UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 20192020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
Commission file number: 000-54030
NATURALSHRIMP INCORPORATED
(Exact name of registrant as specified in its charter)
| Nevada | | 74-3262176 |
| (State or other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
15150 Preston Road, Suite #300 Dallas, Texas | | 75248 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(888) 791-9474
(Registrant’s telephone number, including area code)
N/A
(Former address)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading symbol(s) | | Name of exchange on which registered |
| None | | N/A | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | |
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | | |
| Non-accelerated filer | ☑☒ | Smaller reporting company | ☑ |
| | | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑☒
As of February 11, 2020,16, 2021, there were 369,096,888551,301,181 shares of the registrant’s common stock outstanding.
NATURALSHRIMP INCORPORATED
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 20192020
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL
STATEMENTSSTATEMENTS
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | |
| ASSETS | | |
| Current assets | | |
| Cash | $582,990 | $137,499 |
| Notes receivable | 1,700 | 1,700 |
| Inventory | 4,200 | 4,200 |
| Prepaid expenses | 126,929 | 35,286 |
| | | |
| Total current assets | 715,819 | 178,685 |
| | | |
| Fixed assets | | |
| Land | 202,293 | 202,293 |
| Buildings | 1,645,454 | 1,328,161 |
| Machinery and equipment | 1,224,118 | 934,621 |
| Autos and trucks | 19,063 | 14,063 |
| Furniture and fixtures | 22,060 | 22,060 |
| Accumulated depreciation | (1,364,130) | (1,322,609) |
| | | |
| Fixed assets, net | 1,748,858 | 1,178,589 |
| | | |
| Other assets | | |
| Construction-in-process | 919,239 | 377,504 |
| Right of Use asset | 252,140 | - |
| Deposits | 20,633 | 10,500 |
| | | |
| Total other assets | 1,192,012 | 388,004 |
| | | |
| Total assets | $3,656,689 | $1,745,278 |
| | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | |
| Current liabilities | | |
| Accounts payable | $632,030 | $576,028 |
| Accrued interest - related parties | 284,624 | 295,184 |
| Other accrued expenses | 769,897 | 609,243 |
| Short-term Promissory Note and Lines of credit | 679,083 | 139,418 |
| Bank loan | 222,736 | 228,725 |
| Current maturities of convertible debentures, less debt discount of $61,382 and $511,640, respectively | 629,233 | 494,451 |
| Convertible debentures, related party | 18,600 | 87,600 |
| Notes payable - related parties | 1,271,162 | 1,271,162 |
| Derivative liability | 130,000 | 157,000 |
| Warrant liability | 93,000 | 93,000 |
| | | |
| Total current liabilities | 4,730,365 | 3,951,811 |
| | | |
| Lines of credit | - | 650,453 |
| Lease Liability | 252,140 | - |
| | | |
| Total liabilities | 4,982,505 | 4,602,264 |
| | | |
| | | |
| Commitments and contingencies (Note 9) | | |
| | | |
| Stockholders' deficit | | |
| Series A Convertible Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 shares issued and outstanding at December 31, 2019 and March 31, 2019 | 500 | 500 |
| Series B Convertible Preferred stock, $0.0001 par value, 5,000 shares authorized, 1,250 and 0 shares issued and outstanding at December 31, 2019 and March 31, 2019, respectively | - | - |
| Common stock, $0.0001 par value, 900,000,000 shares authorized, 354,116,535 and 301,758,293 shares issued and outstanding at December 31, 2019 and March 31, 2019, respectively | 35,411 | 30,177 |
| Additional paid in capital | 42,434,545 | 38,335,782 |
| Accumulated deficit | (43,744,909) | (41,223,445) |
| | (1,274,453) | (2,856,986) |
| | | |
| Non-controlling interest in NAS | (51,363) | - |
| | | |
| Total stockholders' deficit | (1,325,816) | (2,856,986) |
| | | |
| Total liabilities and stockholders' deficit | $3,656,689 | $1,745,278 |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)
| | For the Three Months Ended | For the Nine Months Ended |
| | | | | |
| | | | | |
| Sales | $- | $- | $- | $- |
| | | | | |
| Operating expenses: | | | | |
| Facility operations | 41,375 | 22,479 | 180,934 | 66,442 |
| General and administrative | 306,834 | 223,821 | 944,571 | 654,119 |
| Research and development | 101,500 | - | 101,500 | - |
| Depreciation and amortization | 15,958 | 17,726 | 41,521 | 53,171 |
| | | | | |
| Total operating expenses | 465,667 | 264,026 | 1,268,526 | 773,732 |
| | | | | |
| Net loss from operations | (465,667) | (264,026) | (1,268,526) | (773,732) |
| | | 76.4% | | 63.9% |
| Other income (expense): | | | | |
| Interest expense | (40,820) | (68,634) | (160,351) | (205,561) |
| Amortization of debt discount | (38,831) | (342,724) | (515,204) | (1,051,707) |
| Financing costs | (53,528) | (77,390) | (217,746) | (1,361,735) |
| Change in fair value of derivative liability | 58,000 | (211,500) | 19,000 | 1,116,500 |
| Change in fair value of warrant liability | - | - | - | (47,000) |
| Loss on warrant settlement | - | - | (50,000) | - |
| | | | | |
| Total other income (expense) | (75,179) | (700,248) | (924,301) | (1,549,503) |
| | | | | |
| Loss before income taxes | (540,846) | (964,274) | (2,192,827) | (2,323,235) |
| | | | | |
| Provision for income taxes | - | - | - | - |
| | | | | |
| Net loss | (540,846) | (964,274) | (2,192,827) | (2,323,235) |
| | | | | |
| Less net loss attributable to non-controlling interest | (51,363) | - | (51,363) | - |
| | | | | |
| Net loss attributable to Natural Shrimp Inc. | (489,483) | (964,274) | (2,141,464) | (2,323,235) |
| | | | | |
| Amoritzation of beneficial conversion feature on Series B PS | (380,000) | - | (380,000) | - |
| | | | | |
| Net loss available for common stockholders | $(869,483) | $(964,274) | $(2,521,464) | $(2,323,235) |
| | | | | |
| EARNINGS PER SHARE (Basic and diluted) | $(0.00) | $(0.01) | $(0.01) | $(0.02) |
| | | | | |
| WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and diluted) | 345,260,292 | 165,284,849 | 326,835,226 | 129,672,152 |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY| | | | | Additional paid in | Accumulated | Non-controlling | Total stockholders' |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance April 1, 2019 | 5,000,000 | $500 | - | $- | 301,758,293 | $30,177 | $38,335,782 | $(41,223,445) | - | $(2,856,986) |
| | | | | | | | | | | |
| Issuance of shares under equity financing agreement | | | | | 11,482,721 | 1,148 | 1,498,852 | | | 1,500,000 |
| Issuance of shares upon conversion | | | | | 3,000,000 | 300 | 29,700 | | | 30,000 |
| Beneficial conversion feature | | | | | | | 58,548 | | | 58,548 |
| | | | | | | | | | | |
| Net loss | | | | | | | | (795,270) | - | (795,270) |
| | | | | | | | | | | |
| Balance June 30, 2019 | 5,000,000 | $500 | - | $- | 316,241,014 | $31,625 | $39,922,882 | $(42,018,715) | $- | $(2,063,708) |
| | | | | | | | | | | |
| Purchase of Series B Preferred shares | | | 250 | - | | | 250,000 | | | 250,000 |
| Issuance of shares upon conversion | | | | | 14,000,000 | 1,400 | 138,600 | | | 140,000 |
| Issuance of shares under equity financing agreement | | | | | 3,275,060 | 326 | 273,675 | | | 274,001 |
| | | | | | | | | | | |
| Net loss | | | | | | | | (856,711) | - | (856,711) |
| | | | | | | | | | | |
| Balance September 30, 2019 | 5,000,000 | $500 | 250 | $- | 333,516,074 | $33,351 | $40,585,157 | $(42,875,426) | $- | $(2,256,418) |
| | | | | | | (3,786) | (2,511,663) | (1,726,194) | | |
| | | | | | | | | | | |
| Purchase of Series B Preferred shares | | | 1,250 | - | | | 1,250,000 | | | 1,250,000 |
| Issuance of shares upon conversion | | | | | 20,600,461 | 2,060 | 211,388 | | | 213,448 |
| Reclass of derivative liability upon conversion of related convertible debentures | | | | | | | 8,000 | | | 8,000 |
| Beneficial conversion feature related to the Series B Preferred Shares | | | | | | | 380,000 | (380,000) | | |
| | | | | | | | | | | |
| Net loss | | | | | | | | (489,483) | (51,363) | (540,846) |
| | | | | | | | | | | |
| Balance December 31, 2019 | 5,000,000 | $500 | 1,500 | $- | 354,116,535 | $35,411 | $42,434,545 | $(43,744,909) | $(51,363) | $(1,325,816) |
| | | | Additional paid in | Accumulated | Total stockholders' |
| | | | | | | | |
| | | | | | | | |
| Balance April 1, 2018 | - | - | 97,656,095 | $9,766 | $27,743,352 | $(34,012,864) | $(6,259,746) |
| | | | | | | | |
| Issuance of shares for cash | | | 220,000 | 22 | 15,378 | | 15,400 |
| Issuance of shares upon conversion | | | 37,887,704 | 3,789 | 511,932 | | 515,721 |
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | | | | | 1,305,000 | | 1,305,000 |
| | | | | | | | |
| Net loss | | | | | | (1,097,109) | (1,097,109) |
| | | | | | | | |
| Balance June 30, 2018 | - | $- | 135,763,799 | $13,577 | $29,575,662 | $(35,109,973) | $(5,520,734) |
| | | | | | | | |
| Issuance of shares upon conversion | | | 25,966,857 | 2,596 | 144,607 | | 147,203 |
| Issuance of shares upon exercise of warrants | | | 11,214,272 | 1,121 | 148,879 | | 150,000 |
| Issuance of shares as commitment fee in relation to convertible debentures | | | 3,000,000 | 300 | 34,200 | | 34,500 |
| Conversion of common shares into Series A Convertible Preferred stock | 5,000,000 | 500 | (75,000,000) | (7,500) | 7,000 | | - |
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | | | | | 435,500 | | 435,500 |
| | | | | | | | |
| Net loss | | | | | | (261,523) | (261,523) |
| | | | | | | | |
| Balance September 30, 2018 | 5,000,000 | $500 | 100,944,928 | $10,094 | $30,345,848 | $(35,371,496) | $(5,015,054) |
| | | | | | | | |
| | | | | | | | |
| Issuance of shares upon conversion | | | 133,376,806 | 13,338 | 451,777 | | 465,115 |
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | | | | | 812,000 | | 812,000 |
| Issuance of shares under equity financing agreement | | | 19,999,999 | 2,000 | 162,516 | | 164,516 |
| | | | | | | | |
| Net loss | | | | | | (964,274) | (964,274) |
| | | | | | | | |
| Balance December 31, 2018 | 5,000,000 | $500 | 254,321,733 | $25,432 | $31,772,141 | $(36,335,770) | $(4,537,697) |
| ASSETS | | |
Current assets | | |
| Cash | $311,848 | $109,491 |
| Prepaid expenses | 778,019 | 128,693 |
| Insurance settlement | - | 917,210 |
| | | |
| Total current assets | 1,089,867 | 1,155,394 |
| | | |
| Fixed assets | 12,286,515 | 707,808 |
| | | |
| Other assets | | |
| Construction-in-process | 1,719,945 | - |
| Right of Use asset | 275,400 | 275,400 |
| Deposits | 20,633 | 178,198 |
| | | |
| 2,015,978 | 453,598 |
| | | |
| Total assets | $15,392,360 | $2,316,800 |
| | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | |
| Current liabilities | | |
| Accounts payable | $896,379 | $641,146 |
| Accrued interest | 64,246 | 81,034 |
| Accrued interest - related parties | 175,520 | 296,624 |
| Other accrued expenses | 628,204 | 1,204,815 |
| Short-term Promissory Note and Lines of credit | 575,910 | 570,497 |
| Bank loan | 8,438 | 8,904 |
| PPP loan | 103,200 | - |
| Convertible debentures | - | 463,161 |
| Notes payable - related parties | 1,247,162 | 1,221,162 |
| Dividends payable | 182,639 | - |
| Derivative liability | - | 176,000 |
| Warrant liability | - | 90,000 |
| | | |
Total current liabilities | 3,881,698 | 4,753,343 |
| | | |
| Bank loans, less current maturities | 208,493 | 225,837 |
| Notes payable | 5,000,000 | |
| Note payable - related party, less current maturities | 239,604 | - |
| Lease Liability | 275,400 | 275,400 |
| | | |
| 9,605,195 | 5,254,580 |
| | | |
| | | |
| Commitments and contingencies (Note 11) | | |
| | | |
| | | |
| Series D Redeemable Convertible Preferred stock, $0.0001 par value, 20,000 shares authorized, 5,000 and 0 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively | 208,333 | - |
| | | |
| | | |
| Stockholders' deficit | | |
| Series A Convertible Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 shares issued and outstanding at December 31, 2020 and March 31, 2020 | 500 | 500 |
| Series B Convertible Preferred stock, $0.0001 par value, 5,000 shares authorized, 1,920 and 2,250 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively | - | - |
| Common stock, $0.0001 par value, 900,000,000 shares authorized, 544,989,181 and 379,742,524 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively | 54,500 | 37,975 |
| Additional paid in capital | 55,437,431 | 43,533,242 |
| Stock Payable | 135,000 | - |
| Accumulated deficit | (49,961,843) | (46,427,396) |
| Total stockholders' deficit attributable to NaturalShrimp, Inc. shareholders | 5,665,588 | (2,855,679) |
| | | |
| Non-controlling interest in NAS | (86,756) | (82,101) |
| | | |
Total stockholders' deficit | 5,578,832 | (2,937,780) |
| | | |
| Total liabilities mezzanine and stockholders' deficit | $15,392,360 | $2,316,800 |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS (Unaudited)
| | For the Nine Months Ended |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net loss | $(2,141,464) | $(2,323,235) |
| | | |
| Adjustments to reconcile net loss to net cash used in operating activities | | |
| | | |
| Depreciation expense | 41,521 | 53,171 |
| Amortization of debt discount | 515,204 | 1,051,707 |
| Change in fair value of derivative liability | (19,000) | (1,116,500) |
| Change in fair value of warrant liability | - | 47,000 |
| Financing costs related to convertible debentures | - | 1,361,735 |
| Default penalty | 27,000 | - |
| Net loss attributable to non-controlling interest | (51,363) | - |
| Shares issued for services | - | - |
| | | |
| Changes in operating assets and liabilities: | | |
| Inventory | - | (4,200) |
| Prepaid expenses and other current assets | (91,643) | (543) |
| Deposits | (10,133) | - |
| Accounts payable | 56,002 | (1,403) |
| Other accrued expenses | 180,728 | 103,732 |
| Accrued interest - related parties | (10,560) | 145,641 |
| | | |
| Cash used in operating activitites | (1,503,708) | (682,895) |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| | | |
| Cash paid for machinery and equipment | (611,790) | (5,350) |
| Cash paid for construction in process | (541,735) | (75,404) |
| | | |
| CASH USED IN INVESTING ACTIVITIES | (1,153,525) | (80,754) |
| | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| | | |
| Payments on bank loan | (5,989) | (5,689) |
| Repayment line of credit short-term | (110,788) | (3,153) |
| Notes receivable | - | 150,000 |
| Proceeds from sale of stock | 1,774,001 | 179,916 |
| Proceeds from sale of Series B Convertible Preferred stock | 1,500,000 | - |
| Proceeds from convertible debentures | 100,000 | 565,800 |
| Payments on convertible debentures | (85,500) | (123,037) |
| Payments on convertible debentures, related party | (69,000) | - |
| | | |
| Cash provided by financing activitites | 3,102,724 | 763,837 |
| | | |
| NET CHANGE IN CASH | 445,491 | 188 |
| | | |
| CASH AT BEGINNING OF PERIOD | 137,499 | 24,280 |
| | | |
| CASH AT END OF PERIOD | $582,990 | $24,468 |
| | | |
| INTEREST PAID | $170,911 | $96,018 |
| | | |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | |
| Shares issued upon conversion | $383,448
| $1,128,068 |
| Shares issued upon exercise of warrants | $- | $150,000 |
| Right of Use asset and Lease liability | $275,400 | $- |
| Notes receivable for convertible debentures | $- | $90,000 |
| Conversion of common shares to Series A Preferred Shares | $- | $500 |
| | For the Three Months Ended | For the Nine months Ended |
| | | | | |
| | | | | |
| Sales | $- | $- | $- | $- |
| | | | | |
| Operating expenses: | | | | |
| General and administrative | 394,654 | 306,834 | 1,131,662 | 944,571 |
| Research and development | - | 101,500 | 79,550 | 101,500 |
| Facility operations | 154,470 | 41,375 | 234,113 | 180,934 |
| Depreciation and amortization | 18,173 | 15,958 | 37,850 | 41,521 |
