UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31 2019
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 | (I.R.S. Employer | |
| of incorporation or organization) | Identification No.) |
5501 LBJ Freeway, Suite 1000, Addison, 450, Dallas, Texas 75001
(Address of principal executive offices) (Zip Code)
(888)791-9474
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
| None | None | None |
Securities registered pursuant to section 12(g) of the Act:
Shares of common stock with a par value of $0.0001
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] ☐ No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] ☐ No [X]
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 [X] ☒ 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 [X] ☒ No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer |
| Non-accelerated filer | Smaller reporting company |
| Emerging growth 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 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates was $225,646,146computed by reference to the closing price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quartercommon stock as quoted on the OTCQB maintained by OTC Markets, Inc. on September 30, 2021 (which was $689,785.
The number of shares outstanding of the registrant’s classes of common stock as of the latest practicable date was 313,254,149 shares of common stock as of June 28, 2019.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
The information contained in this report should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report on Form 10-K includes a number10-K. Certain statements made in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based upon beliefs of, and information currently available to, us as of the date hereof, as well as estimates and assumptions made by us. Readers are cautioned not to place undue reliance on these forward-looking statements, that reflect management's current views with respect to future eventswhich are only predictions and financial performance. Forward-looking statements are projections in respectspeak only as of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates.” “predicts,” “potential” or “continue” or the negative of these terms and similar expressions identify forward-looking statements. Such statements reflect our current view with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to our business, industry, and our operations and results of operations. Should one or other comparable terminology. Those statements include statements regardingmore of these risks or uncertainties materialize, or should the intent, belief or current expectations of us and members of our management team, as well as theunderlying 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 thatprove incorrect, actual results may differ materially from those contemplatedanticipated, believed, estimated, expected, intended, or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by suchapplicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statement. statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
| ● | our ability to continue developing and expanding our research and development plant in La Coste, Texas and our production facility in Webster City, Iowa; |
| ● | our ability to successfully commercialize our equipment and shrimp farming operations to produce a market-ready product in a timely manner and in enough quantity; |
| ● | absence of contracts with customers or suppliers; |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | our ability to successfully integrate acquired businesses or new brands; |
| ● | the impact of competitive products and pricing; |
| ● | supply constraints or difficulties; |
| ● | the retention and availability of key personnel; |
| ● | general economic and business conditions; |
| ● | substantial doubt about our ability to continue as a going concern; |
| ● | our continued ability to raise funding at the pace and quantities required to scale our plant needs to commercialize our products; |
| ● | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| ● | our ability to successfully implement our business plan; |
| ● | our ability to successfully acquire, develop or commercialize new products and equipment; |
| ● | the commercial success of our products; |
| ● | business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the outbreak of COVID-19); |
| ● | intellectual property claims brought by third parties; and |
| ● | the impact of any industry regulation. |
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in this Annual Report on Form 10-K for the year ended March 31, 2019,2022, 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 by these forward-looking statements. These risks include,may cause our or our industry’s actual results, levels of activity, or performance to be materially different from any future results, levels of activity, or performance expressed or implied by way of example and without limitation:
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Except as required by applicable law, including the securities laws of the United States, we do not intendundertake no obligation to update any of the forward-looking statements after the date of this report to conform these statements to actual results.
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PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to NaturalShrimp Incorporated and the Company’sits wholly-owned subsidiaries: NaturalShrimp USA Corporation (“NSC”) and NaturalShrimp Global, Inc. (“NS Global”) and Natural Aquatic Systems, Inc. (“NAS”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Business Overview
We are a biotechnology company and have developed a proprietary technologyplatform technologies that allowsallow 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-grownnaturally 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 initialThe Company’s production facility isfacilities are located outside of San Antonio, Texas.
On October 16, 2015, we formed Natural Aquatic Systems, Inc. (“NAS”).NAS. The purpose of the NAS is to formalize the business relationship between our Company and F&T Water Solutions LLC (“F&T”) 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, 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.
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The facility was originally designed as an aquaculture facility, with the company having production issues. The Company’s has begun 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 Electrocoagulation (EC) platform technology.
On May 19, 2021, the Company entered into a Patents Purchase Agreement (the “Patents Agreement”) with F&T. The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest. Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issue 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000. The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021.
On August 25, 2021, the Company, through its 100% owned subsidiary NAS, entered into an Equipment Rights Agreements with Hydrenesis-Delta Systems, LLC (“Hydrenesis-Delta”) and a Technology Rights Agreement, in a sub-license agreement with Hydrenesis Aquaculture LLC (“Hydrenesis-Aqua”), The Equipment Rights involve specialized and proprietary equipment used to produce and control, dose, and infuse Hydrogas® and RLS® into both water and other chemical species, while the Technology sublicense pertains to the rights to Hydrogas® and RLS®. Both Rights agreements are for a 10 year term, which shall automatically renew for ten year successive terms. The term can be terminated by written notice by mutual consent, or by either party upon a breach of contract, insolvency or filing of bankruptcy. The agreements accord the exclusive rights to purchase or distribute the technology, or buy or rent the equipment, in the Industry Sector, which is the primary business and revenue stream generated from indoor aquaculture farming of any species in the Territory, defined as anywhere in the world except for the countries in the Gulf Corporation Council.
The Company has three wholly-owned subsidiaries, includingsubsidiaries: NSC, NS Global, and NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed system at the commercial level have been met with either modest success or outright failure through “BioFloc Technology.” Infectious agents such as parasites, bacteria and viruses are the most damaging and most difficult to control. Bacterial infection can in some cases be combated through the use of antibiotics (although not always), and in general, the use of antibiotics is considered undesirable and counter to “green” cultivation practices. Viruses can be even worse, in that they are immune to antibiotics. Once introduced to a shrimp population, viruses can wipe out entire farms and shrimp populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio Suppression Technology.” We believe this system creates higher sustainable densities, consistent production, improved growth and survival rates and improved food conversion without the use of antibiotics, probiotics, or unhealthy anti-microbial chemicals. Vibrio Suppression Technology helps to exclude and suppress harmful organisms that usually destroy “BioFloc” and other enclosed technologies.
In 2001, we began research and development of a high density, natural aquaculture system that is not dependent on ocean water to provide quality, fresh shrimp every week, fifty-two weeks a year. 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.
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Our current system consists of a receptionnursery tank where the shrimp are acclimated, then moved to a larger grow-out tank for the rest of the twenty-four weektwenty-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 contractedworking with F&T Water Solutions andcontracted RGA Labs, Inc. (“RGA Labs”) to complete final engineering and building ofbuild the initial patent-pending modifiedNaturalShrimp patented Electrocoagulation system for the grow-out, harvesting and processing of fully mature, antibiotic-free Pacific White Leg shrimp. The design will presentprovided a viable pathway to begin generating revenue and producing shrimp on a commercially viable scale. The design is completed andequipment was installed in early June 2018 by RGA Labs.Labs, and final financing for the system was provided by one of the Company’s institutional 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 endUniversity of June 2018,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. On August 30, 2019, the Company received notice that it was in compliance again and the quarantine had been lifted and the Company began restocking shrimp in the refurbished facility sections. During the aforementioned quarantine, the Company decided to begin an approximately $2,000,000 facility renovation demolishing the interior 16 wood structure lined tanks (720,000 gallons). The Company began 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.
On March 18, 2020, our research and development plant in La Coste, Texas was destroyed by a fire. The Company believed 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 a result of the fire. The majority of the damage was to our pilot production plant, which comprised 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 received total insurance proceeds in the amount of $917,210, the full amount of our claim. These funds were utilized to rebuild a 40,000 square foot production facility at the La Coste facility and to repurchase the equipment needed to replace what was lost in the fire. As of the date of this report, this facility is production-ready and, while we have experienced supply chain issues due to COVID-19, we expect to use the first harvest to market, sample,combined output from the La Coste, Texas, and refineWebster City, Iowa should result in a total of 25,000 pounds of shrimp production specifications byfor the third calendar quarter of 2019.
Overview of Industry
Shrimp is a well-known and globally-consumed commodity, constituting one of the most important types of seafood and a staple protein source for much of the world. According to the USDA Foreign Agricultural Service, the world consumes approximately 9 billion pounds of shrimp annually with over 1.7 billion pounds consumed in the United States alone. Approximately 65% of the global supply of shrimp is caught by ocean trawlers and the other 35% is produced by open-air shrimp farms, mostly in developing countries.
Shrimp boats catch shrimp through the use of large, boat-towed nets. These nets are quite toxic to the undersea environment as they disturb and destroy ocean-bottom ecosystems; these nets also catch a variety of non-shrimp sea life, which is typically killed and discarded as part of the shrimp harvesting process. Additionally, the world’s oceans can only supply a finite amount of shrimp each year, and in fact, single-boat shrimp yields have fallen by approximately 20% since 2010 and continue to decrease. The shrimping industry’s answer to this problem has been to deploy more (and larger) boats that deploy ever-larger nets, which has in the short-term been successful at maintaining global shrimp yields. However, this benefit cannot continue forever, as eventually global demand has the potential of outstripping the oceans’ ability to maintain the natural ecosystem’s balance, resulting in a permanent decline in yields. When taken in light of global population growth and the ever-increasing demand for nutrient-rich foods such as shrimp, this is clearly an unsustainable production paradigm.
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Shrimp farming, known in the industry as “aquaculture,” has ostensibly stepped in to fill this demand/supply imbalance. Shrimp farming is typically done in open-air lagoons and man-made shrimp ponds connected to the open ocean. Because these ponds constantly exchange water with the adjacent sea, the farmers are able to maintain the water chemistry that allows the shrimp to prosper. However, this method of cultivating shrimp also carries severe ecological peril. First of all, most shrimp farming is primarily conducted in developing countries, where poor shrimp farmers have little regard for the global ecosystem. Because of this, these farmers use large quantities of antibiotics and other chemicals that maximize each farm’s chance of producing a crop, putting the entire system at risk. For example, a viral infection that crops up in one farm can spread to all nearby farms, quite literally wiping out an entire region’s production. In 1999, the White Spot virus invaded shrimp farms in at least five Latin American countries: Honduras, Nicaragua, Guatemala, Panama, and Ecuador and in 2013-14 EMS (Early Mortality Syndrome) wiped out most of the Asia Pacific region and Mexico. Secondly, there is also a finite amount of coastline that can be used for shrimp production – eventually shrimp farms that are dependent on the open ocean will have nowhere to expand. Again, this is an ecologically damaging and ultimately unsustainable system for producing shrimp.
In both the cases, the current method of shrimp production is unsustainable. As global populations rise and the demand for shrimp continues to grow, the current system is bound to fall short. Shrimp trawling cannot continue to increase production without completely depleting the oceans’ natural shrimp population. Trends in per-boat yield confirm that this industry has already crossed the overfishing threshold, putting the global open-ocean shrimp population in decline. While open-air shrimp aquaculture may seem to address this problem, it is also an unsustainable system that destroys coastal ecological systems and produces shrimp with very high chemical contamination levels. Closed-system shrimp farming is clearly a superior alternative, but its unique challenges have prevented it from becoming a widely-available alternative.
Of the 1.7 billion pounds of shrimp consumed annually in the United States, over 1.5 billion pounds are imported – much of this from developing countries’ shrimp farms. These farms are typically located in developing countries and use high levels of antibiotics and pesticides that are not allowed under USDA regulations. As a result, these shrimp farms produce chemical-laden shrimp in an ecologically unsustainable way.
Unfortunately, most consumers here in the United States are not aware of the origin of their store-bought shrimp or that which they consume in restaurants. This is due to a USDA rule that states that only bulk-packaged shrimp must state the shrimp’s country of origin; any “prepared” shrimp, which includes arrangements sold in grocery stores and seafood markets, as well as all shrimp served in restaurants, can simply be sold “as is.” Essentially, this means that most U.S. consumers may be eating shrimp laden with chemicals and antibiotics. Our product is free of pesticide chemicals and antibiotics, a fact that we believe is highly attractive and beneficial in terms of our eventual marketing success.
Technology
Intensive, Indoor, Closed-System Shrimp Production Technology
Historically, efforts to raise shrimp in a high-density, closed system at the commercial level have been met with either modest success or outright failure through “BioFloc Technology”. Infectious agents such as parasites, bacteria and viruses are the most damaging and most difficult to control. Bacterial infection can in some cases be combated through the use of antibiotics (although not always), and in general, the use of antibiotics is considered undesirable and counter to “green” cultivation practices. Viruses can be even worse, in that they are immune to antibiotics. Once introduced to a shrimp population, viruses can wipe out entire farms and shrimp populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio Suppression Technology”. We believe this system creates higher sustainable densities, consistent production, improved growth and survival rates and improved food conversion without the use of antibiotics, probiotics, or unhealthy anti-microbial chemicals. Vibrio Suppression Technology helps to exclude and suppress harmful organisms that usually destroy “BioFloc” and other enclosed technologies.
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Our technology platforms combine electrocoagulation and hydrogas. Our patented electrocoagulation system replaces the need for biofilters and uses electronics to remove ammonia and to control the level of pathogens in an aquaculture system. The hydrogas system reduces mortality rates and increases growth rates of aquatic species. These technologies produce an anti-oxidative water chemistry beneficial to the health of the aquatic species.
Automated Monitoring and Control System
The Company’s “Automated Monitoring and Control System” uses individual tank monitors to automatically control the feeding, oxygenation, and temperature of each of the facility tanks independently. In addition, a facility computer running custom software communicates with each of the controllers and performs additional data acquisition functions that can report back to a supervisory computer from anywhere in the world. These computer-automated water controls optimize the growing conditions for the shrimp as they mature to harvest size, providing a disease-resistant production environment.
The principal theories behind the Company’s system are characterized as:
| ● | High-density shrimp production | |
| ● | Weekly production | |
| ● | Natural ecology system | |
| ● | Regional production | |
| ● | Regional distribution |
These principles form the foundation for the Company and our potential distributors so that consumers can be provided with continuous volumes of live and fresh shrimp at competitive prices.
Research and Development
In 2001, we began research and development (R&D) of a high density, natural aquaculture system that is not dependent on ocean water to provide quality, fresh shrimp every week, fifty-two weeks per year. Our initial system was successful, but the Company determined that it would not be economically feasible due to high operating costs. Over the next several years, using the knowledge we gained from the first R&D system, we developed a shrimp production system that eliminated the high costs associated with the previous system. We have continued to refine this technology, eliminating bacteria and other problems that affect enclosed systems and now have a successful shrimp growing process.
We have produced thousands of pounds of shrimp over the last few years in order to develop a design that will consistently produce quality shrimp that grow to a large size at a specific rate of growth. This included experimenting with various types of natural live and synthesized feed supplies before selecting the most appropriate nutritious and reliable combination. It also included utilizing monitoring and control automation equipment to minimize labor costs and to provide the necessary oversight for proper regulation of the shrimp environment.
On December 15, 2020, we acquired all of the first R&Dtangible 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 facility in La Coste, Texas, we have also made significant improvementswas originally designed as a farming facility, with the company never beginning production. We are converting five, 50,000 square foot separate internal production buildings within the 270,000 square foot external building during 2022 to produce shrimp. We expect to complete the retrofit of two of the 50,000 square foot buildings by July 2022. The three Iowa facilities contain the tanks and infrastructure that minimizewill be used to support the transferproduction of shrimp which will reduce shrimp stress and labor costs. Our current system consists of a reception tank wherewith the shrimp are acclimated, then moved to a larger grow-out tank for the restincorporation of the twenty-four week cycle.
Target Markets and Sales Price
We are establishing two target markets. One is fresh and never frozen and the second one is the live market. Our goal is to establish production systems and distribution centers in metropolitanregional areas of the United States, as well as international distribution networks through joint venture partnerships throughout the world. This should allow the Company to capture a significant portion of world shrimp sales by offering locally grown, environmentally “green,” naturally grown,friendly, fresh shrimp at competitive wholesale prices.
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The United States population is approximately 325330 million people with an annual shrimp consumption of 1.7 billion pounds, of which less than 400 million pounds are domestically produced. According to IndexMundi.com, from January 2006 through January 2021, the wholesale price for frozen, commodity grade shrimp has risen 15% since January 2015 (shell-on headless, 26-30 count; which is comparable to our target growth size) rose 18%. With world shrimp problems, this price is expected to rise more in the next few years.
We strive to build a profitable global shrimp production company. We believe our foundational advantage is that we can deliver fresh, organically grown, gourmet-grade shrimp, 52 weeks per year to retail and wholesale buyers in major market areas at competitive, yet premium prices. By locating regional production and distribution centers in close proximity to consumer demand, we can provide a fresh product to customers within 24 hours after harvest, which is unique in the shrimp industry. We can be the “first to market” and perhaps “sole weekly provider” of fresh shrimp and capture as much market share as production capacity can support.
For those customers that want a frozen product, we maycould be able to provide this in the near future and the product will still be differentiated as a “naturally grown, sustainable seafood” that will meet the increasing demand of socially conscious consumers.
Our patented technology and eco-friendly, bio-secure production processes enable the delivery of a chemical and antibiotic free, locally grown product that lives up to the Company’s mantra: “Always Fresh, Always Natural,” thereby solving the issue of “unsafe” imported seafood.
Product Description
Nearly all of the shrimp consumed today are shipped frozen. Shrimp are typically frozen from six to twenty-four months before consumption. Our system is designed to harvest a different tank each week, which provides for fresh shrimp throughout the year. We strive to create a niche market of “Always Fresh, Always Natural” shrimp. As opposed to many of the foreign shrimp farms, we can also claim that our product is 100% free of antibiotics. The ability to grow shrimp locally, year roundyear-round allows us to provide this high-end product to specialtyupscale restaurant and grocery stores and upscale restaurants throughout the world. We rotate the stocking and harvesting of our tanks each week, which allows for weekly shrimp harvests. Our product is free of all pollutants and is fed only all-naturalthe highest quality feeds.
The seafood industry lacks a consistent “Source Verification” method to track seafood products as they move through countries and customs procedures. With worldwide overfishing leading to declining shrimp freshness and sustainability around the world, it is vital for shrimp providers to be able to realistically identify the source of their product. We have well-managed, sustainable facilities that are able to track shrimp from hatchery to plate using environmentally responsible methods.
Shrimp Growth Period
Our production system is designed to produce shrimp at a harvest size of twenty-one to twenty-five shrimp per pound in a period of twenty-fourtwenty weeks. The CompanyWe currently purchasespurchase post-larva shrimp that are approximately ten days old (PL 10). In the future, we plan to build our own hatcheries to control the supply of shrimp to each of our facilities. Our full-scale production systems include grow-out and nursery tanks, projected to produce fresh shrimp fifty-two weeks per year.
Distribution and Marketing
We plan to build these environmentally “green”friendly production systems near major metropolitan areas of the United States. Today, we have one, pilot40,000 square foot production facility in La Coste, Texas (near San Antonio) and planthree production facilities totaling 344,000 square feet in Iowa. We signed a joint venture agreement with Hydrenesis to begin construction ofbuild a full-scale240,000 square foot production facility in La Coste and plans for Nevada and New York.Florida. Over the next five years, our plan is to increase construction of new regional production facilities each year. In the fifth year, we are expecting to plan for a new systemregional production facilities to be completed each month, expanding first into the largest shrimp consumption markets of the United States.completed.
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Because our system is enclosed and also indoors, it is not affected by weather or climate and does not depend on ocean proximity. As such, we believe we will be able to provide, naturally grown, high-quality, fresh shrimp to major market customers each week. This will allow distribution companies to leverage their existing customer relationships by offering an uninterrupted supply of high quality, fresh and locally grown shrimp. We plan to sell and distribute the vast majority of our shrimp production through distributors which have established customers and sufficient capacity to deliver a fresh product within hours following harvest. We believe we have the added advantage of being able to market our shrimp as fresh, natural, and locally grown using sustainable, eco-friendly technology, a key differentiation from all existing shrimp producers. Furthermore, we believe that our ability to advertise our product in this manner along with the fact that it is a locally grown product, provides us with a marketing advantage over the competition. We expect to utilize distributors that currently supply fresh seafood to upscale restaurants and supermarkets, country clubs, specialty super markets and retail stores whose clientele expect and appreciate fresh, natural products.
Harvesting, Packaging and Shipment
Each location is projected to include production, harvesting/processing and a general shipping and receiving area, in addition to warehousing space for storage of necessary supplies and products required to grow, harvest, package and otherwise make ready for delivery, a fresh shrimp crop on a weekly basis to consumers in each individual market area within 24 hours following harvest.
The seafood industry lacks a consistent source verification method to track seafood products as they move through countries and customs procedures. With worldwide overfishing leading to declining shrimp freshness and sustainability around the world, it is vital for shrimp providers to be able to realistically identify the source of their product. Our future facilities are expected to be designed to track shrimp from hatchery to plate using environmentally responsible methods.
International
We own one hundred percent of NaturalShrimp Global, Inc., which was formed to create international partnerships.partnerships and licensing for our platform technologies. Each international partnership is expected to use the Company’s proprietary technology to penetrate shrimp markets throughout the world utilizing existing food service distribution channels. NaturalShrimp Global, Inc., owns a percentage of NaturalShrimp International A.S. in Oslo, Norway. As our European-based partner, NaturalShrimp International A.S. is responsible for the construction cost of their facility and initial operating capital.
Go to Market Strategy and Execution
Our strategy is to acquire or develop regional production and distribution centers or joint ventures near major metropolitan areas throughout the United States and internationally. Today, we have 53,000 sq. ft.Along with our reconstruction of R&Dour La Coste facility that includes an 8,000 square foot water treatment plant and a 40,000 square foot production facility and our purchase of 344,000 square foot production facilities whichand production assets from VeroBlue Farms USA, Inc. Our current plan includes a pilot production system, greenhouse/reservoirs and utility buildings inNaturalShrimp Iowa expansion, a La Coste, TX (near San Antonio). We intend to begin construction of a new free-standing facility with the next generation shrimp production system in place on the property in 2019.
We have sold limited amounts of product to restaurants at $12.00 per pound and to retail consumers at $16.50 to $21.00 per pound, depending on size, which helps to validate our pricing strategy. Additionally, from 2011 to 2013, we had two successful North Texas test markets which distributed thousands of pounds of fresh product to customers within 24 hours following harvest. The freshfresh/live product was priced from $8.40$10.00 to $12.00 per pound wholesale, heads on, net price to the Company.
Current Systems and Expansion
The pilot plant is locatedshrimp production facility rebuilt in La Coste, Texas and is being retrofitted withusing new patent-pending technology thattechnologies the Company has been developingdeveloped with Trane’s engineering audit, and F&T Water Solutions, and RGA Labs.Hydrenesis. This facility when completely retrofitted withutilizing the new technology,aforementioned platform technologies is projected to produce approximately 6,000 pounds every month. The next facility in La Coste will be substantially larger than the current system. The target yield of shrimp for the new facility will be approximately 6,000 pounds per week. Both facilities combined are projected to produce over 7,0003,000 pounds of shrimp per week in La Coste.every week. By staging the stocking and harvests from tank to tank, it enables us to produce weekly and therefore deliver fresh shrimp every week.
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With our acquisition of NaturalShrimp Iowa (formerly Veroblue Farms USA, Inc.), the completionCompany will utilize the aforementioned platform technologies to retrofit 344,000 square feet of the next system inexisting Iowa facilities that we expect to produce 12,000 pounds of shrimp per week. The combined output from La Coste, our long-term plan isTX and Iowa should result in 15,000 pounds of shrimp production per week by the first quarter of 2023.
The regional production facilities to build additional production systemsbe located in Las Vegas,Florida, Nevada, and New York. These locationsYork are targetedexpected to begin construction in fiscal 2020, and the funding for these plans is projected to come from joint venture agreements with strategic partners.future funding. These citiesproduction centers are not surrounded by commercial shrimp production, and we believe there will be a high demand for fresh shrimp in all of these locations. In addition, the Company will continue to use the land it owns in La Coste and Iowa to build as many systems as the Texas market demands.
Competition
There are a number of companies conducting research and development projects in their attempt to develop closed-system technologies in the U.S., some with reported production and sales. Florida Organic Aquaculture usesMost North American shrimp farms are using a Bio-Floc Raceway System to intensify shrimp growth, while Marvesta Shrimp Farms’ tanks in water from the Atlantic to use in their indoor system.growth. Since these are privately-held companies, it is not possible to know, with certainty, their state of technical development, production capacity, need for water exchange, location requirements, financial status, and other matters. To the best of our knowledge, none are producing significant quantities of shrimp relative to their local markets, and such fresh shrimp sales are likely confined to an area near the production facility.
Additionally, any new competitor would face significant barriers for entry into the market and would likely need years of research and development to develop the proprietary technology necessary to produce similar shrimp at a commercially viable level. We believe our technology and business model sets us apart from any current competition. It is possible that additional competitors will arise in the future, but with the size and growth of the worldwide shrimp market, many competitors could co-exist and thrive in the fresh shrimp industry.
Intellectual Property
We intend to take appropriate steps to protect our intellectual property. We have registered the trademark “NATURALSHRIMP” which has been approved and was published in the Official Gazette on June 5, 2012. On December 25, 2018, we were awarded U.S. Patent 10,163,199 “Recirculating Aquaculture System and Treatment Method for Aquatic Species” and, on April 12, 2022, we were awarded U.S. Patent 11,297,809 “Ammonia Control in a Recirculating Aquaculture System” covering all indoor aquatic species that utilizes proprietary art.
There are potential technical processes for which the Company may be able to file a patent. However, there are no assurances that such applications, if filed, would be issued and no right of enforcement is granted to a patent application. Therefore, the Company has filed a provisional patent with the U.S. Patent Office and plans to use a variety of other methods, including copyright registrations as appropriate, trade secret protection, and confidentiality and non-compete agreements to protect its intellectual property portfolio.
Source and Availability of Raw Materials
Raw materials are received in a timely manner from established suppliers. Currently, we buy our feed from Zeigler, a leading producer of aquatic feed. Post larvae (“PL”) shrimp are purchasedavailable from American Penaeid, Inc. (API)Sea Products Development in FloridaTexas and Global Blue TechnologiesHomegrown Shrimp in Texas.
There have not been any issues regarding the availability of our raw materials. We have favorable contacts and past business dealings with other major shrimp feed producers if current suppliers are not available.
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Government Approvals and Regulations
We are subject to government regulation and require certain licenses. The following list includes regulations to which we are subject and/or the permits and licenses we currently hold:
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We are subject to certain regulations regarding the need for field employees to be certified. We strictly adhere to these regulations. The cost of certification is an accepted part of expenses. Regulations may change and become a cost burden, but compliance and safety are our main concern.
Market Advantages and Corporate Drivers
The following are what we consider to be our advantages in the marketplace:
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Subsidiaries
The Company has three wholly-owned subsidiaries including NaturalShrimp Corporation, NaturalShrimpNSC, NS Global Inc. and Natural Aquatic Systems, Inc.NAS.
Human Capital Management
We believe that our future success will depend, in part, on our continued ability to attract, hire, and retain qualified personnel. In particular, we depend on the skills, experience, and performance of our senior management and engineering and technical personnel. We compete for qualified personnel with other industry experts.
We provide competitive compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs (which vary by country/region and employment classification) include incentive compensation plan, pension, healthcare and insurance benefits, paid time off, family leave, and on-site services, among others. We also use targeted equity-based grants with vesting conditions to facilitate retention of personnel, particularly for our key employees.
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The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health and safety of our employees. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This includes having employees work from home, while implementing additional safety measures for employees continuing critical on-site work.
Environmental, Social, and Governance Efforts
Environmental Commitment
We are committed to protecting the environment and attempt to mitigate any negative impact of our operations. We monitor resource use, improve efficiency, and at the same time reduce our emissions and waste.
Social Responsibility
We are trusted aquaculture experts providing safe, efficient, and sustainable solutions to our existing and new communities. Our success is the direct result of the dedication and strength of our team and promotes equity, diversity, integrity, inclusion, reliability and accountability. We believe that a combination of diverse team members and an inclusive culture contributes to our success. Each member is a valued part of our team bringing a diverse perspective to help grow business and achieve our goals. Our tradition of serving employees, customers, and investors is at the core of our culture. For third-party vendor selection and oversight, we have standard operating procedures that apply to employees and subcontractors who, on our behalf, oversee and conduct technical protocols.
