Attached files
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,
2020
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.)
|
15150 Preston Road, Suite #300, Dallas, TX 75248
(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
☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No
☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” “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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates was
$54,083,719 computed by reference to the closing price of the
registrant’s common stock as quoted on the OTCQB maintained
by OTC Markets, Inc. on September 30, 2019 (which was $0.165 per
share). For purposes of the above statement only, all directors,
executive officers and 10% shareholders are assumed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for any other
purpose.
The
number of shares outstanding of the registrant’s common stock
as of June 26, 2020 was 463,679,669.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
|
Page
|
PART I
|
|
3
|
|
|
|
12
|
|
|
|
22
|
|
|
|
22
|
|
|
|
23
|
|
|
|
23
|
|
|
|
PART II
|
|
24
|
|
|
|
31
|
|
|
|
31
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
46
|
|
|
|
PART III
|
|
47
|
|
|
|
49
|
|
|
|
52
|
|
|
|
53
|
|
|
|
55
|
|
|
|
PART IV
|
|
56
|
|
|
|
59
|
2
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This
Annual Report on Form 10-K includes a number of forward-looking
statements that reflect management's current views with respect to
future events and financial performance. Forward-looking statements
are projections in respect of future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may,”
“should,” “expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential” or “continue” or the negative
of these terms or other comparable terminology. These statements
include statements regarding the intent, belief or current
expectations of us and members of our management team, as well as
the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risk and
uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks set
forth in the section entitled “Risk Factors” in this
Annual Report on Form 10-K for the fiscal year ended March 31,
2020, any of which may cause our company’s or our
industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied in our forward-looking statements. These risks and factors
include, by way of example and without limitation:
●
our ability on a
timely basis to successfully rebuild our research and development
plant in La Coste, Texas that was completely destroyed by a fire on
March 18, 2020;
●
our ability, once
our research and development plan is rebuilt, to successfully
commercialize our equipment and shrimp farming operations to
produce a market-ready product in a timely manner and in enough
quantity;
●
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 through institutional investors 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 recent outbreak of
COVID-19, or the novel coronavirus);
●
intellectual
property claims brought by third parties; and
●
the impact of any
industry regulation.
Although we believe
that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of
activity, or performance. Except as required by applicable law,
including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to actual results.
Readers
are urged to carefully review and consider the various disclosures
made by us in this report and in our other reports filed with the
Securities and Exchange Commission (the “SEC”). We
undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
unanticipated events or changes in the future operating results
over time except as required by law. We believe that our
assumptions are based upon reasonable data derived from and known
about our business and operations. No assurances are made that
actual results of operations or the results of our future
activities will not differ materially from our
assumptions.
3
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 its wholly-owned subsidiaries: NaturalShrimp
Corporation (“NSC”) and NaturalShrimp Global, Inc.
(“NS Global”) and our 51% owned subsidiary, Natural
Aquatic Systems, Inc. Unless otherwise specified, all dollar
amounts are expressed in United States dollars.
Corporate History
We were
incorporated in the State of Nevada on July 3, 2008 under the name
“Multiplayer Online Dragon, Inc.” Effective November 5,
2010, we effected an 8-for-1 forward stock split, increasing the
issued and outstanding shares of our common stock from 12,000,000
shares to 96,000,000 shares. On October 29, 2014, we effected a
1-for-10 reverse stock split, decreasing the issued and outstanding
shares of our common stock from 97,000,000 to
9,700,000.
On
November 26, 2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NSC and NS Global, and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On
January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In
connection with our receipt of approval from the Financial Industry
Regulatory Authority (“FINRA”), effective March 3,
2015, we amended our Articles of Incorporation to change our name
to “NaturalShrimp Incorporated.”
Business Overview
We are
a biotechnology company and have developed a proprietary technology
that allows us to grow Pacific White shrimp (Litopenaeus vannamei,
formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS
Global, one of our wholly-owned subsidiaries, owns less than 1% of
NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway, is
responsible for the construction cost of its facility and initial
operating capital.
The
first facility built in Spain for NaturalShrimp International A.S.
is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On
October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas. On December 25, 2018, we were awarded U.S.