| | | | | |
| Total operating expenses | 567,297 | 465,667 | 1,483,175 | 1,268,526 |
| | | | | |
| Net loss from operations | (567,297) | (465,667) | (1,483,175) | (1,268,526) |
| | | | | |
| Other income (expense): | | | | |
| Interest expense | (42,541) | (40,820) | (102,057) | (160,351) |
| Amortization of debt discount | - | (38,831) | - | (515,204) |
| Financing costs | - | (53,528) | (64,452) | (217,746) |
| Change in fair value of derivative liability | - | 58,000 | (29,000) | 19,000 |
| Change in fair value of warrant liability | - | - | - | - |
| Loss on warrant settlement | - | - | - | (50,000) |
| | | | - | |
| | | | | |
| Total other income (expense) | (42,541) | (75,179) | (195,509) | (924,301) |
| | | | | |
| Loss before income taxes | (609,838) | (540,846) | (1,678,684) | (2,192,827) |
| | | | | |
| Provision for income taxes | - | - | - | - |
| | | | | |
| Net loss | (609,838) | (540,846) | (1,678,684) | (2,192,827) |
| | | | | |
| Less net loss attributable to non-controlling interest | (1,074) | -51363 | (4,655) | (51,363) |
| | | | | |
| Net loss attributable to NaturalShrimp Inc. | (608,764) | (489,483) | (1,674,029) | (2,141,464) |
| | | | | |
| Amortization of beneficial conversion feature on PS | (443,333) | (380,000) | (1,543,333) | (380,000) |
| Dividends | (172,291) | - | (317,083) | - |
| | | | | |
| Net loss available for common stockholders | $(1,224,388) | $(869,483) | $(3,534,445) | $(2,521,464) |
| | | | | |
| EARNINGS PER SHARE (Basic and diluted) | $(0.00) | $(0.00) | $(0.01) | $(0.01) |
| | | | | |
| 451,549,772 | 345,260,292 | 419,177,832 | 326,835,226 |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATEDINCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance March 31, 2020 | 5,000,000 | $500 | 2,250 | $- | 379,742,524 | $37,975 | $43,533,243 | - | $(46,427,396) | $(82,101) | (2,937,780) |
| | | | | | | | | | | | |
| Issuance of common stock upon conversion | | | | | 37,926,239 | 3,793 | 222,644 | | | | 226,437 |
Reclass of derivative liability upon conversion or redemption of related convertible debentures
| | | | | | | 205,000 | | | | 205,00 |
| Purchase of Series B Preferred shares | | | 1,250 | - | | | 1,250,000 | | | | 1,250,000 |
| Beneficial conversion feature related to the Series B Preferred Shares | | | | | | | 293,000 | | (293,000) | | - |
| Dividends payable on Series B PS | | | | | | | | | (144,792) | | (144,792) |
| Series B PS Dividends in kind issued | | | 50 | - | | | 56,458 | | | | 56,458 |
| Conversion of Series B PS to common stock | | | (800) | - | 33,569,730 | 3,357 | (3,357) | | | | - |
| Common stock issued in Vista Warrant settlement | | | | | 17,500,000 | 1,750 | 608,250 | | | | 610,000 |
| Reclass of warrant liability upon the cancellation of warrants under Vista Warrant settlement | | | | | | | 90,000 | | | | 90,000 |
| Common stock issued to consultant | | | | | 1,250,000 | 125 | 61,125 | | | | 61,250 |
| | | | | | | | | | | | |
| Net loss | | | | | | | | | (477,072) | (1,895) | (478,967) |
| | | | | | | | | | | | - |
| Balance June 30, 2020 | 5,000,000 | $500 | 2,750 | $- | 469,988,493 | $47,000 | $46,316,363 | $- | $(47,342,260) | $(83,996) | $(1,062,394) |
| | | | | | | | | | | | |
| Issuance of common stock upon conversion | | | | | 1,014,001 | 101 | 125,635 | | | | 125,736 |
| Purchase of Series B Preferred shares | | | 1,250 | - | | | 1,250,000 | | | | 1,250,000 |
| Beneficial conversion feature related to the Series B Preferred Shares | | | 65 | - | | | 807,000 | | (807,000) | | - |
| Dividends payable on Series B PS | | | | | | | | | (83,960) | | (83,960) |
| Series B PS Dividends in kind issued | | | | | | | 77,984 | | | | 77,984 |
| Conversion of Series B PS to common stock | | | (2,369) | - | 58,521,249 | 5,852 | (5,852) | | | | - |
| Common stock issued to consultant | | | | | 1,500,000 | 150 | 67,350 | | | | 67,500 |
| | | | | | | | | | | | |
| Net loss | | | | | | | | | (588,193) | (1,686) | (589,879) |
| | | | | | | | | | | | |
| Balance September 30, 2020 | 5,000,000 | $500 | 1,696 | $- | 531,023,743 | $53,103 | $48,638,480 | $- | $(48,821,413) | $(85,682) | $(215,012) |
| | | | | | | | | | | | |
| Issuance of common stock upon conversion | | | | | 795,387 | 80 | 198,768 | | | | 198,848 |
| Purchase of Series B Preferred shares | | | 750 | - | | | 750,000 | | | | 750,000 |
| Beneficial conversion feature related to the Series B Preferred Shares | | | | | | | 235,000 | | (235,000) | | - |
| Dividends payable on Series B Preferred Shares | | | | | | | | | (88,333) | | (88,333) |
| Conversion of Series B Preferred Shares to common stock | | | (526) | - | 5,670,051 | 567 | (567) | | | | - |
| Beneficial conversion feature related to the Series D Preferred Shares | | | | | | | 5,000,000 | | | | 5,000,000 |
| Amortization of beneficial conversion feature related to Series D Preferred Shares | | | | | | | | | (208,333) | | (208,333) |
| Commitment shares issued with Series D Preferred Shares | | | | | 6,000,000 | 600 | (600) | | | | - |
| Common stock issued to consultant | | | | | 1,500,000 | 150 | 616,350 | | | | 616,500 |
| Common stock to be issued as finder's fees related to asset acquisition | | | | | | | | 135,775 | | | 135,775 |
| | | | | | | | | | | | |
| Net loss | | | | | | | | | (608,764) | (1,074) | (609,838) |
| | | | | | | | | | | | |
| Balance December 31, 2020 | 5,000,000 | $500 | 1,920 | $- | 544,989,181 | $54,500 | $55,437,431 | 135,775 | $(49,961,843) | $(86,756) | $5,579,607 |
| | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance April 1, 2019 | 5,000,000 | 500 | | | 301,758,293 | 30,177 | 38,335,782 | | (41,223,445) | | (2,856,986) |
| | | | | | | | | | | | |
| Issuance of shares under equity financing agreement | | | | | 11,482,721 | 1,148 | 1,498,852 | | | | 1,500,000 |
| Issuance of shares upon conversion | | | | | 3,000,000 | 300 | 29,700 | | | | 30,000 |
| Beneficial conversion feature | | | | | | | 58,548 | | | | 58,548 |
| | | | | | | | | | | | - |
| Net loss | | | | | | | | | (795,270) | - | (795,270) |
| | | | | | | | | | | | |
| Balance June 30, 2019 | 5,000,000 | $500 | - | $- | 316,241,014 | $31,625 | $39,922,882 | - | $(42,018,715) | $- | $(2,063,708) |
| | | | | | | | | | | | |
| Purchase of Series B Preferred shares | | | 250 | - | | | 250,000 | | | | 250,000 |
| Issuance of shares upon conversion | | | | | 14,000,000 | 1,400 | 138,600 | | | | 140,000 |
| Issuance of shares under equity financing agreement | | | | | 3,275,060 | 326 | 273,675 | | | # | 274,001 |
| | | | | | | | | | | | |
| Net loss | | | | | | | | | (856,711) | | (856,711) |
| | | | | | | | | | | | |
| Balance September 30, 2019 | 5,000,000 | $500 | 250 | $- | 333,516,074 | $33,351 | $40,585,157 | | $(42,875,426) | | $(2,256,418) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Purchase of Series B Preferred shares | | | 1,250 | - | | | 1,250,000 | | | | 1,250,000 |
| Issuance of shares upon conversion | | | | | 20,600,461 | 2,060 | 211,388 | | | | 213,448 |
| Reclass of derivative liability upon conversion of related convertible debentures | | | | | | | 8,000 | | | | 8,000 |
| Beneficial conversion feature related to the Series B Preferred Shares | | | | | | | 380,000 | | (380,000) | | - |
| | | | | | | | | | | | - |
| Net loss | | | | | | | | | (489,483) | (51,363) | (540,846) |
| | | | | | | | | | | | |
| Balance December 31, 2019 | 5,000,000 | $500 | 1,500 | $- | 354,116,535 | $35,411 | $42,434,545 | | $(43,744,909) | | $(1,325,816) |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | For the Nine Months Ended |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net loss attributable to NaturalShrimp Inc. | $(1,674,029) | $(2,141,464) |
| | | |
| Adjustments to reconcile net loss to net cash used in operating activities | | |
| | | |
| Depreciation expense | 37,850 | 41,521 |
| Amortization of debt discount | - | 515,204 |
| Change in fair value of derivative liability | 29,000 | (19,000) |
| Default penalty | 41,112 | 27,000 |
| Net loss attributable to non-controlling interest | (4,655) | (51,363) |
| Shares issued for services | 745,250 | - |
| | | |
| Changes in operating assets and liabilities: | | |
| Prepaid expenses and other current assets | (649,326) | (91,643) |
| Deposits | - | (10,133) |
| Accounts payable | 255,231 | 56,002 |
| Other accrued expenses | 143,793 | 180,728 |
| Accrued interest | 29,959 | - |
| Accrued interest - related parties | 32,096 | (10,560) |
| | | |
| Cash used in operating activities | (1,013,719) | (1,503,708) |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| | | |
| Cash paid for machinery and equipment | (1,481,558) | (611,790) |
| Cash paid for asset acquisition with VeroBlue Farms, Inc. | (5,000,000) | - |
| Cash received from Insurance settlement | 917,210 | - |
| Cash paid for construction in process | (1,562,380) | (541,735) |
| | | |
| CASH USED IN INVESTING ACTIVITIES | (7,126,728) | (1,153,525) |
| | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| | | |
| Payments on bank loan | (17,810) | (5,989) |
| Payment of related party notes payable | (48,000) | - |
| Repayment line of credit short-term | 5,413 | (110,788) |
| Proceeds from PPP loan | 103,200 | - |
| Proceeds from issuance of common shares under equity agreement | - | 1,774,001 |
| Proceeds from sale of Series B Convertible Preferred stock | 3,250,000 | 1,500,000 |
| Proceeds from convertible debentures | - | 100,000 |
| Proceeds from sale of Series D PS | 5,000,000 | (85,500) |
| Payments on convertible debentures, related party | - | (69,000) |
| Cash received in relation to Vista warrant settlement | 50,000 | - |
| | | |
| Cash provided by financing activities | 8,342,803 | 3,102,724 |
| | | |
| NET CHANGE IN CASH | 202,357 | 445,491 |
| | | |
| CASH AT BEGINNING OF PERIOD | 109,491 | 137,499 |
| | | |
| CASH AT END OF PERIOD | $311,848 | $582,990 |
| | | |
| INTEREST PAID | $69,961 | $170,911 |
| | | |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | |
| Shares issued upon conversion | $1,131,824 | $383,448 |
| Right of Use asset and Lease liability | $- | $275,400 |
| Dividends in kind issued | $134,446 | $- |
| Shares issued on Vista Warrant settlement | $610,000 | $- |
| Note payable, related party, issued in place of Settlement Agreement | $383,604 | $- |
| Notes payable, issued as consideration in VeroBlue Farms, Inc. asset acquisition | $5,000,000 | $- |
| Shares payable, to be issued as finders fee in VeroBlue Farms, Inc. asset acquisition | $135,775 | $- |
The accompanying footnotes are in integral part of these condensed consolidated financial statements.
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 20192020
(Unaudited)
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp Incorporated (“NaturalShrimp” or the “Company”), a Nevada corporation, is a biotechnology company and has developed a proprietary technology that allows it to grow Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus vannamei) in an ecologically controlled, high-density, low-cost environment, and in fully contained and independent production facilities. The Company’s system uses technology which allows it to produce a naturally-grown shrimp “crop” weekly, and accomplishes this without the use of antibiotics or toxic chemicals. The Company has developed several proprietary technology assets, including a knowledge base that allows it to produce commercial quantities of shrimp in a closed system with a computer monitoring system that automates, monitors and maintains proper levels of oxygen, salinity and temperature for optimal shrimp production. Its initial production facility is located outside of San Antonio, Texas.
The Company has two wholly-owned subsidiaries including NaturalShrimp Corporation, NaturalShrimp Global, Inc. and 51% owned Natural Aquatic Systems, Inc. (“NAS”).
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the nine months ended December 31, 2019,2020, the Company had a net loss available for common stockholders of approximately $2,521,000. At$3,534,000. As of December 31, 2019,2020, the Company had an accumulated deficit of approximately $43,745,000$49,962,000 and a working capital deficit of approximately $4,015,000.$2,792,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of this filing. The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. During the nine months ended December 31, 2019,2020, the Company received net cash proceeds of approximately $100,000 from the issuance of convertible debentures, approximately $1,774,000 from the issuance of approximately 14,758,000 common shares of the Company’s common stock through an equity financing agreement, and $1,500,000$3,250,000 from the sale of 1,5003,250 Series B Preferred shares. Subsequent to December 31, 2019, the Company received $500,000shares and $5,000,000 from the sale of 5,000 Series BD Preferred shares. (See Note 10). Management believes that private placements of equity capital and/or additional debt financing will be needed to fund the Company’s long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance of equity, or convertible debt securities, the percentage ownership of its current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working capital position. If the Company is unable to obtain the necessary capital, the Company may havebe unable to cease operations.develop its facilities and enter in production.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial information as of and for the three and nine months ended December 31, 20192020 and 20182019 has been prepared in accordance with GAAP in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended December 31, 20192020 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended March 31, 20192020 included in the Company’s Annual Report on Form 10-K filed with the SEC on July 1, 2019.June 26, 2020.
The condensed consolidated balance sheet atas of March 31, 20192020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Consolidation
The consolidated financial statements include the accounts of NaturalShrimp Incorporated and its wholly-owned subsidiaries, NaturalShrimp Corporation, NaturalShrimp Global and 51 % owned Natural Aquatic Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic and Diluted Earnings/Loss per Common Share
Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statements are computed in accordance with ASC 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period. For the nine months ended December 31, 2020, the Company had a 1,920 shares of Series B PS whose approximately 12,308,000 underlying shares are convertible at the investors’ option at a conversion price based on the lowest market price over the last 20 trading days, and 5,000 of Series D PS whose approximately 50,000,000 underlying shares are convertible at the investors’ option at a fixed conversion price of $0.10, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2019, the Company had approximately $709,000 in principal on convertible debentures whose approximately 22,895,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.01 to $0.30 for fixed conversion rates, and 57% - 60% of the defined trading price for variable conversion rates and approximately 848,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2018, the Company had approximately $974,000 in principal on convertible debentures whose approximately 96,842,000 underlying shares are convertible at the holders’ option at conversion prices ranging from 34% - 75% of the defined trading price and approximately 10,637,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.
Fair Value Measurements
ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
The Company did not have any Level 1 or Level 2 assets and liabilities atas of December 31, 20192020 and March 31, 2019.2020.