Employees
As of March 31, 2019,2022, we had 525 full-time employees. We intend to hire additional staff and to engage consultants in general administration on an as-needed basis. We also may engage experts in general business to advise us in various capacities. None of our employees are subject to a collective bargaining agreement, and we believe that our relationship with our employees is good.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in our public filings before making an investment decision with regard to our securities. The statements contained in or incorporated into this document that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following events described in these risk factors actually occur, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Moreover, additional risks not presently known to us or that we currently deem less significant also may impact our business, financial condition or results of operations, perhaps materially. For additional information regarding risk factors, see Item 1 – “Forward-Looking Statements.”
Risks Related to Our Business and Industry
The market for our product may be limited, and as a result our business may be adversely affected.
The feasibility of marketing our product has been assumed to this point and there can be no assurance that such assumptions are correct. It is possible that the costs of development and implementation of our shrimp production technology may be too expensive to market our shrimp at a competitive price. It is likewise possible that competing technologies will be introduced into the marketplace before or after the introduction of our product to the market, which may affect our ability to market our product at a competitive price.
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Furthermore, there can be no assurance that the prices we determine to charge for our product will be commercially acceptable or that the prices that may be dictated by the market will be sufficient to provide to us sufficient revenues to profitably operate and provide a financial return to our investors.
Our business and operations are affected by the volatility of prices for shrimp.
Our business, prospects, revenues, profitability and future growth are highly dependent upon the prices of and demand for shrimp. Our ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon shrimp prices. These prices have been and are likely to continue to be extremely volatile for seasonal, cyclical and other reasons. Any substantial or extended decline in the price of shrimp will have a material adverse effect on our financing capacity and our prospects for commencing and sustaining any economic commercial production. In addition, increased availability of imported shrimp can affect our business by lowering commodity prices. This could reduce the value of inventories, held both by us and by our customers, and cause many of our customers to reduce their orders for new products until they can dispose of their higher cost inventories.
Market demand for our products may decrease.
We face competition from other producers of seafood as well as from other protein sources, such as pork, beef and poultry. The bases on which we expect to compete include, but may not be limited to:
| ● | price; |
| ● | product quality; |
| ● | brand identification; and |
| ● | customer service. |
Demand for our products will be affected by our competitors’ promotional spending. We may be unable to compete successfully on any or all of these bases in the future, which may have a material adverse effect on our revenues and results of operations.
Moreover, although historically the logistics and perishability of seafood has led to regionalized competition, the market for fresh and frozen seafood is becoming increasingly globalized as a result of improved delivery logistics and improved preservation of the products. Increased competition, consolidation, and overcapacity may lead to lower product pricing of competing products that could reduce demand for our products and have a material adverse effect on our revenues and results of operations.
Competition and unforeseen limited sources of supplies in the industry may result in occasional spot shortages of equipment, supplies and materials. In particular, we may experience possible unavailability of post-larvae and materials and services used in our shrimp production facilities. Such unavailability could result in increased costs and delays to our operations. If we cannot find the products, equipment, supplies and materials that we need on a timely basis, we may have to suspend our production plans until we find the products, equipment and materials that we need.
If we lose our key management and technical personnel, our business may be adversely affected.
In carrying out our operations, we will rely upon a small group of key management and technical personnel including our Chief Executive Officer, Chairman of the Board and PresidentChief Operating Officer and Chief Financial Officer. We do not currently maintain any key man insurance.insurance for Tom Untermeyer as the Chief Operating Officer and Chief Technical Officer. An unexpected partial or total loss of the services of these key individualsthe Chief Executive Officer and the Chief Financial Officer could be detrimental to our business.
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Our expansion plans for our shrimp production facilities reflects our current intent and is subject to change.
Our current plans regarding expansion of our shrimp production facilitiesplans are subject to change. Whether we ultimately undertake our expansionchange and the continuance of such plans will depend on the following factors, among others:
| ● | availability and cost of capital; |
| ● | current and future shrimp prices; |
| ● | costs and availability of post-larvae shrimp, equipment, supplies and personnel necessary to conduct these operations; |
| ● | success or failure of system design and activities in similar areas; |
| ● | changes in the estimates of the costs to complete production facilities; and |
| ● | decisions of operators and future joint venture partners. |
We will continue to gather data about our production facilities, and it is possible that additional information may cause us to alter our schedule or determine that a certain facility should not be pursued at all.
Our product is subject to regulatory approvals and if we fail to obtain such approvals, our business may be adversely affected.
Most of the jurisdictions in which we operate will require us to obtain a license for each facility owned and operate in that jurisdiction. We have obtained and currently hold a license to own and operate each of our facilities where a license is required. In order to maintain the licenses, we have to operate our current farms and, if we pursue acquisitions or construction of new farms, we will need to obtain additional licenses to operate those farms, where required. We are also exposed to dilution of the value of our licenses where a government issues new licenses to fish farmers other than us, thereby reducing the current value of our fish farming licenses. Governments may change the way licenses are distributed or otherwise dilute or invalidate our licenses. If we are unable to maintain or obtain new fish farming licenses or if new licensing regulations dilute the value of our licenses, this may have a material adverse effect on our business.
It is possible that regulatory authorities could make changes in regulatory rules and policies and we would not be able to market or commercialize our product in the intended manner and/or the changes could adversely impact the realization of our technology or market potential.
Failure to ensure food safety and compliance with food safety standards could result in serious adverse consequences for us.
As our end products are for human consumption, food safety issues (both actual and perceived) may have a negative impact on the reputation of and demand for our products. In addition to the need to comply with relevant food safety regulations, it is of critical importance that our products are safe and perceived as safe and healthy in all relevant markets.
Our products may be subject to contamination by food-borne pathogens, such as Listeria monocytogenes, Clostridia, Salmonella and E. Coli or contaminants. These pathogens and substances are found in the environment; therefore, there is a risk that one or more of these organisms and pathogens can be introduced into our products as a result of improper handling, poor processing hygiene or cross-contamination by us, the ultimate consumer or any intermediary. We have little, if any, control over handling procedures once we ship our products for distribution. Furthermore, we may not be able to prevent contamination of our shrimp by pollutants such as polychlorinated biphenyls, or PCBs, dioxins or heavy metals.
An inadvertent shipment of contaminated products may be a violation of law and may lead to product liability claims, product recalls (which may not entirely mitigate the risk of product liability claims), increased scrutiny and penalties, including injunctive relief and plant closings, by regulatory agencies, and adverse publicity.
Increased quality demands from authorities in the future relating to food safety may have a material adverse effect on our business, financial condition, results of operations or cash flow. Legislation and guidelines with tougher requirements are expected and may imply higher costs for the food industry. In particular, the ability to trace products through all stages of development, certification and documentation is becoming increasingly required under food safety regulations. Further, limitations on additives and use of medical products in the farmed shrimp industry may be imposed, which could result in higher costs for us.
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The food industry, in general, experiences high levels of customer awareness with respect to food safety and product quality, information and traceability. We may fail to meet new and exacting customer requirements, which could reduce demand for our products.
Our success is dependent upon our ability to commercialize our shrimp production technology.
Prior to March 2019,fiscal year 2021, we had been engaged principally in the research and development of our technology. Therefore, we have a limited operating history upon which an evaluation of our prospects can be made. Our prospects must be considered in light of the risk, uncertainties, expenses, delays and difficulties associated with the establishment of a new business in the evolving food industry, as well as those risks encountered in the shift from development to commercialization of new technology and products or services based upon such technology.
We have developed our first commercial system that employs our technology but additional work is required to incorporate that technology into a system capable of accommodating thousands of customers, which is the minimum capability we believe is necessary to compete in the marketplace.
Our shrimp production technology may not operate as intended.
Although we have successfully tested our technology, our approach, which is still fairly new in the industry, may not operate as intended or may be subject to other factors that we have not yet considered. These may include the impact of new pathogens or other biological risks, low oxygen levels, algal blooms, fluctuating seawater temperatures, predation or escapes. Any of the foregoing may result in physical deformities to our shrimp or affect our ability to increase shrimp production, which may have a material adverse effect on our operations.
Our success is dependent upon our ability to protect our intellectual property.
Our success will depend in part on our ability to obtain and enforce protection for our intellectual property in the United States and other countries. It is possible that our intellectual property protection could fail. It is possible that the claims for patents or other intellectual property protections could be denied or invalidated or that our protections will not be sufficiently broad to protect our technology. It is also possible that our intellectual property will not provide protection against competitive products, or will not otherwise be commercially viable.
Our commercial success will depend in part on our ability to commercialize our shrimp production without infringing on patents or proprietary rights of others. We cannot guarantee that other companies or individuals have not or will not independently develop substantially equivalent proprietary rights or that other parties have not or will not be issued patents that may prevent the sale of our products or require licensing and the payment of significant fees or royalties in order for us to be able to carry on our business.
As the owner of real estate, we are subject to risks under environmental laws, the cost of compliance with which and any violation of which could materially adversely affect us.
Our operating expenses could be higher than anticipated due to the cost of complying with existing and future laws and regulations. Various environmental laws may impose liability on the current or prior owner or operator of real property for removal or remediation of hazardous or toxic substances. Current or prior owners or operators may also be liable for government fines and damages for injuries to persons, natural resources and adjacent property. These environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence or disposal of the hazardous or toxic substances. The cost of complying with environmental laws could materially adversely affect our results of operations, and such costs could exceed the value of our facility. In addition, the presence of hazardous or toxic substances, or the failure to properly manage, dispose of or remediate such substances, may adversely affect our ability to use, sell or rent our property or to borrow using our property as collateral which, in turn, could reduce our revenue and our financing ability. We have not engaged independent environmental consultants to assess the likelihood of any environmental contamination or liabilities and have not obtained a Phase I environmental assessment on our property. However, even if we did obtain a Phase I environmental assessment report, such reports are limited in scope and may not reveal all existing material environmental contamination.
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We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As our business strategies develop, we must add additional managerial, operational, financial and other personnel. Future growth will impose significant added responsibilities on members of management, including:
| ● | identifying, recruiting, integrating, maintaining, and motivating additional personnel; |
| ● | managing our internal development efforts effectively, while complying with our contractual obligations to contractors and other third parties; and |
| ● | improving our operational, financial and management controls, reporting systems, and procedures. |
Our future financial performance will depend, in part, on our ability to effectively manage any future growth, which might be impacted by the COVID-19 outbreak, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. This lack of long-term experience working together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, we may not be able to advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop our business initiatives and, accordingly, may not achieve our research, development, and commercialization goals.
These and other risks associated with our planned international operations may materially adversely affect our ability to attain or maintain profitable operations.
Our purchase of the assets from VeroBlue Farms USA, Inc. 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 acquired 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 facility was originally designed for the growth of barramundi fish, but the company never began production and declared bankruptcy on September 21, 2018. After acquisition, we began 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 and we can provide no assurance that we will be able to provide the time and additional resources to further such development. The development of the facility is 40% completed with full development of the facility expected by December 31, 2022.
We face risks related to COVID-19 which could significantly disrupt our research and development, operations, sales, and financial results.
Our business could be adversely impacted 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 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.
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Worldwide economic and social instability could adversely affect our revenue, financial condition, or results of operations.
The health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the social fabric of our society, affects our business and operating results. For example, the credit and financial markets may be adversely affected by the current conflict between Russia and Ukraine and measures taken in response thereto. If the credit markets are not favorable, we may be unable to raise additional financing when needed or on favorable terms. Our customers may experience financial difficulties or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products or to pay for our products on a timely basis, if at all.
General inflation, including rising energy prices, and interest rates and wages could have negative impacts on our business by increasing our operating costs and our borrowing costs as well as decreasing the capital available for our customers to purchase our products. General inflation in the United States, Europe and other geographies has risen to levels not experienced in recent decades. Additionally, inflation and price volatility may cause our customers to reduce use of our products would harm our business operations and financial position.
Risks Related to Financing Our Business
Management has issued its audit opinion on our consolidated financial statements appearing in our annual report on Form 10-K, including an explanatory paragraph as todetermined that there are factors that raise substantial doubt with the respect toabout our ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the fiscal year ended March 31, 2019,2022, we had a net loss available for common stockholders of approximately $7,211,000.$96 million. At March 31, 2019,2022, we had an accumulated deficit of approximately $41,223,000$150 million and a working capital deficit of approximately $3,773,000.$17 million. These factors raise substantial doubt about our ability to continue as a going concern, within one year from the issuance date of this filing. Our ability to continue as a going concern is dependent on our ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. We may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. IfAs we continue to raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our 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, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. If we are unable to obtain the necessary capital, we may have to cease operations.
The rebuilding and expansion of our operations in Webster City, Iowa will require significant capital expenditures for which we may be unable to obtain sufficient financing.
Our need for additional capital may adversely affect our financial condition. We haveEven prior to the loss of our plant in La Coste by fire or the purchase of the VBF assets in Webster City, Iowa, we had no sustained history of earnings and have operated at a loss since we commenced business. We have relied, and continue to rely, on external sources of financing to meet our capital requirements, to continue developing our proprietary technology, to build our production facilities, and to otherwise implement our corporate development and investment strategies.
We plan to obtain the future funding that we will need through the debt and equity markets, but there can be no assurance that we will be able to obtain additional funding when it is required. If we fail to obtain the funding that we need when it is required, we may have to forego or delay potentially valuable opportunities to build shrimp production facilities or default on existing funding commitments to third parties. Our limited operating history may make it difficult to obtain future financing.
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Our ability to generate positive cash flows is uncertain.
To develop and expand our business, we will need to make significant up-front investments in our manufacturing capacity and incur research and development, sales and marketing and general and administrative expenses. In addition, our growth will require a significant investment in working capital. Our business will require significant amounts of working capital to meet our production requirements and support our growth.
We cannot provide any assurance that we will be able to raise the capital necessary to meet these requirements. If adequate funds are not available or are not available on satisfactory terms, we may be required to significantly curtail our operations and may not be able to fund our current production requirements once they commence - let alone fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance our products, or respond to competitive pressures. Any failure to obtain such additional financing could have a material adverse effect on our business, results of operations and financial condition.
We have a history of operating losses, anticipate future losses and may never be profitable.
We have experienced significant operating losses in each period since we began investing resources in our production of shrimp. These losses have resulted principally from research and development, sales and marketing, and general and administrative expenses associated with the development of our business. During the fiscal year ended March 31, 2019,2022, we recorded a net loss applicableavailable to common shareholders of $7,210,581,approximately $96 million, or $0.04$(0.16) per share, as compared with $5,285,089,approximately $6 million, or $0.05$(0.01) per share, of the corresponding period in 2018.2021. We expect to continue to incur operating losses until we reach sufficient commercial scale of our product to cover our operating costs. We cannot be certain when, if ever, we will become profitable. Even if we were to become profitable, we might not be able to sustain such profitability on a quarterly or annual basis.
Because we may never have net income from our operations, our business may fail.
We have no history of revenues and profitability from operations. There can be no assurance that we will ever operate profitably. Our success is significantly dependent on uncertain events, including successful development of our technology, establishing satisfactory manufacturing arrangements and processes, and distributing and selling our products.
Before receiving revenues from sales to customers of our products, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses. If we are unable to generate significant revenues from sales of our products, we will not be able to earn profits or continue operations. We can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our Company.
We need to raise additional funds and such funds may not be available on acceptable terms or at all.
We may consider issuing additional debt or equity securities in the future to fund our business plan, for potential acquisitions or investments, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able to obtain financing on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities or respond to competitive pressures.
Our margins fluctuate which leads to further uncertainty in our profitability model.
While we will have the potential ability to negotiate prices that benefit our clients and affect our profitability as it garners market-share and increases our book of business, margins in the aquaculture business are fluid, and our margins vary based upon production volume and the customer. This may lead to continued uncertainty in margins from quarter to quarter.
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Risks Related to Doing Business in Foreign Countries
Our operations in foreign countries are subject to political, economic, legal and regulatory risks.
The following aspects of political, economic, legal and regulatory systems in foreign countries create uncertainty with respect to many of the legal and business decisions that we make:
| ● | cancellation or renegotiation of contracts due to uncertain enforcement and recognition procedures of judicial decisions; |
| ● | disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act; |
| ● | changes in foreign laws or regulations that adversely impact our business; |
| ● | uncertainty regarding tariffs that may be imposed against certain international countries from time-to-time; |
| ● | changes in tax laws that adversely impact our business, including, but not limited to, increases in the tax rates and retroactive tax claims; |
| ● | royalty and license fee increases; |
| ● | expropriation or nationalization of property; |
| ● | currency fluctuations; |
| ● | foreign exchange controls; |
| ● | import and export regulations; |
| ● | changes in environmental controls; |
| ● | business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as the recent outbreak of COVID-19, or the novel coronavirus); |
| ● | risks of loss due to civil strife, acts of war and insurrection; and |
| ● | other risks arising out of foreign governmental sovereignty over the areas in which our operations are conducted. |
Consequently, our development and production activities in foreign countries may be substantially affected by factors beyond our control, any of which could materially adversely affect our business, prospects, financial position and results of operations. Furthermore, in the event of a dispute arising from our operations in other countries, we may be subject to the exclusive jurisdiction of courts outside the United States or may not be successful in subjecting non-U.S. persons or entities to the jurisdiction of the courts in the United States, which could adversely affect the outcome of a dispute.
The cost of complying with governmental regulations in foreign countries may adversely affect our business operations.
We may be subject to various governmental regulations in foreign countries. These regulations may change depending on prevailing political or economic conditions. In order to comply with these regulations, we believe that we may be required to obtain permits for producing shrimp and file reports concerning our operations. These regulations affect how we carry on our business, and in order to comply with them, we may incur increased costs and delay certain activities pending receipt of requisite permits and approvals. If we fail to comply with applicable regulations and requirements, we may become subject to enforcement actions, including orders issued by regulatory or judicial authorities requiring us to cease or curtail our operations, or take corrective measures involving capital expenditures, installation of additional equipment or remedial actions. We may be required to compensate third parties for loss or damage suffered by reason of our activities and may face civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permits governing our operations and activities could affect us in a materially adverse way and could force us to increase expenditures or abandon or delay the development of shrimp production facilities.
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Our international operations will involve the use of foreign currencies, which will subject us to exchange rate fluctuations and other currency risks.
Currently, we have no revenues from international operations. In the future, however, any revenues and related expenses of our international operations will likely be generally denominated in local currencies, which will subject us to exchange rate fluctuations between such local currencies and the U.S. dollar. These exchange rate fluctuations will subject us to currency translation risk with respect to the reported results of our international operations, as well as to other risks sometimes associated with international operations. In the future, we could experience fluctuations in financial results from our operations outside of the United States, and there can be no assurance we will be able, contractually or otherwise, to reduce the currency risks associated with our international operations.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition and results of operations. We do not have any business interruption insurance. Any business disruption or natural disaster could result in substantial costs and diversion of resources.
Risks Related to Ownership of our Common Stock
We have limited capitalization and may require financing, which may not be available.
We have limited capitalization, which increases our vulnerability to general adverse economic and industry conditions, limits our flexibility in planning for or reacting to changes in our business and industry and may place us at a competitive disadvantage to competitors with sufficient or excess capitalization. If we are unable to obtain sufficient financing on satisfactory terms and conditions, we will be forced to curtail or abandon our plans or operations. Our ability to obtain financing will depend upon a number of factors, many of which are beyond our control.
The trading of our common stock may have liquidity fluctuations.
Although our common stock is listed for quotation on the OTCQB, under the symbol “SHMP”, and the trading volume of our stock has recently increased significantly over the last three calendar years, such liquidity may not continue to be sustainable. As a result, any trading price of our common stock may not be an accurate indicator of the valuation of our common stock. Any trading in our shares could have a significant effect on our stock price. If the public market for our common stock declines, then investors may not be able to resell the shares of our common stock that they have purchased and may lose all of their investment. No assurance can be given that an active market will continue or that a stockholder will be able to liquidate their shares of common stock without considerable delay, if at all. Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
| ● | actual or anticipated variations in our quarterly operating results; |
| ● | changes in our business or potential earnings estimates; |
| ● | our ability to obtain adequate working capital financing; |
| ● | changes in market valuations of similar companies; |
| ● | publication (or lack of publication) of research reports about us; |
| ● | changes in applicable laws or regulations, court rulings, enforcement and legal actions; |
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| ● | loss of any strategic relationships; |
| ● | additions or departures of key management personnel; |
| ● | actions by our stockholders (including transactions in our shares); |
| ● | speculation in the press or investment community; |
| ● | increases in market interest rates, which may increase our cost of capital; |
| ● | changes in our industry; |
| ● | competitive pricing pressures; |
| ● | the impact of COVID-19; |
| ● | our ability to execute our business plan; and |
| ● | economic and other external factors. |
In addition, the securities markets have from time to timetime-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the GHScertain financing agreement.
The sale of our common stock pursuant to GHS Investments LLC in accordance with the Financing Agreement we entered into with GHS on August 21, 2018 mayconversion of preferred stock or other convertible instruments, or pursuant to our equity line financing will have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price, is at the time we exercise our put options,greater the more sharesimpact of our common stock we will have to issue to GHS in order to exercise a putdilution under the Financing Agreement.these financing agreements. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.
Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.
Our stock is categorized as a “penny stock”, as that term is defined in SEC Rule 3a51-1, which generally provides that “penny stock”, is any equity security that has a market price (as defined) less than US$5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, including Rule 15g-9, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities and reduces the number of potential investors. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
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According to SEC Release No. 34-29093, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include: (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the future volatility of our share price.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings for our operations.
The existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our Company and may discourage lawsuits against our directors, officers and employees.
Our bylaws contain indemnification provisions for our directors, officers and employees, and we have entered into indemnification agreements with our officer and directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent financial fraud. As a result, current and potential stockholders could lose confidence in our financial reporting.
We are subject to the risk that sometime in the future, our independent registered public accounting firm could communicate to the board of directors that we have deficiencies in our internal control structure that they consider to be “significant deficiencies.” A “significant deficiency” is defined as a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is more than a remote likelihood that a material misstatement of the entity’s financial statements will not be prevented or detected by the entity’s internal controls.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed. We are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financial reporting.
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We currently are not an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of March 31, 2019,2022, the management of the Company assessed the effectiveness of the Company’sour internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Management concluded, during the fiscal year ended March 31, 2019,2022, that the Company’s internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. 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. A material weakness in the effectiveness of our internal controls over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition. For additional information, see Item 9A – Controls and Procedures.
Our intended business, operations and accounting are expected to be substantially more complex than they have been in the past. It may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the independent accountant certifications required by such act, which may preclude us from keeping our filings current with the SEC current.
If we are unable to maintain the adequacy of our internal controls, as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and cause investors to lose confidence in our reported financial information, either of which could adversely affect the value of our common stock.
ITEM 1B. UNRESOLVEDUNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
Our principal offices are located at 5080 Spectrum Drive,5501 LBJ Freeway, Suite 1000, Addison, TX,450, Dallas, Texas 75240, where we pay $550$7,000 per month under an operating lease that expires on July 31, 2019. The Company expects to renew this lease for the foreseeable futureEffective August 1, 2019, the Company has signed10/31/2025.
We own an 8,000 square foot water treatment plant and a 1 year lease for offices located at 15150 Preston Rd., Suite 300, Dallas, TX 75248, where we will pay $650 per month
We own no other properties.
Our registered agent is Business Filings Incorporated, located at 701 S. Carson Street, Suite 200, Carson City, Nevada 89701.
ITEM 3. LEGAL PROCEEDINGS
Other than described below, we know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our companythe Company or to our subsidiaries or has a material interest adverse to our companythe Company or to our subsidiaries. To our knowledge, 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 ourthe Company, threatened against or affecting ourthe Company or our common stock, in which an adverse decision could have a material adverse effect.
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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(23rd District) 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. As a result of RGA’s failure to respond to written discovery served by the Company failedand failure of RGA to satisfy requirements imposed by an order compelling response, the court issued an order prohibiting RGA from introducing any evidence at the time of trial other than the original agreement between RGA and the Company. Further, the Court sustained the Company’s objection to RGA’s written discovery obviating the Company’s obligation to respond. On December 31, 2021, a settlement was finalized for the sum of $12,000.
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 for shares Mr. Shover owns in NSH. On November 15, 2021, a hearing was held before the US District Court for the Northern District of Texas, Dallas Division at which time Mr. Shover and the Company presented arguments as to why the Court should approve a joint motion for settlement. After considering the argument of counsel and taking questions from those NSH Shareholders who were present through video conferencing link, the Court approved the motion of the parties to allow Mr. Shover and all like and similarly situated NSH Shareholders to exchange each share of NSH held by a NSH Shareholder for a share of the Company. A final Order was signed on December 6, 2021 and the case was closed by an Order of the Court of the same date. The Company is to issue certainapproximately 93 million shares in settlement, which as of December 6, 2021 was recognized as stock payable on the Company’s balance sheet, and its fair value of $29,388,000, based on the market value of the Company’s common stock asshares of $0.316 on the date the case was required under the terms of the Vista Warrant. Vista is currently seeking money damagesclosed, has been recognized in the approximate amountCompany’s statement of $7,000,000, which the Company believes is unwarranted and excessive,operations as well as costs and reimbursement of expenses.legal settlement. As of the date hereof,of this report, 89,296,550 shares of common stock have been issued to the NSH shareholders.
The Company has resolved all outstanding litigation involving the Company and there are no hearing has been scheduled, butsuits or cases pending in which the Company 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQB, under the symbol “SHMP.” On June 24, 2019,28, 2022, the closing price of our common stock reported by the OTC Markets was $0.12$0.17 per share.
Transfer Agent
Our transfer agent is Transhare Corporation, 15500 Roosevelt Blvd, Suite 302, Clearwater, FL 33760. Their telephone number is (303) 662-1112.
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Holders of Common Stock
As of June 24, 2019,28, 2022, there were 82543 shareholders of record of our common stock. As of such date, 313,254,149737,697,070 shares were issued and outstanding.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
There were no equity compensation plans formally approved by the shareholders of the Company as of March 31, 2019.
Recent Sales of Unregistered Securities
We have previously disclosed in our 10-Qs and 8-Ks filed since April 2018, in connection with the July 31, 2017 convertible note, the remainder1, 2021, all sales of the first closing was fully converted into 1,225,627 common shares of the Company, with a conversion price of $0.02.
Issuer Purchases of Equity Securities
During the fiscal year ended March 31, 2019,2022, we did not repurchase any of our equity securities.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, clinical developments which management expects or anticipates will or may occur in the future, including statements related to our technology, market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
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Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in this Annual Report on Form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For additional information regarding forward-looking statements, see “Forward-Looking Statements” at the beginning of this report and our Risk Factors under Item 1 – Our Business – “Forward-Looking Statements.”
Use of Generally Accepted Accounting Principles (“GAAP”) Financial Measures
We use United States GAAP financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise noted. All of the GAAP financial measures used by us in this report relate to the inclusion of financial information. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this annual report. All references to dollar amounts in this section are in United States dollars, unless expressly stated otherwise. Please see Item 1A – “Risk Factors” for a list of our risk factors.
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 18-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 101-for-10 reverse stock split, decreasing the issued and outstanding shares of our common stock from 97,000,000 to 9,700,000.
On November 26, 2014, we entered into an Asset Purchase Agreement (the “Agreement”) with NaturalShrimp Holdings, Inc. a Delaware corporation (“NSH”), pursuant to which we agreed to acquire substantially all of the assets of NSH which assets consisted primarily of all of the issued and outstanding shares of capital stock of NaturalShrimp Corporation (“NSC”), a Delaware corporation,NSC and NaturalShrimpNS Global, Inc. (“NS Global”), a Delaware corporation, and certain real property located outside of San Antonio, Texas (the “Assets”).
On January 30, 2015, we consummated the acquisition of the Assets pursuant to the Agreement. In accordance with the terms of the Agreement, we issued 75,520,240 shares of our common stock to NSH as consideration for the Assets. As a result of the transaction, NSH acquired 88.62% of our issued and outstanding shares of common stock; NSC and NS Global became our wholly-owned subsidiaries, and we changed our principal business to a global shrimp farming company.