Patent “Recirculating Aquaculture System and Treatment Method
for Aquatic Species” covering all indoor aquatic species that
utilizes proprietary art.
4
The
Company has two wholly-owned subsidiaries, NSC and NS Global and
owns 51% of NAS.
Evolution of Technology and Revenue Expectations
Historically,
efforts to raise shrimp in a high-density, closed system at the
commercial level have been met with either modest success or
outright failure through “BioFloc Technology.”
Infectious agents such as parasites, bacteria and viruses are the
most damaging and most difficult to control. Bacterial infection
can in some cases be combated through the use of antibiotics
(although not always), and in general, the use of antibiotics is
considered undesirable and counter to “green”
cultivation practices. Viruses can be even worse, in that they are
immune to antibiotics. Once introduced to a shrimp population,
viruses can wipe out entire farms and shrimp populations, even with
intense probiotic applications.
Our
primary solution against infectious agents is our “Vibrio
Suppression Technology.” We believe this system creates
higher sustainable densities, consistent production, improved
growth and survival rates and improved food conversion without the
use of antibiotics, probiotics or unhealthy anti-microbial
chemicals. Vibrio Suppression Technology helps to exclude and
suppress harmful organisms that usually destroy
“BioFloc” and other enclosed technologies.
In
2001, we began research and development of a high density, natural
aquaculture system that is not dependent on ocean water to provide
quality, fresh shrimp every week, fifty-two weeks a year. Our
initial system was successful, but we determined that it would not
be economically feasible due to high operating costs. Over the next
several years, using the knowledge we gained from developing the
first system, we developed a shrimp production system that
eliminated the high costs associated with the previous system. We
have continued to refine this technology, eliminating bacteria and
other problems that affect enclosed systems, and now have a
successful shrimp growing process. We have produced thousands of
pounds of shrimp over the last few years in order to develop a
design that will consistently produce quality shrimp that grow to a
large size at a specific rate of growth. This included
experimenting with various types of natural live and synthesized
feed supplies before selecting the most appropriate nutritious and
reliable combination. It also included utilizing monitoring and
control automation equipment to minimize labor costs and to provide
the necessary oversight for proper regulation of the shrimp
environment. However, there were further enhancements needed to our
process and technology in order to begin production of shrimp on a
commercially viable scale and to generate revenues.
Our
current system consists of a reception tank where the shrimp are
acclimated, then moved to a larger grow-out tank for the rest of
the twenty-four week cycle. During 2016, we engaged in additional
engineering projects with third parties to further enhance our
indoor production capabilities. For example, through our
relationship with Trane, Inc., a division of Ingersoll-Rand Plc
(“Trane”), Trane has provided a detailed audit to use
data to build and verify the capabilities of then initial Phase 1
prototype of a Trane-proposed three tank system at our La Coste,
Texas facility. The Company contracted F&T Water Solutions and
RGA Labs, Inc. (“RGA Labs”) to complete final
engineering and building of the initial patent-pending modified
Electrocoagulation system for the grow-out, harvesting and
processing of fully mature, antibiotic-free Pacific White Leg
shrimp. The design will present a viable pathway to begin
generating revenue and producing shrimp on a commercially viable
scale. The design is completed and was installed in early June 2018
by RGA Labs, and final financing for the system is expected to be
provided by one of the Company’s existing intuitional
investors. The first post larvae (PL) arrived from the hatchery on
July 3, 2018. The Company used the shrimp for sampling to key
potential customers and special events such as the Texas Restaurant
Association trade show. The Company also received two production PL
lots from Global Blue Technologies on March 21, 2019 and April 17,
2019 and from American Penaeid, Inc. on August 7, 2019. Because the
shrimp displayed growth that was slower than normal, the Company
had a batch tested by an independent lab at the University of
Arizona. The shrimp tested positive for Infectious hypodermal and
hematopoietic necrosis (“IHHNV”) and the Texas Parks
and Wildlife Department was notified that the facility was under
quarantine. On August 26, 2019, the Company was forced to terminate
all lots due to the infection. The Company will begin restocking on
shrimp in the refurbished facility sections. On August 30, 2019,
the Company received notice that it was in compliance again and the
quarantine had been lifted. During the aforementioned quarantine,
the Company decided to begin an approximately $1,000,000 facility
renovation demolishing the interior 16 wood structure lined tanks
(720,000 gallons). The Company 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. The Company had expected that the first
shrimp tanks harvest target date will be April 2020.