The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the nine months ended December 31, 20192020 and 2018:2019:
Derivatives
| | | | | |
| Derivative liability balance at beginning of period | $157,000 | $3,455,000 | $176,000 | $157,000 |
| Additions to derivative liability for new debt | -- | 1,897,000 | |
| Reclass to equity upon conversion or redemption | (8,000) | (2,552,500) | (205,000) | (8,000) |
| Change in fair value | (19,000) | (1,116,500) | 29,000 | (19,000) |
| Balance at end of period | $130,000 | $1,683,000 | $- | $130,000 |
AtAs of December 31, 2019, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.11; a risk-free interest rate of 1.55%, and expected volatility of the Company’s common stock of 98.46%, and the various estimated reset exercise prices weighted by probability.
At December 31, 2018, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.02; a risk-free interest rate ranging from 2.45% to 2.63%, and expected volatility of the Company’s common stock ranging from 315.25% to 448.43%, and the various estimated reset exercise prices weighted by probability.
Warrant liability
| | | | | |
| Warrant liability balance at beginning of period | $93,000 | $277,000 | $90,000 | $93,000 |
| Reclass to equity upon exercise | - | (150,000) | |
| Reclass to equity upon cancellation or exercise | | (90,000) | - |
| Change in fair value | - | 47,000 | - |
| Balance at end of period | $93,000 | $174,000 | $- | $93,000 |
AtAs of December 31, 2019, the fair value of the warrant liability was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.11; a risk-free interest rate of 1.55%, and expected volatility of the Company’s common stock ranging of 281.4%.
At December 31, 2018, the fair value of the warrant liability was estimated using the following weighted-average inputs: the price of the Company’s common stock of $0.02 a risk-free interest rate of 2.46%, and expected volatility of the Company’s common stock of 350.2%.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, receivables, payables, and debt and are accounted for under the provisions of ASC Topic 825, “Financial Instruments”. The carrying amount of these financial instruments, with the exception of discounted debt, as reflected in the consolidated balance sheets approximates fair value.
Cash and Cash Equivalents
For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents atas of December 31, 20192020 and March 31, 2019.2020.
Concentration of Credit Risk
The Company maintains cash balances at two financial institution. Accounts at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of December 31, 2020 , 2019 the Company’s cash balance exceeded FDIC coverage. As of March 31, 2019,2020, the Company’s cash balance did not exceed FDIC coverage. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.
Fixed Assets
Equipment is carried at historical value or cost and is depreciated over the estimated useful lives of the related assets. Depreciation on buildings is computed using the straight-line method, while depreciation on all other fixed assets is computed using the Modified Accelerated Cost Recovery System (MACRS) method, which does not materially differ from GAAP. Estimated useful lives are as follows:
| |
| Buildings | 27.5 – 39 years |
| Other Depreciable Property | 5 – 10 years |
| Furniture and Fixtures | 3 – 10 years |
Maintenance and repairs are charged to expense as incurred. At the time of retirement or other disposition of equipment, the cost and accumulated depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
The consolidated statements of operations reflect depreciation expense of approximately $18,000 and $38,000 for the three and nine months ended December 31, 2020 and $16,000 and $42,000 and $18,000 and $53,000 for the three and nine months ended December 31, 2019, and 2018, respectively.
Commitments and Contingencies
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard requires all leases that have a termAs of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). The Company adopted ASU 2016-02 on April 1, 2019, and the adoption resulted in the recognition of a Right of Use Asset (“ROU”) and a Lease Liability for a new equipment lease entered into on June 24, 2019 (Note 8).
During the nine months ended December 31, 2019,2020, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date of December 31, 2019,2020, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 1012 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
NOTE 3 – ASSET ACQUISITION
On December 15, 2020, the Company entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for the Company to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other improvements located on such real property) of Iowa’s First. The consideration was $10,000,000, consisting of $5,000,000 in cash, paid at closing on December 17, 2020, (ii) $3,000,000 payable in 36 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date, (“Promissory Note A”), and (iii) $2,000,000 payable in 48 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date (“Promissory Note B”). The Company also agreed to issue 500,000 shares of common stock as a finder’s fee, which would be considered as transaction fees in relation to the asset acquisition, with a fair value of $135,000 based on the market value of the common stock as of the closing date of the acquisition (Note 8).
The facility was originally designed as a farming facility, with the company never beginning production. The Company’s plan is to begin a modification process to convert the plant to produce shrimp, which will allow them to scale faster without having to build new facilities. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company's patented EC platform technology.
The Company determined the asset acquisition did not qualify as a business combination as not only did the Company only acquire certain listed tangible assets, but VBF did not fall under the definition of a business in accordance with ASU 2017-01. VBF was an early stage company that had not yet generated revenue, and it did not yet include an input and a substantive process that will afford the Company the ability to create an output. Additionally, the acquisition does not include an organized workforce. Instead, the assets acquired are to be used by the Company as a location in which to apply their own patented process and create their output, the production of shrimp.
The $10,136,000 consideration was allocated to the assets acquired based on their relative fair value:
| Equipment | $7,014,000 | 69.2% |
| Vehicles | 202,000 | 2.0% |
| Buildings | 2,797,000 | 26.6% |
| Land | 122,000 | 1.2% |
| | $10,135,000 | 100% |
NOTE 4 – FIXED ASSETS
A summary of the fixed assets as of December 31, 2020 and March 31, 2020 is as follows:
| | | |
| Land | $323,564 | $202,293 |
| Buildings | 3,338,644 | 509,762 |
| Machinery and equipment | 8,686,256 | 221,987 |
| Autos and trucks | 221,199 | 19,063 |
| | 12,569,663 | 953,105 |
| Accumulated depreciation | (283,147) | (245,297) |
| Fixed assets, net | $12,286,516 | $707,808 |
The fixed assets include the assets purchased in the asset acquisition on December 15, 2020, in Note 3.
On March 18, 2020, the Company’s research and development plant in La Coste, Texas was destroyed by a fire. The Company believes that it was caused by a natural gas leak, but the fire was so extensive that the cause was undetermined. The majority of the damage was to their pilot production plant, which destroyed a large portion of the fixed assets of the Company. The property destroyed had a net book value of $1,909,495, which was written off and recognized as Loss due to fire during the year ended March 31, 2020. The Company filed a claim with their insurance company, and as of June 2, 2020, received all the proceeds, which totaled $917,210. The Company is currently purchasing replacement fixed assets and reconstructing their pilot production plant.
NOTE 35 – SHORT-TERM NOTE AND LINES OF CREDIT
On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000. The short-term note had a stated interest rate of 5.25%, maturity date of December 15, 2017 and had an initial interest only payment on February 3, 2016. On July 18, 2018, the short-term note was replaced by a promissory note for the outstanding balance of $25,298, which bears interest at 8% with a maturity date of July 18, 2021. The short-term note is guaranteed by an officer and director. The balance of the note at December 31, 2019 and March 31, 2019 was $14,116 and $20,193, respectively.
The Company also has a working capital line of credit with Extraco Bank. On April 30, 2019, the Company renewed2020, the line of credit was renewed with a maturity date of April 30, 2021 for a balance of $372,675. The line of credit bears an interest rate of 5.0%, that is compounded monthly and to be paid with the principal on unpaid balances and is payable monthly.the maturity date. The line of credit matures on April 30, 20202021 and is secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On April 12, 2019, prior to the renewal, the Company paid $100,000 on the loan. The balance of the line of credit is $372,675 and $472,675 at December 31, 2019 and March 31, 2019, respectively.
The Company also has additional lines of credit with Extraco Bank for $100,000 and $200,000, which were renewed on January 19, 2019 and April 30, 2019, respectively, with maturity dates of January 19, 2020 and April 30, 2020, respectively. The lines of credit bear interest at a rate of 6.5% and 5%, respectively, that is compounded monthly on unpaid balances and is payable monthly. They are secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the linesline of credit was $276,958is $372,675 at both December 31, 20192020 and March 31, 2019. On January 8, 2020, the2020.
The Company paid off the $100,000also has an additional line of credit.credit with Extraco Bank for $200,000, which was renewed with a maturity date of April 30, 2021, for a balance of $177,778. The lines of credit bear interest at a rate of 5%, that is compounded monthly and to be paid with the principal on the maturity date. The line of credit is secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the line of credit was $177,778 at both December 31, 2020 and March 31, 2020.
The Company also has a working capital line of credit with Capital One Bank for $50,000. The line of credit bears an interest rate of prime plus 25.9 basis points, which totaled 31.4%29.15% as of December 31, 2019.2020. The line of credit is unsecured. The balance of the line of credit was $9,580 at both December 31, 20192020 and March 31, 2019.2020.
The Company also has a working capital line of credit with Chase Bank for $25,000. The line of credit bears an interest rate of prime plus 10 basis points, which totaled 15.50%13.25% as of December 31, 2019.2020. The line of credit is secured by assets of the Company’s subsidiaries. The balance of the line of credit is $10,237 atas of December 31, 20192020 and March 31, 2019.
2020.
NOTE 46 – BANK LOAN
On April 10, 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $103,200 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for nine months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan.The promissory note contains events of default and other provisions customary for a loan of this type.As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, and utilities.The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act.
On January 10, 2017, the Company entered into a promissory note with Community National Bank for $245,000, at an annual interest rate of 5% and a maturity date of January 10, 2020 (the “CNB Note”). The CNB Note is secured by certain real property owned by the Company in LaCoste, Texas, and is also personally guaranteed by the Company’s President, as well as certain shareholders of the Company. On January 10, 2020, the loan was modified, with certain terms amended. The modified note is for the principal balance of $222,736, with initial monthly payments of $1,730 through February 1, 2037, when all unpaid principal and interest will be due and payable. The loan has an initial yearly rate of interest of 5.75%, which may change beginning on February 1, 2023 and each 36 months thereafter, to the Wall Street Journal Prime Rate plus 1%, but never below 4.25%. The monthly payments may change on the same dates as the interest changes. The Company is also allowed to make payments against the principal at any time. The balance of the CNB Note is $222,736 at$216,931 as of December 31, 20192020, $8,438 of which was in current liabilities, and $228,725 at$222,736 as of March 31, 2019. 2020, of which $8,904 was in current liabilities.
On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000, with a maturity date of December 15, 2017. On July 18, 2018, the short-term note was replaced by a promissory note for the outstanding balance of $25,298, which bears interest at 8% with a maturity date of July 18, 2021. The CNB note is in technical defaultguaranteed by an officer and director. The balance of the note as of the date of this filing,December 31, 2020 and the Company is in negotiations with the bank to extend the maturity date.
March 31, 2020 was $5,413 and $12,005, respectively.
Maturities on Bank loan is as follows:
| Years ended: | |
| March 31, 2021 | $103,782 |
| March 31, 2022 | 20,730 |
| March 31, 2023 | 9,240 |
| March 31, 2024 | 9,786 |
| March 31, 2025 | 10,364 |
| Thereafter | 171,642 |
| $325,544 |
NOTE 57 – CONVERTIBLE DEBENTURES
August 24, 2018 Debenture
On August 24, 2018, the Company entered into a 10% convertible note in the principal amount of $55,000, convertible into shares of common stock of the Company, which matures August 24, 2019. The interest rate increases to 24% per annum upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes, and if the debenture is not paid at maturity the principal due increases by 10%. If the Company loses its bid price the principal outstanding on the debenture increases by 20%, and if the Company’s common stock is delisted, the principal increases by 50%.
The note is convertible into shares of the Company’s common stock at a price per share equal to 57% of the lowest closing bid price for the last 20 days. The discount is increased an additional 10%, to 47%, upon a “DTC chill". The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 130% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. On January 10, 2019 the outstanding principal of $55,000 and accrued interest of $1,974 was purchased from the noteholder by a third party, for $82,612. The additional $25,638 represents the redemption amount owing to the original noteholder and increases the principal amount due to the new noteholder and was recognized as financing cost.
During the fourth fiscal quarter of 2019, in three separate conversions, the holder converted $57,164 of principal into 9,291,354 shares of common stock of the Company. As a result of the conversions the derivative liability related to the debenture was remeasured immediately prior to the conversions with an overall increase in the fair value of $65,000 recognized, with the fair value of the derivative liability related to the converted portion, of $171,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion, of $0.28 to $0.40; a risk-free interest rate of 2.36% to 2.41% and expected volatility of the Company’s common stock, of 343.98% to 374.79%, and the various estimated reset exercise prices weighted by probability.
On May 5, 2020, the remaining outstanding balance of $29,057 was converted into 2,039,069 shares of common stock of the Company, at a conversion rate of $0.014. As a result of the conversion the derivative liability related to the debenture was remeasured immediately prior to the conversions with an overall increase in the fair value of $8,000 recognized, with the fair value of the derivative liability related to the converted portion, of $30,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion of $0.03; a risk-free interest rate of 0.13% and expected volatility of the Company’s common stock, of 158.29%, and the various estimated reset exercise prices weighted by probability.
September 14, 2018 Debenture
On September 14, 2018, the Company entered into a 12% convertible promissory note for $112,500, with an OIDoriginal issuance discount (OID) of $10,250, which matures on March 14, 2019. There is a right of prepayment in the first 180 days, but there is no right to repay after 180 days. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company has not maintained the required share reservation under the terms of the note agreement. The Company believes it has sufficient available shares of the Company’s common stock in the event of conversion for these notes. The interest rate increases to a default rate of 24% for events as set forth in the agreement, including if the market capitalization is below $5 million, or there are any dilutive issuances. There is also a cross default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. Additionally, if the note is not repaid by the maturity date the principal balance increases by $15,000. The market capitalization ishas been below $5 million and therefore the note was in default, however, the holder has issued a waiver to the Company on this default provision.
The note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser of 60% of the lowest trading price for the last 20 days prior to the issuance of the note or 60% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional 10% adjustments to the conversion price for events set forth in the agreement, including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after nine months from issue date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
On December 13, 2018 the holder converted $11,200 of principal into 4,000,000 shares of common stock of the Company.
On January 25, 2019 the outstanding principal of $101,550, plus an additional $56,375$81,970 of default principal and $13,695 in accrued interest of the note, resulting in a new balance of $197,215, was purchased from the noteholder by a third party, who extended the maturity date. The new balance outstanding as of December 31, 2019 is $171,620.
December 6, 2018 Debenture
On December 6, 2018, the Company entered into an 10% convertible promissory note for $210,460, which matures on September 6, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. The Company did not pay the outstanding principal and accrued interest of approximately $54,000 on the maturity date of September 6, 2019, and therefore the principal was increased by the default penalty of 50%, amounting to approximately $27,000. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in Accounting Standards Codification (“ASC”) 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $136,799 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. There was not any amortization expense recognized during the three months ended December 31, 2019, as the beneficial conversion feature was fully amortized as of September 30, 2019. The amortization expense recognized during the nine months ended December 31, 2019 amounted to approximately $91,000,.
On June 27, 2019three separate dates during the holderfirst quarter of the fiscal year ending March 31, 2021, the remaining outstanding balance was converted $30,000 of principal into 3,000,00035,887,170 shares of common stock of the Company. On three occasions during the three months ended September 30, 2019, the holder converted $140,000 of principal into 14,000,000 shares of common stock of the Company. The note was fully converted on two occasions during October 2019.
December 31, 2018 Debenture
On December 31, 2018, the Company, entered into an 10% convertible promissory note for $135,910, which matures on September 30, 2019. The maturity date has been extended to March 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in Accounting Standards Codification (“ASC”) 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $88,342 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. There was not any amortization expense recognized during the three months ended December 31, 2019, as the beneficial conversion feature was fully amortized as of September 30, 2019. The amortization expense recognized during the nine months ended December 31, 2019 amounted to approximately $59,000.
January 16, 2019 Debenture
On January 16, 2019, the Company entered into an 10% convertible promissory note for $205,436, with an OID of $18,686, for a purchase price of $186,750, which matures on October 16, 2019. The maturity date has been extended to March 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in Accounting Standards Codification (“ASC”) 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $176,675 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. The amortization expense recognized during the three and nine months ended December 31, 2019 amounted to approximately $59,000 and $128,000, respectively.
On two occasions during the three months ended December 31, 2019, the holder converted $101,661 of principal into 12,000,000 shares of common stock of the Company.
February 4, 2019 Debenture
On February 4, 2019, the Company entered into an 10% convertible promissory note for $85.500, with an OID of $7,500, for a purchase price of $75,000, which matures on November 4, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in ASC 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $85,500 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method.