Business Overview
We are a biotechnology company and have developed a proprietary technologyplatform technologies that allowsallow 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-grownnaturally 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 initialThe Company’s production facility isfacilities are located outside of San Antonio, Texas.
On October 16, 2015, we formed Natural Aquatic Systems, Inc. (“NAS”).NAS. The purpose of the NAS is to formalize the business relationship between our Company and F&T Water Solutions LLC (“F&T”) 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.
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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, 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.
The facility was originally designed as an aquaculture facility, with the company having production issues. The Company’s has begun 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 Electrocoagulation (EC) platform technology.
On May 19, 2021, the Company entered into a Patents Purchase Agreement (the “Patents Agreement”) with F&T. The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest. Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issue 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000. The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021.
On August 25, 2021, the Company, through its 100% owned subsidiary NAS, entered into an Equipment Rights Agreements with Hydrenesis-Delta Systems, LLC (“Hydrenesis-Delta”) and a Technology Rights Agreement, in a sub-license agreement with Hydrenesis Aquaculture LLC (“Hydrenesis-Aqua”), The Equipment Rights involve specialized and proprietary equipment used to produce and control, dose, and infuse Hydrogas® and RLS® into both water and other chemical species, while the Technology sublicense pertains to the rights to Hydrogas® and RLS®. Both Rights agreements are for a 10 year term, which shall automatically renew for ten year successive terms. The term can be terminated by written notice by mutual consent, or by either party upon a breach of contract, insolvency or filing of bankruptcy. The agreements accord the exclusive rights to purchase or distribute the technology, or buy or rent the equipment, in the Industry Sector, which is the primary business and revenue stream generated from indoor aquaculture farming of any species in the Territory, defined as anywhere in the world except for the countries in the Gulf Corporation Council.
The Company has three wholly-owned subsidiaries, includingsubsidiaries: NSC, NS Global, and NAS.
Evolution of Technology and Revenue Expectations
Historically, efforts to raise shrimp in a high-density, closed system at the commercial level have been met with either modest success or outright failure through “BioFloc Technology.” Infectious agents such as parasites, bacteria and viruses are the most damaging and most difficult to control. Bacterial infection can in some cases be combated through the use of antibiotics (although not always), and in general, the use of antibiotics is considered undesirable and counter to “green” cultivation practices. Viruses can be even worse, in that they are immune to antibiotics. Once introduced to a shrimp population, viruses can wipe out entire farms and shrimp populations, even with intense probiotic applications.
Our primary solution against infectious agents is our “Vibrio Suppression Technology.” We believe this system creates higher sustainable densities, consistent production, improved growth and survival rates and improved food conversion without the use of antibiotics, probiotics, or unhealthy anti-microbial chemicals. Vibrio Suppression Technology helps to exclude and suppress harmful organisms that usually destroy “BioFloc” and other enclosed technologies.
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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 receptionnursery tank where the shrimp are acclimated, then moved to a larger grow-out tank for the rest of the twenty-four weektwenty-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 contractedworking with F&T Water Solutions andcontracted RGA Labs, Inc. (“RGA Labs”) to complete final engineering and building ofbuild the initial patent-pending modifiedNaturalShrimp patented Electrocoagulation system for the grow-out, harvesting and processing of fully mature, antibiotic-free Pacific White Leg shrimp. The design will presentprovided a viable pathway to begin generating revenue and producing shrimp on a commercially viable scale. The design is completed andequipment was installed in early June 2018 by RGA Labs.Labs, and final financing for the system was provided by one of the Company’s institutional 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. On August 30, 2019, the Company received notice that it was in compliance again and the quarantine had been lifted and the Company began restocking shrimp in the refurbished facility sections. During the aforementioned quarantine, the Company decided to begin an approximately $2,000,000 facility renovation demolishing the interior 16 wood structure lined tanks (720,000 gallons). The Company began 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.
On March 18, 2020, our research and development plant in La Coste, Texas was destroyed by a fire. The Company believed 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 a result of the fire. The majority of the damage was to our pilot production plant, which comprised 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 received total insurance proceeds in the amount of $917,210, the full amount of our claim. These funds were utilized to rebuild a 40,000 square foot production facility at the La Coste facility and to repurchase the equipment needed to replace what was lost in the fire. As of the date of this report, this facility is production-ready and, while we have experienced supply chain issues due to COVID-19, we expect the combined output from the La Coste, Texas, and Webster City, Iowa should result in a total of 25,000 pounds of shrimp production for the calendar quarter that will end on June 30, 2022. Also, the Company is expecting to break ground on an 80,000 square foot expansion in La Coste during the third quarter 2022.
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Recent Material Events
Securities Purchase Agreement – Secured Promissory Note
We entered into a securities purchase agreement (the “SPA”) with an investor (the “Investor”) on December 15, 2021. Pursuant to the SPA, the Investor purchased a secured promissory note (the “Note”) in the aggregate principal amount totaling approximately $16,320,000 (the “Principal Amount”). The Note carried an original issue discount totaling $1,300,000 and a transaction expense amount of June 2018,$20,000, both of which are included in the principal balance of the Note. The total purchase price of the Note was $15,000,000. The Note has an interest rate of 12% per annum. The maturity date of the Note is twenty-four (24) months from the issuance date of the Note (the “Maturity Date”). We also issued 3,000,000 warrants to Joseph Gunnar & Co., LLC (the placement agent) as placement agent fees.
We used the proceeds from the Note, in part, to repay the amounts currently owing to VeroBlue Farms USA, Inc. On December 23, 2021, the Company fully repaid the Notes with a payment of $4,556,164, of which $56,164 was interest. This included a $500,000 prepayment discount.
Beginning on the date that is six (6) months from the issuance date of the Note, the Investor has the right to redeem up to $1,000,000 of the outstanding balance per month. Payments may be made by the Company, at the Company’s option, (a) in cash, or (b) by paying the redemption amount in the form of shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), per the following formula: the number of redemption shares equals the portion of the applicable redemption amount divided by the Redemption Repayment Price. The “Redemption Repayment Price” equals 90% multiplied by the average of the two lowest volume weighted average price per share of the Common Stock during the ten (10) trading days immediately preceding the date that the Investor delivers notice electing to redeem a portion of the Note. The right to pay the redemption amount in the form of shares of Common Stock is subject to there not being any Equity Conditions Failure (as defined in the Note). The redemption amount shall include a premium of 15% of the portion of the outstanding balance being paid. In addition to the Investor’s right of redemption, the Company has the option to prepay the Notes at any time prior to the Maturity Date by paying a premium of 15% plus the principal, interest, and fees owed as of the prepayment date.
Within 180 days of the issuance date of the Note, we were to obtain an effective registration statement or a supplement to any existing registration statement or prospectus with the SEC registering at least $15,000,000 in shares of Common Stock for the Investor’s benefit such that any redemption using shares of Common Stock could be done using registered Common Stock. Although this 180 day deadline has passed, the Investor has not issued a notice of default with regard to the Note, and we expect to usenegotiate an extension of the time to comply with this provision.
As soon as reasonably possible following the issuance of the Note, we will cause our Common Stock to be listed for trading on either of (a) NYSE, or (b) NASDAQ (in either event, an “Uplist”). In the event the Company has not effectuated the Uplist by March 1, 2022, the then-current outstanding balance will be increased by 10%. We will make a one-time payment to the Investor equal to 15% of the gross proceeds the Company receives from the offering expected to be effected in connection with the Uplist (whether from the sale of shares of its Common Stock and / or preferred stock) within ten (10) days of receiving such amount. In the event Borrower does not make this payment, the then-current outstanding balance will be increased by 10%.
While the original Uplist deadline was March 1, 2022, the Investor has agreed to twice extend this deadline. The most recent extension was agreed to on May 18, 2022. In connection with the February 7, 2022 extension, the Company agreed that a one-time extension fee amount of $249,079 (less than two percent (2%) of the original Principal Amount) would be added to the outstanding balance of the Note.
The Uplist deadline was June 15, 2022. To the extent any event of default under the Note transaction documents had occurred prior to May 18, 2022, the Investor agreed to waive such event of default. Although June 15, 2022 has passed, the Investor has not issued a notice of default with regard to the Uplist deadline and we expect to negotiate an extension of the time to comply with this provision.
The Note is a secured obligation of the Company, to the extent provided for in the Security Agreement dated as of the date of the SPA (the “Security Agreement”) entered into by and among the Company and the Investor. The Note shall be senior in right of payment to all other Indebtedness (as defined in the Note) of the Company subject to the terms set forth in the Security Agreement. The Note is a direct obligation of the Company issued in accordance with the SPA. We granted a first harvestpriority security interest in and to market, sample,all of the assets of the Company, provided, however, certain real property of the Company was to secured in favor of the Investor. Pursuant to the terms of the Note, there has been no increase in the Note’s outstanding balance nor has there been a notification of a Trigger Event.
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Securities Purchase Agreement - Series E Preferred Stock and refine production specificationsWarrant
On November 22, 2021, we entered into a securities purchase agreement (the “Purchase Agreement”) with one accredited investor (the “Purchaser”), for the offering (the “Offering”) of (i) one thousand five hundred (1,500) shares of the Company’s Series E Convertible Preferred stock, par value $0.0001 (the “Series E Preferred Stock”) at a price of one thousand dollars ($1,000.00) per share and (ii) a warrant to purchase up to one million five hundred thousand (1,500,000) shares of the Company’s common stock (the “Warrant”), with an exercise price equal to $0.75, subject to adjustment therein. Pursuant to the Purchase Agreement, the Purchaser is purchasing the one thousand five hundred (1,500) shares of Series E Preferred Stock (the “Purchased Shares”) and the Warrant for an aggregate purchase price of one million five hundred thousand dollars ($1,500,000.00). The Warrant expires on November 22, 2026, the five (5)-year anniversary of the issue date. The Offering was a private placement with the Purchaser. The Offering closed on November 23, 2021.
We received approximately one million three hundred fifty thousand dollars ($1,350,000.00) in net proceeds from the Offering before exercise of the Warrant and after deducting the commission of Joseph Gunnar & Co., LLC (the placement agent) and other estimated offering expenses payable by the thirdCompany. We issued 267,429 warrants as placement agent fees.
The Purchase Agreement contains customary representations, warranties and agreements by the Company and the other parties thereto, customary conditions to closing, indemnification obligations of the parties, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”) and other obligations of the parties.
Pursuant to the Purchase Agreement, from the date thereof until the date when the Purchaser no longer holds any of the Purchased Shares or the Warrant (the “Securities”), upon any issuance by the Company of its securities for cash consideration (a “Subsequent Financing”), the Purchaser may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the Securities then held for any securities or units issued in a Subsequent Financing on a $1.00-for-$1.00 basis and under the same terms and conditions as provided for in the Subsequent Financing.
The shares of Series E Preferred Stock have a stated value of $1,200 per share (the “Series E Stated Value”) and are convertible into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at the election of the holder of the Series E Preferred Stock at any time at a price of $0.35 per share, subject to adjustment (the “Conversion Price”). The Series E Preferred Stock is convertible into that number of shares of Common Stock determined by dividing the Series E Stated Value (plus any and all other amounts which may be owing in connection therewith) by the Conversion Price, subject to certain beneficial ownership limitations.
We have the right to redeem the Series E Preferred Stock shares by paying, in cash, a premium rate (with such rate ranging from 1.15 to 1.25) multiplied by the sum of (a) the Stated Value and (b) all amounts owed pursuant the Series E Preferred Stock Certificate of Designation (the “Certificate of Designation”) (included any accrued but unpaid dividends). The Company is required to redeem the Series E Preferred Stock shares on the one year anniversary of the date of issuance.
In addition, we shall, at the holder’s sole option, upon the occurrence of a Triggering Event and following a five (5) day opportunity to cure following written notice, to require the Company to redeem all of the Series E Preferred Stock shares for a redemption price, in cash, equal to the Triggering Redemption Amount ((a) 150% of the Stated Value and (b) all amounts owed pursuant the Certificate of Designation (included any accrued but unpaid dividends)). The Certificate of Designation defines Triggering Events as one of eleven (11) items including, a failure to deliver conversion shares, a failure to have a sufficient amount of authorized but unreserved shares available to issue to a holder upon a conversion, a bankruptcy event, a monetary judgment of over $500,000, and an event of default as defined in the Certificate of Designation.
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Each holder of Series E Preferred Stock shall be entitled to receive, with respect to each share of Series E Preferred Stock then outstanding and held by such holder, dividends at the rate of twelve percent (12%) per annum, payable quarterly (the “Preferred Dividends”).
The holders of Series E Preferred Stock rank senior to the Common Stock and Common Stock Equivalents (as defined in the Certificate of Designation) with respect to payment of dividends and rights upon liquidation and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations, on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent).
Registration Rights Agreement
On November 22, 2021, in connection with the Purchase Agreement, the Company and the Purchaser entered into a registration rights agreement (the “Rights Agreement”) pursuant to which we agreed to, within fifteen (15) calendar quarterdays of 2019.November 22, 2021, the date of execution of the Rights Agreement, use its best efforts to file a registration statement or registration statements (as is necessary) with the SEC on Form S-1 (or, if such a form is unavailable, on such other form as is available for such registration) covering the resale of the Securities and the shares of Common Stock underlying the Securities, and pursuant to which the Company agreed that such registration statement will state, according to Rule 416 promulgated under the Securities Act, that such registration statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, dividends, or similar transactions.
The Warrant’s cashless exercise provision will go into effect if the Company violates the Rights Agreement.
Waiver
On April 14, 2021, the Company entered into a securities purchase agreement (the “April SPA”) to sell: (a) 9,090,909 shares of Common Stock at a price per share of $0.55; (b) warrants to purchase up to 10,000,000 shares of Common Stock, at an exercise price of $0.75 per share (the “April Warrants”); and (c) 1,000,000 shares of Common Stock with a value (although no purchase price will be paid) of $0.65 per share, with GHS Investments LLC (“GHS”), an accredited investor. Pursuant to the April SPA, until April 14, 2022, GHS has a right to participate in any subsequent financing that the Company conducts.
On November 22, 2021, GHS entered into a Waiver (the “Waiver”) whereby GHS agreed to waive its right to participate in the Offering and to participate in a possible $16.32 million debt financing for which the Company is still negotiating definitive documentation. There is no guarantee the Company will be able to secure such debt financing at all or on favorable terms to the Company. GHS also agreed to waive its right, pursuant to the Certificate of Designation, to exchange shares of Series E Preferred Stock held by GHS for securities issued in the debt financing, if the Company enters into such financing.
In consideration for GHS entering into the Waiver, the Company agreed to lower the exercise price of the April Warrants to $0.35 per share (the Conversion Price) and to issue warrants to purchase 3,739,000 shares of Common Stock with an exercise price of $0.75 per share with such warrants being substantially in the form of the Warrants. The shares of Common Stock underlying the warrant issued to GHS are being registered in the registration statement of which this prospectus forms a part.
The foregoing descriptions of the Purchase Agreement, the Warrant, the Certificate of Designation, the Rights Agreement, and the Waiver are qualified in their entirety by reference to the full text of such Purchase Agreement, Warrant, Certificate of Designation, Rights Agreement, and Waiver
The shares of Series E Preferred Stock, the Warrants and the GHS warrant were not registered for sale under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration under the Securities Act or an applicable exemption from the registration requirements. The issuance and sale of the Securities was made in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. No form of general solicitation or general advertising was conducted in connection with the issuance. The Securities contain (or will contain, where applicable) restrictive legends preventing the sale, transfer, or other disposition of such securities, unless registered under the Securities Act, or pursuant to an exemption therefrom.
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Resolution of Gary Shover Litigation
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 for shares Mr. Shover owns in NSH. On November 15, 2021, a hearing was held before the US District Court for the Northern District of Texas, Dallas Division at which time Mr. Shover and the Company presented arguments as to why the Court should approve a joint motion for settlement. After considering the argument of counsel and taking questions from those NSH shareholders who were present through video conferencing link, the Court approved the motion of the parties to allow Mr. Shover and all like and similarly situated NSH shareholders to exchange each share of NSH held by a NSH shareholder for a share of the Company. A final Order was signed on December 6, 2021 and the case was closed by an Order of the Court of the same date. The Company is to issue approximately 93 million shares in settlement, which has been recognized as stock payable on the Company’s balance sheet, and its fair value of $29,388,000, based on the market value of the Company’s common shares of $0.316 on the date the case was closed, has been recognized in the Company’s statement of operations as legal settlement. As of March 31, 2022, the NSH shareholders have received 28,454,901 of the common shares of the Company issued for the settlement. As of the date of this report, 89,296,550 shares of common stock have been issued to the NSH shareholders.
Designation and Issuance of Series F Preferred Stock
On February 23, 2022, the Secretary of State of the State of Nevada delivered confirmation of the effective filing by the Company of its Certificate of Designation of Series F Convertible Preferred Stock (the “Series F Designation”). The Series F Designation authorized the issuance of up to 750,000 shares of the Company’s Series F Convertible Preferred Stock (“Series F Preferred Stock”), having such designations, rights and preferences as set forth therein.
The number of shares of Series F Preferred Stock authorized or outstanding shall not be affected by a subdivision of the Common Stock (by any forward stock split, stock dividend, recapitalization or otherwise) into a greater number of shares, or by a combination of the Common Stock (by combination, reverse stock split or otherwise) into a smaller number of shares.
On March 1, 2022, the Board of the Directors of the Company (the “Board”) issued 250,00 shares of Series F Preferred Stock to each of Gerald Easterling, William Delgado and Thomas Untermeyer in consideration for their past and future services as executive officers of the Company.
At any time after the three year anniversary of each respective date of the issuance of any share of Series F Preferred Stock (in each case, the “Issuance Date”), each individual holder shall have the right, at each individual holder’s sole option, to convert all of the shares of Series F Preferred Stock that such individual holds into shares of fully paid and nonassessable shares of Common Stock in an amount equal to 8% (eight percent) of the Company’s issued and outstanding shares of Common Stock as of the close of business on the day the Notice of Conversion (as defined in the Series F Designation) is sent to the Company. For the sake of clarity: (i) each individual holder cannot convert a portion of such holder’s shares of Series F Preferred Stock; rather, each individual holder must convert all of such holder’s holdings at the same time; and (ii) a reverse or forward stock split of the Common Stock will not affect the conversion rate.
Each individual holder of Series F Preferred Stock may only convert all of their shares of Series F Preferred Stock in one transaction. If the holder elects to convert all of its shares of the Series F Preferred Stock, it shall deliver three (3) days’ written notice thereof via email or overnight mail a notice of conversion (the “Notice of Conversion”) to the Company, listing the conversion date (the “Conversion Date”) which Notice of Conversion shall indicate (i) the holder is electing to convert all of their shares of Series F Preferred Stock, (ii) the Conversion Date, and (iii) the manner and the place designated for the surrender of the certificate or certificates representing the shares to be converted.
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On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), the Series F Designation authorizes each holder of outstanding shares of Series F Preferred Stock to cast one thousand (1,000) votes per each share of Series F Preferred Stock held by such holder as of the record date for determining stockholders entitled to vote on such matter.
Other than a change in par value or as a result of a stock dividend or subdivision, forward stock split, reverse stock split, split-up or combination of shares, at any time after the Issuance Date, in the case of any capital reorganization, any reclassification of the stock of the Company, or a Change in Control (as defined in the Series F Designation), the shares of Series F Preferred Stock shall, at the effective time of such reorganization, reclassification, or Change in Control, be automatically converted into the kind and number of shares of stock or other securities or property of the Company or of the entity resulting from such reorganization, reclassification, or Change in Control to which such holder would have been entitled if immediately prior to such reorganization, reclassification, reorganization, reclassification, or Change in Control it had converted its shares of Series F Preferred Stock into Common Stock.
The Series F holders will not be entitled to dividends, nor any distribution rights in the event of any liquidation, dissolution, or winding up of the Company.
Results of Operations
Comparison of the Fiscal Year Ended March 31, 2019 and2022 to the Fiscal Year Ended March 31, 2018
Revenue
We have not earned any significant revenues since our inception.
Expenses
Our expenses for the fiscal year ended March 31, 20192022 are summarized as follows, in comparison to our expenses for the fiscal year ended March 31, 2018:
Years Ended March 31, | ||
2019 | 2018 | |
| Salaries and related expenses | $422,160 | $352,757 |
| Rent | 12,134 | 11,197 |
| Professional fees | 234,932 | 278,037 |
| Other general and administrative expenses | 200,595 | 443,508 |
| Facility operations | 100,596 | 27,789 |
| Depreciation | 30,296 | 70,894 |
| Total | $1,000,713 | $1,184,182 |
| Years Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Salaries and related expenses | $ | 2,292,849 | $ | 499,280 | ||||
| Stock compensation | 43,704,900 | - | ||||||
| Professional fees | 2,044,001 | 1,121,371 | ||||||
| Other general and administrative expenses | 2,666,651 | 836,069 | ||||||
| Rent | 72,417 | 15,518 | ||||||
| Facility operations | 1,097,745 | 403,029 | ||||||
| Research and development | 407,874 | 79,550 | ||||||
| Depreciation | 1,307,038 | 346,437 | ||||||
| Amortization | 881,500 | - | ||||||
| Total | $ | 54,474,975 | $ | 3,301,254 | ||||
Operating expenses for the fiscal year ended March 31, 20192022 were $1,000,713, representing a decrease$54,474,975, an increase of 15%approximately 1,550% as compared to operating expenses of $1,184,182 for the same period in 2018.2021. The overall decreasechange in expenses is mainly due to the resultgranting of a decreasestock compensation as well as the increase in salary, professional services, facility operations and other general and administrative costs, offset byexpenses, as well as depreciation, and the amortization of the intangible assets. The Company’s issuance of 250,000 shares of Series F Preferred Stock on March 1, 2022, to each of the three executive officers of the Company, for a total of 750,000 shares of Series F Preferred Stock, $43,612,000 was recognized as stock compensation. The fair value of the stock compensation has been recognized based on the estimated value of the instruments we would be obligated to provide to the holders upon their conversion to common shares, which for all three holders of Series F Preferred Stock would reflect 24% of the fair value of the outstanding common shares as of the grant date. The increase in professional fees is due to an increase in salaries and facility operations, as the Company is progressing with their testing and planning to begin commercial operations. The primary reason for the change in general and administration costs is that in the year ended March 31, 2018 there was $220,000 amortization of the remaining prepaid expenses arising from shares issued in January 2017 to a consultant forlegal services to be provided over six months. Depreciation expense decreased as many of the fixed assets currently in use have become fully depreciated, and the fixed assets related to the facility are stillGary Shover legal settlement, the redemption of the Series D Preferred Stock, the new Series E and F Preferred Stock and services in constructionconnection with the expected listing of our common shares to Nasdaq, as well as an increase in accounting and consulting fees over the same period in the previous year. The increase in the other expenses were mostly based on the progress of the plants as well as the operations to begin the production of shrimp, including additional employees and maintenance. The increase in depreciation has not yet begun on these assets.is due to the increase in fixed assets, including the acquisition with VeroBlue Farms USA, Inc. during December 2020, for which the depreciation for the year ending March 31, 2022 is for a full fiscal year. The new amortization expense is for the patents acquired and the rights agreements entered into in the current year.
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Liquidity, Financial Condition and Capital Resources
As of March 31, 2019,2022, we had cash on hand of $137,499approximately $1,734,000 and a working capital deficiency of approximately $3,773,000.$17,017,000, as compared to cash on hand of $24,280approximately $156,000 and a working capital deficiency of approximately $6,764,000$3,614,000 as of March 31, 2018.2021. The increase in the working capital deficiency for the fiscal year ended March 31, 20192022 as compared to 2021 is mainly due to a slight decreasean approximate $4,018,000 increase in current assets, and an approximately $3.5 decrease in the derivative and warrant liabilities, offset by anapproximately $17,421,000 increase in the current maturity of the bank loan,liabilities, as discussed in further detail below.
The increase in current assets is based on the increase in cash on hand and the remaining $1,500,000 held in an escrow account from the proceeds of the convertible debenture, as well as an approximately $856,000 increase in prepaid expenses. The change in current liabilities is mainly a result of additions of the derivative liability of $13,101,000 fair value as of the year end, and the warrant liability fair value of $3,923,000 as of the end of the year, and, additionally, the increase in accounts payable and accrued interest.
Working Capital Deficiency
Our working capital deficiency as of March 31, 2019,2022, in comparison to our working capital deficiency as of March 31, 2018,2021, can be summarized as follows:
March 31, | March 31, | |
2019 | 2018 | |
| Current assets | $178,685 | $260,179 |
| Current liabilities | 3,951,811 | 7,024,615 |
| Working capital deficiency | $3,773,126 | $6,764,435 |
| March 31, | March 31, | |||||||
| 2022 | 2021 | |||||||
| Current assets | $ | 4,829,141 | $ | 811,134 | ||||
| Current liabilities | 21,846,261 | 4,425,512 | ||||||
| Working capital deficiency | $ | 17,017,120 | $ | 3,614,378 | ||||
The decreaseincrease in current assets is due to the remainder of the receipt of the cash for the December 15, 2021 convertible debenture including the $1,500,000 in escrow, as well as an approximately $856,000 increase in prepaid expense. The increase in the prepaid expense is mainly due to approximately $965,000 related to work being done at the decrease of approximately $205,000 in Notes receivable, which represents funding on convertible debentures back-end notes, offset by an approximate $113,000Iowa facilities. The increase in cash. The decrease in current liabilities is primarily due to a decrease in the derivative and warrant liabilities. The decrease in the derivatives included approximately $4,069,000addition of the derivative liability being reclassedrelated to equity upon conversion of the relatednew convertible debentures, andnote, with a decrease in the fair value of $13,101,000 as of the derivatives of approximately $1,320,000. Thisyear end. Additionally, due to the derivative, the existing warrants were classified as a liability, decrease is offset by the new convertible debentures entered into during the current year also containing embedded derivatives, which were bifurcated and increased thewith a fair value of $3,923,000 as of the derivative liability by $2,090,000. Additionally, the warrant liability decreased by $184,000 due to the exercise of warrants, as well offset bycurrent fiscal year end. Lastly, there also is an increase in the fair value of the warrants of $47,000. Approximately $19,000 of the convertible debentures outstanding at March 31, 2019, were converted subsequent to year end, and the related derivative liability reclassed to equity. These primary causes for the decrease in current liabilities is offset by slight increasesapproximately $1,839,000 in accounts payable and $427,000 in accrued interest and expenses. Another increase is duemostly related to the entire balancenew convertible debenture. The increases in liabilities are offset by the settlement of bank loans and lines of credit and non-current short term notes and notes payable to related parties, as well as accrued expenses of approximately $316,000 related to the bank loan now being current, asVero Blue acquisition recognized in the outstanding balance is due January 2020.
Cash Flows
Our cash flows for the year ended March 31, 2019,2022, in comparison to our cash flows for the year ended March 31, 2018,2021, can be summarized as follows:
| Years Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (13,393,373 | ) | $ | (2,377,377 | ) | ||
| Net cash used in investing activities | (7,614,337 | ) | (7,537,630 | ) | ||||
| Net cash provided by financing activities | 22,585,954 | 9,961,311 | ||||||
| Net change in cash | $ | 1,734,040 | $ | 46,304 | ||||
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Year Ended March 31, | ||
2019 | 2018 | |
| Net cash used in operating activities | $(990,334) | $(765,793) |
| Net cash used in investing activities | (211,830) | (171,050) |
| Net cash provided by financing activities | 1,315,383 | 872,928 |
| Increase (decrease) in cash and cash equivalents | $113,219 | $(63,915) |
The increase in net cash used in operating activities in the year ended March 31, 2019,2022 compared to the same period in 2018,2021 is attributable mainly relatesdue to a the approximate $3,745,000approximately $80,673,000 increase in the net loss on the exercise of warrants, a swing inbeing offset by the fair value of the derivative liability from an increase inshares issued for the legal settlement of $29,388,000 and the Series F Preferred Stock issued to the executive officers for a fair value of $1,600,000 in fiscal 2018 to a decreaseapproximately $43,705,000. The offset of the increase in the fair valuenet loss also consists of $1,319,500 in fiscal 2019, and increases in the addition this period of amortization of the new intangible assets, as well as the approximate $2,616,000 amortization of the debt discount andrelated to the new convertible debenture. Furthermore, the offset includes the financing costs related to the transactions in connection with the new convertible note, which contains approximately $1,373,000 and $249,000, respectively, for an extension fee. In addition to the year ended March 31, 2019, offset byoffsets, there also was an increase in accounts payable and prepaid expenses and the decreasechange in fair value of the warrant liability, which occurred in the net loss of approximately.