5
On
March 18, 2020, our research and development plant in La Coste,
Texas was destroyed by a fire. The Company believes that it was
caused by a natural gas leak, but the fire was so extensive that
the cause was undetermined. No one was injured as a result of the
fire. The majority of the damage was to our pilot production plant,
which comprises approximately 35,000 square feet of the total size
of all facilities at the La Coste location of approximately 53,000
square feet, but the fire did not impact the separate greenhouse,
reservoirs or utility buildings. We have received total insurance
proceeds in the amount of $917,210, the full amount of our claim.
These funds are being utilized to 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.
Overview of Industry
Shrimp
is a well-known and globally-consumed commodity, constituting one
of the most important types of seafood and a staple protein source
for much of the world. According to the USDA Foreign Agricultural
Service, the world consumes approximately 9 billion pounds of
shrimp annually with over 1.7 billion pounds consumed in the United
States alone. Approximately 65% of the global supply of shrimp is
caught by ocean trawlers and the other 35% is produced by open-air
shrimp farms, mostly in developing countries.
Shrimp
boats catch shrimp through the use of large, boat-towed nets. These
nets are quite toxic to the undersea environment as they disturb
and destroy ocean-bottom ecosystems; these nets also catch a
variety of non-shrimp sea life, which is typically killed and
discarded as part of the shrimp harvesting process. Additionally,
the world’s oceans can only supply a finite amount of shrimp
each year, and in fact, single-boat shrimp yields have fallen by
approximately 20% since 2010 and continue to decrease. The
shrimping industry’s answer to this problem has been to
deploy more (and larger) boats that deploy ever-larger nets, which
has in the short-term been successful at maintaining global shrimp
yields. However, this benefit cannot continue forever, as
eventually global demand has the potential of outstripping the
oceans’ ability to maintain the natural ecosystem’s
balance, resulting in a permanent decline in yields. When taken in
light of global population growth and the ever-increasing demand
for nutrient-rich foods such as shrimp, this is clearly an
unsustainable production paradigm.
Shrimp
farming, known in the industry as “aquaculture,” has
ostensibly stepped in to fill this demand/supply imbalance. Shrimp
farming is typically done in open-air lagoons and man-made shrimp
ponds connected to the open ocean. Because these ponds constantly
exchange water with the adjacent sea, the farmers are able to
maintain the water chemistry that allows the shrimp to prosper.
However, this method of cultivating shrimp also carries severe
ecological peril. First of all, most shrimp farming is primarily
conducted in developing countries, where poor shrimp farmers have
little regard for the global ecosystem. Because of this, these
farmers use large quantities of antibiotics and other chemicals
that maximize each farm’s chance of producing a crop, putting
the entire system at risk. For example, a viral infection that
crops up in one farm can spread to all nearby farms, quite
literally wiping out an entire region’s production. In 1999,
the White Spot virus invaded shrimp farms in at least five Latin
American countries: Honduras, Nicaragua, Guatemala, Panama and
Ecuador and in 2013-14 EMS (Early Mortality Syndrome) wiped out
most of the Asia Pacific region and Mexico. Secondly, there is also
a finite amount of coastline that can be used for shrimp production
– eventually shrimp farms that are dependent on the open
ocean will have nowhere to expand. Again, this is an ecologically
damaging and ultimately unsustainable system for producing
shrimp.
In both
the cases, the current method of shrimp production is
unsustainable. As global populations rise and the demand for shrimp
continues to grow, the current system is bound to fall short.
Shrimp trawling cannot continue to increase production without
completely depleting the oceans’ natural shrimp population.
Trends in per-boat yield confirm that this industry has already
crossed the overfishing threshold, putting the global open-ocean
shrimp population in decline. While open-air shrimp aquaculture may
seem to address this problem, it is also an unsustainable system
that destroys coastal ecological systems and produces shrimp with
very high chemical contamination levels. Closed-system shrimp
farming is clearly a superior alternative, but its unique
challenges have prevented it from becoming a widely-available
alternative.