On August 6, 2019, the Company exercised its option to redeem the February 4, 2019 debenture, for a redemption price of approximately $132,000. The principal of $85,500 and interest of approximately $5,000 was derecognized with the additional $27,000 paid upon redemption recognized as a financing cost and $15,000 for legal fees.$0.006. As a result of the redemption,conversion the unamortized discountderivative liability related to the redeemed balancedebenture was remeasured immediately prior to the conversions with an overall increase in the fair value of $38,000 was immediately expensed.$8,000 recognized, with the fair value of the derivative liability related to the converted portion, of $30,000 being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the dates of conversion of $0.03; a risk-free interest rate of 0.13% and expected volatility of the Company’s common stock, of 158.29%, and the various estimated reset exercise prices weighted by probability.
March 1, 2019 Debenture
On March 1, 2019, the Company entered into ana 10% convertible promissory note for $168,000, with an OID of $18,000, for a purchase price of $150,000, which maturesoriginally matured on November 1, 2019. The maturity date has been extended to MarchSeptember 1, 2020, with the noteholders waiving the default penalties through December 31, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 100% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.25. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in ASC 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was a $134,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. There was not any amortization expense recognized during the three and nine months ended December 31, 2019,2020, as the beneficial conversion feature was fully amortized as of September 30, 2019. The amortization expense recognized during the three and nine months ended December 31,, 2019 amounted to approximately $100,000,.$50,000. On December 21, 2020, the outstanding balance of $168,000 and accrued interest of $30,847 was converted into 795,387 shares of common stock of the Company, at a conversion rate of $0.25.
April 17, 2019 Debenture
On April 17, 2019, the Company entered into ana 10% convertible promissory note for $110,000, with an OID of $10,000, for a purchase price of $100,000, which matures on January 23, 2020. The maturity date has been waived as of the date of this filing.extended until September 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.124. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. The conversion feature at issuance meets the definition of conventional convertible debt and therefore qualifies for the scope exception in ASC 815-10-15-74(a) and would not be bifurcated and accounted for separately as a derivative liability. The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the market price of the common stock of the Company on the date of funding as compared to the conversion price, determined there was an approximately $59,000 beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method. There was not any amortization expense recognized during the three and nine months ended December 31, 2020, as the beneficial conversion feature was fully amortized as of December 31, 2019.The amortization expense recognized during the three and nine months ended December 31, 2019 amounted to approximately $20,000 and $59,000, respectively.$20,000. On September 14, 2020, the outstanding balance of $110,000 was converted into 1,014,001 shares of common stock of the Company, at a conversion rate of $0.124.
NOTE 68 – STOCKHOLDERS’ DEFICIT
Preferred Stock
As of December 31, 20192020 and March 31, 2019,2020, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.0001. Of this amount, 5,000,000 shares of Series A preferred stock are authorized and outstanding.outstanding, 5,000 shares Series B preferred stock are authorized and 1,920 outstanding, and 20,000 shares Series D preferred stock are authorized and 5,000 outstanding respectively.
On September 5, 2019,December 16, 2020, the Board authorized the issuance of 5,00020,000 preferred shares to be designated as Series BD Preferred Stock (“Series BD PS”). The Series BD PS have a par value of $0.0001, a stated value of $1,200 and no voting rights. will vote together with the common stock on an as-converted basis. In addition, as further described in the Series D Designation, as long as any of the shares of Series D Preferred Stock are outstanding, the Company will not take certain corporate actions without the affirmative vote at a meeting (or the written consent with or without a meeting) of the majority of the shares of Series D Preferred Stock then outstanding. Each holder of Series D Preferred Stock shall be entitled to receive, with respect to each share of Series D Preferred Stock then outstanding and held by such holder, dividends at the rate of twelve percent (12%) per annum (the “Preferred Dividends”). Dividends may be paid in cash or in shares of Preferred Stock at the discretion of the Company.
The Series BD PS are convertible into Common Stock at the election of the holder of the Series D PS at any time following five days after a qualified offering (defined as an offering of common stock for an aggregate price of at least $10,000,000 resulting in the listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange) at a 35% discount to the offering price, or, if a qualified offering has not occurred, at a price of $0.10 per share, subject to adjustment based on several situations, including future dilutive issuances and a Fundamental Transaction.
The Series D PS shall be redeemed by the Corporation on the date that is no later than one calendar year from the date of its issuance. The Series D PS are also redeemable at the Company's option, at percentages ranging from 120%115% to 135%125% for the first 180 days, based on the passage of time. The Company shall redeem the Series BD PS in cash upon a three business days prior notice to the holder or the holder may convert the Series D PS within such three business days period prior to redemption. Additionally, the holder shall have the right to either redeem for cash or convert the Preferred Stock into Common Stock within three business days following the consummation of a qualified offering. The Series D PS are also redeemable at the holder’s option, upon the occurrence of a triggering event which includes a change of control, bankruptcy, and the inability to deliver Series B PSshares of common stock requested under conversion notices. The triggering redemption amount is at the greater of (i) 135%150% of the stated valuevalue.
Upon the dissolution, liquidation or (ii) the productwinding up of the volume-weighted average price (“VWAP”) onCompany, whether voluntary or involuntary, the day proceedingholders of Series D PS shall be entitled to receive out of the triggering event multiplied byassets of the Company an amount equal to the stated value, divided byplus any accrued and unpaid dividends and any other fees or liquidated damages then due and owing for each share of Series D PS before any payment or distribution shall be made to the conversion price. As the redemption feature at the holder’s option is contingent on a future triggering event, the Series B PS is considered contingently redeemable, and as such the preferred shares are classified in equity until such time as a triggering event occurs, at which time they will be classified as mezzanine.holders of any Junior securities.
The Series B PS is convertible, at the discounted market price which is defined as the lowest VWAP over last 20 days. The conversion price is adjustable based on several situations, including future dilutive issuances. As the Series BD PS does not havehas a conditional redemption date, andas it is perpetual preferred stock,convertible, it is classified in mezzanine and, it is considered to be an equitydebt host instrumentinstrument. The conversion price, unless and until there is a qualified offering, is a fixed price and as such the conversion feature is not required to be bifurcated and accounted for as it is clearlya derivative liability. The Company will analyze the conversion feature under ASC 470-20, “Debt with conversion and closely relatedother options”, at each issuance date and based on the market price of the common stock of the Company on the commitment date as compared to the equity host instrument.conversion price, determine if there is a beneficial conversion feature to recognize.
The Series D Designation are subject to certain Registration Rights, whereby if the Corporation does not complete a market listing to the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing) within one hundred twenty (120) calendar days from the issuance of the Series D Preferred Stock, the Company will, within ten (10) calendar days, file a registration statement covering the shares of Common Stock underlying the Series D Preferred Shares. Additionally, the Company will include the shares of Common Stock underlying the Series D Preferred Shares in any registration statement which is being filed by the Corporation’s existing investment banker, provided, that said registration statement is not yet effective with the SEC and provided that the Company receives the prior written approval of said investment banker.
Series B Preferred Equity Offering
On September 17, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with GHS Investments LLC, a Nevada limited liability company (“GHS”) for the purchase of up to 5,000 shares of Series B PS at a stated value of $1,200 per share, or for a total net proceeds of $5,000,000 in the event the entire 5,000 shares of Series B PS are purchased. On September 17, 2019,During the nine months ended December 31, 2020 the Company received an initial tranche$3,250,000 for the issuance of $250,000 under the SPA.3,250 Series B PS. During the threenine months ended December 31, 2019, the Company received $1,250,000 for$1,500,000 under the issuance of 1,250SPA.
During the nine months ended December 31, 2020, the Company has converted 3,554 Series B PS.PS plus 141 Series B PS dividends-in-kind into 97,761,030 shares of the Company’s common stock.
Series D Preferred Equity Financing Agreement 2019Offering
On August 23, 2019,December 18, 2020, the Company entered into a new Equity Financing Agreement (“Equity Financing Agreement”) and Registration Rights Agreement (“Registration Rightssecurities purchase agreements (the “Purchase Agreement”) with GHS. UnderGHS Investments LLC, Platinum Point Capital LLC and BHP Capital NY (collectively, the terms“Purchaser”) , whereby, at the closing, each Purchaser agreed to purchase from the Company, up to 5,000 shares of the Equity Financing Agreement, GHS agreed to provideCompany’s Series D PS, par value $0.0001 per share, at a purchase price of $1,000 per share of Series D Preferred Stock. The aggregate purchase price per Purchaser for the Company with up to $11,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filedSeries D Preferred Stock is $5,000,000. In connection with the U.S. Securities and Exchange Commission (the “Commission”).
Following effectivenesssale of the Registration Statement,Series D Preferred Stock, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchasePurchasers were granted 6,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”“Commitment Shares”), which have a fair value of $1,616,250 based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice shall not exceed two hundred percent (200%)market price of the average daily trading dollar volume of the Company’s Common Stock during the ten (10) trading days preceding the put, so long as such amount does not exceed $500,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase and the Company may not putcommon shares of the Company’s Common Stock to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding Common Stock. The price of each put share shall be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement or the date$0.27 on which GHS has purchased an aggregate of $11,000,000 worth of Common Stock under the terms of the Equity Financing Agreement.
The Registration Rights Agreement provides that the Company shall (i) use its best efforts to file with the Commission the Registration Statement within 30 days of the date of the Registration Rights Agreement;Series D PS purchase.
The Company analyzed the conversion feature under ASC 470-20, “Debt with conversion and (ii) haveother options”, and based on the Registration Statement declaredmarket price of the common stock of the Company on the dates of funding as compared to the conversion price, determined there was a $8,471,000, capped at $5,000,000 based on the purchase price of the Series B PS, beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective byinterest method. The amortization expense recognized during the Commission within 30 days after the date the Registration Statement is filedthree and nine months ended December 31, 2020 amounted to approximately $208,000.
Common Shares Issued to Consultants
In connection with the Commission, but in no event more than 90 days afterVBF asset acquisition (Note 3), the Registration Statement is filed. The Registration Statement was filedCompany agreed to issue 500,000 shares of common stock as a finder’s fee, with a fair value of $135,000 based on October 8, 2019 andthe market value of the common stock of $0.27 as of this filing has not yetDecember 15, 2020, the closing date of the acquisition. The shares were issued on February XX, 2021, and have been deemed effective.
Equity Financing Agreement 2018recognized in the accompanying consolidated financial statements as Stock Payable as of December 31, 2020.
On August 21, 2018,24, 2020, the Company issued 1,500,000 shares of common stock to a consultant per an agreement entered into on June 25, 2020. The agreement has a six month term, and therefore the first Equity Financing Agreement and Registration Rights Agreement with GHS. Under the termsfair value of the first Equity Financing Agreement, GHS agreed to provide the Company with up to $7,000,000 upon effectiveness of a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission. The registration statement was filed and deemed effective on September 19, 2018.
Following effectiveness of the first registration statement, the Company had the discretion to deliver puts to GHS and GHS was obligated to purchase shares of the Company’s common stock,$67,500, based on the investment amount specified in each put notice. The maximum amount thatmarket value of $0.045 on the grant date, will be recognized over the term of the agreement, with $32,500 and $67,500 expensed during the three and nine months ended December 31, 2020. On December 25, 2020, the Company was entitledrenewed the agreement for an additional six months. As consideration for the agreement the Company issued 1,500,000 shares of common stock to put to GHSthe consultant. The agreement has a six month term, and therefore the fair value of $616,500, based on the market value of $0.041 on the grant date, is recognized in each put notice was not to exceed two hundred percent (200%)Prepaid expense as of the average daily trading dollar volumeperiod end December 31, 2020, and will be expensed over the term of the Company’s Common Stock during the ten (10) trading days preceding the put, so long as such amount did not exceed $300,000. Pursuant to the first Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase, andagreement.
On June 12, 2020, the Company may not putissued 1,250,000 shares of common stock to a consultant, with the Company’s Common Stock to GHS that would result in GHS’s beneficial ownership equaling more than 9.99%fair value of $61,250 based on the Company’s outstanding Common Stock. Themarket price of each put share was to be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement or$0.049 on the date onissued and which GHS has purchased an aggregate of $7,000,000 worth of Common Stock under the terms of the Equity Financing Agreement.
Duringwas recognized as professional services in the three months ended June 30, 2019, the Company put to GHS for the issuance of 11,482,721 shares of common stock for a total of $1,500,000. On July 2, 2019, the Company put to GHS for the issuance of 3,275,060 shares of common stock, at $0.09, for a total of $274,000.2020.
Options and Warrants
The Company has not granted any options since inception.
The Company granted warrants in connection with various convertible debentures in previous periods. The remaining outstanding warrants were cancelled in connection with the legal settlement with Vista Capital Investments, LLC, on April 9, 2020. See discussion in Note 10. The related warrant liability was revalued upon cancellation on April 9, 2020, resulting in no change to the fair value of the warrant liability and the $90,000 fair value was reclassified to equity.
As of December 31, 2019 and March 31,September 30, 2019, there are 848,000 and 444,000were 551,452 (after adjustment) remaining warrants to purchase shares of common stock outstanding, classified as a warrant liability, which were to expire on January 31, 2022, with an exercise price of 45% of the market value of the common shares of the Company on the date of exercise.
The warrant liability was revalued at December 31, 2019, resulting in no change to the fair value of the warrant liability for the nine months ended December 31, 2019.
NOTE 79 – RELATED PARTY TRANSACTIONS
Accrued Payroll – Related Parties
Included in other accrued expenses on the accompanying consolidated balance sheet as of December 31, 2019 is approximately $185,000 owing to the former Chief Executive Officer of the Company, approximately $56,000$47,000 and $84,000 owing to the President of the Company as of December 31, 2020 and March 31, 2020, respectively, and approximately $96,000$175,000, owing to a key employee.
Notes Payable – Related Parties
On April 20, 2017, the Company entered into a convertible debenture with an affiliateemployee (which includes $50,000 in both fiscal years, from consulting services prior to his employment) as of the Company whose managing member is the Treasurer, Chief Financial Officer,both December 31, 2020 and a director of the Company (the “affiliate”), for $140,000. The convertible debenture matures one year from date of issuance, and bears interest at 6%. Upon an event of default, as defined in the debenture, the principal and any accrued interest becomes immediately due, and the interest rate increases to 24%. The convertible debenture is convertible at the holder’s option at a conversion price of $0.30. As of March 31, 2018, the Company had paid $52,400 on this note, with $87,600 remaining outstanding as of March 31, 2019. On July 26, 2019, the Company paid $47,000 on this note2020. These amounts include both accrued payroll and on December 17, 2019, $22,000, leaving $18,600 remaining outstanding on the note as of December 31, 2019. Subsequent to period end, on February 4, 2020, the Company paid off the remaining $18,600.
accrued allowances and expenses.
NaturalShrimp Holdings, Inc.
On January 1, 2016 the Company entered into a notes payable agreement with NaturalShrimp Holdings, Inc.(“NSH”), a shareholder. Between January 16, 2016 and March 7, 2016, the Company borrowed $134,750 under this agreement. An additional $601,361 was borrowed under this agreement in the year ended March 31, 2017. The note payable has no set monthly payment or maturity date with a stated interest rate of 2%. As of December 31, 20192020 and March 31, 20192020 the outstanding balance is approximately $735,000. As of December 31, 2020 and March 31, 2020, accrued interest payable was approximately $62,000 and $51,000, respectively.
Shareholder Notes
The Company has entered into several working capital notes payable to multiple shareholders of NSH and Bill Williams, a former officer and director, and a current shareholder of the Company, for a total of $486,500. The notes are unsecured and bear interest at 8%. These notes had stock issued in lieu of interest and have no set monthly payment or maturity date. The balance of these notes atwas $366,404 as of December 31, 20192020 and $426,404 as of March 31, 2019 was $426,404 and $426,404,2020, respectively, and is classified as a current liability on the consolidated balance sheets. AtAs of December 31, 20192020 and March 31, 2019,2020, accrued interest payable was $266,616approximately $110,000 and $241,032,$240,000, respectively.