The net cash used in investing activities in the year ended March 31, 2019 included an increase2022 includes approximately $2,264,000 in costscash paid onfor machinery and equipment and construction in process onto continue to build our facilities. We paid cash of $2,000,000 towards the new facility as compared topatent acquisition with F&T, and $1,000,000 in cash towards the acquisition of the shares of the non-controlling interest in NAS. Additionally, there was $2,350,000 in cash paid for the license agreement. In the same period in 2018, and2021, the purchase of someCompany had $5,000,000 in cash paid for the VeroBlue Farms USA, Inc. asset acquisition, as well as $3,455,000 paid for machinery and equipment.
The net cash provided by financing activities increased by approximately $12,625,000 between periods, withyears. For the increased cash provided by financing activities during the year ended March 31, 2019 arisingcurrent period, we received approximately $17,277,000 in net proceeds from the additionalissuance of common shares under an equity agreement, $13,905,000 in net proceeds received from the new equity financing agreementconvertible debenture, as well as $1,348,000 from the sale of Series E Redeemable Convertible Preferred Stock. The Company paid off bank loans and cash funding on thelines of credit for approximately $768,000, and notes receivable which collateralized certain back endpayable and convertible debentures offset byof approximately $5,673,000 (which included $655,750 to a decreaserelated party). In the same period in proceeds forthe prior year, we received $3,250,000 from the sale of Series B Convertible Preferred Stock, $6,050,000 from the sale of Series D Redeemable Convertible Preferred Stock, and $600,000 from a new convertible debentures duringdebenture, as well as $103,200 from a Paycheck Protection Program (“PPP”) loan, which was forgiven in the current fiscal 2019 as comparedyear, and $50,000 connected to fiscal 2018 and by increased payments on outstanding convertible debentures.
Our cash position was approximately $137,000$1,734,000 as of March 31, 2019.2022. Management believes that our cash on hand and working capital are not sufficient to meet our current anticipated cash requirements through fiscal 2020,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
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 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. On May 5, 2021, the Company paid off the line of credit.
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. On April 15, 2021, the line of credit was paid off in full.
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 March 31, 2021. The line of credit is unsecured. The balance of the line of credit was $9,580 at March 31, 2022.
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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 March 31, 2021. 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 March 31, 2022 .
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 LinesEconomic Security Act (the “CARES Act”). On April 16, 2021, the Company filed for the forgiveness of Credit
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 note was paid off in full on December 20, 2021.
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$50,000, with a stated interest rate of 5.25%, maturity date of December 15, 2017 and had an initial interest only payment on February 3, 2016.2017. 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 short-term note is guaranteed by an officer and director. The balancenote was paid off in full in July of the line of credit at both March 31, 2019 and 2018 was $20,193 and $25,298, respectively.
Convertible Debentures
The Company entered into a Securities Purchase Agreement and issued a Convertible Note in the original principal amount of $262,500 tosecurities purchase agreement (the “SPA”) with an accredited investor along with a Warrant to purchase 350,000 shares of the Company’s common stock, in exchange for a purchase price of $250,000. The Company received $50,000 upon closing, with additional consideration to be paid(the “Investor”) on December 15, 2021. Pursuant to the Company in such amounts and at such dates asSPA, the holder may choose in its sole discretion. The warrants are exercisable overInvestor purchased a period of five (5) years at an exercise price of $0.60, subject to adjustment. The exercise price was adjusted to $0.15, and the warrants issued increased to 280,000, upon a warrant issuance related to a new convertible debenture on September 11, 2017. The warrants exercise price was subsequently reset to 50% of the market price during the third quarter of fiscal 2018, and the warrants issued increased accordingly. Thesecured promissory note is convertible into shares of the Company’s common stock at a conversion price of $0.35 per share, subject to adjustment. The maturity date of the note shall be two years form the date of each payment of consideration thereunder. A one-time interest charge of twelve percent (12%(the “Note”) shall be applied on the issuance date and payable on the maturity date. During the year ended March 31, 2018, the holder converted the $50,000 of the January debentures to common shares of the Company.
Beginning on the date that is 6 months from the issuance date of issuance, have been recognized as a financing cost.
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The Note also contains certain negative covenants and Events of Default, which in addition to common events of default, include a failure to deliver conversion shares, the Company fails to maintain the share reserve, the occurrence of a Fundamental Transaction without the Lenders written consent, the Company effectuates a reverse split of its affiliates will not be permittedcommon stock without 20 trading days written notice to purchaseLender, fails to observe or perform or breaches any covenant, and, the Company or any of its subsidiaries, breaches any covenant or other term or condition contained in any Other Agreements in any material. Upon an Event of a Default, at its option and sole discretion, the Investor may not put sharesconsider the Note immediately due and payable. Upon such an Event of Default, the interest rate increases to 18% per annum and the outstanding balance of the Company’s Common StockNote increases from 5% to GHS that would result in GHS’s beneficial ownership equaling more than 9.99%15%, depending upon the specific Event 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 byDefault.
On February 26, 2021, 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 GHSentered into a promissoryconvertible note infor the principal amount of $15,000 to offset transaction costs (the “Note”). The Note bears interest at the rate$720,000, with an original issue discount of 8% per annum, is not$120,000, convertible and is due 180 days from the issuance date of the Note.
Notes Payable
On December 15, 2020, in connection with the asset acquisition with VBF (Note 3), the Company entered into two notes payable with a third party. The first note, Promissory Note A, is for principal of $3,000,000, which is payable in 36 months with interest thereon at the rate of 5% per annum, 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, is for principal of $2,000,000, which is payable in 48 months with interest thereon at the rate of 5% per annum, 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. On December 23, 2021, the Company paid off the two notes, for a discount of $4,500,000, and recognized a gain on settlement of note, including accrued interest, of $815.943.
On July 15, 2020, the Company issued a promissory note to Ms. Williams in the amount of $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 14) for his portion of the related party notes and related accrued interest discussed above, and accrued compensation and allowances. The note bears interest at one percent per annum and calls for monthly payments of $8,000 until the balance is paid in full. The balance as of March 31, 2022 and 2021 was $215,604 and $311,604, with $96,000 classified in current liabilities for both year ends on the consolidated balance sheets.
Sale and Issuance of Common Stock
During the year ended March 31, 2022, the Company issued 35,772,729 shares of the Company’s common stock upon of the sale of common shares and warrants for net cash proceeds of approximately $17,274,000.
During the year ended March 31, 2022, the Company issued 1,329,246 shares of the Company’s common stock upon conversion of approximately $421,000 of their outstanding convertible debt and accrued interest.
During the year ended March 31, 2022, the Company has converted 839 shares of Series B Preferred Stock including dividends-in-kind into 10,068,000 shares of the Company’s common stock.
During the year ended March 31, 2022, the Company has converted 125 shares of Series D Preferred Stock including dividends-in-kind into 428,572 shares of the Company’s common stock.
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During the year ended March 31, 2022, the Company issued 12,871,287 shares of the Company’s common stock to Hydrenesis Aquaculture LLC in relation to a Technical Rights Agreement and 13,861,386 shares of the Company’s common stock to F&T for the acquisition of Patent Rights and the non-controlling interest of NAS .
Common Shares Issued to Consultants
During the three months ended December 31, 2021, three consultants were issued a total of approximately 430,000 shares of common stock, with a total fair value of approximately $158,000, based on the market price of $0.36 on the grant date.
On April 14, 2021, 500,000 shares of common stock were issued to a consultant per an agreement entered into on January 20, 2021 for advisory services for a two-year period. The shares had a fair value of $195,000, based on the market price of $0.39 on the grant date. 62,500 common shares shall vest each quarter through October 1, 2022, at $24,275, with $121,875 vested through March 31, 2022.
On May 24, 2021, the Company entered into an agreement with a consultant, with a three-month term, that shall automatically renew each three months unless one party terminates the agreement. The compensation shall be $12,500 in cash per month for the first six months and $15,000 per month thereafter. Also included in compensation are 200,000 shares of common stock, with a fair value of $99,600 based upon the market price of $0.50 upon the grant date. The shares of common stock will vest in quarterly installments, with 50,000 to vest immediately, and 50,000 each quarter at $24,900, and was fully vested by the year end March 31, 2022.
Common Shares Issued to Employees
During the three months ended December 31, 2021, a number of new employees were issued a total of 175,000 shares of common stock as signing bonuses, with a total fair value of $68,300, based on the market price of $0.395 on the grant date.
Series D Preferred Equity Offering
On December 16, 2020, the Board authorized the issuance of 20,000 preferred shares to be designated as Series D Preferred Stock (“Series D PS”). The Series D PS have a par value of $0.0001, a stated value of $1,200 and 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 conversionmeeting (or the written consent with or without a meeting) of the majority of the shares of Series D Preferred Stock then outstanding. On December 18, 2020, the Company entered into securities purchase agreements (the “Purchase Agreement”) with GHS Investments LLC, Platinum Point Capital LLC and BHP Capital NY (collectively, the “Purchaser”) , whereby, at the closing, each Purchaser agreed to purchase from the Company, up to 5,000 shares of the Company’s Series D Convertible Preferred Stock, at a purchase price of $0.30$1,000 per share of Series D Preferred Stock. The aggregate purchase price per Purchaser for the Series D Preferred Stock is $5,000,000. In connection with the sale of the Series 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. On January 8 and 10, 2021, the Company entered into additional securities purchase agreements with the Purchaser, for 1,050 shares of Series D PS, at an aggregate purchase price of $1,050,000.
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 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.adjustment as set forth in the designation.
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The Series D PS were to 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 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 was 150% of the stated value.
We used the proceeds of an offering that closed on April 14, 2021 to redeem 2,450 shares of Series D Preferred Stock held by two holders for a total of $3,658,000. In a concurrent private placement, we exchanged 3,600 shares of Series D Convertible Preferred Stock held by GHS for 3,739.63 shares of the Company’s newly designated Series E Preferred Stock. As of April 14, 2021, there were no shares of Series D Preferred Stock outstanding.
Series E Preferred Stock
On April 14, 2021, the Board authorized the issuance of 10,000 shares of the Company’s Series E Preferred Stock. The shares of Series E Preferred Stock have a stated value of $1,200 per share and are convertible into shares of common stock at the election of the holder of the Series E Preferred Stock at any time at a price of $0.35 per share, subject to adjustment (the “Conversion Price”). The Series E Preferred Stock is convertible into that number of shares of common stock determined by dividing the Series E Stated Value (plus any and all other amounts which may be owing in connection therewith) by the Conversion Price, subject to certain beneficial ownership limitations. Each holder of Series E Preferred Stock shall be entitled to receive, with respect to each share of Series E Preferred Stock then outstanding and held by such holder, dividends at the rate of twelve percent (12%) per annum, payable quarterly. Each share of Series E Preferred Stock shall be redeemed by the Company on the date that is no later than one calendar year from the date of its issuance. The Series E Preferred Stock 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 holders of Series E Preferred Stock rank senior to the Common Stock and Common Stock Equivalents (as defined in the Series E Designation) with respect to payment of dividends and rights upon liquidation and will vote together with the holders of the Common Stock on an as-converted basis, subject to beneficial ownership limitations, on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Based upon a subsequent financing, the holder has the option to exchange (in lieu of conversion), all or some of the shares of Series E Preferred Stock then held for any securities or units issued in a subsequent financing on a $1.00 for $1.00 basis. In the event of a Fundamental Transaction, the holder has the option to request that the Company or the successor entity shall purchase the Preferred Stock from the Holder on the date of such request by paying to the Holder cash in an amount equal to the Black Scholes value. Upon any triggering event, including a change in control or the Company shall fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to such holder upon a conversion, each holder shall have the right, exercisable at the sole option of such holder, to require the Company to redeem all of the Series E Preferred Stock then held by such holder for a redemption price, in cash, equal to the Triggering Redemption Amount (150% of the Stated Value and all accrued but unpaid dividends and all liquidated damages, late fees and other costs), and increase the dividend rate on all of the outstanding Preferred Stock held by such Holder to 18% per annum thereafter. Upon any liquidation, dissolution or winding-up of the Company, the holders shall be entitled to receive out of the assets of the Company an amount equal to the stated value, plus any accrued and unpaid dividends and any other fees or liquidated damages then due and owing for each share of Preferred Stock, before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
On April 14, 2021, the Company, entered into a share exchange agreement (the “Exchange Agreement”) with a holder of the Series D Preferred Stock, whereby, at the closing of the Offering, the Holder agreed to exchange an aggregate of 3,600 shares of the Company’s Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”) into 3,739.63 shares of the Company’s Series E Convertible Preferred stock, par value $0.0001 (the “Series E Preferred Stock”). The Company analyzed the conversion feature of the Series E Preferred Stock issued on April 14, 2021, 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 dates of funding as compared to the conversion price, determined there was a beneficial conversion feature of approximately $3,270.000 to recognize, which will be amortized over the term of the note using the effective interest method. During the year ended March 31, 2022, the total Series E Preferred Stock BCF amortization, including the November 22, 2021, SPA, was $3,326,172.
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On November 22, 2021, the Company entered into a securities purchase agreement (“SPA”) for 1,500 shares of the Company’s Series E Preferred Stock, at a price of $1,000 per share and (ii) a warrant to purchase up to 1,500,000 shares of the Company’s common stock, with an exercise price equal to $0.75, which expires in five years, for a purchase price of $1,500,000. The warrant has a fair value of $561,000, estimated using the Black Scholes Model. The Company also issued 267,429 warrants as placement agent fees, with a fair value of $101,000, estimated with the same assumptions. All of the warrants were classified as a liability, as it is not known if there will be sufficient authorized shares to be issued upon settlement, based on the conversion terms of the convertible debt. 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 dates of funding as compared to the conversion price, determined there was a beneficial conversion feature of approximately $170.000 to recognize, which will be amortized over the term of the note using the effective interest method. The Company will accrete the carrying value, reflecting the discount of $300,000 between the stated value and purchase price and the fair value of the warrants issued of $662,000, of the Series E Preferred Stock in temporary equity up to the redemption value over the period until its redemption.
During the year ended March 31, 2022, 2,400 shares of Series E Preferred Stock were converted into 8,228,572 shares of common stock. As of March 31, 2019,2022, there are 2,840 shares of Series E Preferred Stock outstanding.
Series F Preferred Stock
On February 22, 2022, the Board of Directors authorized Series F Preferred Stock. The Series F Preferred Stock have a par value of $0.0001. The Series F Designation authorized the issuance of up to 750,000 shares of the Company’s Series F Convertible Preferred Stock. At any time after the three year anniversary of the issuance of the shares of Series F Preferred Stock (the “Issuance Date”), each individual holder shall have the right, at each individual holder’s sole option, to convert all of the shares of Series F Preferred Stock that such individual holds into shares of fully paid and nonassessable shares of common stock in an amount equal to 8% of the Company’s issued and outstanding shares of common stock. Each individual holder of Series F Preferred Stock may only convert all of their shares of Series F Preferred Stock in one transaction. On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company each holder of outstanding shares of Series F Preferred Stock will cast 1,000 votes per each share of Series F Preferred Stock held by such holder. The holders are not entitled to receive dividends, nor are they entitled to receive any distributions in the event of any liquidation, dissolution or winding down of the Company, either voluntarily or involuntarily. The Company determined that the conversion feature was not required to be bifurcated as the conversion provision was determined to be clearly and closely related to the Series F Preferred Stock host instrument.
In the case of any capital reorganization, any reclassification of the stock of the Company, or a Change in Control, the shares of Series F Preferred Stock shall, at the effective time of such reorganization, reclassification, or Change in Control, be automatically converted into the kind and number of shares of stock or other securities or property of the Company or of the entity resulting from such reorganization, reclassification, or Change in Control to which such holder would have been entitled if immediately prior to such reorganization, reclassification, or Change in Control it had converted its shares of Series F Preferred Stock into common stock.
On March 1, 2022, the Board of Directors of the Company issued 250,00 shares of Series F Preferred Stock to each of Gerald Easterling, William Delgado and Thomas Untermeyer in consideration for their past and future services as executive officers of the Company, for a total of 750,000 shares of Series F Preferred Stock. The fair value of the stock compensation has paid $52,400been recognized based on this note, with $87,600 remainingthe estimated value of the instruments the Company would be obligated to provide to the holders upon conversion to common shares, which for all three Series F PS holders would reflect 24% of the fair value of the outstanding common shares as of the grant date of March 31, 2019.1, 2022. Based on the number of outstanding shares of common stock plus shares payable, of 738,687,135, and the market value of the common stock of $0.246 on that date, the total stock compensation was $43,612,000. In accordance with ASC 718, as the shares are fully vested on the grant date, as well as all services required to be provided have occurred, the stock compensation was immediately recognized.
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Going Concern
The audited consolidated financial statements contained in this annual reportAnnual Report on Form 10-K have been prepared, assuming that the Company will continue as a going concern. The Company has accumulated losses through the period to March 31, 20192022 of approximately $41,223,000$150 million, as well as negative cash flows from operating activities of approximately $990,000.$13 million. Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following March 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 raisingfund-raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.
The consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges of the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
Future Financing
We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements that have enabled us to fund our operations, these funds have been largely used to develop our processes, although additional funds are needed for other corporate operational and working capital purposes. Subsequent to year end we have raised approximately an additional $100,000, net of OID, from convertible debentures and $1,500,000 from the issuance of shares of common stock under the equity financing agreement. 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$5,000,000 to $7,000,000 to cover all of our operational expenses over the next 12 months, not including any capital expenditures needed as part of any commercial scale-up of our equipment. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that such financing can be obtained on commercially reasonable terms. If we are not able to obtain the additional necessary financing on a timely basis, or if we are unable to generate significant revenues from operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included in this Annual Report on Form 10-K for the fiscal year ended March 31, 2019.2022. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
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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 March 31, 20192022 and 2018.
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 year ended March 31, 2019,2022, the Company had 5,000,000 shares of Series A Convertible Preferred Stock which would be converted at the holder’s option into approximately $695,000 in convertible debentures whose674,832,000 underlying common shares, 2,840 shares of Series E Redeemable Convertible Preferred shares with approximately 66,376,0009,737,000 underlying shares of common stock that are convertible at the investors’ option at a fixed conversion price of $0.35, 750,000 shares of Series F Preferred Stock which would be converted at the holders’ option into approximately 162,080,000 underlying common shares, and approximately $18,768,000 in a convertible debenture with approximately 98,779,000 underlying shares of common stock that are convertible at the holders’ option at conversion prices ranging from 34 - 60%price of 90% of the defined trading price and approximately 444,000 warrants with an exercise price of 45%average of the two lowest market price ofprices over the Company’s common stock,last 10 days and 18,506,429 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. Included in the diluted EPS forFor the year ended March 31, 2018,2021, the Company had 5,000,000 shares of Series A Convertible Preferred Stock which would be converted at the holder’s option into approximately $1,293,000 in convertible debentures whose560,745,000 underlying common shares, 607 shares of Series B Preferred shares with approximately 46,170,0001,202,000 underlying shares of common stock that are convertible at the holders’investors’ option at a conversion prices ranging from 34 - 60%price based on the lowest market price over the last 20 trading days, and 6,050 of shares of Series D Preferred shares with approximately 60,050,000 underlying shares of common stock that are convertible at the defined trading price and approximately 4,625,000 warrants with an exerciseinvestors’ option at a fixed conversion price of 45% to 57% of the market price of the Company’s common stock,$0.10, 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 the fair values are reduced for the cost to dispose.
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Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year endedof adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
As of March 31, 2018 and through the date of this report,2022, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”).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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is included following the "Index“Index to Financial Statements"Statements” on page F-1 contained in this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
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Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sreporting for our consolidated subsidiaries. Our internal control over financial reporting is a process designed by, or under the supervision of, itsour principal executive and principal financial officers and effected by the Company’sour Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of itsour consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In addition, 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.
Material Weakness in Internal Control over Financial Reporting
Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 20192022 based on the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of March 31, 20192022 was not effective.
A material weakness, as defined in the standards established by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), is a control 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 our annual or interim financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the Company’sour internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small number of staff:
| ● | Inadequate segregation of duties consistent with control objectives; |
| ● | Lack of independent Board of Directors (as of the balance sheet date) and absence of Audit Committee to exercise oversight responsibility related to financial reporting and internal control; |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner; and |
| ● | Lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives. |
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Management continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
The remediation actions planned include:
| ● | Identify gaps in our skills base and the expertise of our staff required to meet the financial reporting requirements of a public company; |
| ● | Establish an independent Board of Directors (which we expect to establish in our second fiscal quarter that will end on September 30, 2022) and an Audit Committee to provide oversight for remediation efforts and ongoing guidance regarding accounting, financial reporting, overall risks and the internal control environment; |
| ● | Retain additional accounting personnel with public company financial reporting, technical accounting, SEC compliance, and strategic financial advisory experience to achieve adequate segregation of duties; and |
| ● | Continue to develop formal policies and procedures on accounting and internal control over financial reporting and monitor the effectiveness of operations on existing controls and procedures. |
Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures 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.
This annual report does not include an attestation report of the company’sour registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sour registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Companyus to provide only Management’s report in this annual report, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 20192020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the present directors and executive officers of the Company. Except as set forth below, there are no other persons who have been nominated or chosen to become directors, nor are there any other persons who have been chosen to become executive officers. Other than as set forth below, there are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.
| Name | Age | Position | Since | |||
| Gerald Easterling | 74 | Chief Executive Officer, President and Director | 2015 | |||
| William Delgado | 63 | Treasurer, Chief Financial Officer and Director | 2014 | |||
| Tom Untermeyer | 63 | Chief Operating Officer, Chief Technology Officer, Secretary and Director | 2019 |
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Name | Age | Position | Since | |||
| Bill G. Williams | 84 | Chairman of the Board, Chief Executive Officer | 2015 | |||
| Gerald Easterling | 71 | President, Secretary, Director | 2015 | |||
| William Delgado | 60 | Treasurer, Chief Financial Officer, Director | 2014 |
The Board of Directors is comprised of only one class. All of the directors serve for a term of one year and until their successors are elected at the Company’s annual shareholders meeting and are qualified, subject to removal by the Company’s shareholders. Each executive officer serves, at the pleasure of the Board of Directors, for a term of one year and until his successor is elected at a meeting of the Board of Directors and is qualified.
Our Board of Directors believes that all members of the Board and all executive officers encompass a range of talent, skill, and experience sufficient to provide sound and prudent guidance with respect to our operations and interests. The information below with respect to our directors and executive officers includes each individual’s experience, qualifications, attributes, and skills that led our Board of Directors to the conclusion that he or she should serve as a director and/or executive officer.
Biographies of Executive Officers
Set forth below are brief accounts of the business experience during the past five years of each director, executive officer and significant employee of the Company.
Gerald Easterling – Co-Founder, Chief Executive Officer, President and Director
Mr. Easterling has served as President and a director of NSH since its inception in 2001. Mr. Easterling has experience in the food business and related industries. In the five years prior to the formation of NSH, Mr. Easterling was Chairman of the Board of Excel Vending Companies. He also was President and Director of Cafe Quick Enterprises and has been a member of the board since 1988. Mr. Easterling has also served a member of the board of directors of NaturalShrimp Corporation and NaturalShrimp Global, Inc. since 2001.
We believe Mr. Easterling is qualified to serve on our board of directors because of his business experiences, including his experience as a director of companies in similar industries, as described above.
William J. Delgado – Treasurer, Chief Financial Officer (former President of Multiplayer Online Dragon, Inc.) and Director
Mr. Delgado has served as Director of the Company since May 19, 2014. Since August 2004, Mr. Delgado has served as a Director, President, Chief Executive Officer and Chief Financial Officer of Global Digital Solutions, Inc. (“GDSI”), a publicly traded company that provides cyber arms manufacturing, complementary security and technology solutions and knowledge-based, cyber-related, culturally attuned social consulting in unsettled areas. Effective August 12, 2013, Mr. Delgado assumed the position of Executive Vice President of GDSI. He began his career with Pacific Telephone in the Outside Plant Construction. He moved to the network engineering group and concluded his career at Pacific Bell as the Chief Budget Analyst for the Northern California region. Mr. Delgado founded All Star Telecom in late 1991, specializing in OSP construction and engineering and systems cabling. All Star Telecom was sold to International FiberCom in April 1999. After leaving International FiberCom in 2002, Mr. Delgado became President/CEO of Pacific Comtel in San Diego, California, which was acquired by GDSI in 2004. Mr. Delgado holds a BS with honors in Applied Economics from the University of San Francisco and Graduate studies in Telecommunications Management at Southern Methodist University.
We believe Mr. Delgado is qualified to serve on our board of directors because of his business experiences, including his experience in management and as a director of public companies, as described above.
Thomas Untermeyer – Co-Founder andChief Operating Officer, Chief Technology Consultant
Mr. Untermeyer is a co-founder of NSH, has served as an engineering consultant to NSH since 2001,the Company and is the Company’s Chief Technology Officer. Mr. Untermeyer holds a Bachelor of Science in electrical engineering from St. Mary’s University. Mr. Untermeyer also serves as Senior Program Manager with Southwest Research Institute, San Antonio. Mr. Untermeyer is the inventor of the initial technology behind the computer-controlled shrimp-raising system used by the Company. He is the Chief Operating Officer and the Chief Technology Officer for the Company, and, prior to that, he was an engineering consultant to the Company since 2001. Mr. Untermeyer served as a Senior Program Manager with Southwest Research Institute in San Antonio, Texas for 34 years. His experience includes systems engineering, program development, and technical management. Mr. Untermeyer has spent his entire career in the process of defining, designing, and developing electronic products and systems for both commercial and government clients. This has included small design programs to large multi-million dollar programs involving large multidisciplinary teams composed of software, electrical, and mechanical engineers. Mr. Untermeyer holds a Bachelor of Science in Electrical Engineering from St. Mary’s University.
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We believe Mr. Easterling is qualified to serve on our board of directors because of his technical expertise and historical knowledge of our business.
Family Relationships
There are no other family relationships between or among any of our directors, executive officers and any incoming directors or executive officers.
Involvement in Certain Legal Proceedings
No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Committees of the Board
Our Board of Directors held twoone formal meeting in the fiscal year-ended March 31, 2019.2022 . Otherwise, all proceedings of the Board of Directors were conducted by resolutions consented to in writing by the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Nevada Revised Statutes and the bylaws of our Company, as valid and effective as if they had been passed at a meeting of the directors duly called and held. We do not presently have a policy regarding director attendance at meetings.
We do not currently have a standing audit, nominating or compensation committee of the Board of Directors, or any committee performing similar functions. Our Board of Directors performs the functions of audit, nominating and compensation committees.
Audit Committee
Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Exchange Act. Instead, the entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act and will continue to do so until such time as a separate audit committee has been established.
Audit Committee Financial Expert
We currently have not designated anyone as an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K as we have not yet created an audit committee of the Board of Directors.
Delinquent Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act.Act requires our directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish us with copies of all reports filed by them in compliance with Section 16(a). To our knowledge, based solely on a review of reports furnished to it, our officers, directors and ten percent holders have made the required filings other than the following: Each of Messrs. Easterling, Delgado, and Untermeyer has not yet filed a Form 4 to report the March 2022 issuance of 250,000 shares of Series F Preferred Stock to each such person.
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Nominations to the Board of Directors
Our directors play a critical role in guiding our strategic direction and oversee the management of the Company. Board candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of the stockholders, diversity, and personal integrity and judgment.
In addition, directors must have time available to devote to Board activities and to enhance their knowledge in the growing business. Accordingly, we seek to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to the Company.
In carrying out its responsibilities, the Board will consider candidates suggested by stockholders. If a stockholder wishes to formally place a candidate’s name in nomination, however, he or she must do so in accordance with the provisions of the Company’s Bylaws. Suggestions for candidates to be evaluated by the proposed directors must be sent to the Board of Directors, c/o NaturalShrimp Incorporated, 15150 Preston Rd,5501 LBJ Freeway, Suite 300,450, Dallas, TX 75248.