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.
6
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.
Automated Monitoring and Control System
The
Company’s “Automated Monitoring and Control
System” uses tank monitors to automatically control the
feeding, oxygenation, and temperature of each of the facility
tanks. In addition, a facility computer running custom software
communicates 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.
7
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
September 7, 2016, we entered into a Letter of Commitment with
Trane, Inc. (“Trane”), a division of Ingersoll-Rand
Plc, whereby Trane proceeded with a detailed audit to use data to
verify the capabilities of an initial Phase 1 prototype of a
Trane-proposed three tank system at our La Coste, Texas facility.
The prototype consisted of a modified Electrocoagulation (EC)
system for the human grow-out, harvesting and processing of fully
mature, antibiotic-free Pacific White Leg shrimp. Trane was
authorized to proceed with such detailed audit to utilize data for
purposes of verifying the capabilities of the EC system, including
the ammonia and chlorine capture and sequestering and pathogen
kill. The detailed audit delivered (i) a report on the inspection
of the existing infrastructure determining if proper fit, adequate
security, acceptable utility service, environmental protection and
equipment sizing are achievable; (ii) provide firm fixed pricing
for the EC system, electrode selection and supply, waste removal,
ventilation of the off-gassing of the equipment; and (iii) a
formalized plan for commissioning and on-site investigation of
hardware design to simplify build-out of Phase 2 and future phases.
The detailed audit was utilized by RGA Labs to build and install
the initial system in La Coste, Texas pilot plant the first week of
June 2018.
After successful
testing of the EC system, we began a renovation of the La Coste
facility in 2019 to include 4 nursery tanks and 40 grow-out tanks.
On March 18, 2020, this pilot plant was destroyed by a fire. The
Company believes that it was caused by a natural gas leak, but the
fire was so extensive that the cause was undetermined. This fire
occurred just as we began the restocking of 1,500,000 PLs in the
newly renovated building. At that time, all of our growth metrics
for these PLs were better than expected.
Management has diligently analyzed all possible
options to finalize a strong financial go-forward strategy to
rebuild our shrimp production facilities. These strategies include
time-to-market, patented technologies, operational systems,
environmental impacts, employee safety, distribution, etc. As
previously reported, the Company committed to reviewing all options
including the acquisition and/or leasing of existing regional
production warehouses or any existing seafood facility that could
be quickly adapted to our technology processes and procedures. We
completed our evaluation during our fiscal first quarter of new
buildings, seafood production facilities, and the option of
rebuilding in La Coste. The evaluation process provided two best
options: first, acquisition of an existing seafood grow-out
facility and, second, building a new pilot plant on our La Coste
property. We identified an existing aquaculture grow-out facility
during our fiscal first quarter, but we were not able to consummate
a transaction under terms and conditions that would make the
purchase financially viable. During this process, management was
concurrently developing a detailed plan to rebuild the facility in
La Coste. We have committed $2.5 million to rebuild in La Coste
with plans to utilize its existing
infrastructure.
Target Markets and Sales Price
Our
goal is to establish production systems and distribution centers in
metropolitan areas of the United States, as well as international
distribution networks through joint venture partnerships throughout
the world. This should allow the Company to capture a significant
portion of world shrimp sales by offering locally grown,
environmentally “green,” naturally grown, fresh shrimp
at competitive wholesale prices.
The
United States population is approximately 330 million people with
an annual shrimp consumption of 1.7 billion pounds, of which less
than 400 million pounds are domestically produced. According to
IndexMundi.com, the wholesale price for frozen, commodity grade
shrimp has risen 15% since January 2015 (shell-on headless, 26-30
count; which is comparable to our target growth size). With world
shrimp problems, this price is expected to rise more in the next
few years.
We
strive to build a profitable global shrimp production company. We
believe our foundational advantage is that we can deliver fresh,
organically grown, gourmet-grade shrimp, 52 weeks 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.
8
For
those customers that want a frozen product, we may be able to
provide this in the near future and the product will still be
differentiated as a “naturally grown, sustainable
seafood” that will meet the increasing demand of socially
conscious consumers.
