax Fees
No aggregate fees were billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for the fiscal year ended March 31, 2018 and March 31, 2017.
(4) All Other Fees
No aggregate fees were billed for professional services provided by the principal accountant, other than the services reported in items (1) through (3) for the two years ended March 31, 2018.
(5) Audit Committee
The Company’s Board of Directors, which serves as the Company’s Audit Committee, has approved the principal accountant's performance of services for the audit of the registrant's financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal year ended March 31, 2018. Audit-related fees, tax fees, and all other fees, if any, were approved by the Board of Directors performing the functions of the Audit Committee.
(6) Work Performance by others
The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50 percent.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Report:
(1) Financial Statements—all consolidated financial statements of the Company as set forth under Item 8, beginning on page F-1 of this Report.
(2) Financial Statement Schedules— As a smaller reporting company we are not required to provide the information required by this item.
(3) Exhibits
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| * | Filed herewith. | |
| (1) | Incorporated by reference to the Company’s Registration Statement Filed on Form S-1 filed with the SEC on April 25, 2011. |
| (2) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on July 24, 2013. |
| (3) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on September 12, 2013. |
| (4) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 17, 2014. |
| (5) | Incorporated by reference to the Company’s Form 10-K filed with the SEC on July 15, 2014. |
| (6) | Incorporated by reference to the Company’s Form 10-Q filed with the SEC on August 19, 2014. |
| (7) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on August 18, 2014. |
| (8) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on September 25, 2014. |
| (9) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on October 8, 2014. |
| (10) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on November 14, 2014. |
| (11) | Incorporated by reference to the Company’s Form 10-Q filed with the SEC on November 19, 2014. |
| (12) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on December 2, 2014. |
| (13) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 15, 2015. |
| (14) | Incorporated by reference to the Company’s Form 10-Q filed with the SEC on February 23, 2015. |
| (15) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on March 16, 2015. |
| (16) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on April 3, 2015. |
| (17) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on April 8, 2015. |
| (18) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on May 12, 2015. |
| (19) | Incorporated by reference to the Company’s Form S-1/A filed with the SEC on June 11, 2015. |
| (20) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on December 21, 2015. |
| (21) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on February 12, 2016. |
| (22) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on June 13, 2016. |
| (23) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on June 15, 2016. |
| (24) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on June 29, 2016. | |
| (25) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on November 4, 2016. | |
| (26) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 11, 2017. | |
| (27) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on February 27, 2017. | |
| (28) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on March 21, 2017. | |
| (29) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on April 4, 2017. | |
| (30) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on April 24, 2017. | |
| (31) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on July 12, 2017. | |
| (32) | Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 19, 2018. | |
| (33) | Incorporated herein by reference to the current report on Form 8-K filed with the SEC on August 27, 2013. | |
| (34) | Incorporated by reference to the Company’s Registration Statement Filed on Form S-1 filed with the SEC on January 24, 2018 |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Rich Pharmaceuticals, Inc. (Registrant) | |||
| Date: July 17, 2018 | /s/ Ben Chang | ||
| By: | Ben Chang | ||
| Title: | Chief Executive Officer | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ BEN CHANG |
Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) and Director | July 17, 2018 | ||
| Ben Chang | ||||
/s/ CAROL SALVADOR Carol Salvador |
Director |
July 17, 2018 |
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Exhibit 21
List of Subsidiaries
None.
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Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a director or officer, or both, of Rich Pharmaceuticals, Inc., a Nevada corporation, (“registrant”) hereby constitutes and appoints Ben Chang, acting individually, as the undersigned’s true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead in any and all capacities, to sign any and all amendments to the registrant’s annual report on Form 10-K for the fiscal year ended March 31, 2018 and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done that such annual report and its amendments shall comply with the Securities Act, and the applicable rules and regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or re-substitute, may lawfully do or cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| Signature | Title | Date | ||
/s/ Ben Chang |
Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) and Director |
July 17, 2018 | ||
| Ben Chang | ||||
/s/ Richard Salvador Richard Salvador |
Director |
July 17, 2018 |
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