Director Nominations
As of March 31, 2019,2022, we did not affect any material changes to the procedures by which our shareholders may recommend nominees to our Board of Directors.
Board Leadership Structure and Role on Risk Oversight
Gerald Easterling currently serves as the Company’s principal executive officerour Principal Executive Officer and Chairman of the Company’s Board of Directors. The CompanyWe have determined thisthat our leadership structure was appropriate for the Company due to our small size and limited operations and resources. The Board of Directors will continue to evaluate the Company’s leadership structure and modify as appropriate based on the size, resources and operations of the Company. It is anticipated that the Board of Directors will establish procedures to determine an appropriate role for the Board of Directors in the Company’sour risk oversight function.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
Code of Ethics
We have adopted a written code of ethics that governs the Company’sour employees, officers and directors. A copy of such code of ethics is available upon written request to the Company.
ITEM 11. EXECUTIVE COMPENSATION
General Philosophy
Our Board of Directors is responsible for establishing and administering the Company’s executive and director compensation.
The following summary compensation table indicates the cash and non-cash compensation earned from the Company during the fiscal years ended March 31, 20192022 and 20182021 by the current and former executive officers of the Company and each of the other two highest paid executives or directors, if any, whose total compensation exceeded $100,000 during those periods.
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Summary Compensation Table
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total |
| Bill G. Williams, | 2019 | $56,000 | - | - | - | - | - | $56,000 |
Chairman of the Board, CEO (1) | 2018 | $36,000 | - | - | - | - | 3,880 | $39,880 |
| Gerald Easterling, | 2019 | $116,000 | - | - | - | - | - | $116,000 |
| President (2) | 2018 | $76,000 | - | - | - | - | 6,120 | $82,120 |
| Name and Principal | Stock | Option | Non-Equity Incentive Plan | All Other | ||||||||||||||||||||||||||||
| Position | Year | Salary | Bonus | Awards | Awards | Compensation | Compensation | Total | ||||||||||||||||||||||||
| Gerald Easterling, | 2022 | $ | 206,836 | $ | 200,000 | $ | 14,537,333 | - | - | $ | 14,385 | $ | 14,958,554 | |||||||||||||||||||
Chairman of the Board and CEO (1) | 2021 | $ | 116,000 | - | - | - | - | $ | 42,334 | $ | 158,334 | |||||||||||||||||||||
| William Delgado, | 2022 | $ | 146,667 | $ | 300,000 | $ | 14,537,333 | - | - | $ | - | $ | 14,984,000 | |||||||||||||||||||
| CFO (2) | 2021 | $ | - | - | - | - | - | - | $ | - | ||||||||||||||||||||||
| Tom Untermeyer, | 2022 | $ | 186,667 | $ | 200,000 | $ | 14,537,333 | - | $ | 14,385 | $ | 14,938,385 | ||||||||||||||||||||
| COO (3) | 2021 | $ | 112,000 | - | - | - | - | $ | 12,885 | $ | 124,885 | |||||||||||||||||||||
| (1) | |
| (2) | Mr. Delgado received compensation of $446,667 and zero for the fiscal years ending March 31, 2022 and 2021, respectively. On March 1, 2022, Mr. Delgado was issued 250,000 shares of Series F Preferred Stock with a fair value of $14,537,333. |
| (3) | As of March 31, 2022 and 2021, Mr. Untermeyer is owed $64,000 and $96,000, respectively, for accrued and unpaid salary. Mr. Untermeyer is entitled to receive medical insurance reimbursement, of which $8,385 was paid during the fiscal year ending March 31, 2022. Mr. Untermeyer is also entitled to an automobile allowance of $500 per month, of which $6,000 was paid during the fiscal year ending March 31, 2022. On March 1, 2022, Mr. Untermeyer was issued 250,000 shares of Series F Preferred Stock with a fair value of $14,537,333. |
Employment Agreements
Gerald Easterling our President.
On April 1, 2015, the Company entered into an employment agreement with Gerald Easterling as the Company’s President. The agreement is terminable at will and provides for a base annual salary of $96,000. In addition, the agreement provides that the Mr. Easterling is entitled, at the sole and absolute discretion of the Company’s Board of Directors, to receive performance bonuses. Mr. Easterling will also be entitled to certain benefits including health insurance and monthly allowances for cell phone and automobile expenses.
The agreement provides that in the event Mr. Easterling is terminated without cause or resigns for good reason (each as defined in the agreement), Mr. Easterling will receive, as severance, his base salary for a period of 60 months following the date of termination. In the event of a change of control of the Company, Mr. Easterling may elect to terminate the agreement within 30 days thereafter and upon such termination would receive a lump sum payment equal to 500% of his base salary.
The agreement contains certain restrictive covenants relating to non-competition, non-solicitation of customers and non-solicitation of employees for a period of one year following termination of the agreement.
On May 4, 2021, the Company’s Board of Directors approved an increase to Mr. Easterling’s salary to $180,000 per annum.
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Tom Untermeyer
On November 1, 2017, the Company entered into an employment agreement with Tom Untermeyer as the Company’s Chief Technology Officer. The agreement is terminable at will and provides for a base annual salary of $96,000. In addition, the agreement provides that the Mr. Untermeyer is entitled, at the sole and absolute discretion of the Company’s Board of Directors, to receive performance bonuses. Mr. Untermeyer will also be entitled to certain benefits including health insurance and monthly allowances for automobile expenses.
The agreement provides that in the event Mr. Untermeyer is terminated without cause or resigns for good reason (each as defined in the agreement), Mr. Untermeyer will receive his base salary through the date of termination and any amounts owed for reimbursable expenses that the employees incurs through such date and any previously awarded but unpaid bonuses will be paid to the Employee following termination.
The agreement contains certain restrictive covenants relating to non-competition, non-solicitation of customers and non-solicitation of employees for a period of two years following termination of the agreement.
On May 4, 2021, the Company’s Board of Directors approved an increase to Mr. Untermeyer’s salary to $160,000 per annum.
William Delgado
Mr. Delgado does not have an employment agreement with the Company. On May 4, 2021, the Company’s Board of Directors approved a salary for Mr. Delgado of $180,000 per annum.
Potential Payments Upon Termination or Change-in-Control
SEC regulations state that we must disclose information regarding agreements, plans or arrangements that provide for payments or benefits to our executive officers in connection with any termination of employment or change in control of the Company. Such payments are set forth above in the section entitled “Employment Agreements.”
Except as described above, none of our executive officers or directors received, nor do we have any arrangements to pay out, any bonus, stock awards, option awards, non-equity incentive plan compensation, or non-qualified deferred compensation.
Compensation of Directors
We have no standard arrangement to compensate directors for their services in their capacity as directors. Directors are not paid for meetings attended. However, we intend to review and consider future proposals regarding board compensation. All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.
Stock Option Plans - Outstanding Equity Awards at Fiscal Year End
None.
Pension Table
None.
Retirement Plans
We do not offer any annuity, pension, or retirement benefits to be paid to any of our officers, directors, or employees in the event of retirement. There are also no compensatory plans or arrangements with respect to any individual named above which results or will result from the resignation, retirement, or any other termination of employment with our company, or from a change in the control of our Company.
Compensation Committee
The Company does not have a separate Compensation Committee. Instead, the Company’s Board of Directors reviews and approves executive compensation policies and practices, reviews salaries and bonuses for other officers, administers the Company’s stock option plans and other benefit plans, if any, and considers other matters.
Risk Management Considerations
We believe that our compensation policies and practices for our employees, including our executive officers, do not create risks that are reasonably likely to have a material adverse effect on our Company.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table setstables set forth certain information regarding our shares of common stock and our voting shares beneficially owned as of June 24, 2019, with respect14, 2022 and is based on (a) 737,447,070 shares of common stock issued and outstanding, (b) 5,000,000 shares of Series A Preferred Stock issued and outstanding all owned by Gerald Easterling (which equals 60 million votes and is convertible into the number of shares of common stock equal to the beneficial ownershipdifference between our authorized and issued shares of our common stock (162,552,930 shares); (c) 2,440 shares of Series E Preferred Stock issued and outstanding (which is convertible into 8,364,445 shares of common stock and votes on an as-converted basis); and (d) 750,000 shares of Series F Preferred Stock issued and outstanding (which equals 750 million votes and is not currently convertible into shares of common stock) for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock and voting shares, (ii) each named executive officer and director, and officer,(iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) all of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the tables for our directors and executive officers asis exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
For purposes of these tables, a person or group and (iii) eachof persons is deemed to have “beneficial ownership” of any shares of common stock that such person knownhas the right to us to own beneficially five percent (5%) or moreacquire within 60 days of June 14, 2022. For purposes of computing the percentage of outstanding shares of our common stock. Asstock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of June 24, 2019, there were 313,254,14914, 2022 is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of common stock outstanding. Unlessbeneficial ownership. Except as otherwise indicated, the address of each of the following persons is 5080 Spectrum Drive,shareholders listed below is: 15150 Preston Road, Suite 1000 Addison, Texas 75001, and based upon information available or furnished to us, each person has sole voting and investment power with respect to the shares set forth opposite his, her or its name.
| Name and Address of Beneficial Owner(1) | Common Shares Beneficially Owned (2) | Percentage of Common Shares Beneficially Owned (2) | Series A Preferred Shares Beneficially Owned (5) | Percentage of Preferred Shares Beneficially Owned (5) |
| Directors, Executive Officers and Key Employees | ||||
| Bill G. Williams (3)(6) | 520,240 | (7) | 5,000,000 | 100% |
| Gerald Easterling (3)(6) | 520,240 | (7) | 5,000,000 | 100% |
| Tom Untermeyer | - | -% | 0 | -% |
| William Delgado(4) | 5,215,719 | 1.67% | 0 | -% |
| 5% Stockholders | ||||
| See Footnotes to this Beneficial Ownership Table |
| Beneficial Owner | Common Stock Shares Beneficially Owned | % of Common Stock Shares Beneficially Owned | Voting Shares Beneficially Owned | % of Voting Shares Beneficially Owned (7) | ||||||||||||
| Gerald Easterling | 163,611,582 | (1) | 18.18 | %(3) | 551,058,652 | (4) | 42.53 | % | ||||||||
| William Delgado | 5,215,719 | (2) | 0.71 | % | 255,215,719 | (5) | 25.63 | % | ||||||||
| Tom Untermeyer | 195,300 (2) | 0.03 | % | 250,195,300 | (6) | 25.12 | % | |||||||||
| Total | 169,022,601 | 18.780 | % | 1,056,469,671 | 58.83 | % | ||||||||||
| (1) | Consists of | |
| (2) | Consists solely of | |
| (3) | Soley with regard to Mr. Easterling, the percentage is based on the 737,447,070 shares of common stock outstanding plus the 162,552,930 shares of common stock into which the 5 million shares of Series A Preferred Stock is convertible. | |
| (4) | Consists of (a) 1,058,652 shares of common stock, (b) 300 million votes to which the 5 million shares of Series A Preferred Stock held by Mr. Easterling is entitled (60 votes per share), and (c) 250 million votes to which the 250,000 shares of Series F Preferred Stock held by Mr. Easterling is entitled (1,000 votes per share). | |
| (5) | Consists of (a) 5,215,719 shares of common stock and (b) 250 million votes to which | |
| (6) | Consists of (a) 195,300 shares of common stock | |
| (7) | Each percentage in this column is based on (a) 737,447,070 shares of common stock | |
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Non-Cumulative Voting
The holders of our shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of Directors, can elect all of the Directors to be elected, if they so choose. In such event, the holders of the remaining shares will not be able to elect any of our Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Except as set out below, as of March 31, 2019,2022, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
| ● | any director or executive officer of our company; |
| ● | any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; |
| ● | any promoters and control persons; and |
| ● | any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons. |
| 53 |
NaturalShrimp Holdings, Inc.
On November 26, 2014, Multiplayer Online Dragon, Inc., a Nevada corporation (“MYDR”), entered into an Asset Purchase Agreement (the “Agreement”) with NaturalShrimp Holdings, Inc. a Delaware corporation (“NSH”), pursuant to which MYDR was to acquire substantially all of the assets of NSH which assets consist primarily of all of the issued and outstanding shares of capital stock of NaturalShrimp Corporation (“NSC”), a Delaware corporation, and NaturalShrimp Global, Inc. (“NS Global”), a Delaware corporation, and certain real property located outside of San Antonio, Texas (the “Assets”).
On January 30, 2015, MYDR consummated the acquisition of the Assets pursuant to the Agreement. In accordance with the terms of the Agreement, the MYDR issued 75,520,240 shares of its common stock to NSH as consideration for the Assets. As a result of the transaction, NSH acquired 88.62% of MYDR’s issued and outstanding shares of common stock, NSC and NS Global became MYDR’s wholly-owned subsidiaries, and MYDR changed its principal business to a global shrimp farming company.
There were no material relationships between the MYDR and NSH or between the Company’s or NSH’s respective affiliates, directors, or officers or associates thereof, other than in respect of the Agreement. Effective March 3, 2015, MYDR amended its Articles of Incorporation to change its name to “NaturalShrimp Incorporated”.
On January 1, 2016 we entered into a note payable agreement with NSH. As of March 31, 2019 and 2018, approximately $736,000 has been borrowed under this note payable. The note payable has no set monthly payment or maturity date with a stated interest rate of 2%.
A shareholder of 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 Bill Williams, an officer, a director, and a shareholderexchange common shares of the Company for shares Mr. Shover owns in NSH. On November 15, 2021, a totalhearing was held before the US District Court for the Northern District of $486,500 since inception. These notes are demand notes, had stockTexas, Dallas Division at which time Mr. Shover and the Company presented arguments as to why the Court should approve a joint motion for settlement. After considering the argument of counsel and taking questions from those NSH shareholders who were present through video conferencing link, the Court approved the motion of the parties to allow Mr. Shover and all like and similarly situated NSH shareholders to exchange each share of NSH held by a NSH shareholder for a share of the Company. A final Order was signed on December 6, 2021 and the case was closed by an Order of the Court of the same date. We recognized a fair value of $29,388,000, based on the market value of our common shares of $0.316 on the date the case was closed, for approximately 93 million shares to be issued in lieuthe settlement. As of interest and have no set monthly payment or maturity date. The balance of these notes at March 31, 2019 and 2018 was $426,404 and $426,404, respectively, and is classified as a current liability on the consolidated balance sheets. At March 31, 2019 and 2018, accrued interest payable was $241,032 and $206,920, respectively.
Gerald Easterling
On January 10, 2017, we entered into a promissory note agreement with Community National Bank in the principal amount of $245,000, with an annual interest rate of 5% and a maturity date of January 10, 2020 (the “CNB Note”). The CNB Note is secured by certain real property owned by the Company in La Coste, Texas, and iswas also personally guaranteed by the Company’s President and Chairman of the Board, as well as certain non-affiliated shareholders of the Company. As consideration for the guarantee, the Company issued 600,000 shares of common stock to the guaranteeing shareholders, not including the Company’s President and Chairman of the Board, which was recognized as debt issuance costs. The balance ofOn January 10, 2020, the CNB Note was amended with a new loan amount of $222,736 principal, plus interest. Interest is $228,759 as5.75% per annum. Monthly installments of $1,780 are due on the first of each month, beginning March 31, 2019.
Named Executive Officers and Current Directors
For information regarding compensation for our named executive officers and current directors, see “Executive Compensation”.
| 54 |
Director Independence
Our board of directors consists of Bill G. Williams, Gerald Easterling, William Delgado, Tom Untermeyer, Thomas B. Pickens III, Dr. Paraic J. Mulgrew, Dr. Edward R. Rashid, and William Delgado.Edward Johnson. Our securities are quoted on the OTC Markets Group, which does not have any director independence requirements. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., the NASDAQ NationalCapital Market, and the Securities and Exchange Commission.
Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues. Based on these standards, we have determined that none of our directorsMessrs. Easterling, Untermeyer and Delgado are not independent directors.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Accounting Fees
Effective April 11, 2015, theour Board of Directors of the Company engaged Turner, Stone & Company (“TSC”) as its independent registered public accounting firm to audit the Company’sour annual financial statements. The following tables set forth the fees billed to the Companyus for professional services rendered by TSC for the years ended March 31, 20192022 and 2018:
| Services | 2019 | 2018 |
| Audit fees | $45,700 | $26,250 |
| Audit related fees | - | - |
| Tax fees | - | - |
| All other fees | - | - |
| Total fees | $45,700 | $26,250 |
| Services | 2022 | 2021 | ||||||
| Audit fees | $ | 46,500 | $ | 51,000 | ||||
| Audit related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 46,500 | $ | 51,000 | ||||
Audit Fees
The audit fees were paid for the audit services of our annual and quarterly reports and issuing consents for our registration statements.
Tax Fees
There were no tax fees paid to TSC.
Pre-Approval Policies and Procedures
Our board of directors preapproves all services provided by our independent registered public accounting firm. All of the above services and fees were reviewed and approved by the board of directors before the respective services were rendered.
| 55 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
| Incorporated by Reference | ||||
Exhibit Number | Exhibit Description | Form | Exhibit | Filing Date/Period End Date |
| Asset Purchase Agreement, dated November 26, 2014, by and between Multiplayer Online Dragon, Inc. and NaturalShrimp Holdings, Inc. | 8-K | 2.1 | 12/3/2014 | |
| Articles of Incorporation | S-1 | 3.1 | 6/11/2009 | |
| Amendment to Articles of Incorporation | 10-Q/A | 3.3 | 5/19/2014 | |
| Bylaws | S-1 | 3.2 | 6/11/2009 | |
| 4.1 | Specimen Common Stock Certificate | S-1 | 4.1 | 6/11/2009 |
| Business Loan Agreement, dated September 13, 2005, by and among NaturalShrimp Holdings, Inc., Amarillo National Bank, NSC, NaturalShrimp International, Inc., NaturalShrimp San Antonio, L.P., Shirley Williams, Gerald Easterling, Mary Ann Untermeyer, and High Plain Christian Ministries Foundation, as amended, modified and assigned | 8-K | 10.1 | 2/11/2015 | |
| Secured Promissory Note, dated September 13, 2005, issued by NaturalShrimp Holdings, Inc. to Amarillo National Bank in the original principal amount of $1,500,000, as amended, modified and assigned | 8-K | 10.2 | 2/11/2015 | |
| Assignment Agreement, dated March 26, 2009, by and between Baptist Community Services, Amarillo National Bank and NaturalShrimp Holdings, Inc. | 8-K | 10.3 | 2/11/2015 | |
| Fifth Forbearance Agreement, dated January 30, 2015, by and between the Company, NaturalShrimp Holdings, Inc. and Baptist Community Services | 8-K | 10.4 | 2/11/2015 | |
| Stock Pledge Agreement, dated January 30, 2015, by and between the Company and Baptist Community Services | 8-K | 10.5 | 2/11/2015 | |
| Agreement Regarding Loan Documents, dated January 30, 2015, by and between the Company and NaturalShrimp Holdings, Inc. | 8-K | 10.6 | 2/11/2015 | |
| Exclusive Rights Agreement, dated August 19, 2014, between NaturalShrimp Holdings, Inc., its subsidiaries and F&T Water Solutions, LLC | 8-K | 10.7 | 2/11/2015 | |
| Members Agreement, dated August 19, 2014, between NaturalShrimp Holdings, Inc., F&T Water Solutions, LLC and the members of Natural Aquatic Systems, LLC | 8-K | 10.8 | 2/11/2015 | |
| Form of Subscription Agreement | 8-K | 10.1 | 5/7/2015 | |
| Form of Promissory Note | 10-K | 10.10 | 7/28/2015 | |
| Form of Loan Agreement | 10-K | 10.11 | 7/28/2015 | |
| Form of Security Agreement | 10-K | 10.12 | 7/28/2015 | |
| Form of Line of Credit Agreement with Extraco Bank | 10-K | 10.13 | 7/28/2015 | |
| Employment Agreement dated April 1, 2015 with Bill G. Williams | 8-K | 10.2 | 5/7/2015 | |
| Employment Agreement dated April 1, 2015 with Gerald Easterling | 8-K | 10.3 | 5/7/2015 | |
| Form of Private Placement Subscription Agreement and 6% Unsecured Convertible Note with Dragon Acquisitions LLC. | 10-K | 10.16 | 6/29/2017 | |
| Form of Promissory Note dated January 10, 2017 with Community National Bank | 10-Q | 10.1 | 2/14/2017 | |
| Form of Guaranty made by Gerald Easterling to Community National Bank | 10-Q | 10.1 | 2/14/2017 | |
| Payoff Letter, Termination and Release dated January 13, 2017 from Baptist Community Services | 10-Q | 10.2 | 2/14/2017 | |
| Securities Purchase Agreement dated January 23, 2017 with Vista Capital Investments, LLC | 10-K | 10.23 | 6/29/2017 | |
| Warrant to Purchase Shares of Common Stock issued January 23, 2017 to Vista Capital Investments, LLC | 10-K | 10.21 | 6/29/2017 | |
| Convertible Note dated January 23, 2017 issued to Vista Capital Investments, LLC | 10-K | 10.22 | 6/29/2017 | |
| Securities Purchase Agreement dated March 16, 2017 with Vista Capital Investments, LLC | 10-K | 10.23 | 6/29/2017 | |
| Convertible Debenture dated March 28, 2017 issued to Peak One Opportunity Fund, L.P. | 10-K | 10.24 | 6/29/2017 | |
| 6% Convertible Note dated January 20, 2017 issued Dragon Acquisitions LLC | 10-Q | 10.1 | 2/14/2018 | |
| Securities Purchase Agreement dated March 16, 2017 with Peak One Opportunity Fund, L.P. | 10-Q | 10.1 | 8/14/2017 | |
| Amendment #1 to the Securities Purchase Agreement Entered into on March 16, 2017, dated July 5, 2017, with Peak One Opportunity Fund, L.P. | 10-Q | 10.2 | 8/14/2017 | |
| 6% Convertible Note dated March 11, 2017 issued to Dragon Acquisitions LLC | 10-Q | 10.4 | 2/14/2018 | |
| 6% Convertible Note dated April 20, 2017 issued to Dragon Acquisitions LLC | 10-Q | 10.5 | 2/14/2018 | |
| Securities Purchase Agreement dated July 31, 2017, with Crown Bridge Partners LLC | 10-Q | 10.6 | 2/14/2018 | |
| 5% Convertible Note dated July 31, 2017, issued to Crown Bridge Partners LLC | 10-Q | 10.7 | 2/14/2018 | |
| Common Stock Purchase Warrant dated July 31, 2017, issued to Crown Bridge Partners LLC | 10-Q | 10.8 | 2/14/2018 | |
| Securities Purchase Agreement dated August 28, 2017 with Labrys Fund, LP | 10-Q | 10.9 | 2/14/2018 | |
| 12% Convertible Note dated August 28, 2017, with Labrys Fund, LP | 10-Q | 10.10 | 2/14/2018 | |
| Common Stock Purchase Warrant dated August 28, 2017, issued to Labrys Fund, LP | 10-Q | 10.11 | 2/14/2018 | |
| 12% Convertible Note dated September 11, 2017 issued to Auctus Funds, LLC | 10-Q | 10.12 | 2/14/2018 | |
| Common Stock Purchase Warrant dated September 11, 2017 issued to Auctus Funds, LLC | 10-Q | 10.13 | 2/14/2018 | |
| 12% Convertible Note dated September 12, 2017 issued to JSJ Investments, Inc. | 10-Q | 10.14 | 2/14/2018 | |
| Securities Purchase Agreement dated September 28, 2017 with EMA Financial, LLC | 10-Q | 10.1 | 10/17/2017 | |
| 12% Convertible Note issued to EMA Financial, LLC dated September 28, 2017 | 10-Q | 10.2 | 10/17/2017 | |
| Common Stock Purchase Warrant dated October 2, 2017, issued to Crown Bridge Partners LLC | 10-Q | 10.17 | 2/14/2018 | |
| Securities Purchase Agreement dated October 31, 2017 with Labrys Fund, LP | 10-Q | 10.18 | 2/14/2018 | |
| 12% Convertible Note dated October 31, 2017, issued to Labrys Fund, LP | 10-Q | 10.19 | 2/14/2018 | |
| Securities Purchase Agreement dated November 9, 2017 with GS Capital Partners, LLC. | 10-Q | 10.20 | 2/14/2018 | |
| 8% Convertible Secured Redeemable Note issued to GS Capital Partners, LLC dated November 14, 2017 | 10-Q | 10.21 | 2/14/2018 | |
| 8% Convertible Secured Redeemable Note issued to GS Capital Partners, LLC dated November 14, 2017 | 10-Q | 10.22 | 2/14/2018 | |
| 8% Collateralized Secured Promissory Note dated November 14, 2017, from GS Capital Partners, LLC | 10-Q | 10.23 | 2/14/2018 | |
| Securities Purchase Agreement dated December 20, 2017 with GS Capital Partners, LLC. | 10-Q | 10.24 | 2/14/2018 | |
| 8% Convertible Secured Redeemable Note issued to GS Capital Partners, LLC dated December 20, 2017 | 10-Q | 10.25 | 2/14/2018 | |
| 8% Convertible Secured Redeemable Note issued to GS Capital Partners, LLC dated December 20, 2017 | 10-Q | 10.26 | 2/14/2018 | |
| 8% Collateralized Secured Promissory Note dated December 20, 2017, from GS Capital Partners, LLC | 10-Q | 10.27 | 2/14/2018 | |
| Equity Financing Agreement with GHS Investments LLC | 8-K | 10.1 | 8/27/2018 | |
| Registration Rights Agreement with GHS Investments LLC | 8-K | 10.2 | 8/27/2018 | |
| 12% Convertible Promissory Note dated June 5, 2018 with JSJ Investments, Inc. | 10-Q | 10.71 | 11/14/2018 | |
| Securities Purchase Agreement dated July 27, 2018 with GS Capital Partners, LLC | 10-Q | 10.72 | 11/14/2018 | |
| 10% Convertible Secured Redeemable Note issued to GS Capital Partners, LLC dated July 27, 2018 | 10-Q | 10.73 | 11/14/2018 | |
| 10% Collateralized Secured Promissory Note dated July 27, 2018, from GS Capital Partners, LLC | 10-Q | 10.74 | 11/14/2018 | |
| Securities Purchase Agreement dated August 24, 2018 with One44 Capital, LLC | 10-Q | 10.75 | 11/14/2018 | |
| 10% Convertible Redeemable Note issued August 24, 2018 with One44 Capital, LLC | 10-Q | 10.76 | 11/14/2018 | |
| Securities Purchase Agreement dated September 14, 2018 with Labrys Fund LP | 10-Q | 10.77 | 11/14/2018 | |
| 12% Convertible Promissory Note dated September 14, 2018 issued to Labrys Fund, LP | 10-Q | 10.78 | 11/14/2018 | |
| Securities Purchase Agreement dated October 30, 2018 with Power Up Lending Group Ltd | 10-Q | 10.79 | 11/14/2018 | |
| 8% Convertible Promissory Note dated October 30, 2018 with Power Up Lending Group Ltd. | 10-Q | 10.80 | 11/14/2018 | |
| 12% Convertible Redeemable Note, Back End Note 1 of 2, dated January 29, 2018 from Adar Bays, LLC |
| * Filed herewith. |
| ** Furnished herewith. |
| + Management compensatory plan or contract. |
| # # Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted schedules and exhibits to the Securities and Exchange Commission or its staff upon its request. |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
| 56 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATURALSHRIMP INCORPORATED
| By: | ||||
| Gerald Easterling | ||||
Chief Executive Officer | ||||
| Date: | June 29, 2022 | |||
| By: | /s/ William Delgado | |||
William Delgado | ||||
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | ||||
| Date: | June 29, 2022 | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures | Date | |||
/s/ Gerald Easterling | Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | Date: June 29, 2022 | ||
/s/ | ||||
Chief Financial Officer, Treasurer and Director (Principal Financial Officer and Principal Accounting Officer) | Date: June 29, 2022 | |||
| William Delgado | ||||
| /s/ Tom Untermeyer | Chief Operating Officer, Chief Technology Officer, Secretary, and Director | Date: June 29, 2022 | ||
| Tom Untermeyer |
| 57 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NATURALSHRIMP INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2019
TABLE OF CONTENTS
| Page | |
| (PCAOB FIRM ID 73) | |
| F-3 | |
| F-4 | |
| F-5 | |
| F-6 | |
| F-7 |
| 58 |
To the Board of Directors and Stockholders of NaturalShrimp Incorporated:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NaturalShrimp Incorporated (the “Company”) as of March 31, 20192022 and 2018,2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two years thenin the period ended March 31, 2022 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered significant losses from inception and has a significant working capital deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| F-1 |
Description of Matter
Preferred Stock
As discussed in Note 12 to the financial statements, the Company entered into certain financing transactions which included the issuance of multiple series of preferred stock. The various series of preferred stock included designations for conversion into common stock as well as other privileges which required unique presentation and accounting treatment within the financial statements.