Our
patented technology and eco-friendly, bio-secure production
processes enable the delivery of a chemical and antibiotic free,
locally grown product that lives up to the Company’s mantra:
“Always Fresh, Always Natural,” thereby solving the
issue of “unsafe” imported seafood.
Product Description
Nearly
all of the shrimp consumed today are shipped frozen. Shrimp are
typically frozen from six to twenty-four months before consumption.
Our system is designed to harvest a different tank each week, which
provides for fresh shrimp throughout the year. We strive to create
a niche market of “Always Fresh, Always Natural”
shrimp. As opposed to many of the foreign shrimp farms, we can also
claim that our product is 100% free of antibiotics. The ability to
grow shrimp locally, year round allows us to provide this high-end
product to specialty grocery stores and upscale restaurants
throughout the world. We rotate the stocking and harvesting of our
tanks each week, which allows for weekly shrimp harvests. Our
product is free of all pollutants and is fed only all-natural
feeds.
The
seafood industry lacks a consistent “Source
Verification” method to track seafood products as they move
through countries and customs procedures. With worldwide
overfishing leading to declining shrimp freshness and
sustainability around the world, it is vital for shrimp providers
to be able to realistically identify the source of their product.
We have well-managed, sustainable facilities that are able to track
shrimp from hatchery to plate using environmentally responsible
methods.
Shrimp Growth Period
Our
production system is designed to produce shrimp at a harvest size
of twenty-one to twenty-five shrimp per pound in a period of
twenty-four weeks. The Company currently purchases post-larva
shrimp that are approximately ten days old (PL 10). In the future,
we plan to build our own hatcheries to control the supply of shrimp
to each of our facilities. Our full-scale production systems
include grow-out and nursery tanks, projected to produce fresh
shrimp fifty-two weeks per year.
Distribution and Marketing
We plan
to build these environmentally “green” production
systems near major metropolitan areas of the United States. Today,
we have one pilot production facility in La Coste, Texas (near San
Antonio) and plan to begin construction of a full-scale production
facility in La Coste and plans for Nevada and New York. Over the
next five years, our plan is to increase construction of new
facilities each year. In the fifth year, we plan for a new system
to be completed each month, expanding first into the largest shrimp
consumption markets of the United States.
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, country
clubs, specialty supermarkets and retail stores whose clientele
expect and appreciate fresh, natural products.
9
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. 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 less than one percent of Noray
Seafood A.S. (formerly NaturalShrimp International A.S.) in Oslo,
Norway. NaturalShrimp International A.S. is responsible for the
construction cost of their facility and initial operating
capital.
The
first facility built in Spain for NaturalShrimp International A.S.
is GambaNatural de España, S.L. in Medina del Campo and is
approximately seventy-five miles northwest of Madrid, Spain. The
construction of the 75,000 sq. ft. facility was completed in 2016
with NaturalShrimp engineering and design
consultation.
Go to Market Strategy and Execution
Our
strategy is to develop regional production and distribution centers
near major metropolitan areas throughout the United States and
internationally. We intend to begin construction of a new
free-standing facility with the next generation shrimp production
system in place on the property in June of 2020.
The
reasoning behind building additional shrimp production systems in
La Coste is availability of trained production personnel, our
research and development team, and an opportunity to develop the
footprint and model for additional facilities. Our current plan is
to develop six regional production and distribution centers near
major markets in 2021, adding one system per month in a selected
production center, depending on market demand.
We have
sold 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 fresh product was priced
from $8.40 to $12.00 per pound wholesale, heads on, net price to
the Company.
Current Systems and Expansion
The new
shrimp production facility being built in La Coste, Texas will use
the new patent-pending technology that the Company has been
developing with Trane’s engineering audit and F&T Water
Solutions, and RGA Labs. This facility, when completely retrofitted
with the new technology, is projected to produce approximately
3,000 pounds 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.
After
the completion of this system in La Coste, our long-term plan is to
build additional production systems in Las Vegas, and New York.
These locations are targeted to begin construction in fiscal 2021,
and the funding for these plans is projected to come from joint
venture agreements with strategic partners. These cities are not
surrounded by commercial shrimp production, and we believe there
will be a high demand for fresh shrimp in all of these locations.