Shareholders
In 2009,On July 15, 2020, the Company entered intoissued a promissory note payable to Randall Steele, a shareholderMs. Williams in the amount of NSH,$383,604 to settle the amounts that had been recognized per the separation agreement with the late Mr. Bill Williams dated August 15, 2019 (Note 11) for $50,000.his portion of the related party notes and related accrued interest discussed above, and accrued compensation and allowances. The note bears interest at 6.0%one percent per annum, and was payable upon maturity on January 20, 2011, andcalls for monthly payments of $8,000 until the balance is currentlypaid in default. The note is unsecured.full. The balance as of the note at December 31, 2019 and March 31, 20192020 was $50,000, respectively, and is$335,604, with $96,000 classified as ain current liabilityliabilities on the consolidated balance sheets.sheet.
Shareholders
Beginning in 2010, the Company started entering into several working capital notes payable with various shareholders of NSH for a total of $290,000 and bearing interest at 8%. The balance of these notes atas of December 31, 20192020 and March 31, 20192020 was $104,647$54,647 and is classified as a current liability on the consolidated balance sheets.
NOTE 810 – LEASE
On June 24, 2019, the Company entered into a service and equipment lease agreement for water treatment services, consumables and equipment. The lease term is for five years, with a renewal option of an additional five years, with a monthly lease payment of $5,000. The Company analyzed the classification of the lease under ASC 842, and as it did not meet any of the criteria for a financing lease it has been classified as an operating lease. The Company determined the Right of Use asset and Lease liability values at inception calculated at the present value of all future lease payments for the lease term, using an incremental borrowing rate of 5%. The Lease Liability will be expensed each month, on a straight line basis, over the life of the lease. As of December 31, 2020 and March 31, 2020, the lease is on hold while the Company waits for new equipment to be delivered and installed. As the lease is on hold there has been no lease expense or amortization of the Right of Use asset for the three and nine months ended December 31, 2020.
For the three and nine months ended December 31, 2019 the lease expense was $15,000, and $30,000, and the amortization of the Right of Use asset was $11,702 and $23,260.$11,702.
NOTE 911 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements – Bill Williams and Gerald–Gerald Easterling
On April 1, 2015, the Company entered into an employment agreementsagreement with each of Bill G. Williams, as the Company’s Chief Executive Officer, and Gerald Easterling at the time as the Company’s President, effective as of April 1, 2015 (the “Employment Agreements”Agreement”).
The Employment Agreements are eachAgreement is terminable at will and each provide for a base annual salary of $96,000. In addition, the Employment Agreements each provideAgreement provides that the employee is entitled, at the sole and absolute discretion of the Company’s Board of Directors, to receive performance bonuses. Each employeeMr. Easterling will also be entitled to certain benefits including health insurance and monthly allowances for cell phone and automobile expenses.
EachThe Employment Agreement provides that in the event the employee is terminated without cause or resigns for good reason (each as(as defined in their Employment Agreements)Agreement), the employee will receive, as severance the employee’s base salary for a period of 60 months following the date of termination. In the event of a change of control of the Company, the employee may elect to terminate the Employment Agreement within 30 days thereafter and upon such termination would receive a lump sum payment equal to 500% of the employee’s base salary.
EachThe Employment Agreement contains certain restrictive covenants relating to non-competition, non-solicitation of customers and non-solicitation of employees for a period of one year following termination of the employee’s Employment Agreement.
On August 15, 2019, the late Mr. Bill Williams resigned from his position as Chairman of the Board and Chief Executive Officer of the Company, effective August 31, 2019. AMr. Easterling replaced him as the Chief Executive Officer of the Company. The separation agreement calls for the continued payment of salary, at $8,000 semi-monthly, until his accrued compensation in the amount of approximately $217,000 is currently being negotiated.paid off, as well as his monthly rent, medical and automobile payments to continue to be paid and deducted against the accrued compensation and debt. After the accrued compensation is fully paid, the payments shall be $10,000 per month against the remaining debt balance, until such balance is paid in full. On July 15, 2020, the Company issued a promissory note to Ms. Williams in the amount of $383,604 to settle the amounts agreed to in the separation agreement for accrued compensation and debt (see Note 9).
Vista Capital Investments, LLC
On April 30, 2019, a complaint was filed against the Company in the U.S. District Court in Dallas, Texas alleging that the Company breached a provision in a common stock purchase warrant (the “Vista Warrant”) issued by the Company to Vista Capital Investments, LLC (“Vista”). Vista allegesalleged that the Company failed to issue certain shares of the Company’s common stockCommon Stock as was required under the terms of the Vista Warrant. Vista is currently seekingsought money damages in the approximate amount of $7,000,000, which the Company believes is unwarranted and excessive, as well as costs and reimbursement of expenses. As
On April 9, 2020, the Company, Vista and David Clark (“Clark”), a principal of Vista, (the “Parties”) entered into a Settlement Agreement and Release (the “Settlement Agreement”) whereby the Company shall (i) pay to Vista the sum of $75,000, which the Company wired on April 10, 2020, and (ii) issue to Vista 17,500,000 shares of the Company’s Common Stock (the “Settlement Shares”). For a period of time equal to 90-days from the date hereof, no hearing has been scheduled, butof the settlement, or July 8, 2020, the Company shall have the right, but not the obligation, to purchase back from Vista 8,750,000 of the Settlement Shares at a price equal to the greater of (i) the volume weighted-average trading price of the Company’s common shares over the five preceding trading days prior to the date of the delivery of the Company’s written notice of such repurchase or (ii) $0.02 per share. On May 18, 2020, the Company received $50,000 as consideration for waiving the purchase option on the Settlement Shares, thereby allowing Vista to retain all of the Settlement Shares. The Vista warrants outstanding were also cancelled as part of the Settlement Agreement. The $75,000, as well as the fair market value of the 17,500,000 common shares, which is vigorously defending itself against these claims, preparing a counter-claim against Vista and taking such other appropriate action, in addition to seeking for other costs and relief as may be appropriate. The Company is currently in discussions with Vista and has accrued $50,000 for$560,000 based on the market value of the Company’s common stock on the settlement date of this complaint, which is recognized as “loss on warrant settlement”$0.32, was accrued in Accrued expenses on the accompanying Statement of OperationsMarch 31, 2020 Balance Sheet and recognized as Loss on Warrant settlement in the nine months ended Decemberfourth quarter of the year ending March 31, 2019.2020.
Contingent Events
RGA Labs, Inc.
On August 5, 2019,February 18, 2020, RGA Labs, Inc. (“RGA”) filed suit against the Company receivedin the Illinois Circuit Court (23rdDistrict) alleging that the Company owed RGA money pursuant to a formal notice fromwritten contract for the design and manufacture of certain water treatment equipment commissioned by the Company. The Company disputed the allegations and has counterclaimed against RGA for additional costs and expenses incurred by the Company in correcting, repairing and retro-fitting the equipment to enable it to work in the Company’s facilities. On December 1, 2020, the Company filed a motion to dismiss the lawsuit as a sanction for the failure of RGA to comply with a court order compelling responses to the Company’s requests for production and first set of interrogatories. A hearing was held on the motion to dismiss on January 20, 2021. The Court has taken the matter under advisement and will issue its ruling on March 19, 2021.
Gary Shover
A shareholder of NaturalShrimp Holdings, Inc. (“NSH”), Gary Shover, filed suit against the Company on August 11, 2020 in the Northern District of Texas, Parks and Wildlife DepartmentDallas Division, alleging breach of contract for the Company’s facilityfailure to exchange common shares of the Company for shares Mr. Shover owns in La Coste, Texas dueNSH. The Company has filed its answer to the detectioncomplaint and is seeking to settle the matter with Mr. Shover with the approval of IHHNV,the Federal District Court. A settlement stipulation has been prepared and approved by the parties and will be filed with the Court along with a viral disease of Pacific white shrimp, from two Postlarvae (“PL”) shipments from the Company’s Texas hatchery supplier in March and April of this year. At the time of receipts of such shipments from the hatchery in March and April, the Company was notified by its supplierproposed order. It is anticipated that the shipments were virus free. Based onstipulation, joint motion to approve stipulation and proposed order approving the Company’s quality control proceduresstipulation and settlement will be filed with the Court during the courseweek of the shrimp farming process in the Company’s tanks and, in this case the slower than normal growth rate indicating possible compromise, the Company undertook to have lots independently tested by the University of Arizona Pathology Laboratory in Tucson. Based on those tests, IHHNV was detected and the Company’s facility was placed under quarantine until further notice by Texas Parks and Wildlife Department and the United States Department of Agriculture/Animal and Plant Health Inspection Service. Such quarantine notice also imposes no discharge of any culture water to state waters (creeks, rivers, streams, bays) and no sales of any shrimp until further notice. The Company’s system of tanks prevents crossover contamination in order to quickly begin restocking of PL shrimp from a different hatchery beginning in August in different tanks. Such orders have been placed and are expected to be placed into production as soon as inspection is passed and the quarantine has been lifted. Furthermore, the Company has enhanced its system to include nursery tanks that will allow the Company to evaluate the health of the shrimp through much earlier testing in its quality control process. While the Company expects to incur costs associated with the proper disposal of such batches, it does not expect it to be material.February 15, 2021.
NOTE 1012 – SUBSEQUENT EVENTS
Sale of Series B PS
Subsequent to period end, on January 7, 2020, and Januarythe nine months ended December 31, 2020, the Company received further tranches of $250,000 each under the SPA.
Issuance of Common Stock under Convertible Notes
Subsequent to December 31, 2019, the GHS December 30, 2018 debenture and related accrued interest was fullyhas converted 526 Series B PS plus 141 Series B PS dividends-in-kind into 14,980,3536,312,000 shares of the Company’s common stock.
Notes Payable – Related Parties
On February 4, 2020, the Company paid the remaining outstanding balance of $18,600 of the convertible debenture owed an affiliate of the Company whose managing member is the Treasurer, Chief Financial Officer, and a director of the Company (Note 7).
ITEMITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019,2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 1, 2019,June 26, 2020, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
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our ability on a timely basis to successfully rebuild our research and development plant in La Coste, Texas which was completely destroyed by a fire on March 18, 2020;
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our ability, once our research and development plan is rebuilt, to successfully commercialize our equipment and shrimp farming operations to produce a market-ready product in a timely manner and in enough quantity;
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absence of contracts with customers or suppliers;
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our ability to maintain and develop relationships with customers and suppliers;
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our ability to successfully integrate acquired businesses or new brands;
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the impact of competitive products and pricing;
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supply constraints or difficulties;
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the retention and availability of key personnel;
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general economic and business conditions;
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substantial doubt about our ability to continue as a going concern;
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our needcontinued ability to raise additional funds infunding through institutional investors at the future;pace and quantities required to scale our plant needs to commercialize our products;
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our ability to successfully recruit and retain qualified personnel in order to continue our operations;
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our ability to successfully implement our business plan;
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our ability to successfully acquire, develop or commercialize new products and equipment;
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the commercial success of our products;
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business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the outbreak of COVID-19);
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intellectual property claims brought by third parties; and
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the impact of any industry regulation.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC.Securities and Exchange Commission (the “SEC”). We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to NaturalShrimp Incorporated and its wholly-owned subsidiaries: NaturalShrimp Corporation (“NSC”), and NaturalShrimp Global, Inc. (“NS Global”) and our 51% owned subsidiary, Natural Aquatic Systems, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Dollars.
Corporate History
We were incorporated in the State of Nevada on July 3, 2008 under the name “Multiplayer Online Dragon, Inc.” Effective November 5, 2010, we effected an 8-for-1 forward stock split, increasing the issued and outstanding shares of our common stock from 12,000,000 shares to 96,000,000 shares. On October 29, 2014, we effected a 1-for-10 reverse stock split, decreasing the issued and outstanding shares of our common stock from 97,000,000 to 9,700,000.
On November 26, 2014, we entered into an Asset Purchase Agreement (the “Agreement”) with NaturalShrimp Holdings, Inc. a Delaware corporation (“NSH”), pursuant to which we agreed to acquire substantially all of the assets of NSH which assets consisted primarily of all of the issued and outstanding shares of capital stock of NSC and NS Global, and certain real property located outside of San Antonio, Texas (the “Assets”).
On January 30, 2015, we consummated the acquisition of the Assets pursuant to the Agreement. In accordance with the terms of the Agreement, we issued 75,520,240 shares of our common stock to NSH as consideration for the Assets. As a result of the transaction, NSH acquired 88.62% of our issued and outstanding shares of common stock; NSC and NS Global became our wholly-owned subsidiaries, and we changed our principal business to a global shrimp farming company.
In connection with our receipt of approval from the Financial Industry Regulatory Authority (“FINRA”), effective March 3, 2015, we amended our Articles of Incorporation to change our name to “NaturalShrimp Incorporated.”
Business Overview
We are a biotechnology company, and we have developed a proprietary technology that allows us to grow Pacific White shrimp (Litopenaeus vannamei, formerly Penaeus vannamei) in an ecologically controlled, high-density, low-cost environment, and in fully contained and independent production facilities. Our system uses technology which allows us to produce a naturally-grown shrimp “crop” weekly, and accomplishes this without the use of antibiotics or toxic chemicals. We have developed several proprietary technology assets, including a knowledge base that allows us to produce commercial quantities of shrimp in a closed system with a computer monitoring system that automates, monitors and maintains proper levels of oxygen, salinity and temperature for optimal shrimp production. Our initial production facility is located outside of San Antonio, Texas.
NS Global onewas a 50% shareholder of our wholly-owned subsidiaries, owns less than 1%NaturalShrimp Europe GmBH, which ultimately re-domiciled from Switzerland to Norway in the name of NaturalShrimp International A.S. in Europe. Our European-based partner, NaturalShrimpand later changed its name to Gamba International, A.S., Oslo, Norway, is responsible forsupplied the construction cost of its facilityoriginal technology and initial operating capital.
The first facility built in Spain for NaturalShrimp International A.S. is GambaNatural de España, S.L. The landdesign support for the first facility was purchasedproduction subsidiary formed in Medina del Campo, Spain and construction of the 75,000 sq. ft. facility was completedoperated as GambaNatural de España, S.L. Today, NS Global holds less than 1% ownership in 2016. Medina del Campo is approximately seventy-five miles northwest of Madrid, Spain.Norwegian-based Noray Seafood A.S. (formally Gamba International A.S.).
On October 16, 2015, we formed Natural Aquatic Systems, Inc. (“NAS”). The purpose of the NAS is to formalize the business relationship between our Company and F&T Water Solutions LLC for the joint development of certain water technologies. The technologies shall include, without limitation, any and all inventions, patents, intellectual property and know-how dealing with enclosed aquatic production systems worldwide. This includes construction, operation, and management of enclosed aquatic production, other than shrimp, facilities throughout the world, co-developed by both parties at our facility located outside of La Coste, Texas. On December 25, 2018, we were awarded U.S. Patent “Recirculating Aquaculture System and Treatment Method for Aquatic Species” covering all indoor aquatic species that utilizes proprietary art.
On December 15, 2020, we entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for us to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other improvements located on such real property) of Iowa’s First. The consideration was $10,000,000, consisting of $5,000,000 in cash, paid at closing on December 17, 2020, (ii) $3,000,000 payable in 36 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date, (“Promissory Note A”), and (iii) $2,000,000 payable in 48 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date (“Promissory Note B”).
Per the APA, other than the purchased assets, all other assets and properties were excluded from the purchased assets ("Excluded Assets"), which consisted of intangible assets and intellectual property rights, as well as the server, all records on the server, hard copies of accounting records and documents, claims, Pranger retrofit designs, and the equity interest VBF holds in VBF IP Inc., a Texas corporation including, by extension, any and all patents, trademarks and other items of intellectual property owned by VBF IP. The assets purchased are therefore only tangible assets.
The facility was originally designed for the growth of barramundi fish, but the company never began production and declared bankruptcy on September 21, 2018. Our plan is to begin a modification process to convert the plant to produce shrimp. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company's patented EC platform technology. The Company also plans to convert additional square footage currently used as storage to a shrimp processing plant. Final plans and decisions related to this project continue to be developed.