We identified the accounting evaluation of the features in the preferred stock instrument to be a critical audit matter because the evaluation of the appropriate accounting treatment for this area involved a high degree of auditor judgment and an increased extent of effort to evaluate the Company’s conclusions.
How the Matter Was Addressed in the Audit
Our audit procedures related to the conclusions associated with the presentation and accounting for the preferred stock involved the following procedures, among others:
| - | We obtained management’s analysis of the various rights and privileges included in the preferred stock designations. | |
| - | We read and analyzed the terms included in the preferred stock designations to identify and assess the reasonableness of management’s accounting treatment for the various features in these instruments as they impacted both accounting and presentation in the financial statements. |
Description of Matter
Convertible Debt Instruments
As disclosed in Note 9 to the financial statements, the Company had various debt instruments which included conversion features requiring bifurcation and separate accounting. Management evaluated the required accounting, significant estimates, and judgements around the valuation for these embedded derivatives. These embedded derivatives were measured at fair value.
There is no current observable market for these types of features and, as such, the Company determined the fair value of the embedded derivatives using an option pricing model to measure the fair value of the bifurcated derivatives. As a result, a high degree of auditor judgment and effort was required in performing audit procedures to evaluate the conclusions reached by management as well as the inputs to the Company’s option pricing model.
How the Matter Was Addressed in the Audit
Our principal audit procedures performed to address this critical audit matter included the following:
| - | We evaluated management’s assessment and the conclusions reached to ensure these instruments were recorded in accordance with the relevant accounting guidance. | |
| - | We evaluated the fair value of the bifurcated derivatives that included testing the valuation model and assumptions utilized by management and underlying data used in the model. |
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
June 28, 2019
We have served as the Company’s auditor since 2015.
| Turner, Stone & Company, L.L.P. |  |
| Accountants and Consultants | |
| 12700 Park Central Drive, Suite 1400 | |
| Dallas, Texas 75251 | |
| Telephone:972-239-1660 ⁄ Facsimile: 972-239-1665 | |
| Toll Free: 877-853-4195 | |
| Website: turnerstone.com | INTERNATIONAL |
| F-2 |
NATURALSHRIMP INCORPORATEDINCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2019 | March 31, 2018 | |
| ASSETS | ||
| Current assets | ||
| Cash | $137,499 | $24,280 |
| Notes receivable | 1,700 | 207,200 |
| Inventory | 4,200 | - |
| Prepaid expenses | 35,286 | 28,699 |
| Total current assets | 178,685 | 260,179 |
| Fixed assets | ||
| Land | 202,293 | 202,293 |
| Buildings | 1,328,161 | 1,328,161 |
| Machinery and equipment | 934,621 | 929,245 |
| Autos and trucks | 14,063 | 14,063 |
| Furniture and fixtures | 22,060 | 22,060 |
| Accumulated depreciation | (1,322,609) | (1,292,313) |
| Fixed assets, net | 1,178,589 | 1,203,509 |
| Other assets | ||
| Construction-in-process | 377,504 | 171,050 |
| Deposits | 10,500 | 10,500 |
| Total other assets | 388,004 | 181,550 |
| Total assets | $1,745,278 | $1,645,238 |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||
| Current liabilities | ||
| Accounts payable | $576,028 | $528,538 |
| Accrued interest - related parties | 295,184 | 240,377 |
| Other accrued expenses | 609,243 | 497,321 |
| Short-term Promissory Note and Lines of credit | 139,418 | 143,523 |
| Current maturities of bank loan | 228,725 | 7,497 |
| Current maturities of convertible debentures, less debt discount of $511,640 and $ 691,558 | 494,451 | 516,597 |
| Convertible debentures, related party | 87,600 | 87,600 |
| Notes payable - related parties | 1,271,162 | 1,271,162 |
| Derivative liability | 157,000 | 3,455,000 |
| Warrant liability | 93,000 | 277,000 |
| Total current liabilities | 3,951,811 | 7,024,615 |
| Bank loan, less current maturities | - | 228,916 |
| Lines of credit | 650,453 | 651,453 |
| Convertible debentures, less current maturities | - | - |
| Total liabilities | 4,602,264 | 7,904,984 |
| Commitments and contingencies (Note 11) | ||
| Stockholders' deficit | ||
| Series A Convertible Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 5,000,000 and 0 shares issued and outstanding at March 31, 2019 and March 31, 2018, respectively | 500 | - |
Common stock, $0.0001 par value, 900,000,000 and 300,000,000 shares authorized, 301,758,293 and 97,656,095 shares issued and outstanding at March 31, 2019 and March 31, 2018, respectively | 30,177 | 9,766 |
| Additional paid in capital | 38,335,782 | 27,743,352 |
| Accumulated deficit | (41,223,445) | (34,012,864) |
| Total stockholders' deficit | (2,856,986) | (6,259,746) |
| Total liabilities and stockholders' deficit | $1,745,278 | $1,645,238 |
| March 31, 2022 | March 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,734,040 | $ | 155,795 | ||||
| Accounts receivable | 14,385 | - | ||||||
| Escrow account | 1,500,000 | - | ||||||
| Inventory | 69,170 | - | ||||||
| Prepaid expenses | 1,511,546 | 655,339 | ||||||
| Total current assets | 4,829,141 | 811,134 | ||||||
| Fixed assets, net | 14,798,103 | 12,236,557 | ||||||
| Other assets | ||||||||
| Construction-in-process | 1,087,101 | 1,873,219 | ||||||
| Patents, net | 6,658,500 | - | ||||||
| License Agreement, net | 10,222,376 | - | ||||||
| Right of Use asset | 282,753 | 275,400 | ||||||
| Deposits | 20,633 | 20,633 | ||||||
| Total other assets | 18,271,363 | 2,169,252 | ||||||
| Total assets | $ | 37,898,607 | $ | 15,216,943 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 2,802,787 | $ | 963,289 | ||||
| Accrued interest | 500,450 | 73,350 | ||||||
| Accrued interest - related parties | 203,520 | 187,520 | ||||||
| Other accrued expenses | 207,418 | 602,368 | ||||||
| Accrued expenses - related parties | 200,000 | - | ||||||
| Short-term Promissory Note and Lines of credit | 20,044 | 573,621 | ||||||
| Bank loan | - | 8,725 | ||||||
| PPP loan | - | 103,200 | ||||||
| Convertible debenture | - | 483,637 | ||||||
| Note payable | 96,000 | 96,000 | ||||||
| Notes payable - related parties | 495,412 | 1,151,162 | ||||||
| Dividends payable | 296,630 | 182,639 | ||||||
| Derivative liability | 13,101,000 | - | ||||||
| Warrant liability | 3,923,000 | - | ||||||
| Total current liabilities | 21,846,261 | 4,425,511 | ||||||
| Bank loans, less current maturities | - | 206,127 | ||||||
| Convertible debenture, less unamortized debt discount of $13,940,000 | 2,629,079 | - | ||||||
| Notes payable | - | 5,000,000 | ||||||
| Note payable, less current maturities | 119,604 | 215,604 | ||||||
| Lease Liability | 286,253 | 275,400 | ||||||
| Total liabilities | 24,881,197 | 10,122,642 | ||||||
| Commitments and contingencies (Note 17) | - | |||||||
| Series D Redeemable Convertible Preferred stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively | - | 2,023,333 | ||||||
| Series E Redeemable Convertible Preferred stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively | 2,539,176 | - | ||||||
| Series F Redeemable Convertible Preferred stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively | 43,612,000 | - | ||||||
| Redeemable Convertible Preferred stock | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Convertible Preferred stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2022 and March 31, 2021 | 500 | 500 | ||||||
| Series B Convertible Preferred stock, $ par value, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively | - | - | ||||||
| Convertible preferred stock | ||||||||
| Common stock, $ par value, shares authorized, shares issued and shares outstanding at March 31, 2022 and and shares issued and outstanding at March 31, 2021, respectively | 67,500 | 56,075 | ||||||
| Additional paid in capital | 96,701,607 | 56,649,491 | ||||||
| Stock payable | 20,132,650 | 136,000 | ||||||
| Subscription receivable | - | - | ||||||
| Accumulated deficit | (150,036,023 | ) | (53,683,268 | ) | ||||
| Total stockholders’ deficit attributable to NaturalShrimp, Inc. shareholders | (33,133,766 | ) | 3,158,798 | |||||
| Non-controlling interest in NAS | - | (87,830 | ) | |||||
| Total stockholders’ deficit | (33,133,766 | ) | 3,070,968 | |||||
| Total liabilities, mezzanine and stockholders’ deficit | $ | 37,898,607 | $ | 15,216,943 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
NATURALSHRIMP INCORPORATED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended | ||
March 31, 2019 | March 31, 2018 | |
| Sales | $- | $- |
| Operating expenses: | ||
| Facility operations | 100,596 | 27,789 |
| General and administrative | 200,595 | 443,508 |
| Rent | 12,134 | 11,197 |
| Salaries and Wages | 422,160 | 352,757 |
| Stock Compensation | - | - |
| Professional services | 234,932 | 278,037 |
| General and administrative | 869,821 | 1,085,499 |
| Depreciation and amortization | 30,296 | 70,894 |
| Total operating expenses | 1,000,713 | 1,184,182 |
| Net loss before other income (expense) | (1,000,713) | (1,184,182) |
| Other income (expense): | ||
| Interest expense | (223,350) | (171,065) |
| Amortization of debt discount | (1,613,984) | (775,091) |
| Financing costs | (1,899,935) | (1,310,751) |
| Change in fair value of derivative liability | 1,319,500 | (1,600,000) |
| Change in fair value of warrant liability | (47,000) | (244,000) |
| Loss on exercise of warrants | (3,745,099) | - |
| Total other income (expense) | (6,209,868) | (4,100,907) |
| Loss before income taxes | (7,210,581) | (5,285,089) |
| Provision for income taxes | - | - |
| Net loss | $(7,210,581) | $(5,285,089) |
| EARNINGS PER SHARE (Basic and diluted) | $(0.04) | $(0.05) |
| WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and diluted) | 171,325,837 | 97,656,095 |
| For the Year Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Sales | $ | 33,765 | $ | - | ||||
| Operating expenses: | ||||||||
| General and administrative | 49,956,514 | 2,472,238 | ||||||
| Research and development | 407,874 | 79,550 | ||||||
| Facility operations | 1,922,049 | 403,029 | ||||||
| Depreciation | 1,307,038 | 346,437 | ||||||
| Amortization | 881,500 | - | ||||||
| Total operating expenses | 54,474,975 | 3,301,254 | ||||||
| Net loss from operations | (54,441,210 | ) | (3,301,254 | ) | ||||
| 1549.1 | % | |||||||
| Other income (expense): | ||||||||
| Interest expense | (726,243 | ) | (144,204 | ) | ||||
| Amortization of debt discount | (2,616,364 | ) | (47,273 | ) | ||||
| Financing costs | (1,904,074 | ) | (64,452 | ) | ||||
| Change in fair value of derivative liability | (116,000 | ) | (29,000 | ) | ||||
| Change in fair value of warrant liability | 1,987,000 | - | ||||||
| Forgiveness of PPP loan | 103,200 | - | ||||||
| Gain on Vero Blue debt settlement | 815,943 | - | ||||||
| Legal Settlement | (29,400,000 | ) | - | |||||
| Total other income (expense) | (31,856,538 | ) | (284,929 | ) | ||||
| Loss before income taxes | (86,297,748 | ) | (3,586,183 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | (86,297,748 | ) | (3,586,183 | ) | ||||
| Less net loss attributable to non-controlling interest | - | (5,729 | ) | |||||
| Net loss attributable to NaturalShrimp Inc. | (86,297,748 | ) | (3,580,454 | ) | ||||
| Amoritzation of beneficial conversion feature on Preferred shares | (3,349,198 | ) | (1,720,833 | ) | ||||
| Accretion on Series D Preferred shares | (337,834 | ) | (302,500 | ) | ||||
| Redemption and exchange of Series D Preferred shares | (5,792,947 | ) | - | |||||
| Dividends | (575,029 | ) | (317,083 | ) | ||||
| Net loss available for common stockholders | $ | (96,352,755 | ) | $ | (5,920,870 | ) | ||
| EARNINGS PER SHARE (Basic and diluted) | $ | (0.16 | ) | $ | (0.01 | ) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING (Basic and diluted) | 619,123,768 | 501,477,593 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
NATURALSHRIMP INCORPORATED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Preferred stock | Common stock | ||||||
Shares | Amount | Shares | Amount | Additional paid in Capital | Accumulated deficit | Total stockholders' deficit | |
| Balance April 1, 2017 | - | $- | 92,408,298 | $9,242 | $26,681,521 | $(28,727,775) | $(2,037,012) |
| Issuance of shares in connection with debt | 1,004,260 | 100 | 146,951 | 147,051 | |||
| Issuance of shares for services | �� | 1,000,000 | 100 | 99,900 | 100,000 | ||
| Issuance of shares for cash | 100,000 | 10 | 24,990 | 25,000 | |||
| Issuance of shares upon conversion | 2,820,204 | 282 | 119,022 | 119,304 | |||
| Beneficial conversion feature | 28,000 | 28,000 | |||||
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | 576,000 | 576,000 | |||||
| Issuance of shares upon exercise of warrants | 323,333 | 32 | 66,968 | 67,000 | |||
| Net loss | (5,285,089) | (5,285,089) | |||||
| Balance March 31, 2018 | - | - | 97,656,095 | 9,766 | 27,743,352 | (34,012,864) | (6,259,746) |
| Issuance of shares in connection with debt | 3,225,000 | 323 | 106,628 | 106,951 | |||
| Issuance of shares for cash | 220,000 | 22 | 15,378 | 15,400 | |||
| Issuance of shares upon conversion | 226,217,349 | 22,623 | 1,338,275 | 1,360,898 | |||
| Issuance of shares under equity financing agreement | 22,131,893 | 2,213 | 462,303 | 464,516 | |||
| Conversion of common shares into Series A Preferred shares | 5,000,000 | 500 | (75,000,000) | (7,500) | 7,000 | - | |
| Beneficial conversion feature | 620,977 | 620,977 | |||||
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | 4,068,500 | 4,068,500 | |||||
| Issuance of shares upon exercise of warrants | 27,307,955 | 2,731 | 3,973,369 | 3,976,099 | |||
| Net loss | (7,210,581) | (7,210,581) | |||||
| Balance March 31, 2019 | 5,000,000 | $500 | 301,758,293 | $30,177 | $38,335,782 | $(41,223,445) | $(2,856,986) |
| Series A Preferred stock | Series B Preferred stock | Common stock | Additional paid in | Stock | Accumulated | Non-controlling | Total stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | deficit | interest | deficit | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2020 | 5,000,000 | $ | 500 | 2,250 | $ | - | 379,742,524 | $ | 37,975 | $ | 43,533,242 | $ | - | $ | (46,427,396 | ) | $ | (82,101 | ) | $ | (2,937,780 | ) | ||||||||||||||||||||||
| Issuance of common stock upon conversion | 39,735,626 | 3,974 | 547,047 | 551,021 | ||||||||||||||||||||||||||||||||||||||||
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | 205,000 | 205,000 | ||||||||||||||||||||||||||||||||||||||||||
| Purchase of Series B Preferred shares | - | 3,250 | - | 3,250,000 | 3,250,000 | |||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to the Series B Preferred Shares | 1,335,000 | (1,335,000 | ) | - | ||||||||||||||||||||||||||||||||||||||||
| Dividends payable on Series B PS | (317,085 | ) | (317,085 | ) | ||||||||||||||||||||||||||||||||||||||||
| Series B PS Dividends in kind issued | 115 | - | 134,442 | 134,442 | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B PS to common stock | (5,008 | ) | - | 113,517,030 | 11,351 | (11,351 | ) | - | ||||||||||||||||||||||||||||||||||||
| 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 | 4,250,000 | 425 | 744,825 | 745,250 | ||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to the Series D Preferred Shares | 6,050,000 | 6,050,000 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of beneficial conversion feature related to Series D Preferred Shares | (1,720,833 | ) | (1,720,833 | ) | ||||||||||||||||||||||||||||||||||||||||
| Accretion on Series D Preferred shares | (302,500 | ) | (302,500 | ) | ||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued with Series D Preferred Shares | 6,000,000 | 600 | (600 | ) | - | |||||||||||||||||||||||||||||||||||||||
| Common stock to be issued as finder’s fees related to asset acquisition | 136,000 | 136,000 | ||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to convertible debenture | 163,636 | 163,636 | ||||||||||||||||||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (3,580,454 | ) | (5,729 | ) | (3,586,183 | ) | ||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | 5,000,000 | $ | 500 | 607 | $ | - | 560,745,180 | $ | 56,075 | $ | 56,649,491 | $ | 136,000 | $ | (53,683,268 | ) | $ | (87,830 | ) | $ | 3,070,968 | |||||||||||||||||||||||
| Issuance of common stock upon conversion | 1,329,246 | 133 | 421,353 | - | - | 421,486 | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series B PS to common stock | (839 | ) | - | 10,068,000 | 1,007 | (1,007 | ) | - | - | - | ||||||||||||||||||||||||||||||||||
| Conversion of Series D PS to common stock | 428,572 | 43 | (43 | ) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Exchange of Series D PS to Series E PS | - | - | - | - | (3,258,189 | ) | (3,258,189 | ) | ||||||||||||||||||||||||||||||||||||
| Sale of common shares and warrants for cash, less offering costs and commitment shares | 35,772,729 | 3,577 | 17,273,546 | - | - | 17,277,123 | ||||||||||||||||||||||||||||||||||||||
| Exercise of warrants related to the sale of common shares | 1,100,000 | 110 | 10,890 | - | - | 11,000 | ||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature related to the Series E Preferred Shares | - | - | 3,439,219 | - | - | 3,439,219 | ||||||||||||||||||||||||||||||||||||||
| Amortization of beneficial conversion feature related to Series E Preferred Shares | - | - | - | - | (3,349,198 | ) | (3,349,198 | ) | ||||||||||||||||||||||||||||||||||||
| Redemption of Series D Preferred shares | - | - | - | - | (2,534,758 | ) | (2,534,758 | ) | ||||||||||||||||||||||||||||||||||||
| Common shares to be issued for the acquisition of the non-controlling interest subsidiary’s remaining equity | - | - | (3,087,830 | ) | 2,000,000 | - | 87,830 | (1,000,000 | ) | |||||||||||||||||||||||||||||||||||
| Common shares to be issued for Patent acquisition | - | - | - | 5,000,000 | - | 5,000,000 | ||||||||||||||||||||||||||||||||||||||
| Common stock vested to consultants | 412,500 | 47 | 221,424 | - | - | 221,472 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued to consultants | 476,946 | 48 | 158,285 | - | - | 158,333 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued to employees | 275,000 | 18 | 82,954 | 24,600 | - | 107,572 | ||||||||||||||||||||||||||||||||||||||
| Common shares to be issued for Technical Rights Agreement | - | - | - | 4,762,376 | - | 4,762,376 | ||||||||||||||||||||||||||||||||||||||
| Revision of dividends payable on Series B Preferred Shares (See Note 2) | - | - | - | - | (182,639 | ) | (182,639 | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of Series E PS to common stock | 8,228,572 | 822 | 2,879,179 | - | 2,880,001 | |||||||||||||||||||||||||||||||||||||||
| Dividends payable on Preferred Shares | - | - | - | (392,390 | ) | (392,390 | ) | |||||||||||||||||||||||||||||||||||||
| Series B PS Dividends in kind issued | - | 232 | - | - | - | 278,400 | - | 278,400 | ||||||||||||||||||||||||||||||||||||
| Accretion of Series E Preferred Shares | - | - | - | - | (337,834 | ) | (337,834 | ) | ||||||||||||||||||||||||||||||||||||
| Common shares issued for Technical Rights Agreement | 12,871,287 | 1,287 | 4,761,089 | (4,762,376 | ) | - | - | |||||||||||||||||||||||||||||||||||||
| Common shares issued for acquisition of non-controlling interest and Patent acquisition | 13,861,386 | 1,386 | 6,998,614 | (7,000,000 | ) | - | ||||||||||||||||||||||||||||||||||||||
| Reclassification of warrants to liability | - | - | (2,935,000 | ) | - | - | (2,935,000 | ) | ||||||||||||||||||||||||||||||||||||
| Common stock to be issued for legal settlement to NSH shareholders | - | - | - | 29,388,000 | - | 29,388,000 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for legal settlement to NSH shareholders | 28,494,706 | 2,889 | 9,413,060 | (9,415,950 | ) | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock issued for financing expense | 580,000 | 58 | 137,982 | - | - | 138,040 | ||||||||||||||||||||||||||||||||||||||
| Net loss | (86,297,748 | ) | (86,297,748 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2022 | 5,000,000 | $ | 500 | - | $ | - | 674,644,124 | $ | 67,500 | $ | 96,701,607 | $ | 20,132,650 | $ | (150,036,023 | ) | $ | - | $ | (33,133,766 | ) | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
NATURALSHRIMP INCORPORATED INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended | ||
March 31, 2019 | March 31, 2018 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net loss | $(7,210,581) | $(5,285,089) |
| Adjustments to reconcile net loss to net cash used in operating activities | ||
| Depreciation expense | 30,296 | 70,894 |
| Amortization of debt discount | 1,613,984 | 775,091 |
| Change in fair value of derivative liability | (1,319,500) | 1,600,000 |
| Change in fair value of warrant liability | 47,000 | 244,000 |
| Financing costs related to convertible debentures | 1,899,935 | 1,310,751 |
| Loss on exercise of warrants | 3,745,099 | - |
| Shares issued for services | - | 100,000 |
| Changes in operating assets and liabilities: | ||
| Prepaid expenses and other current assets | (6,585) | 145,301 |
| Accounts payable | 47,489 | 31,982 |
| Other accrued expenses | 111,922 | 179,822 |
| Accrued interest - related parties | 54,807 | 61,455 |
| Cash used in operating activitites | (990,334) | (765,793) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Cash paid for machinary and equipment | (5,376) | |
| Cash paid for construction in progress | (206,454) | (171,050) |
| CASH USED IN INVESTING ACTIVITIES | (211,830) | (171,050) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Payments on bank loan | (7,688) | (6,587) |
| Repayment line of credit short-term | (5,105) | (2,486) |
| Notes receivable | 239,500 | (76,000) |
| Proceeds from sale of stock | 15,400 | 25,000 |
| Proceeds from issuance of common shares under equity agreement | 464,516 | - |
| Proceeds from convertible debentures | 977,060 | 1,072,901 |
| Proceeds from convertible debentures, related party | - | 180,000 |
| Payments on convertible debentures | (368,300) | (227,500) |
| Payments on convertible debentures, related party | - | (92,400) |
| Cash provided by financing activitites | 1,315,383 | 872,928 |
| NET CHANGE IN CASH | 113,219 | (63,915) |
| CASH AT BEGINNING OF YEAR | 24,280 | 88,195 |
| CASH AT END OF YEAR | $137,499 | $24,280 |
0 | ||
| INTEREST PAID | $168,543 | $109,610 |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||
| Shares issued upon conversion | $1,360,898 | $79,304 |
| Notes receivable for convertible debentures | $90,000 | $131,200 |
| For the Year Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss attributable to NaturalShrimp Inc. | $ | (86,297,748 | ) | $ | (3,580,454 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation expense | 1,307,038 | 346,437 | ||||||
| Amortization expense | 881,500 | - | ||||||
| Amortization of debt discount | 2,616,364 | 47,273 | ||||||
| Change in fair value of derivative liability | 116,000 | 29,000 | ||||||
| Change in fair value of warrant liability | (1,987,000 | ) | - | |||||
| Financing costs | 1,890,072 | - | ||||||
| Default penalty | - | 41,112 | ||||||
| Net loss attributable to non-controlling interest | - | (5,729 | ) | |||||
| Forgiveness of PPP loan | (103,200 | ) | - | |||||
| Gain on Vero Blue debt settlement | (815,943 | ) | - | |||||
| Legal settlement | 29,388,000 | - | ||||||
| Shares issued for services | 44,099,376 | 745,250 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (14,385 | ) | - | |||||
| Inventory | (69,170 | ) | - | |||||
| Prepaid expenses and other current assets | (1,506,207 | ) | (526,646 | ) | ||||
| Accounts payable | (2,657,052 | ) | 325,264 | |||||
| Other accrued expenses | (79,007 | ) | 117,957 | |||||
| Accrued expenses - related parties | 200,000 | - | ||||||
| Accrued interest | 440,118 | 39,063 | ||||||
| Accrued interest - related parties | 16,000 | 44,096 | ||||||
| Cash used in operating activitites | (12,575,244 | ) | (2,377,377 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for machinery and equipment | (1,452,652 | ) | (1,739,186 | ) | ||||
| Cash paid for asset acquisition with VeroBlue Farms, Inc. | - | (5,000,000 | ) | |||||
| Cash received from Insurance settlement | - | 917,210 | ||||||
| Cash paid for patent acquisition with F & T | (2,000,000 | ) | ||||||
| Cash paid for acquisition of shares of NCI | (1,000,000 | ) | ||||||
| Cash paid for License Agreement | (2,350,000 | ) | ||||||
| Cash paid for construction in process | (1,629,813 | ) | (1,715,654 | ) | ||||
| CASH USED IN INVESTING ACTIVITIES | (8,432,465 | ) | (7,537,630 | ) | ||||
| ` | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on bank loan | (214,852 | ) | (19,889 | ) | ||||
| Payments of notes payable | (4,596,000 | ) | ||||||
| Payments on notes payable, related party | (655,750 | ) | (72,000 | ) | ||||
| Repayment line of credit short-term | (553,577 | ) | - | |||||
| Proceeds from PPP loan | - | 103,200 | ||||||
| Proceeds from issuance of common shares under equity agreeement | 17,277,123 | - | ||||||
| Proceeds from sale of Series B Convertible Preferred stock | - | 3,250,000 | ||||||
| Proceeds from convertible debentures | 8,905,000 | 600,000 | ||||||
| Escrow account in relation to the proceeds from convertible debenture | 5,000,000 | - | ||||||
| Payments on convertible debentures | (421,486 | ) | - | |||||
| Proceeds from sale of Series E PS | 1,348,000 | - | ||||||
| Proceeds from sale of Series D PS | - | 6,050,000 | ||||||
| Redemption of Series D PS | (3,513,504 | ) | - | |||||
| Shares issued upon exercise of warrants | 11,000 | - | ||||||
| Cash received in relation to Vista warrant settlement | - | 50,000 | ||||||
| Cash provided by financing activitites | 22,585,954 | 9,961,311 | ||||||
| NET CHANGE IN CASH | 1,578,245 | 46,304 | ||||||
| CASH AT BEGINNING OF YEAR | 155,795 | 109,491 | ||||||
| CASH AT END OF YEAR | $ | 1,734,040 | $ | 155,795 | ||||
| INTEREST PAID | $ | 1,153,343 | $ | 100,108 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Shares issued upon conversion of convertible debentures | $ | 421,486 | $ | 551,021 | ||||
| Shares issued upon conversion of Preferred stock | $ | 2,880,000 | - | |||||
| Cancellation of Right of Use asset and Lease liability | $ | 275,400 | - | |||||
| Right of Use asset and Lease liability | $ | 332,566 | $ | - | ||||
| Dividends in kind issued | $ | 278,400 | $ | 134,442 | ||||
| Shares issued as consideration for Patent acquisition | $ | 5,000,000 | $ | - | ||||
| Shares issued as consideration for acquisition of remaining NCI | $ | 2,000,000 | $ | - | ||||
| Shares issued as consideration for Rights Agreement | $ | 4,762,376 | $ | - | ||||
| Shares issued/to be issued, for legal settlement | $ | 29,388,000 | $ | - | ||||
| 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 | $ | - | $ | 136,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
NATURALSHRIMP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED MARCH 31, 2022 AND 2021
NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp Incorporated (“NaturalShrimp” “the Company”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 initialThe Company’s production facilities are located in La Coste, Texas and Webster City, Iowa.