In addition, the Company will continue to use the land it owns in
La Coste to build as many systems as the Texas market
demands.
10
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. Most North
American shrimp farms are using a Bio-Floc System to intensify
shrimp 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 “Recirculating Aquaculture
System and Treatment Method for Aquatic Species” 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
available from American Penaeid, Inc. (API) in Florida and Global
Blue Technologies in Texas.
There
have not been any issues regarding the availability of our raw
materials. We have favorable contacts and past business dealings
with other major shrimp feed producers if current suppliers are not
available.
Government Approvals and Regulations
We are
subject to government regulation and require certain licenses. The
following list includes regulations to which we are subject and/or
the permits and licenses we currently hold:
●
Texas Parks and
Wildlife Department (TPWD) - “Exotic species permit” to
raise exotic shrimp (non-native to Texas). The La Coste facility is
north of the coastal shrimp exclusion zone (east and south of H-35,
where it intersects Hwy 21 down to Laredo) and therefore outside of
TPWD’s major area of concern for exotic shrimp. This license
is currently active, expiring on December 31, 2020.
●
Texas Department of
Agriculture (TDA) - “Aquaculture License” for
aquaculture production facilities. License to “operate a fish
farm or cultured fish processing plant.” This license is
currently active, expiring on June 30, 2022.
●
Texas Commission on
Environmental Quality (TCEQ) - Regulates facility wastewater
discharge. According to the TCEQ permit classification system, we
are rated Level 1 – Recirculation system with no discharge.
This license is currently active, with no set expiration
date.
11
We are
subject to certain regulations regarding the need for field
employees to be certified. We strictly adhere to these regulations.
The cost of certification is an accepted part of expenses.
Regulations may change and become a cost burden, but compliance and
safety are our main concern.
Market Advantages and Corporate Drivers
The
following are what we consider to be our advantages in the
marketplace:
●
Early-mover
Advantage: Commercialized technology in a large growing market with
no significant competition yet identified. Most are early stage
start-ups or early stage companies with limited production and
distribution.
●
Farm-to-Market:
This has significant advantages including reduced transportation
costs and a product that is more attractive to local
consumers.
●
Bio-secured
Building: Our process is a re-circulating, highly-filtered water
technology in an indoor-regulated environment. External pathogens
are excluded.
●
Eco-friendly
“Green” Technology: Our closed-loop, re-circulating
system has no ocean water exchange requirements, does not use
chemical or antibiotics and therefore is sustainable, eco-friendly,
environmentally sound and produces a superior quality shrimp that
is totally natural.
●
Availability of
Weekly Fresh Shrimp: Assures consumers of optimal freshness, taste,
and texture of product which will command premium
prices.
●
Sustainability: Our
naturally grown product does not deplete wild supplies, has no
by-catch kill of marine life, does not damage sensitive ecological
environments and avoids potential risks of imported
seafood.
Subsidiaries
The
Company has two wholly-owned subsidiaries, NaturalShrimp
Corporation and NaturalShrimp Global, Inc. and owns 51% of Natural
Aquatic Systems, Inc.
Employees
As of
March 31, 2020, we had 6 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
loss of our research and development plant by fire during the
fiscal year ended March 31, 2020 adversely affected the commercial
production plans for our product.
On March 18, 2020,
our research and development plant in La Coste, Texas was destroyed
by a fire. The Company believes that it was caused by a natural gas
leak, but the fire was so extensive that the cause was
undetermined. No one was injured as a result of the fire. The
majority of the damage was to our pilot production plant, which
comprises approximately 35,000 square feet of the total size of all
facilities at the La Coste location of approximately 53,000 square
feet, but the fire did not impact the separate greenhouse,
reservoirs or utility buildings. Although we have received total
insurance proceeds in the amount of $917,210, the full amount of
our claim, and such funds are being 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, there is no assurance that such proceeds will be enough to
rebuild and re-equip the facility or that we will be able to
rebuild the facility to similar specifications in a timely
manner.
12
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.
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, Chief Operating Officer and Chief Financial Officer. We do
not currently maintain any key man insurance. An unexpected partial
or total loss of the services of these key individuals could be
detrimental to our business.