The Company has two wholly-owned subsidiaries, including NSC and NS Global and aowns 51% owned subsidiary,of NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed system at the commercial level have been met with either modest success or outright failure through “BioFloc Technology.” Infectious agents such as parasites, bacteria and viruses are the most damaging and most difficult to control. Bacterial infection can in some cases be combated through the use of antibiotics (although not always), and in general, the use of antibiotics is considered undesirable and counter to “green” cultivation practices. Viruses can be even worse, in that they are immune to antibiotics. Once introduced to a shrimp population, viruses can wipe out entire farms and shrimp populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio Suppression Technology.” We believe this system creates higher sustainable densities, consistent production, improved growth and survival rates and improved food conversion without the use of antibiotics, probiotics or unhealthy anti-microbial chemicals. Vibrio Suppression Technology helps to exclude and suppress harmful organisms that usually destroy “BioFloc” and other enclosed technologies.
In 2001, we began research and development of a high density, natural aquaculture system that is not dependent on ocean water to provide quality, fresh shrimp every week, fifty-two weeks a year. Our initial system was successful, but we determined that it would not be economically feasible due to high operating costs. Over the next several years, using the knowledge we gained from developing the first system, we developed a shrimp production system that eliminated the high costs associated with the previous system. We have continued to refine this technology, eliminating bacteria and other problems that affect enclosed systems, and now have a successful shrimp growing process. We have produced thousands of pounds of shrimp over the last few years in order to develop a design that will consistently produce quality shrimp that grow to a large size at a specific rate of growth. This included experimenting with various types of natural live and synthesized feed supplies before selecting the most appropriate nutritious and reliable combination. It also included utilizing monitoring and control automation equipment to minimize labor costs and to provide the necessary oversight for proper regulation of the shrimp environment. However, there were further enhancements needed to our process and technology in order to begin production of shrimp on a commercially viable scale and to generate revenues.
Our current system consists of a reception tank where the shrimp are acclimated, then moved to a larger grow-out tank for the rest of the twenty-four week cycle. During 2016, we engaged in additional engineering projects with third parties to further enhance our indoor production capabilities. For example, through our relationship with Trane, Inc., a division of Ingersoll-Rand Plc (“Trane”), Trane has provided a detailed audit to use data to build and verify the capabilities of then initial Phase 1 prototype of a Trane-proposed three tank system at our La Coste, Texas facility. The Company contracted F&T Water Solutions and RGA Labs, Inc. (“RGA Labs”) to complete final engineering and building of the initial patent-pending modified Electrocoagulation system for the grow-out, harvesting and processing of fully mature, antibiotic-free Pacific White Leg shrimp. The design will presentpresented a viable pathway to begin generating revenue and producing shrimp on a commercially viable scale. The design iswas completed and was installed in early June 2018 by RGA Labs, and final financing for the system is expected to be provided by one of the Company’s existing intuitional investors. The first post larvae (PL) arrived from the hatchery on July 3, 2018. The Company used the shrimp for sampling to key potential customers and special events such as the Texas Restaurant Association trade show. The Company also received two production PL lots from Global Blue Technologies on March 21, 2019 and April 17, 2019 and from American Penaeid, Inc. on August 7, 2019. Because the shrimp displayed growth that was slower than normal, the Company had a batch tested by an independent lab at the University of Arizona. The shrimp tested positive for Infectious hypodermal and hematopoietic necrosis (“IHHNV”) and the Texas Parks and Wildlife Department was notified that the facility was under quarantine. On August 26, 2019, the Company was forced to terminate all lots due to the infection. The Company will begin restocking on shrimp in the refurbished facility sections. On August 30, 2019, the Company received notice that it was in compliance again and the quarantine had been lifted. During the aforementioned quarantine, the Company decided to begin an approximately $1,000,000 facility renovation demolishing the interior 16 wood structure lined tanks (720,000 gallons). The Company would be replacing the previous tanks with 40 new fiberglass tanks (600,000 gallons) at a cost of approximately $400,000 allowing complete production flexibility with more smaller tanks. The Company expectshad expected that the first shrimp tanks harvest target date willwould be April 2020. In order to solidify the existing facility production process, the Company has purchased eight electrocoagulation units from F&T Water Solutions for a combined purchase and installation price of approximately $700,000.
Other Developments During the Nine Months Ended December 31, 2019
On August 15, 2019, Mr. Bill Williams resigned from his positionMarch 18, 2020, our research and development plant in La Coste, Texas was destroyed by a fire. The Company believes that it was caused by a natural gas leak, but the fire was so extensive that the cause was undetermined. No one was injured as Chairmana result of the Board and Chief Executive Officerfire. The majority of the damage was to our pilot production plant, which comprises approximately 35,000 square feet of the total size of all facilities at the La Coste location of approximately 53,000 square feet, but the fire did not impact the separate greenhouse, reservoirs or utility buildings. We have received total insurance proceeds in the amount of $917,210, the full amount of our claim. These funds are being utilized to convert the original greenhouse into an 8,000 square foot water treatment plant, rebuild a 40,000 square foot production facility at the La Coste facility and to repurchase the equipment and technology needed to replace what was lost in the fire. We began stocking PLs in the water treatment plant in January 2021 to perform testing of the facility support systems and will begin stocking the new grow-out facility with regular biweekly supplies of PLs in February 2021.
On December 18, 2020, we closed the acquisition for the assets of Alder Aqua, formerly known as VeroBlue Farms in Webster City, Iowa, including but not limited to the real property, equipment, tanks, rolling stock, inventory, permits, customer lists, contracts and other such assets used in the operation of the business. These facilities were previously used to raise Barramundi fish. We have begun the conversion from a fish aquaculture facility to a shrimp production facility that includes inserting the Company effective August 31, 2019. Mr. Williams’s resignationpatented “Vibrio Suppression Technology”. We will begin stocking PLs in that facility in March 2021 to perform testing of the support systems.
Recent developments
On December 15, 2020, the Company entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for the Company to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other improvements located on such real property) of Iowa’s First. The consideration was not$10,000,000, consisting of $5,000,000 in cash, paid at closing on December 17, 2020, (ii) $3,000,000 payable in 36 months with interest thereon at the resultrate of any disagreement5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date, and (iii) $2,000,000 payable in 48 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date. The Company also agreed to issue 500,000 shares of common stock as a finder’s fee, with a fair value of $135,000 based on any matter relatingthe market value of the common stock as of the closing date of the acquisition.
The facility was originally designed as a farming facility, with the company never beginning production. The Company’s plan is to begin a modification process to convert the plant to produce shrimp, which will allow them to scale faster without having to build new facilities. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company’s operations, policies or practices.
patented EC platform technology.
Results of Operations
Comparison of the Three Months Ended December 31, 20192020 to the Three Months Ended December 31, 20182019
Revenue
We have not earned any significant revenues since our inception and, although we expect revenues to begin in sixfiscal year 2021, we can provide no assurances as to nine months, we do not expect them tohow significant they will be significant at that time.
Expenses
Our expenses for the three months ended December 31, 20192020 are summarized as follows, in comparison to our expenses for the three months ended December 31, 2018:2019:
| | Three Months Ended December 31, | Three Months Ended December 31, |
| | | | | |
| | | |
| Facility operations | $41,375 | $22,479 | |
| Salaries and related expenses | 109.733 | 109,623 | $97,090 | $109,733 |
| Rent | 4,351 | 2,953 | |
| Professional fees | 116,844 | 70,535 | 228,967 | 116,844 |
| Other general and administrative expenses | 75,906 | 40,710 | 64,762 | 75,906 |
| Rent | | 3,835 | 4,351 |
| Facility operations | | 154,470 | 41,375 |
| Research and development | 101,500 | - | - | 101,500 |
| Depreciation | 15,958 | 17,726 | 18,173 | 15,958 |
| Total | $465,667 | $264,026 | $567,297 | $465,667 |
Operating expenses for the three months ended December 31, 20192020 were $465,667, representing$567,297, which is an approximately 22% increase of 76.4% compared toover operating expenses of $264,026$465,667 for the same period in 2018.2019. The overall increasechange in expenses is mainly due to the increase in professional fees resulting from an increase in legal fees this period, related in part to the warrant settlement with Vista, the designation of the new series Preferred shares as well as its purchase and an increase in accounting and consulting fees, over the same period in the previous year. The increase of approximately $113,000 in the three months ended December 31, 2020 for facility operations is a result of the Company progressingrecommencing with theirits testing and planning to begin commercialstart-up operations which resulted in a ramp up of costs, including increases for employees and related costs, consultants, travel costs. Additionally, the Company’s subsidiary, NAS, began activities during the quarter, which included costs forproduction plant. The research and development of their technology andcost in the treatment lab. Legal fees, included in professional fees, also increased due toprior period was for the registration statement andNAS 51% subsidiary. All other securities involvement. Depreciation expense decreased slightly as many of the fixed assets currently in use have become fully depreciated, and the fixed assets related to the facilitycosts between periods are still in construction in progress and depreciation has not yet begun on these assets.
fairly consistent.
Comparison of the Nine Months Ended December 31, 20192020 to the Nine Months Ended December 31, 20182019
Revenue
We have not earned any significant revenues since our inception and, although we expect revenues to begin in sixfiscal year 2021, we can provide no assurances as to nine months, we do not expect them tohow significant they will be significant at that time.
Expenses
Our expenses for the nine months ended December 31, 20192020 are summarized as follows, in comparison to our expenses for the nine months ended December 31, 2018:2019:
| | Nine Months Ended December 31, | Nine Months Ended December 31, |
| | | | | |
| | | |
| Facility operations | $180,934 | $66,442 | |
| Salaries and related expenses | 337,265 | 314,788 | $311,623 | $337,265 |
| Rent | 12,163 | 8,983 | |
| Professional fees | 266,455 | 193,478 | 516,453 | 266,455 |
| Other general and administrative expenses | 328,688 | 136,540 | 291,908 | 328,688 |
| Rent | | 11,678 | 12,163 |
| Facility operations | | 234,113 | 180,934 |
| Research and development | 101,500 | - | 79,550 | 101,500 |
| Depreciation | 41,521 | 53,171 | 37,850 | 41,521 |
| Total | $1,268,526 | $773,402 | $1,483,175 | $1,268,526 |
Operating expenses for the nine months ended December 31, 20192020 were $1,268,526, representing$1,483,175, which is an increase of 63.9%approximately 17% as compared to operating expenses of $773,402 for the same period in 2018.2019. The overall increasechange in expenses is mainly due to the resultincrease in professional fees and facility operations, offset by the decrease in other general and administrative expenses and research and development between the periods. The increase in professional fees is due to an increase in legal fees this period, related in part to the Vista warrant settlement and the new Series D PS, and an increase in accounting and consulting fees, over the same period in the previous year. The increase of approximately $53,000 in facility operations as well as increasesis a result of the fire on March 18, 2020, at our pilot production plant, which is currently in salariesthe process of being rebuilt, with additional amounts also spent on testing and general and administrative costs, asstartup operations. In the three months ending December 31, 2019, the Company iswas also progressing with theirits testing and planning to begin commercial operations, and has engaged new employees and consultants and there has beenwhich had resulted in a related increase in maintenance and repairs. Additionally,ramp-up of costs, as well as the Company’s subsidiary, NAS, began activities during the quarter, which included costs for research and development of their technology and the treatment lab. Legal fees, included in professional fees, also increased approximately $80,000 during the nine months ended December 31, 2019 as compared to the prior year, due to the registration statement and51% subsidiary NAS. All other securities involvement. Depreciation expense decreased as many of the fixed assets currently in use have become fully depreciated, and the fixed assets related to the facilitycosts between periods are still in construction in progress and depreciation has not yet begun on these assets.fairly consistent.
Liquidity, Financial Condition and Capital Resources
As of December 31, 2019,2020, we had cash on hand of approximately $583,000$312,000 and a working capital deficiency of approximately $4,015,000.$2,792,000, as compared to cash on hand of approximately $137,000$109,000 and a working capital deficiency of approximately $3,773,000$3,598,000 as of March 31, 2019.2020. The increasedecrease in working capital deficiency for the nine months ended December 31, 20192020 is mainly due to the increasedecrease in cash on handcurrent liabilities as a result of decreases in convertible debt and the related derivatives due to conversions of approximately $463,000 of convertible debt, the Vista settlement in April of 2020, which was accrued as of March 31, 2020 and which consisted of $560,000 in accrued expenses and $90,000 in warrant liability, as well as the issuance of the related party note to Ms. Williams in exchange for the amounts owed under the late Mr. William’s settlement agreement, a portion of which in now non-current. This is offset by a decrease in current assets increases in accounts payable and accrued expenses and an increase in the current maturityas a result of the bank loan, discussed in further detail below, in current liabilities.
collection of the insurance settlement of approximately $917,000.
Working Capital Deficiency
Our working capital deficiency as of December 31, 2019,2020, in comparison to our working capital deficiency as of March 31, 2019,2020, can be summarized as follows:
| | | | | |
| | | |
| Current assets | $715,819 | $178,685 | $1,089,867 | $1,155,394 |
| Current liabilities | 4,730,365 | 3,951,811 | 3,881,698 | 4,753,343 |
| Working capital deficiency | $4,014,546 | $3,773,126 | $2,791,831 | $3,597,949 |
The increasedecrease in current assets is mainly due to the increasereceipt of the insurance settlement of approximately $445,000$917,000 which was in current assets as of March 31, 2020. While this decreased current assets as compared to the prior year end, the remaining proceeds have increased cash on hand, which is a resultas of the cash received in funding through the equity financing agreement and sale of Series B PS as well as new convertible debentures. Additionally, prepaid assets increasedDecember 31, 2020, by approximately $90,000 consisting of legal retainers and expected settlement amounts.$202,000. The increasedecrease in current liabilities is primarily due to the entire balanceissuance of the bank loan and linesshares of credit now beingthe Company’s common stock in the current period related to the Vista warrant settlement, with a fair value of $560,000, plus the cash payment to Vista of $75,000 on April 10, 2020, which were both included in accrued expenses as of March 31. 2020, along with the outstanding balances are now due April 2020 or prior. Accrued expenses increasedreclassification of the $90,000 warrant liability to equity upon cancellation of the Vista warrants. The current liabilities also were decreased by approximately $160,000, consisting mainly of $50,000 for an estimated legal settlement and accrued legal feesthe conversion of approximately $70,000.$463,000 of principal of convertible notes and the related reclassification to equity of the total derivative liability upon conversion. Additionally, the issuance of the related party note to Ms. Williams in exchange for the amounts owed under the late Mr. William’s settlement agreement, also resulted in a decrease to current liabilities as a portion of the new note payable in now non-current. Lastly, there also is an increase of approximately $135,000$255,000 in the convertible debenture balance due to the new convertible debenture and the amortization of the existing debt discounts.accounts payable.
Cash Flows
Our cash flows for the nine months ended December 31, 2019,2020, in comparison to our cash flows for the threenine months ended December 31, 2018,2019, can be summarized as follows:
| | Nine Months Ended December 31, | Nine Months Ended December 31, |
| | | | | |
| Net cash used in operating activities | $(1,503,708) | $(682,895) | $(1,013,718) | $(1,503,708) |
| Net cash used in investing activities | (1,153,525) | (80,754) | (7,126,728) | (1,153,525) |
| Net cash provided by financing activities | 3,102,724 | 763,837 | 8,342,803 | 3,102,724 |
| Net change in cash | $634,353 | $188 | $202,357 | $634,353 |
The increasedecrease in net cash used in operating activities in the nine months ended December 31, 2019,2020 compared to the same period in 2018, mainly relates2019 is attributable partly due to the decrease in the gain onnet loss, as well as the change inapproximately $745,000 fair value of the derivativeshares issued for services. There also was the decrease in accrued expenses, which was a result of approximately $1,098,000the settlement with Vista and in accrued interest due to related parties, stemming from the reduced amounts of convertible debt whose conversion features were required to be bifurcated and recognized as derivative liability, as well as the expenses in the prior year occurring in relation to new convertible debentures for the excess financing costs of approximately $1,372,000 and the change in fair valueissuance of the warrant liability of $47,000, which do not occurnew Ms. Williams note payable in the current period. Additionally, amortizationsettlement of the debt discount decreasedlate Mr. Williams separation agreement. This is offset in the current period byof no longer recognizing amortization of debt discount, which was approximately $537,000 as compared to$515,000 in the nine months ended December 31, 2018.prior period.
The net cash used in investing activities in the nine months ended December 31, 2020 includes cash paid for the VeroBlue Farm asset acquisition, as well as machinery and equipment and construction in process to rebuild the Texas plant and is offset by the $917,210 of cash proceeds received from the insurance settlement for the fire to the pilot production plant. In the same period in 2019, included an increase in costs paidthe Company used cash for investing activities to purchase machinery and equipment and payments on construction in process on the newTexas facility, as comparedprior to the same period in 2018, construction on the existing facilities and the purchase of machinery and equipment.