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 facility was originally designed as an aquaculture facility, with the company having production issues. The Company began 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. On May 19, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with F&T Water Solutions, LLC (“F&T”), for F&T’s owned shares of Natural Aquatic Systems, Inc. (“NAS”). Prior to entering into the SPA, the Company owned fifty-one percent (51%) and F&T owned forty-nine percent () of the issued and outstanding shares of common stock of NAS. After the SPA, NAS is located outsidea 100% owned subsidiary of San Antonio, Texas.
The Company has three wholly-owned subsidiaries including NaturalShrimp USA Corporation, NaturalShrimp Global, Inc. and Natural Aquatic Systems, Inc.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended March 31, 2019,2022, the Company had a net loss available for common stockholders of approximately $7,211,000. At$96,353,000. As of March 31, 2019,2022, the Company had an accumulated deficit of approximately $41,223,000$150,036,000 and a working capital deficit of approximately $3,773,000.$17,017,000. 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 2019 fiscal year ended March 31, 2022, the Company received net cash proceeds of approximately $1,125,000$17,277,000 from the sale of common shares (See Note 12), $1,348,000 from the sale of Series E Preferred Stock and $13,905,000 proceeds from the issuance of a convertible debentures (including amount received on notes receivable which were issueddebenture (with $1,500,000 in Escrow account as collateralization for back end notes), approximately $465,000 from issuance of the Company’s common stock through an equity financing agreement and $15,000 from the sale of the Company’s common stock. Subsequent to March 31, 2019, the Company received $100,000 in net proceeds from one convertible debentures, and $1,500,000 from the issuance of approximately 11,483,000 common shares under the equity financing agreement. (See Note 12)2022).
Management believes that private placements of equity capital and/or additional debt financing will be needed to fund the Company’s long-term operating requirements. The Company may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash. If the Company raises additional funds through the issuance of equity, or convertible debt securities, the percentage ownership of its current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working capital position. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
| F-7 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of NaturalShrimp Incorporated and its wholly-owned subsidiaries, NaturalShrimp USA Corporation, NaturalShrimp Global and Natural Aquatic Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basic and diluted earnings 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 year ended March 31, 2019,2022, the Company had Series A Convertible Preferred Stock which would be converted at the holder’s option into approximately $1,097,000 in convertible debentures underlying common shares, of Series E Redeemable Convertible Preferred shares whose approximately 66,376,000 underlying shares are convertible at the investors’ option at a fixed conversion price of $0.35, shares of Series F Preferred Stock which would be converted at the holders’ option into approximately underlying common shares, and approximately $ in a convertible debenture whose approximately underlying shares are convertible at the holders’ option at conversion prices ranging from $0.01 to $0.30 for fixed conversion rates, and 34% - 60%price of 90% of the defined trading price for variable conversion rates and approximately 444,000 warrants with an exercise price of 45%average of the two lowest market price ofprices over the Company’s common stock,last 10 days and 18,506,429 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. Included in the diluted EPS forFor the year ended March 31, 2018,2021, the Company had Series A Convertible Preferred Stock which would be converted at the holder’s option into approximately $1,293,000 in convertible debentures underlying common shares, shares of Series B Preferred shares whose approximately 46,170,000 underlying shares are convertible at the holders’investors’ option at a conversion prices ranging from 34 - 60%price based on the lowest market price over the last 20 trading days, and of Series D Preferred shares whose approximately underlying shares are convertible at the defined trading price and approximately 4,625,000 warrants with an exerciseinvestors’ option at a fixed conversion price of 45% to 57% of the market price of the Company’s common stock,$0.10, 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 Generally Accepted Accounting Principles in the United States (“GAAP”)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.”
| F-8 |
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 March 31, 20192022 and 2018.
The Derivativederivative and warrant liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the yearsyear ended March 31, 20192022 and 2018:
SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE
Derivatives
2019 | 2018 | |
| Derivative liability balance at beginning of period | $3,455,000 | $218,000 |
| Additions to derivative liability for new debt | 2,090,000 | 2,213,000 |
| Reclass to equity upon conversion or redemption | (4,068,500) | (576,000) |
| Change in fair value | (1,319,500) | 1,600,000 |
| Balance at end of period | $157,000 | $3,455,000 |
| 2022 | 2021 | |||||||
| Derivative liability balance at beginning of period | $ | - | $ | 176,000 | ||||
| Reclass to equity upon conversion or redemption | - | (205,000 | ) | |||||
| Additions to derivatives | 12,985,000 | - | ||||||
| Change in fair value | 116,000 | 29,000 | ||||||
| Balance at end of period | $ | 13,101,000 | $ | - | ||||
At March 31, 2019,2022, the fair value of the derivative liabilities of convertible notes was estimated using a bi-nomial model with the following weighted-average inputs: the price of the Company’s common stock of $0.21;$; a risk-free interest rate ranging from 2.41% to 2.63%,of 2.28% and expected volatility of the Company’s common stock ranging from 335.68% to 478.31%of 109.47%, and the various estimated reset exercise prices weighted by probability.
Warrant liability
| 2022 | 2021 | |||||||
| Warrant liability balance at beginning of period | $ | - | $ | 90,000 | ||||
| Additions to warrant liability | 5,910,000 | - | ||||||
| Reclass to equity upon cancellation or exercise | - | (90,000 | ) | |||||
| Change in fair value | (1,987,000 | ) | - | |||||
| Balance at end of period | $ | 3,923,000 | $ | - | ||||
At March 31, 2018,2022, the fair value of the derivative liabilities of convertible noteswarrant liability was estimated using a Black Sholes model with the following weighted-average inputs: the price of the Company’s common stock of $0.06;$; a risk-free interest rate ranging from 1.73% to 2.09%,of 2.42% and expected volatility of the Company’s common stock ranging from 272.06%185.9% to 375.93%,205.9% and the various estimated reset exercise prices weighted by probability.
2019 | 2018 | |
| Warrant liability balance at beginning of period | $277,000 | $28,000 |
| Additions to warrant liability for new warrants | - | 493,000 |
| Reclass to equity upon exercise | (231,000) | - |
| Change in fair value | 47,000 | (244,000) |
| Balance at end of period | $93,000 | $277,000 |
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 March 31, 20192022 and 2018.March 31, 2021.
| F-9 |
Concentration of Credit Risk
The Company maintains cash balances at two financial institutions. Accounts at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. As of March 31, 2022 the Company’s cash balance exceeded FDIC coverage. As of March 31, 2021, 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 using the straight-line method 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:
SCHEDULE OF ESTIMATED USEFUL LIVES
| Buildings | 39 years | |||
| 7 – 10 years | ||||
| Vehicles | 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.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.
The Company accounts for stock-based compensation to employees and non-employees in accordance with ASC 718. “Stock-based Compensation to Employees” is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. The Company accounts for stock-based compensation to other than employees in accordance with ASC 505-50 “Equity Instruments Issued to Other than Employees” and are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the closing price of the Company’s common stock for common share issuances. Once the stock is issued the appropriate expense account is charged.
Intangible Assets
The Company has intangible assets, which were acquired in a patent acquisition, and license rights agreements. The Company’s patents represent definite lived intangible assets and will be amortized over the twenty year duration of the patent, unless at some point the useful life is determined to be less than the protected life of the patent. The Company’s license rights will be amortized on a straight-line basis over the expected term of the agreements of ten years. The Company periodically evaluates the remaining useful lives of its finite-lived intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. As of March 31, 2022, the Company believes the carrying value of the intangible assets are still recoverable, and there is no impairment to be recognized.
Impairment of Long-lived Assets and Long-lived Assets
The Company will periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a long-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 long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.
| F-10 |
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,August 2020, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). The Company adopted ASU 2016-02 on January 1, 2019, and the adoption did not have a material impact on the Company’s financial position or results of operations.
As of operations, equity or cash flows as of the adoption date. The comparative periods have not been restated.
Management’s Evaluation of Subsequent Events
The Company evaluates events that have occurred after the balance sheet date of March 31, 2019,2022, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 1218 – 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.
| F-11 |
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”). (Note 10)
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:
SCHEDULE OF CONSIDERATION ALLOCATED TO ACQUIRED ASSETS
| Equipment | $ | 7,015,000 | 69.2 | % | ||||
| Vehicles | 202,000 | 2.0 | % | |||||
| Buildings | 2,797,000 | 26.6 | % | |||||
| Land | 122,000 | 1.2 | % | |||||
| $ | 10,136,000 | 100 | % |
NOTE 4 – FIXED ASSETS
A summary of the fixed assets as of March 31, 2022 and March 31, 2021 is as follows:
SCHEDULE OF FIXED ASSETS
March 31, 2022 | March 31, 2021 | |||||||
| Land | $ | 324,293 | $ | 324,293 | ||||
| Buildings | 5,611,723 | 4,702,063 | ||||||
| Machinery and equipment | 10,524,343 | 7,580,873 | ||||||
| Autos and trucks | 247,356 | 213,849 | ||||||
| Fixed assets, gross | 16,707,715 | 12,815,178 | ||||||
| Accumulated depreciation | (1,909,612 | ) | (584,521 | ) | ||||
| Fixed assets, net | $ | 14,798,103 | $ | 12,236,557 | ||||
The consolidated statements of operations reflect depreciation expense of approximately $1,307,000 and $346,000 for the years ended March 31, 2022 and 2021, respectively.
NOTE 5 – PATENT ACQUISITION
On May 19, 2021, the Company entered into a Patents Purchase Agreement (the “Patents Agreement”) with F&T. The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest. Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issue shares of the Company’s common stock with a market value of $ per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000. The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021.
In accordance with ASC 805-10-55-5A, as substantially all the assets acquired are concentrated in a single identifiable asset, the patents, the acquisition has been determined to not be considered a business combination but an asset acquisition. The consideration will be allocated to the two patents, which were both approved in December, 2018, and will be amortized through the earliest of their useful life or December, 2038. Amortization over the next five years is expected to be $390,000 per year, for a total of $1,950,000. Amortization expense was $341,500 for the year ended March 31, 2022.
| F-12 |
NOTE 6 – LICENSE AGREEMENTS
On August 25, 2021, the Company, through their 100% owned subsidiary NAS, entered into an Equipment Rights Agreements with Hydrenesis-Delta Systems, LLC (“Hydrenesis-Delta”) and a Technology Rights Agreement, in a sub-license agreement with Hydrenesis Aquaculture LLC (“Hydrenesis-Aqua”), The Equipment Rights involve specialized and proprietary equipment used to produce and control, dose, and infuse Hydrogas® and RLS® into both water and other chemical species, while the Technology sublicense pertains to the rights to Hydrogas® and RLS®. Both Rights agreements are for a 10 year term, which shall automatically renew for ten year successive terms. The term can be terminated by written notice by mutual consent, or by either party upon a breach of contract, insolvency or filing of bankruptcy. The agreements accord the exclusive rights to purchase or distribute the technology, or buy or rent the equipment, in the Industry Sector, which is the primary business and revenue stream generated from indoor aquaculture farming of any species in the Territory, defined as anywhere in the world except for the countries in the Gulf Corporation Council.
The consideration for the Equipment Rights consists of the sum of $2,500,000, with $500,000 in cash paid at closing, and $500,000 to be paid on the first day of the next calendar quarter, plus $250,000 to be paid on the first day of each successive calendar quarter until the amount is paid in full. As of March 31, 2022, $1,250,000 has been paid with $1,250,000 balance remaining in accounts payable.
Per the Terms set forth in the Technology Rights Agreement, the consideration is defined as the sum of $10,000,000, consisting of $2,500,000 in cash at closing, and an additional $1,000,000 within 60 days after closing, and $6,500,000 worth of unrestricted common shares of stock in the parent company, NSI, at a stipulated share price of $. Determined with this stipulated price, shares were issued. Based on the market price on August 25, 2021 of $, the fair value of the shares is $, which results in a fair value total consideration of $8,262,376. The common shares are covered by a Lock-Up and Leak-Out Agreement.
The terms of the Agreements set forth that NAS will pay Hydrenesis 12.5% royalty fees. The royalties are calculated per all customer or sub-license revenue generated by NAS, NSI or any Affiliate, from the sale or rental of either the Technologies or Hydrenesis Equipment, based on gross revenue less returns, rebates and sales taxes. There are sales milestones for exclusivity, whereby if NAS fails to achieve a sales milestone starting in Year 3, the exclusivity rights in both of the Rights agreements shall revert to non-exclusive rights. To maintain the exclusivity for the subsequent year, the Company may pay the amount of the royalty fees that would have been due if the Sales Milestone had been meet in the current year.
The Sales Milestones are:
SCHEDULE OF SALES MILESTONES
| Year 3 | $ | 250,000 Royalty | ||
| Year 4 | $ | 375,000 Royalty | ||
| Year 5 | $ | 625,000 Royalty | ||
| Year 6 | $ | 875,000 Royalty | ||
| All subsequent years | $ | 1,000,000 Royalty |
For the year ended March 31, 2022, the amortization of the Rights was $540,000. The amortization is approximately $1,076,000 per year, and approximately $5,381,000 over the next five years.
| F-13 |
NOTE 7 – SHORT-TERM NOTE AND LINES OF CREDIT
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, 2021for $372,675.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 May 5, 2021, the Company paid off the line of credit. The balance of the line of credit is $472,675 and $473,029was $372,675 at March 31, 2019 and March 31, 2018, respectively, included in non-current liabilities. On April 12, 2019, prior to the renewal, the Company paid $100,000 on the loan.
The Company also has an additional linesline of credit with Extraco Bank for $100,000 and $200,000,$200,000, which werewas renewed on January 19, 2019 and with a maturity date of April 30, 2019, respectively, with maturity dates of January 19, 2020 and April 30, 2020, respectively. The $200,000 line of credit is included in non-current liabilities as of March 31, 2019 and March 31, 2018, with an outstanding2021, for a balance of $178,778.$177,778. The lines of credit bear an interest at a rate of 6.5% and 5%, respectively, that is compounded monthly and to be paid with the principal on unpaid balances andthe maturity date. The line of credit is payable monthly. They are secured by certificates of deposit and letters of credit owned by directors and shareholders of the Company. On April 15, 2021, the line of credit was paid off in full. The balance of the linesline of credit was $276,958$177,778 at both March 31, 2019 and March 31, 2018.
The Company also has a working capital line of credit with Capital One Bank for $50,000.$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 March 31, 2019.2022. The line of credit is unsecured. The balance of the line of credit was $9,580$9,580 at both March 31, 20192022 and March 31, 2018.
The Company also has a working capital line of credit with Chase Bank for $25,000.$25,000. The line of credit bears an interest rate of prime plus 10 basis points, which totaled 15.50%13.25% as of March 31, 2019.2022. The line of credit is secured by assets of the Company’s subsidiaries. The balance of the line of credit is $10,237 at$10,237 as of March 31, 20192022 and March 31, 2018.
NOTE 48 – 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”). On April 16, 2021, the Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan on April 26, 2021.
On January 10, 2017, the Company entered into a promissory note with Community National Bank for $245,000,$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 note was paid off in full on December 20, 2021. The balance of the CNB Note is $228,759was $214,452 at March 31, 2019 and $236,413 at March 31, 2018, $7,4972021, of which $8,725 was in current liabilities.
On January 23, 2017,November 3, 2015, the Company entered into a Securities Purchase Agreement (“January SPA”)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 saleoutstanding balance of $25,298, which bears interest at 8% with a convertible debenture (“January debenture”maturity date of July 18, 2021. The note is guaranteed by an officer and director. The note was paid off in full in July of 2021. The balance of the note at March 31, 2021 was $3,124.
| F-14 |
NOTE 9 – CONVERTIBLE DEBENTURES
December 15, 2021 Debenture
The Company entered into a securities purchase agreement (the “SPA”) with an originalinvestor (the “Investor”) on December 15, 2021. Pursuant to the SPA, the Investor purchased a secured promissory note (the “Note”) in the aggregate principal amount totaling approximately $16,320,000 (the “Principal Amount”). The Note has an interest rate of $262,500, for consideration of $250,000,12% per annum, with a prorated five percentmaturity date 24 months from the issuance date of the Note (the “Maturity Date”). The Note carried an original issue discount (“OID”). The debenture hastotaling $1,300,000 and a one-time interest chargetransaction expense amount of twelve percent applied on$20,000, both of which are included in the issuance date and due on the maturity date, which is two years from the date of each payment of consideration. The January SPA included a warrant to purchase 350,000 sharesprincipal balance of the Company’s common stock.Note. The Note had $2,035,000 in debt issuance costs, including fees paid in cash of $1,095,000 and 3,000,000warrants haveissued to placement agents with a five year term and vest such that the buyer shall receive 1.4 warrants for every dollar funded to the Company under the January debenture. The Company received $50,000 at closing, with additional consideration to be paid at the holder’s option. Upon the closing the buyer was granted a warrant to purchase 70,000 shares of the Company’s common stock.
Beginning on the date that is 6 months from the issuance date of the Note, the Investor has the right to redeem up to $1,000,000 of the outstanding balance per month. Payments may be made by probability. This resultedthe Company, at the Company’s option, (a) in cash, or (b) by paying the redemption amount in the calculated fair valueform of the debt discount being greater than the face amount of the debt, and the excess amount of $35,000 was immediately expensed as Financing costs. As the discount was in excess of the face amount of the debenture, the effective interest rate is not determinable, and as such, all of the discount was immediately expensed.
Within 180 days of the issuance date of the Note, the Company will obtain an increase of $2,000 recognized,effective registration statement or a supplement to any existing registration statement or prospectus with the fair valueSEC registering at least $15,000,000 in shares of Common Stock for the Investor’s benefit such that any redemption using shares of Common Stock could be done using registered Common Stock. Additionally, as soon as reasonably possible following the issuance of the derivative liability relatedNote, the Company will cause the Common Stock to be listed for trading on either of (a) NYSE, or (b) NASDAQ (in either event, an “Uplist”). In the converted portion, of $44,000 being reclassified to equity. The key valuation assumptions used consist, in part, ofevent the price ofCompany has not effectuated the Company’s common stock of $0.17; a risk-free interest rate of 1.12% and expected volatility ofUplist by March 1, 2022, the Company’s common stock, of 190.70%,then-current outstanding balance will be increased by 10%. On February 7, 2022, the Company and the various estimated reset exercise prices weighted by probability.
The Note also contains certain negative covenants and Events of Default, which in addition to thecommon events of default, include a failure to deliver conversion with a fair value of $11,000, with an increase of $4,000 recognized, with the fair value of the derivative liability related to the converted portion being reclassified to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate of 1.87% and expected volatility of the Company’s common stock, of 353.27%, and the various estimated reset exercise prices weighted by probability.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
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February 26, 2021 Debenture
On January 30, 2018,February 26, 2021, the Company entered into a 12% convertible note for the principal amount of $80,000,$720,000, with an original issue discount of $120,000, convertible into shares of common stock of the Company, which matures on January 30, 2019. Upon an event of default, as defined in theCompany. The note the note becomes immediately due and payable, in an amount equal to 150% of all principal and accrued interest due on the note, with defaultbears interest of 22% per annum (the “Default Amount”). If12% and is due six months from the Company fails to deliver conversion shares within 2 daysdate of a conversion request, the note becomes immediately due and payable at an amount of twice the Default Amount.issuance. The note is convertible from the date of issuance, at 61%a fixed conversion rate of the lowest closing bid price for the last 15 days. Per the agreement, the Company is required at all times$0.36. The conversion rate shall change to have authorized and reserved six times$0.10 upon the number of shares that is actually issuable upon full conversion of the note. Failure to maintain the reserved number of shares is considered an event of default if not cured within three days of a notice of conversion.default. The conversion feature at issuance meets the definition of a derivativeconventional convertible debt and therefore requires bifurcationqualifies for the scope exception in ASC 815-10-15-74(a) and willwould not be bifurcated and accounted for separately as a derivative liability.
April 17, 2019 Debenture
On April 17, 2019, the Company entered into a 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 until September 1, 2020. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115%a prepayment percentage of 120% to 140%130% of the outstanding principal and accrued interest balance, based on the redemption date’s passage of time ranging from 30 days to 180 days from the date of issuance of the debenture. The note was redeemed on July 27, 2018, for approximately $123,000, with the approximately $40,000 redemption amount being recognized as financing costs. Upon redemption, the fair value of the related derivative liability was remeasured immediately prior to the redemption with an overall decrease in the fair value of $90,000 recognized, and the derivative liability fair value of $119,000 reclassed to equity. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of redemption, of $0.01; a risk-free interest rate of 1.93% and expected volatility of the Company’s common stock, of 248.71%, and the various estimated reset exercise prices weighted by probability.
| F-16 |
August 24, 2018 Debenture
On August 24, 2018, the Company entered into a 10% convertible note in the principal amount of $55,000,$55,000, convertible into shares of common stock of the Company, which matures August 24, 2019. 2019. The interest rate increases to 24%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 May 5, 2020, the remaining outstanding balance of $29,057 was converted into shares of common stock of the Company, at a conversion rate of $0.014. As a result of the conversionsconversion 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$8,000 recognized, with the fair value of the derivative liability related to the converted portion, of $171,000$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 $0.28 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.
September 14, 2018 Debenture
On September 14, 2018, the Company entered into a 12% convertible promissory note for $112,500,$112,500, with an OIDoriginal issuance discount (OID) of $10,250,$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.2019. The interest rate increases to a default rate of 24%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,On January 25, 2019 the outstanding principal balance increases to 150%of $101,550, plus an additional $81,970 of default principal 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$13,695 in accrued interest 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 repaidresulting in a new balance of $197,215, was purchased from the noteholder by a third party, who extended the maturity date the principal balance increases by $15,000. The market capitalization is below $5 million and therefore the note was in default, however, the holder has issued a waiver to the Company on this default provision.
The note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser of 60% of the lowest trading price for the last 20 days prior to the issuance of the note or 60% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional 10% adjustments to the conversion price for events set forth in the agreement, including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after nine months from issue date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and is accounted for as a derivative liability.
During the debenturefirst quarter of the Company also issued 3,000,000fiscal year ending March 31, 2021, the outstanding balance was converted into shares of common stock of the Company, asat a commitment fee. The fair value of the commitment shares was calculated as $34,500, based on the market value of the shares of common stock at the closing date of $0.012, and was recognized as part of the debt discount. The shares are to be returned to the Treasury of the Company in the event the debenture is fully repaid prior to the date which is 180 days following the issue date but are not required to be returned if there is an event of default.
March 1, 2019 Debenture
On January 25,March 1, 2019, the outstanding principal of $101,550, plus an additional $56,375 of default principal and $13,695 in accrued interest of the note was purchased from the noteholder by a third party. The additional $70,070 representing the default principal and accrued interest which increased the principal amount due to the new noteholder has been recognized as financing cost.
| F-17 |
NOTE 10 – NOTES PAYABLE
On December 15, 2020, in connection with the asset acquisition with VBF (Note 3), the Company entered into two notes payable with a third party. The first note, Promissory Note A, is for principal of $3,000,000, which is payable in 36 months with interest thereon at the rate of 5% per annum, 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, is for principal of $2,000,000, which is payable in 48 months with interest thereon at the rate of 5% per annum, 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. On December 23, 2021, the Company paid off the two notes, for a discount of $4,500,000, and recognized a gain on settlement of note, including accrued interest, of $815.943.
On July 15, 2020, the Company issued a promissory note to Ms. Williams in the amount of $383,604 to settle the amounts that had been recognized per the separation agreement with the late Mr. Bill Williams dated August 15, 2019 amounted(Note 14) for his portion of the related party notes and related accrued interest discussed above, and accrued compensation and allowances. The note bears interest at one percent per annum and calls for monthly payments of $8,000 until the balance is paid in full. The balance as of March 31, 2022 and 2021 was $215,604 and $311,604, with $96,000 classified in current liabilities for both year ends on the consolidated balance sheets.
NOTE 11 – ACQUISITION OF NON-CONTROLLING INTEREST
On May 19, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with F&T, for the shares owned by F&T of NAS. Upon the closing of the SPA, the Company purchased the shares of NAS’ common stock owned by F&T for a total acquisition price of $3,000,000, consisting of $ paid in cash and shares of the Company’s common stock issued at a market value of $ per share for a total fair value of $2,000,000. The Company paid the cash purchase price on May 20, 2021 and the purchase of the NAS shares closed on May 25, 2021. Prior to approximately $28,000.entering into the SPA, the Company owned fifty-one percent (51%) and F&T owned forty-nine percent (49%) of the issued and outstanding shares of common stock of NAS, and therefore, NAS was included in the consolidated financial statements of the Company, with F&T’s ownership accounted for as a non-controlling interest. After the SPA, the non-controlling interest was no longer in existence and NAS became a 100% owned subsidiary of the Company. In accordance with ASC 810-10-45, when the parent’s ownership interest changes while the parent retains its controlling interest in a subsidiary, it is accounted for as an equity transaction and there is no gain or loss recognized in the consolidated net loss. The difference between the fair value of the consideration paid and the amount of the non-controlling interest as of the acquisition of NAS shares held by F&T is recognized in equity attributable to the Company. The carrying amount of the non-controlling interest prior to the acquisition was a deficit of $87,830, and as a result, a deduction of $ was recognized in additional paid in capital in the Consolidated Statement of Changes in Equity, in the three months ended June 30, 2021.
NOTE 12 – STOCKHOLDERS’ EQUITY
Preferred Stock
As of March 31, 2022 and March 31, 2021, the Company had shares of preferred stock authorized with a par value of $. Of this amount, shares of Series A preferred stock are authorized and outstanding, shares Series B preferred stock are authorized with and outstanding, respectively; shares Series D preferred stock are authorized with and outstanding, respectively; shares Series E preferred stock are authorized with and outstanding, respectively; and shares Series F Redeemable Convertible Preferred stock are authorized with and shares outstanding, respectively.
| F-18 |
Series B Preferred Stock
On September 5, 2019, Debenture
The Series B Preferred Stock 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 Preferred Stock 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.
Series B Preferred Equity Offering
On March 1,September 17, 2019, the Company entered into an 10% convertible promissory notea Securities Purchase Agreement (“SPA”) with GHS Investments LLC, a Nevada limited liability company (“GHS”) for $168,000, with an OIDthe purchase of $18,000,up to shares of Series B Preferred Stock at a stated value of $1,200 per share, or for a purchasetotal net proceeds of $5,000,000 in the event the entire shares of Series B Preferred Stock are purchased. During the year ended March 31, 2020, the Company issued Series B Preferred Shares in various tranches of the SPA, totaling $2,250,000. The intrinsic value of the beneficial conversion option on several of the tranches was calculated at a total of $475,000, which was fully amortized upon issuance, as the Series B Preferred Stock is immediately convertible into common stock. During the year ended March 31, 2021 the Company received $3,250,000 for the issuance of Series B Preferred Stock. The intrinsic value of the beneficial conversion option on several of the tranches was calculated at a total of $1,335,000, which was fully amortized upon issuance, as the Series B Preferred Stock is immediately convertible into common stock. During the year ended March 31, 2021, the Company converted Series B Preferred Stock which includes Series B Preferred Stock dividends-in-kind into shares of the Company’s common stock. During the year ended March 31, 2022, the Company converted the remaining Series B Preferred Stock plus Series B Preferred Stock dividends-in-kind into shares of the Company’s common stock.
Series D Preferred Stock
On December 16, 2020, the Board authorized the issuance of preferred shares to be designated as Series D Preferred Stock. The Series D Preferred Stock have a par value of $, a stated value of $1,200 and 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 D Preferred Stock are convertible into Common Stock at the election of the holder of the Series D Preferred Stock at any time following five days after a qualified offering (defined as an offering of common stock for an aggregate price of $150,000, which maturesat least $10,000,000 resulting in the listing for trading of the Common Stock on November 1, 2019. Duringthe 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 $ per share, subject to adjustment based on several situations, including future dilutive issuances and a Fundamental Transaction.
| F-19 |
The Series D Preferred Stock 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 Preferred Stock are also redeemable at the Company’s option, at percentages ranging from 115% to 125% for 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 60time. The Company shall redeem the Series D Preferred Stock in cash upon a three business days prior notice to 180the holder or the holder may convert the Series D Preferred Stock within such three business days fromperiod prior to redemption. Additionally, the dateholder 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 issuancea qualified offering. The Series D Preferred Stock 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 common stock requested under conversion notices. The triggering redemption amount is 150% of the debenture. Perstated value.
Upon the agreement,dissolution, liquidation or winding up of the Company, is required at all timeswhether voluntary or involuntary, the holders of Series D Preferred Stock shall be entitled to have authorized and reserved three times the number of shares that is actually issuable upon full conversionreceive out of the note. Inassets of the eventCompany an amount equal to the stated value, plus any accrued and unpaid dividends and any other fees or liquidated damages then due and owing for each share of default,Series D Preferred Stock before any payment or distribution shall be made to the holders of any Junior securities.
As the Series D Preferred Stock has a conditional redemption date, as set forthit is convertible, it is classified in mezzanine and, it is considered to be a debt host instrument. The conversion price, unless and until there is a qualified offering, is a fixed price and as such the agreement,conversion feature is not required to be bifurcated and accounted for as a derivative liability. The Company will analyze the outstanding principal balance increases to 150%. In addition to standard eventsconversion feature under ASC 470-20, “Debt with conversion and other options”, at each issuance date and based on the market price of default, an event of default occurs if the common stock of the Company shall loseon the "bid"commitment date as compared to the conversion price, for itsdetermine 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 on trading markets, includingunderlying the OTCBB, OTCQB or an equivalent replacement exchange. IfSeries D Preferred Shares. Additionally, the Company enterswill 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. There is no penalty provision associated with not registering the underlying shares of common stock...
Series D Preferred Equity Offering
On December 18, 2020, the Company entered into securities purchase agreements (the “Purchase Agreement”) with GHS Investments LLC, Platinum Point Capital LLC and BHP Capital NY (collectively, the “Purchaser”) , whereby, at the closing, each Purchaser agreed to purchase from the Company, up to shares of the Company’s Series D Preferred Stock, par value $ per share, at a 3(a)(9) or 3(a)(10) issuancepurchase price of shares$ per share of Series D Preferred Stock. The aggregate purchase price per Purchaser for the Series D Preferred Stock is $5,000,000. With a stated value of $6,000,000 for the purchased Series D Preferred Stock, there are liquidation damagesis a discount of 25% of principal, not$1,000,000 to be below $15,000. The Company must also obtainaccreted over the noteholder's written consent before issuing any new debt. The note is convertible atperiod until the redemption of the Series D Preferred Stock. In connection with the sale of the Series D Preferred Stock, the Purchasers were granted shares of the Company’s common stock, par value $ (the “Commitment Shares”), which have a fixed conversionfair value of $1,616,250 based on the market price of $0.25. If an eventthe common shares of default occurs,$ on the fixed conversion price is extinguished and replaced by a variable conversion rate that is 70%date 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. Series D Preferred Stock purchase.
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 datedates of funding as compared to the conversion price, determined there was a $134,000$8,471,000, capped at $5,000,000 based on the purchase price of the Series D PS, beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method.
| F-20 |
On January 8 and 10, 2021, the Company entered into additional securities purchase agreements with the Purchaser, for shares of Series D Preferred Stock, at an aggregate purchase price of $1,050,000. With a stated value of $1,250,000 for the purchased Series D Preferred Stock, there is a discount of $250,000 to be accreted over the period until the redemption of the Series D Preferred Stock.
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 dates of funding as compared to the conversion price, determined there was a $3,022,000, capped at $1,050,000 based on the purchase price of the Series D Preferred Stock, beneficial conversion feature to recognize, which will be amortized over the term of the note using the effective interest method.
As discussed below, the Series D Preferred Stock was fully redeemed on April 14, 2022, at which point the carrying value recognized included the remaining unamortized beneficial conversion feature and redemption feature. The amortization expenseof the beneficial conversion feature recognized during the year ended March 31, 2019 2021 amounted to approximately $28,000.
Series E Preferred Stock
On April 14, 2021, the Board authorized the issuance of the price shares of the Company’s common stockSeries E Preferred Stock and has filed a Certificate of $0.06; a risk-free interest rate ranging from 1.73% to 2.09%, and expected volatilityDesignation (“COD”) of Preferences of the Company’s common stock ranging from 272.06% to 375.93%, and the various estimated reset exercise prices weighted by probability. The derivatives revalued at March 31, 2018, resulted in an increase of the fair value of the derivative liability of $1,616,000, including upon conversions, for the year ended March 31, 2018. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.06; a risk-free interest rate ranging from 1.73% to 2.09%, and expected volatility of the Company’s common stock ranging from 272.06% to 375.93%, and the various estimated reset exercise prices weighted by probability.
| F-21 |
On November 22, 2021, the Company entered into a securities purchase agreement (“SPA”) for shares of the Company’s Series E Preferred Stock, at a price of $1,000 per share and (ii) a warrant to purchase up to 1,500,000 shares of the Company’s common stock, with an exercise price equal to $0.75, which expires in five years, for a purchase price of $1,500,000. The warrant has a fair value of $561,000, estimated using the Black Scholes Model, with the following inputs: the price of the Company’s common stock of $; a risk-free interest rate of 1.33%, the expected volatility of the Company’s common stock of 209.9%; the estimated remaining term, a dividend rate of 0%. The Company also issued 267,429 warrants as placement agent fees, with a fair value of $101,000, estimated with the same assumptions. All of the warrants were classified as a liability, as it is not known if there will be sufficient authorized shares to be issued upon settlement, based on the common stock, or any other class of capital stockconversion terms of the convertible debt. The Company ranking junior toanalyzed the Series A PS. The Series A PS is convertible, after two years fromconversion feature under ASC 470-20, “Debt with conversion and other options”, and based on the date of issuance, with the consent of a majoritymarket price of the Series A PS holders, into the same number of shares of common stock of the Company on the dates of funding as compared to the conversion price, determined there was a beneficial conversion feature of approximately $170.000 to recognize, which will be amortized over the term of the note using the effective interest method. The Company will accrete the carrying value, reflecting the discount of $300,000 between the stated value and purchase price and the fair value of the warrants issued of $662,000, of the Series E Preferred Stock in temporary equity up to the redemption value over the period until its redemption. For the year ended March 31, 2022, approximately $338,000 was accreted.
During the year ended March 31, 2022, shares of Series E Preferred Stock were converted into shares of common stock. As of March 31, 2022, there are outstanding shares of Series E Preferred Stock outstanding.
Share Exchange Agreement and Redemption
On April 14, 2021, the Company, entered into a share exchange agreement (the “Exchange Agreement”) with a holder of the Series D Preferred Stock, whereby, at the time.
In addition, in relation to the Offering, on April 15, 2021, the Company redeemed the remaining of the Series D Preferred Stock for $. In accordance with ASC 260-10-S99-2, the difference between the fair value of the consideration transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the redemption, which was $, was accounted for in a manner similar to a dividend.
The Company analyzed the conversion feature of the Series E Preferred Stock issued on April 14, 2021, 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 dates of funding as compared to the conversion price, determined there was a beneficial conversion feature of approximately $ to recognize, which they held,will be amortized over the term of the note using the effective interest method. During the year ended March 31, 2022, the total Series E Preferred Stock BCF amortization, including the November 22, 2021, SPA, was $.
Series F Preferred Stock
On February 22, 2022, the Board of Directors authorized Series F Preferred Stock and filed the Certificate of Designation with Nevada. The Series F Preferred Stock have a par value of $. The Series F Designation authorized the issuance of up to shares of the Company’s Series F Convertible Preferred Stock. At any time after the three year anniversary of the issuance of the shares of Series F Preferred Stock (the “Issuance Date”), each individual holder shall have the right, at each individual holder’s sole option, to convert all of the shares of Series F Preferred Stock that such individual holds into 5,000,000 newly issued Series A PS. Theshares of fully paid and nonassessable shares of common stock were returnedin an amount equal to 8% of the Company’s issued and outstanding shares of common stock. Each individual holder of Series F Preferred Stock may only convert all of their shares of Series F Preferred Stock in one transaction. On any matter presented to the treasury and cancelled.stockholders of the Company for their action or consideration at any meeting of stockholders of the Company each holder of outstanding shares of Series F Preferred Stock will cast 1,000 votes per each share of Series F Preferred Stock held by such holder. The Series A PS doholders are not haveentitled to receive dividends, nor are they entitled to receive any redemption feature and are therefore classifieddistributions in permanent equity.the event of any liquidation, dissolution or winding down of the Company, either voluntarily or involuntarily. The Company determined that the conversion feature was evaluated,not required to be bifurcated as the conversion provision was determined to be clearly and asclosely related to the Series F Preferred Stock host instrument.
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In the case of any capital reorganization, any reclassification of the stock of the Company, or a Change in Control, the shares of Series F Preferred Stock shall, at the commitment dateeffective time of such reorganization, reclassification, or Change in Control, be automatically converted into the kind and number of shares of stock or other securities or property of the Company or of the entity resulting from such reorganization, reclassification, or Change in Control to which such holder would have been entitled if immediately prior to such reorganization, reclassification, or Change in Control it had converted its shares of Series F Preferred Stock into common stock.
On March 1, 2022, the Board of Directors of the Company issued shares of Series F Preferred Stock to each of Gerald Easterling, William Delgado and Thomas Untermeyer in consideration for their past and future services as executive officers of the Company, for a total of shares of Series F Preferred Stock. The fair value of the stock compensation has been recognized based on the estimated value of the instruments the Company would be obligated to provide to the holders upon conversion to common shares, which for all three holders of Series F Preferred Stock would reflect 24% of the fair value of the outstanding common shares as of the grant date of March 1, 2022. Based on the number of outstanding shares of common stock exchanged was greater thanplus shares payable, of , and the fairmarket value of the common stock of $ on that date, the total stock compensation was $. In accordance with ASC 718, as the shares into which they wouldare fully vested on the grant date, as well as all services required to be converted, itprovided have occurred, the stock compensation was determined there was no beneficial aspect to the conversion feature.
Common Stock
For shares of common stock issued upon conversion of outstanding convertible debentures see Note 5.
Securities Purchase Agreement
On April 12, 2018,14, 2021, the Company sold 220,000entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Purchaser”), for the offering (the “Offering”) of (i) $5,000,000 worth of common stock (“Shares”), par value $ per share, of the Company (“Common Stock”); at a per share purchase price of $ per Share (ii) common stock purchase warrants (“Warrants”) to purchase up to an aggregate of 10,000,000 shares of Common Stock, which are exercisable for a period of five years after issuance at an initial exercise price of $0.75 per share, subject to certain adjustments, as provided in the Warrants; and (iii) shares of Common Stock (the “Commitment Shares”). Pursuant to the Purchase Agreement, on April 15, 2021, the Company received net proceeds of $4,732,123 from the Purchaser.
Further, pursuant to the terms of the Purchase Agreement, from the date thereof until the date that is the twelve-month anniversary of the closing of the Offering, upon any issuance by the Company or any of its subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing.
Pursuant to the Purchase Agreement, on May 5, 2021, the Purchaser purchased an additional shares of common stock at $0.077a per share purchase price of $ per share (the “Second Closing”), for a total financingnet proceeds of $15,400.
Additionally, on May 20, 2021, the Company issued 225,000Purchaser purchased an additional shares of its common stock at a price per share of $ per share (“Third Closing”), for net proceeds of approximately $1,455,000.
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On November 22, 2021, in relation to the original noteholderSPA with a different holder for shares of the March 20, 2018 convertible debenture.Company’s Series E Preferred Stock, GHS entered into a waiver, whereby they waived their right to participate in a subsequent filing. Additionally, the exercise price on the existing warrants to purchase 10,000,000 shares of common stock was reduced to $0.35, as well as the issuance of warrants to purchase 3,739,000 shares of common stock warrants, with an exercise price of $0.75. The modification on the change in the exercise price of the warrants was estimated on November 22, 2021, by comparison of the fair value of the warrants with the original exercise price to the fair value with the new exercise price, using Black Scholes Model, with the following inputs: the price of the Company’s common stock of $; a risk-free interest rate of 1.33%, the expected volatility of the Company’s common stock of 209.9%; the estimated remaining term, a dividend rate of 0%, with a essentially no change in fair value. The newly issued warrants had a fair value of $1,373,000, which was estimated using the Black Scholes Model, with the same inputs, including the exercise price of $0.75. The warrants fair value has been recognized as a liability, based on the fact it as it is not known if there will be sufficient authorized shares to be issued upon settlement, based on the conversion terms of the existing convertible debt, with the April 12, 2021 warrants reclassed from equity to warrant liability, and the newly issued warrants liability recognized as financing costs.
GHS Purchase Agreement
On June 28, 2021, the Company entered into a securities purchase agreement with GHS (the “June GHS Purchase Agreement”) for the offering of up to (i) $ worth of common stock of the Company at a per share purchase price of $ and (ii) $11,000 worth of prefunded common stock purchase warrants to purchase an aggregate of up to 1,100,000shares of $72,450common stock, which are exercisable upon issuance and shall not expire prior to exercise, and are subject to certain adjustments, as provided in the warrants. Pursuant to the June GHS Purchase Agreement, on June 28, 2021, GHS purchased 7,500,000 shares of common stock and 1,100,000 shares of common stock underlying the prefunded warrants, for an aggregate purchase price of $3,011,000, less offering expenses of $90,330, for net proceeds of $2,909,670.
Common Shares Issued to Consultants
During the three months ended December 31, 2021, three consultants were issued a total of approximately shares of common stock, with a total fair value of approximately $158,000, based on the market price of $0.32$ on the dategrant date.
On April 14, 2021, shares of issuance, have been recognized ascommon stock were issued to a financing cost.
On May 2, 2017,24, 2021, the Company sold 100,000entered into an agreement with a consultant, with a three-month term, that shall automatically renew each three months unless one party terminates the agreement. The compensation shall be $ in cash per month for the first six months and $ per month thereafter. Also included in compensation are shares of its common stock, with a fair value of $99,600 based upon the market price of $ upon the grant date. The shares of common stock will vest in quarterly installments, with to vest immediately, and each quarter at $0.25 per share, for a total financing of $25,000.
On January 10, 2017,August 24, 2020, the Company issued 1,000,000 shares of common stock to a consultant for services to be rendered over six months.per an agreement entered into on June 25, 2020. The agreement has a six-month term, and therefore the fair value of the shares of $440,000,$67,500, based on the market value of the common stock$ on the grant date, of issuance, waswill be recognized over the term of the agreement, with $220,000$67,500 expensed during the year ended March 31, 2021. On December 25, 2020, the Company renewed the agreement for an additional six months. As consideration for the agreement the Company issued shares of common stock to the consultant. The agreement has a six-month term, and therefore the fair value of $616,500, based on the market value of $ on the grant date, is recognized in Prepaid expense to be amortized over the six-month term. As of the year end March 31, 2021, $308,250 remained in Prepaid expense with $308,250 recognized in consulting expense for the year end March 31, 2021. The remaining $308,250 was expensed in the year ending March 31, 2018.
On June 12, 2020, the Company issued 6,719,925 shares of their common stock to a consultant, with the fair value of $61,250 based on July 17, 2018,the market price of $ on the date issued and which was recognized as professional services upon cashless exercisegrant.
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Common Shares Issued to Employees
During the three months ended December 31, 2021, a number of new employees were issued a total of shares of common stock as signing bonuses, with a total fair value of $68,300, based on the warrants granted inmarket price of $ on the grant date.
Leak-Out Agreements
In connection with the first closing of the July Debenture, and on August 28, 2018, 4,494,347 shares were issued upon cashless exercise of the warrants granted in connection with the second closing. (Note 7)
NOTE 13 2018, the Company put to GHS for the issuance of 6,779,397 shares of common stock, at $0.0046, for a total of $31,456. On December 10, 2018, the Company put to GHS for the issuance of 6,880,004 shares of common stock, at $0.0133, for a total of $91,366. On March 25, 2019, the Company put to GHS for the issuance of 2,131,894 shares of common stock, at $0.141, for a total of $300,000.
The Company has not granted any options since inception.
On April 14, 2021, the Company has granted approximately 424,000entered into a securities purchase agreement in which 10,000,000 warrants (priorwere also issued, which are exercisable for a period of five years after issuance at an initial exercise price of $0.75 per share, subject to certain adjustments, basedas provided in the Warrants (see Note 12 for more discussion)
Additionally as noted in Note 12, on subsequent dilutive issuances) in connection with convertible debentures (Note 5).
In connection with the November 22, 2021 sale of Series E Preferred Stock (Note 12), options were issued, as well as approximately 270,000 warrants were issued to placement agents. Additionally, in relation to the December 15, 2021, convertible note (Note 9) there were 3,000,000 warrants issued to placement agents with a fair value.
All of the warrants issued have been recognized as a liability, based on the fact it as it is not known if there will be sufficient authorized shares to be issued upon settlement, based on the conversion terms of the existing convertible debt, with the April 14, 2021 warrants reclassed from equity to warrant liability, and the newly issued warrants liability recognized as financing costs.
The 18,506,429 warrants outstanding as of March 31, 2022, were revalued as of year end for a fair value of $3,986,000, with a decrease in the common sharesfair value of $2,061,000 recognized on the Statement of Operations. The fair value was estimated using Black Scholes Model, with the following inputs: the price of the Company onCompany’s common stock of $; a risk-free interest rate of 2.42%, the dateexpected volatility of exercise.
NOTE 814 – RELATED PARTY TRANSACTIONS
Accrued Payroll – Related Parties
Included in other accrued expenses on the accompanying consolidated balance sheet is approximately $119,000 and $154,000, owing to a key employee (which includes $50,000 in both fiscal years, from consulting services prior to his employment) as of March 31, 2019 is approximately $217,000 owing to the Chief Executive Officer of the Company, approximately $69,0002022 and March 31, 2021. These amounts include both accrued payroll and accrued allowances and expenses. The accrued payroll owing to the President of the Company was paid off in full during July 2021, and was approximately $96,000, owing to a key employee.
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Bonus Compensation – Related Party
On January 20, 2017 and on March 14, 2017,May 11, 2021, the Company entered into convertible debentures with an affiliate ofpaid the Company whose managing member is the Treasurer, Chief Financial Officer a bonus of $300,000. On August 10, 2021, the Board of Directors ratified the bonus payment to the CFO and a director ofawarded the Company. The convertible debentures are each in the amount of $20,000, mature one year from date of issuance, and bear interest at 6%. Upon an event of default, as defined in the debenture, the principal and any accrued interest becomes immediately due,President and the interest rate increasesChief Technology Officer compensation bonuses of $300,000 each. The bonuses to 24%. The convertible debenturesthe President and CTO are convertible atto be distributed within the holder’s option at a conversion pricenext twelve months from the award date, and are included in accrued expenses, related parties as of $0.30. As ofDecember 31, 2021. During the year ended March 31, 2018,2022, $200,000 was paid each to the notes have been paid offPresident and Chief Technology Officer, with a total of $200,000 remaining in full.
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%. During the year ended March 31, 2022, the Company paid off $655,750 of the note payable. The outstanding balance is approximately $77,000 and $735,000, as of March 31, 2022 and March 31, 2021, respectively. As of March 31, 20192022 and March 31, 2018 the outstanding balance is2021, accrued interest payable was approximately $736,000.
Shareholder Notes
The Company has entered into several working capital notes payable to multiple shareholders of NSH and Bill Williams, ana former officer aand director, and a shareholder of the Company, for a total of $486,500.$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 $356,404 as of March 31, 20192022 and 2018 was $426,404 and $426,404,2021, respectively, and is classified as a current liability on the consolidated balance sheets. AtAs of March 31, 20192022 and 2018,March 31, 2021, accrued interest payable was $241,032approximately $146,000 and $206,920,$118,000, respectively.
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$290,000 and bearing interest at 8%. The balance of these notes atas of March 31, 20192021 and 2018March 31, 2020 was $104,647$54,647 and is classified as a current liability on the consolidated balance sheets.
NOTE 915 – FEDERAL INCOME TAX
The Company accounts for income taxes under ASC 740-10, which provides for an asset and liability approach of accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributed to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts calculated for income tax purposes.
The components of income tax expense for the years ended March 31, 20192022 and 20182021 consist of the following:
2019 | 2018 | |
| Federal Tax statutory rate | 21.00% | 34.00% |
| Permanent differences | 10.23% | 7.86% |
| Valuation allowance | (31.23)% | (41.86)% |
| Effective rate | 0.00% | 0.00% |
SCHEDULE OF INCOME TAX EXPENSE
| 2022 | 2021 | |||||||
| Federal Tax statutory rate | 21.00 | % | 21.00 | % | ||||
| Permanent differences | 18.40 | % | 3.46 | % | ||||
| Valuation allowance | (39.40 | )% | (24.46 | )% | ||||
| Effective rate | 0.00 | % | 0.00 | % | ||||
Significant components of the Company’s deferred tax assets as of March 31, 20192021 and 20182020 are summarized below. The calculations presented below at March 31, 2019 reflect the new U.S. federal statutory corporate tax rate of 21% effective January 1, 2018 (see Note 2).
SCHEDULE OF DEFERRED TAX ASSET
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 6,022,000 | $ | 3,429,000 | ||||
| Other | (350,000 | ) | - | |||||
| Total deferred tax asset | 5,672,000 | 3,429,000 | ||||||
| Valuation allowance | (5,672,000 | ) | (3,429,000 | ) | ||||
| Total | $ | - | $ | - | ||||
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2019 | 2018 | |
| Deferred tax assets: | ||
| Net operating loss carryforwards | $1,126,000 | $637,000 |
| Deferred tax benefit | 287,000 | 408,000 |
| Total deferred tax asset | 1,413,000 | 1,045,000 |
| Valuation allowance | (1,413,000) | (1,045,000) |
$- | $- |
As of March 31, 2019,2022, the Company had approximately $5,645,000$28,676,000 of federal net operating loss carry forwards. TheseThe carry forwards if not used, will beginbeginning in tax years 2018 are allowed to expire in 2028.be carried forward indefinitely and are to be limited to 80% of the taxable income. Future utilization of the net operating loss carry forwards is subject to certain limitations under Section 382 of the Internal Revenue Code. The Company believes that the issuance of its common stock in exchange for Multiplayer Online Dragon, Inc. on January 30, 2015 resulted in an “ownership change” under the rules and regulations of Section 382. Accordingly, the Company’s ability to utilize their net operating losses generated prior to this date is limited to approximately $282,000$282,000 annually.
To the extent that the tax deduction is included in a net operating loss carry forward and is in excess of amounts recognized for book purposes, no benefit will be recognized until the loss carry forward is recognized. Upon utilization and realization of the carry forward, the corresponding change in the deferred asset and valuation allowance will be recorded as additional paid-in capital.
The Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of the deferred tax assets. The Company has established a valuation allowance against the net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, we havethe Company has not reflected any benefit of such deferred tax assets in the accompanying financial statements. OurThe Company’s net deferred tax asset and valuation allowance increased by $368,000$2,243,000 and $1,454,000 in the yearyears ended March 31, 2019.
The Company reviewed all income tax positions taken or that wethey expect to be taken for all open years and determined that ourthe income tax positions are appropriately stated and supported for all open years. The Company is subject to U.S. federal income tax examinations by tax authorities for years after 20122022 due to unexpired net operating loss carryforwards originating in and subsequent to that year. The Company may be subject to income tax examinations for the various taxing authorities which vary by jurisdiction.
NOTE 1016 – CONCENTRATION OF CREDIT RISK
On May 26, 2021, the Company entered into a sublease for a new office space in Texas, on two floors. The lease commenced on August 1, 2021 for a monthly rent of $7,000, and will terminate on October 31, 2025, for one of the spaces, and commence in the second half of 2022 for monthly rent of $1,727, and terminate on October 31, 2025, for the second space. On June 2, 2021, the Company paid a deposit of $52,362 which shall be applied to the last six months of the sublease term, and $17,454 security deposit, which is included in Prepaid expenses on the accompanying consolidated balance sheet. The Company maintains cash balancesassessed its new office lease as an operating lease.
At inception, on August 1, 2021, the ROU and lease liability was calculated as approximately $316,000, based on the net present value of the future lease payments over the term of the lease. When available, the Company uses the rate implicit in the lease discount payments as the incremental borrowing rate to calculate the net present value; however, the rate implicit in the lease is not readily determinable for their corporate office lease. In this case, the Company estimated its incremental borrowing rate of 5.75% as the interest rate it could have incurred to borrow an amount equal to the lease payments in a similar economic environment on a collateralized basis over a term similar to the lease term . The Company estimated its rate based on observable risk-free interest rate and credit spreads for commercial debt of a similar duration as to what rate would have been effective for the Company.
On September 8, 2021, the Company entered into an equipment lease agreement for VOIP phone equipment. The lease term is for sixty months, with a monthly lease payment of approximately $300. The Company assessed the equipment lease as an operating lease. The Company determined the Right of Use asset and Lease liability values at one financial institution. Accountsinception as approximately $17,000 calculated at this institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.present value of all future lease payments for the lease term, using an incremental borrowing rate of 5.75%.
On June 24, 2019, the Company entered into a service and equipment lease agreement for water treatment services, consumables and equipment. The lease term was 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 at a value of $275,400, calculated at the present value of all future lease payments for the lease term, using an incremental borrowing rate of 5%. As of March 31, 2019,2021, the lease was on hold while the Company waited for new equipment to be delivered and 2018,installed. During the Company’s cash balance did not exceed FDIC coverage.first quarter of fiscal 2022, the Company has cancelled the lease. As the lease was on hold there has been no lease expense or amortization of the Right of Use asset since inception of the lease and recognition of the Lease liability and Right of Use asset, and therefore there is no gain or loss recognized upon cancellation of the lease.
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NOTE 1117 – 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 provideprovides for a base annual salary of $96,000.$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.
The 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.
The 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.
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(23rd District) 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. As a result of RGA’s failure to respond to written discovery served by the Company failedand failure of RGA to satisfy requirements imposed by an order compelling response, the court issued an order prohibiting RGA from introducing any evidence at the time of trial other than the original agreement between RGA and the Company. Further, the Court sustained the Company’s objection to RGA’s written discovery obviating the Company’s obligation to respond. On December 31, 2021, a settlement was finalized for the sum of $12,000.
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 for shares Mr. Shover owns in NSH. On November 15, 2021, a hearing was held before the US District Court for the Northern District of Texas, Dallas Division at which time Mr. Shover and the Company presented arguments as to why the Court should approve a joint motion for settlement. After considering the argument of counsel and taking questions from those NSH Shareholders who were present through video conferencing link, the Court approved the motion of the parties to allow Mr. Shover and all like and similarly situated NSH Shareholders to exchange each share of NSH held by a NSH Shareholder for a share of the Company. A final Order was signed on December 6, 2021 and the case was closed by an Order of the Court of the same date. The Company is to issue certainapproximately million shares in settlement, which as of December 6, 2021 was recognized as stock payable on the Company’s balance sheet, and its fair value of $29,388,000, based on the market value of the Company’s common stockshares of $ on the date the case was closed, has been recognized in the Company’s statement of operations as was required under the termslegal settlement. As of March 31, 2022, 28,494,706 of the Vista Warrant. Vista is currently seeking money damagesshares presented in Stock Payable have been issued, with the approximate amountfair value of $7,000,000, which$9,415,950 reclassified out of Stock Payable. In April of 2022, and additional 60,841,649 of shares of common stock were issued out of the Stock Payable.
NOTE 18 – SUBSEQUENT EVENTS
On May 17, 2022, shares of Series E Preferred Stock were converted into shares of common stock.
On April 25, 2022, the Company believes is unwarranted and excessive, as well as costs and reimbursement of expenses. As ofreceived $1,500,000 to close the date hereof, no hearing has been scheduled, but the Company 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.
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