March 2020 fire.
The net cash provided by financing activities increased by approximately $738,000 between periods, withperiods. For the increased cash provided bycurrent period, the Company received $3,250,000 from the Securities Purchase Agreement for the sale of Series B Convertible Preferred Stock, $5,000,000 from the Securities Purchase Agreement for the sale of Series D Redeemable Convertible Preferred Stock, as well as $103,200 from a Paycheck Protection Program (“PPP”) loan, which is expected to be forgiven within the current year, and $50,000 connected to the Vista warrant settlement. In the same period in the prior year, the financing activities primarily arisingarose from the additional proceeds received from the equity financing agreement of $1,774,000 and $1,500,000 for$100,000 proceeds from a new convertible debenture in April of 2019, and $250,000 from the saleinitial tranche of the Stock Purchase Agreement of the Series B PS during the nine months ended December 31, 2019,Convertible Preferred Stock, offset by a decrease in proceeds for new convertible debentures during fiscal 2019 as compared to fiscal 2018 and by payments made on the convertible debt with related party, and the credit line and convertible debentures in fiscal 2019.2020.
Our cash position was approximately $583,000$312,000 as of December 31, 2019.2020. Management believes that our cash on hand and working capital are not sufficient to meet our current anticipated cash requirements for the next twelve months, as more fully described in further detail under the section titled “Going Concern” below.
Recent Financing Arrangements and Developments During the Period
Short-Term Debt and Lines of Credit
The Company has a working capital line of credit with Extraco Bank. On April 30, 2020, the line of credit was renewed with a maturity date of April 30, 2021 for a balance limit of $372,675. The line of credit bears an interest rate of 5.0%, that is compounded monthly and to be paid with the principal on the maturity date. The line of credit matures on April 30, 2021 and is secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the line of credit is $372,675 at both December 31, 2020 and March 31, 2020.
The Company also has an additional line of credit with Extraco Bank for $200,000, which was renewed with a maturity date of April 30, 2021, for a balance of $177,778. The lines of credit bear interest at a rate of 5%, that is compounded monthly and to be paid with the principal on the maturity date. The line of credit is secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the line of credit was $177,778 at both December 31, 2020 and March 31, 2020.
The Company also has a working capital line of credit with Capital One Bank for $50,000. The line of credit bears an interest rate of prime plus 25.9 basis points, which totaled 29.15% as of December 31, 2020. The line of credit is unsecured. The balance of the line of credit was $9,580 at both December 31, 2020 and March 31, 2020.
The Company also has a working capital line of credit with Chase Bank for $25,000. The line of credit bears an interest rate of prime plus 10 basis points, which totaled 13.25% as of December 31, 2020. The line of credit is secured by assets of the Company’s subsidiaries. The balance of the line of credit is $10,237 as of December 31, 2020 and March 31, 2020.
Bank Loan
On April 10, 2020, the Company obtained a PPP loan in the amount of $103,200 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred for six months, at which time the balance is payable in 18 monthly installments if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company intends to use the PPP loan proceeds for payroll, healthcare benefits, and utilities. The program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act.
On January 10, 2017, the Company entered into a promissory note with Community National Bank for $245,000, at an annual interest rate of 5% and a maturity date of January 10, 2020 (the “CNB Note”). The CNB Note is secured by certain real property owned by the Company in LaCoste, Texas, and is also personally guaranteed by the Company’s President, as well as certain shareholders of the Company. On January 10, 2020, the loan was modified, with certain terms amended. The modified note is for the principal balance of $222,736, with initial monthly payments of $1,730 through February 1, 2037, when all unpaid principal and interest will be due and payable. The loan has an initial yearly rate of interest of 5.75%, which may change beginning on February 1, 2023 and each 36 months thereafter, to the Wall Street Journal Prime Rate plus 1%, but never below 4.25%. The monthly payments may change on the same dates as the interest changes. The Company is also allowed to make payments against the principal at any time. The balance of the CNB Note is $216,931 as of December 31, 2020, $8,438 of which was in current liabilities, and $220,899 as of March 31, 2020, of which $8,904 was in current liabilities.
On November 3, 2015, the Company entered into a short-term note agreement with Community National Bank for a total value of $50,000. The short-term note had a stated interest rate of 5.25%, maturity date of December 15, 2017 and had an initial interest only payment on February 3, 2016. On July 18, 2018, the short-term note was replaced by a promissory note for the outstanding balance of $25,298, which bears interest at 8% with a maturity date of July 18, 2021. The short-term note is guaranteed by an officer and director. The balance of the note atas of December 31, 20192020 and March 31, 20192020 was $14,116$5,413 and $20,193,$12,005, respectively.
The Company also has a working capital line of credit with Extraco Bank. On April 30, 2019, the Company renewed the line of credit for $372,675. The line of credit bears an interest rate of 5.0% that is compounded monthly on unpaid balances and is payable monthly. The line of credit matures on April 30, 2020 and is secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On April 12, 2019, prior to the renewal, the Company paid $100,000 on the loan. The balance of the line of credit is $372,675 and $472,675 at December 31, 2019 and March 31, 2019, respectively.
The Company also has additional lines of credit with Extraco Bank for $100,000 and $200,000, which were renewed on January 19, 2019 and April 30, 2019, respectively, with maturity dates of January 19, 2020 and April 30, 2020, respectively. The lines of credit bear an interest rate of 6.5% and 5%, respectively, that is compounded monthly on unpaid balances and is payable monthly. They are secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. The balance of the lines of credit was $276,958 at both December 31, 2019 and March 31, 2019. On January 8, 2020, the Company paid off the $100,000 line of credit.
The Company also has a working capital line of credit with Capital One Bank for $50,000. The line of credit bears an interest rate of prime plus 25.9 basis points, which totaled 31.4% as of March 31, 2019. The line of credit is unsecured. The balance of the line of credit was $9,580 at both December 31, 2019 and March 31, 2019.
The Company also has a working capital line of credit with Chase Bank for $25,000. The line of credit bears an interest rate of prime plus 10 basis points, which totaled 15.5% as of March 31, 2019. The line of credit is secured by assets of the Company’s subsidiaries. The balance of the line of credit is $10,237 at December 31, 2019 and March 31, 2019.
Bank Loan
On January 10, 2017, we entered into a promissory note agreement with Community National Bank in the principal amount of $245,000, with an annual interest rate of 5% and a maturity date of January 10, 2020 (the “CNB Note”). The CNB Note is secured by certain real property owned by the Company in La Coste, Texas, and is also personally guaranteed by the Company’s President and Chairman of the Board, as well as certain non-affiliated shareholders of the Company. The balance of the CNB Note is $222,736 at December 31, 2019 and $228,759 at March 31, 2019.
Convertible Debentures
On December 6,August 24, 2018, the Company entered into a 10% convertible note in the principal amount of $55,000, convertible into shares of common stock of the Company, which matures August 24, 2019. The interest rate increases to 24% per annum upon an event of default, as set forth in the agreement, including a cross default to all other outstanding notes, and if the debenture is not paid at maturity the principal due increases by 10%. If the Company loses its bid price the principal outstanding on the debenture increases by 20%, and if the Company’s common stock is delisted, the principal increases by 50%. On January 10, 2019 the outstanding principal of $55,000 and accrued interest of $1,974 was purchased from the noteholder by a third party, for $82,612. The additional $25,638 represents the redemption amount owing to the original noteholder and increases the principal amount due to the new noteholder. The note is convertible into shares of the Company’s common stock at a price per share equal to 57% of the lowest closing bid price for the last 20 days. The discount is increased an additional 10%, to 47%, upon a “DTC chill". During the fourth fiscal quarter of 2019, in three separate conversions, the holder converted $57,164 of principal into 9,291,354 shares of common stock of the Company. On May 5, 2020, the remaining outstanding balance of $29,057 was converted into 2,039,069 shares of common stock of the Company, at a conversion rate of $0.014.
On September 14, 2018, the Company entered into a 12% convertible promissory note for $210,460,$112,500, with an OID of $10,250, which matures on September 6,March 14, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% ofOn January 25, 2019 the outstanding principal of $101,550, plus an additional $81,970 of default principal and $13,695 in accrued interest based onof the redemption date’s passagenote, resulting in a new balance of time ranging from 60 days to 180 days$197,215, was purchased from the date of issuance ofnoteholder by a third party, who extended the debenture.maturity date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the eventThe interest rate increases to a default rate of default,24% for events as set forth in the agreement, including if the market capitalization is below $5 million, or there are any dilutive issuances. There is also a cross default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%. The, and if the Company did not payfails to maintain the required authorized share reserve, the outstanding principal and accrued interest of approximately $54,000 on the maturity date of September 6, 2019, and therefore the principal was increased by the default penalty of 50%, amounting to approximately $27,000. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. On June 27, 2019 the holder converted $30,000 of principal into 3,000,000 shares of common stock of the Company. On three occasions during the three months ended September 30, 2019, the holder converted $140,000 of principal into 14,000,000 shares of common stock of the Company. The note was fully converted on two occasions during October 2019.
On December 31, 2018, the Company entered into an 10% convertible promissory note for $135,910, which matures on September 30, 2019. The maturity date has been extended to March 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%200%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange.Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. Additionally, if the note is not repaid by the maturity date the principal balance increases by $15,000. The market capitalization has been below $5 million and therefore the note was in default, however, the holder has issued a waiver to the Company on this default provision.
The note is convertible at a fixed conversion priceinto shares of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced byCompany’s common stock at a variable conversion rate that is 70%equal to the lesser of 60% of the lowest trading prices duringprice for the last 20 days prior to the issuance of the note or 60% of the lowest market price over the 20 days prior to conversion. The fixed conversion price shall resetbe adjusted upon any future dilutive issuancesubsequent sales of shares, options or convertible securities.
On January 16, 2019, the Company entered into an 10% convertible promissory note for $205,436.60, with an OID of $18,6867, for a purchase price of $186,750.55, which matures on October 16, 2019. The maturity date has been extended to March 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the notesecurities at a prepayment percentage of 120%price lower than the original conversion price. There are additional 10% adjustments to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, asprice for events set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occursincluding if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any issue new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced byless than $0.01, if the Company is not DTC eligible, the Company is no longer a variable conversion rate that is 70% ofreporting company, or the lowestnote cannot be converted into free trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares optionson or convertible securities.
after nine months from issue date. On two occasions during the three months ended December 31, 2019,13, 2018 the holder converted $101,661$11,200 of principal into 12,000,0004,000,000 shares of common stock of the Company.
On February 4, 2019, the Company issued a 10% convertible promissory note for $85,500, with an OID of $7,500, for a purchase price of $75,000, which matures on November 4, 2019. Duringthree separate dates during the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130%quarter of the fiscal year ending March 31, 2021, the remaining outstanding principal and accrued interest based on the redemption date’s passagebalance was converted into 35,887,170 shares of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company, shall lose the "bid" price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any issue new debt. The note is convertible at a fixed conversion price of $0.01. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities. On August 6, 2019, the Company exercised its option to redeem the February 4, 2019 debenture, for a redemption price of approximately $132,000. The principal of $85,500 and interest of approximately $5,000 was derecognized with the additional $27,000 paid upon redemption recognized as a financing cost and $15,000 for legal fees. As a result of the redemption, the unamortized discount related to the redeemed balance of $38,000 was immediately expensed.$0.006.
On March 1, 2019, the Company entered into ana 10% convertible promissory note for $168,000, with an OID of $18,000, for a purchase price of $150,000, which maturesoriginally matured on November 1, 2019. The maturity date has been extended to MarchSeptember 1, 2020, with the noteholders waiving the default penalties through December 31, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 100% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the “bid” price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.25. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. The fixed conversion price shall reset upon any future dilutive issuance of shares, options or convertible securities.On December 21, 2020, the outstanding balance of $168,000 and accrued interest of $30,847 was converted into 795,387 shares of common stock of the Company, at a conversion rate of $0.25.
On April 17, 2019, the Company entered into ana 10% convertible promissory note for $110,000, with an OID of $10,000, for a purchase price of $100,000, which matures on January 23, 2020. The maturity date has been extended to September 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at a prepayment percentage of 120% to 130% of the outstanding principal and accrued interest based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. In the event of default, as set forth in the agreement, the outstanding principal balance increases to 150%. In addition to standard events of default, an event of default occurs if the common stock of the Company shall lose the "bid" price for its Common Stock, on trading markets, including the OTCBB, OTCQB or an equivalent replacement exchange. If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder's written consent before issuing any new debt. The note is convertible at a fixed conversion price of $0.124. If an event of default occurs, the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70% of the lowest trading prices during the 20 days prior to conversion. On September 14, 2020, the outstanding balance of $110,000 was converted into 1,014,001 shares of common stock of the Company, at a conversion rate of $0.124.
Sale and Issuance of Common Stock
During the nine months ended December 31, 2019,2020, the Company issued 37,601,46139,735,627 shares of the Company’s common stock upon conversion of approximately $383,000$564,000 of their outstanding convertible debt and accrued interest.
Equity Financing Agreement
On August 21, 2018, the Company entered into an Equity Financing Agreement (“Equity Financing Agreement”) and Registration Rights Agreement (“Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $7,000,000 upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”). The Registration Statement was filed, and deemed effective on September 19, 2018.
Following effectiveness of the Registration Statement, the Company has the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice shall not exceed two hundred percent (200%) of the average daily trading dollar volume of the Company’s Common Stock during the ten (10) trading days preceding the put, so long as such amount does not exceed $300,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to GHS that would result in GHS’s beneficial ownership equaling more than 9.99% of the Company’s outstanding Common Stock. The price of each put share shall be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement or the date on which GHS has purchased an aggregate of $7,000,000 worth of Common Stock under the terms of the Equity Financing Agreement. Additionally, in accordance with the Equity Financing Agreement, the Company shall issue GHS a promissory note in the principal amount of $15,000 to offset transaction costs (the “Note”). The Note bears interest at the rate of 8% per annum, is not convertible and is due 180 days from the issuance date of the Note. Through the year ended March 31, 2019, the Company put to GHS for the issuance of approximately 22,132,000 shares of common stock, for a total of approximately $465,000.
During the nine months ended December 31, 2019,2020, the Company puthas converted 3,554 Series B PS plus 141 Series B PS dividends-in-kind into 97,761,030 shares of the Company’s common stock.
Common Shares Issued to GHS forConsultants
On August 24, 2020, the issuance of 14,744,646Company issued 1,500,000 shares of common stock to a consultant per an agreement entered into on June 25, 2020. The agreement has a six month term, and therefore the fair value of $67,500, based on the market value of $0.045 on the grant date, will be recognized over the term of the agreement, with $32,500 and $67,500 expensed during the three and nine months ended December 31, 2020. On December 25, 2020, the Company renewed the agreement for an additional six months. As consideration for the agreement the Company issued 1,500,000 shares of common stock to the consultant. The agreement has a totalsix month term, and therefore the fair value of $1,774,000.$616,500, based on the market value of $0.041 on the grant date, is recognized in Prepaid expense as of the period end December 31, 2020, and will be expensed over the term of the agreement.
On June 12, 2020, the Company issued 1,250,000 shares of common stock to a consultant, with the fair value of $61,250 based on the market price of $0.049 on the date issued and which was recognized as professional services in the three months ended June 30, 2020.
Series B Preferred Equity Offering
On September 5, 2019, the Board authorized the issuance of 5,000 preferred shares to be designated as Series B Preferred Stock. The Series B PS have a par value of $0.0001, a stated value of $1,200 and no voting rights. The Series B PS are redeemable at the Company's option, at percentages ranging from 120% to 135% for the first 180 days, based on the passage of time. The Series B are also redeemable at the holder’s option, upon the occurrence of a triggering event which includes a change of control, bankruptcy, and the inability to deliver Series B PS requested under conversion notices. The triggering redemption amount is at the greater of (i) 135% of the stated value or (ii) the product of the volume-weighted average price (“VWAP”) on the day proceeding the triggering event multiplied by the stated value divided by the conversion price. As the redemption feature at the holder’s option is contingent on a future triggering event, the Series B PS is considered contingently redeemable, and as such the preferred shares are classified in equity until such time as a triggering event occurs, at which time they will be classified as mezzanine.
The Series B PS is convertible, at the discounted market price which is defined as the lowest VWAP over last 20 days. The conversion price is adjustable based on several situations, including future dilutive issuances. As the Series B PS does not have a redemption date and is perpetual preferred stock, it is considered to be an equity host instrument and as such the conversion feature is not required to be bifurcated as it is clearly and closely related to the equity host instrument.
On September 17, 2019, the Company entered into a Securities Purchase Agreement with GHS for the purchase of up to 5,000 shares of Series B PS at a stated value of $1,200 per share, or for a total net proceeds of $5,000,000 in the event the entire 5000 shares of Series B PS are purchased. During the nine months ended December 31, 2019,2020, the Company received $1,500,000$3,250,000 for the issuance of 1,500,0003,250 Series B PS.
Shareholder Note Payable
Series D Preferred Equity Offering
On April 20, 2017,December 18, 2020, the Company issued an additional Six Percent (6%entered into securities purchase agreements (the “Purchase Agreement”) Unsecured Convertible Note to Dragon Acquisitions inwith GHS Investments LLC, Platinum Point Capital LLC and BHP Capital NY (collectively, the principal amount of $140,000. The note accrues interest“Purchaser”) , whereby, at the rate of six percent (6%) per annum, and matures one (1) yearclosing, each Purchaser agreed to purchase from the dateCompany, up to 5,000 shares of issuance. Upon an eventthe Company’s Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”), at a purchase price of default,$1,000 per share of Series D Preferred Stock. The aggregate purchase price per Purchaser for the default interest rate will be increased to twenty-four percent (24%), andSeries D Preferred Stock is $5,000,000. In connection with the total amountsale of principal and accrued interest shall become immediately due and payable at the holder’s discretion. The note is convertible intoSeries D Preferred Stock, the Purchasers received 6,000,000 shares of the Company’s common stock, par value $0.0001 (the “Commitment Shares”), which have a fair value of $1,616,250 based on the market price of the common shares of $0.27 on the date of the Series D PS purchase.
Each holder of Series D Preferred Stock shall be entitled to receive, with respect to each share of Series D Preferred Stock then outstanding and held by such holder, dividends at the rate of twelve percent (12%) per annum (the “Preferred Dividends”). Dividends may be paid in cash or in shares of Preferred Stock at the discretion of the Company.
The Series D PS are convertible into Common Stock at the election of the holder of the Series D PS at any time following five days after a qualified offering (as defined in the Purchase Agreement) at a conversion35% discount to the offering price, or, if a qualified offering has not occurred, at a price of $0.30$0.10 per share, subject to adjustment. Asadjustment as set forth in the designation.
The Series BD PS shall be redeemed by the Corporation on the date that is no later than one calendar year from the date of December 31, 2019,its issuance. The Series D PS are also redeemable at the Company's option, at percentages ranging from 115% to 125% for the first 180 days, based on the passage of time. The Company has paid $121,400 on this note, with $18,600 remaining outstanding asshall redeem the Series D PS in cash upon a three business days prior notice to the holder or the holder may convert the Series D PS within such three business days period prior to redemption. Additionally, the holder shall have the right to either redeem for cash or convert the Preferred Stock into Common Stock within three business days following the consummation of March 31, 2019.a qualified offering. The Series D PS are also redeemable at the holder’s option, upon the occurrence of a triggering event which includes a change of control, bankruptcy, and the inability to deliver shares of the Company’s common stock requested under conversion notices. The triggering redemption amount is 150% of the stated value.
Going Concern
The audited consolidated financial statements contained in this annualquarterly report on Form 10-K10-Q have been prepared, assuming that the Company will continue as a going concern. The Company has accumulated losses through the period to December 31, 20192020 of approximately $43,745,000$49,962,000 as well as negative cash flows from operating activities of approximately $1,153,000.$1,014,000. Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following December 31, 2019.the date of issuance of this filing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance the continued build-out of our equipment and for general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with our fund raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.
The consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges of the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
Future Financing
We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements that have enabled us to fund our operations, these funds have been largely used to develop our processes, although additional funds are needed for other corporate operational and working capital purposes. Subsequent to period end we have raised $500,000 from the sale of Series B Preferred shares. However, not including funds needed for capital expenditures or to pay down existing debt and trade payables, we anticipate that we will need to raise an additional $2,500,000 to cover all of our operational expenses over the next 12 months, not including any capital expenditures needed as part of any commercial scale-up of our equipment. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that such financing can be obtained on commercially reasonable terms. If we are not able to obtain the additional necessary financing on a timely basis, or if we are unable to generate significant revenues from operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.2020. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
Fair Value Measurement
The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company did not have any Level 1 or Level 2 assets and liabilities atas of December 31, 20192020 and March 31, 2019.2020.
The Derivative and warrant liabilities are Level 3 fair value measurements.
Basic and Diluted Earnings/Loss per Common Share
Basic and diluted earnings or loss per share (“EPS”) amounts in the consolidated financial statements are computed in accordance with ASC 260 – 10 “Earnings per Share”, which establishes the requirements for presenting EPS. Basic EPS is based on the weighted average number of shares of common stock outstanding. Diluted EPS is based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents. Basic EPS is computed by dividing net income or loss available to common stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period. For the nine months ended December 31, 2020, the Company had a 1,920 shares of Series B PS whose approximately 12,308,000 underlying shares are convertible at the investors’ option at a conversion price based on the lowest market price over the last 20 trading days, and 5,000 of Series B PS whose approximately 50,000,000 underlying shares are convertible at the investors’ option at a fixed conversion price of $0.10, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2019, the Company had approximately $709,000 in principal on convertible debentures whose approximately 22,895,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.01 to $0.30 for fixed conversion rates, and 57% - 60% of the defined trading price for variable conversion rates and approximately 848,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the nine months ended December 31, 2018, the Company had approximately $1974,000 in principal on convertible debentures whose approximately 96,842,000 underlying shares are convertible at the holders’ option at conversion prices ranging from 34% - 75% of the defined trading price and approximately 10,637,000 warrants with an exercise price of 45% of the market price of the Company’s common stock, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.
Impairment of Long-lived Assets and Long-lived Assets
The Company will periodically evaluate the carrying value of longlivedlong-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a longlivedlong-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the longlivedlong-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on longlivedlong-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.
Recently Adopted Accounting Pronouncements
Our recently adopted accounting pronouncements are more fully described in Note 2 to our financial statements included herein for the quarter ended December 31, 2019.2020.
Recently Issued Accounting Standards
In February 2016, FASBDuring the year ended March 31, 2020, there were several new accounting pronouncements issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases thatby the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a term of over 12 months to be recognizedmaterial impact on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in theCompany’s consolidated financial statements. Early adoption is permitted. The Company adopted ASU 2016-02 on April 1, 2019, and the adoption resulted in the recognition of a Right of Use Asset (“ROU”) and a Lease Liability for a new equipment lease entered into on June 24, 2019.
ITEMITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
ITEMITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of December 31, 2019September 30, 2020 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 20192020 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, which currently consists of our Chief Executive Officer and Treasurer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO” - 2013) and SEC guidance on conducting such assessments. Our management concluded, as of December 31, 2019, that our internal control over financial reporting was not effective. Management realized there were deficiencies in the design or operation of the Company’s internal control that adversely affected the Company’s internal controls which management considers to be material weaknesses.
In performing the above-referenced assessment, management had concluded that as of December 31, 2019, there were deficiencies in the design or operation of our internal control that adversely affected our internal controls, which management considers to be material weaknesses, including those described below:
(i)Lack of Formal Policies and Procedures. We utilize a third-party independent contractor for the preparation of our financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third-party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.
(ii)Audit Committee and Financial Expert. We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.
(iii)Insufficient Resources. We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
(iv)Entity Level Risk Assessment. We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected and constituted a material weakness.
(v)Lack of Personnel with GAAP Experience. We lack personnel with formal training to properly analyze and record complex transactions in accordance with U.S. GAAP.
Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the near term as resources permit, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 20192020 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
PARTPART II – OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
Except as described below, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
RGA Labs, Inc.
On April 30, 2019, a complaint wasFebruary 18, 2020, RGA Labs, Inc. (“RGA”) filed suit against the Company in the U.S. DistrictIllinois Circuit Court in Dallas, Texas(23rdDistrict) alleging that the Company breachedowed RGA money pursuant to a provision in a common stock purchase warrant (the “Vista Warrant”) issuedwritten contract for the design and manufacture of certain water treatment equipment commissioned by the Company. The Company disputed the allegations and has counterclaimed against RGA for additional costs and expenses incurred by the Company in correcting, repairing and retro-fitting the equipment to Vista Capital Investments, LLC (“Vista”). Vista alleges thatenable it to work in the Company’s facilities. On December 1, 2020, the Company failedfiled a motion to dismiss the lawsuit as a sanction for the failure of RGA to comply with a court order compelling responses to the Company’s requests for production and first set of interrogatories. A hearing was held on the motion to dismiss on January 20, 2021. The Court has taken the matter under advisement and will issue certainits ruling on March 19, 2021.
Gary Shover
A shareholder of NaturalShrimp Holdings, Inc. (“NSH”), Gary Shover, filed suit against the Company on August 11, 2020 in the Northern District of Texas, Dallas Division, alleging breach of contract for the Company’s failure to exchange common shares of the Company’s common stock as was required under the terms of the Vista Warrant. Vista is currently seeking money damagesCompany for shares Mr. Shover owns in the approximate amount of $7,000,000, which the Company believes is unwarranted and excessive, as well as costs and reimbursement of expenses. The Company is continuing to vigorously defend itself against these claims, preparing a counter-claim against Vista and taking such other appropriate action, in addition to seeking for other costs and relief as may be appropriate. The Company is currently litigating issues related to forum selection.NSH. The Company has accrued $50,000 forfiled its answer to the complaint and is seeking to settle the matter with Mr. Shover with the approval of the Federal District Court. A settlement stipulation has been prepared and approved by the parties and will be filed with the Court along with a proposed order. It is anticipated that the stipulation, joint motion to approve stipulation and proposed order approving the stipulation and settlement will be filed with the Court during the week of this complaint, which is recognized as “loss on warrant settlement” on the accompanying Statement of Operations in the three months ended June 30, 2019.February 15, 2021.
ITEMITEM 1A. RISK FACTORSAs a smaller reporting company, we are not requiredFactors that could cause or contribute to provide the information required by this Item. We note, however, that an investmentdifferences in our common stock involves a number of very significant risks. Investors should carefully considerfuture financial and operating results include those discussed in the risk factors includedset forth in the “Risk Factors” sectionItem 1A of our Annual Report on Form 10-K for our fiscalthe year ended March 31, 2019, as2020. The risks described in our Form 10-K and this Report are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.
There have been no material changes to the risk factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2020, filed with SEC on July 1, 2019, in additionJune 26, 2020, other than the following:
Our purchase of the assets from VeroBlue Farms USA will require us to devote a significant amount of attention to that operation and will require further investment to develop such assets.
On December 15, 2020, we entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). The agreement called for us to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other information contained inimprovements located on such Annual Reportreal property) of Iowa’s First. The facility was originally designed for the growth of barramundi fish, but the company never began production and indeclared bankruptcy on September 21, 2018. Our plan is to begin a modification process to convert the plant to produce shrimp. The three Iowa facilities contain the tanks and infrastructure that will be used to support the production of shrimp with the incorporation of the Company's patented EC platform technology. The Company also plans to convert additional square footage currently used as storage to a shrimp processing plant. Final plans and decisions related to this Quarterly Report on Form 10-Q, in evaluatingproject continue to be developed and we can provide no assurance that we will be able to provide the Companytime and additional resources to further such development.
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our business before purchasing shares of our common stock. The Company’s business, operating resultsresearch and development, operations, sales, and financial conditionresults.
Our business could be adversely affected dueimpacted by the effects of the Novel Coronavirus (COVID-19). In addition to global macroeconomic effects, the COVID-19 outbreak and any other related adverse public health developments could cause disruption to our operations and manufacturing activities. Our third-party equipment manufacturers, third-party raw material suppliers, and consultants have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions which could adversely affect our business and operations. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of those risks.our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Shares of Common Stock
On December 25, 2020, the Company renewed an agreement with a consultant for an additional six months. As consideration for the agreement, the Company issued 1,500,000 shares of common stock to the consultant.
During the nine months ended December 31, 2019,2020, the Company received $1,500,000 forissued 39,735,627 shares of the issuanceCompany’s common stock upon conversion of 1,500 approximately $564,000 of their outstanding convertible debt and accrued interest.
Series B PS.Preferred Shares
During the nine months ended December 31, 2019,2020, the Company putconverted 3,554 Series B Preferred Shares plus 141 Series B Preferred Share dividends-in-kind into 97,761,030 shares of the Company’s common stock.
The above securities were issued in reliance on either the safe harbor of Rule 144 pursuant to GHSSection 4(a)(1) of the Securities Act of 1933, as amended (in the case of shares issued pursuant to conversions of other securities) or the exemption under Section 4(a)(2) of the Securities Act (in the case of the issuance of the Series B PS and the shares issued to the consultants). The issuance of the Series B PS and the shares issued to the consultants qualified for exemption under Section 4(a)(2) since the issuance by us did not involve a public offering. The offerings were not “public offerings” as defined in 4(a)(2) due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(a)(2) since they agreed to and received securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering”. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for the issuance of 14,744,646the Series B PS and the shares of common stock for a total of $1,774,000.issued to the consultants.
During the three months ended December 31, 2019, the Company issued 24,000,000 shares of its common stock to a note holder in conversion of $203,322 of principal owed under the note.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEMITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEMITEM 5. OTHER INFORMATION
None.We are providing the following disclosure in lieu of filing a Current Report on Form 8-K relating to: “Item 1.01—Entry into a Material Definitive Agreement” and “Item 2.03—Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant” of Form 8-K.
On December 15, 2020, the Company entered into an Asset Purchase Agreement (“APA”) between VeroBlue Farms USA, Inc., a Nevada corporation (“VBF”), VBF Transport, Inc., a Delaware corporation (“Transport”), and Iowa’s First, Inc., an Iowa corporation (“Iowa’s First”) (each a “Seller” and collectively, “Sellers”). Transport and Iowa’s First were wholly-owned subsidiaries of VBF. The agreement called for the Company to purchase all of the tangible assets of VBF, the motor vehicles of Transport and the real property (together with all plants, buildings, structures, fixtures, fittings, systems and other improvements located on such real property) of Iowa’s First. The consideration was $10,000,000, consisting of $5,000,000 in cash, paid at closing on December 17, 2020, (ii) $3,000,000 payable in 36 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date, and (iii) $2,000,000 payable in 48 months with interest thereon at the rate of 5% per annuum, interest only payable quarterly on the first day of the quarter, with the remaining balance to be paid to VBF as a balloon payment on the maturity date. The Company also agreed to issue 500,000 shares of common stock as a finder’s fee, which would be considered as transaction fees in relation to the asset acquisition, with a fair value of $135,000 based on the market value of the common stock as of the closing date of the acquisition.
Exhibit Number | | Description |
3.1* | | Certificate of Designation of the Series BD Convertible Preferred Stock of(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on December 22, 2020) |
| | Form Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 22, 2020) |
| | Asset Purchase Agreement between NaturalShrimp Incorporated and VeroBlue Farms USA, Inc. and certain subsidiaries of VeroBlue Farms, dated December 15, 2020. |
| | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer |
| | Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer |
| | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer |
| | Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer |
101.INS101.INS* | | XBRL Instance Document |
101.SCH101.SCH* | | XBRL Taxonomy Extension Schema Document |
101.CAL101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
**
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | NATURALSHRIMP INCORPORATED | |
| | | | |
Date: February 13, 2020 16, 2021
| By: | /s/ Gerald Easterling
| |
| | Gerald Easterling
| |
| | | Gerald EasterlingChief Executive Officer
| |
| | | Chief Executive Officer
(Principal Executive Officer)
| |
| | NATURALSHRIMP INCORPORATED | |
| | | | |
Date: February 13, 2020 16, 2021
| By: | /s/ William Delgado
| |
| | | William Delgado
| |
| | | Chief Financial Officer
| |
| | (Principal Financial Officer and Principal Accounting Officer)
| |