13
Our
expansion plans for our shrimp production facilities reflects our
current intent and is subject to change.
Our
current plans regarding the rebuilding of our La Coste production
facilities, as well as its expansion are subject to change. Whether
we ultimately undertake our expansion 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.
14
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.
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 fiscal year 2020, 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 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. Furthermore, even if we are able to successfully manage
these factors, our ability to grow healthy shrimp at a commercially
scalable rate may be limited,
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.
15
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.
Risks Related to Financing Our Business
Management
has determined that there are factors that raise substantial doubt
about 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 year ended
March 31, 2020, we had a net loss available for common stockholders
of approximately $5,204,000. At March 31, 2020, we had an
accumulated deficit of approximately $46,427,000 and a working
capital deficit of approximately $3,598,000. 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. As 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.
16
The
rebuilding and expansion of our operations 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. Even prior to the loss of our plant in La Coste by fire,
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.
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 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 year ended March 31,
2020, we recorded a net loss available to common shareholders of
approximately $5,204,000, or $(0.02) per share, as compared with
approximately $7,211,000 or $(0.04) per share, of the corresponding
period in 2019. 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.
17
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.
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.
18
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.
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
increased significantly over the last two 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.
19
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;
●
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 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 certain financing
agreements.
The
sale of our common stock pursuant to conversion 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, the greater the impact of
dilution under these financing agreements. If our stock price
decreases, then our existing shareholders would experience greater
dilution for any given dollar amount raised through such
financing.
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.
20
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.
21
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, 2020, the management of the Company
assessed the effectiveness of our 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, 2020, 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.
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.
As
a public company, we will incur significant increased operating
costs and our management will be required to devote substantial
time to new compliance initiatives.
Although our
management has significant experience in the food industry, it has
only limited experience operating the Company as a public company.
To operate effectively, we will be required to continue to
implement changes in certain aspects of our business and develop,
manage and train management level and other employees to comply
with on-going public company requirements. Failure to take such
actions, or delay in the implementation thereof, could have a
material adverse effect on our business, financial condition and
results of operations.
The
Sarbanes-Oxley Act, as well as rules subsequently implemented by
the SEC, imposes various requirements on public companies,
including requiring establishment and maintenance of effective
disclosure and financial controls and changes in corporate
governance practices. Our management and other personnel will need
to devote a substantial amount of time to these new compliance
initiatives. Moreover, these rules and regulations will increase
our legal and financial compliance costs and will make some
activities more time-consuming and costly.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not
Applicable.
ITEM 2. PROPERTIES
Our
principal offices are located at 15150 Preston Road, Suite #300,
Dallas, TX 75248, where we pay $650 per month under an operating
lease that expires on July 31, 2021.
22
We also
own a research and development plant totaling 53,000 square feet on
37 acres at 833 County Road 583, La Coste, TX, which consisted of
research and development and pilot-production
facilities.
On March 18, 2020,
our research and development plant in La Coste, Texas was destroyed
by a fire. The Company believes that it was caused by a natural gas
leak, but the fire was so extensive that the cause was
undetermined. No one was injured as a result of the fire. The
majority of the damage was to our pilot production plant, which
comprises approximately 35,000 square feet of the total size of all
facilities at the La Coste location of approximately 53,000 square
feet, but the fire did not impact the separate greenhouse,
reservoirs or utility buildings. We have received total insurance
proceeds in the amount of $917,210, the full amount of our claim.
These funds are being utilized to 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.
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 company or our
subsidiaries or has a material interest adverse to our company or
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 our
Company, threatened against or affecting our Company or our common
stock, in which an adverse decision could have a material adverse
effect.
On
April 30, 2019, a complaint was filed against the Company in the
U.S. District Court in Dallas, Texas alleging that the Company
breached a provision in a common stock purchase warrant for the
purchase of the Company’s common stock, par value $0.0001,
issued by the Company to Vista Capital Investments, LLC
(“Vista”) under a Security Purchase Agreement dated
January 23, 2017 (the “Vista Security Purchase
Agreement”) whereby Vista acquired a Convertible Note for
$262,500 (the “Vista Convertible Note”) and a five-year
warrant for 70,000 shares of Common Stock (the “Vista
Warrant”) (collectively the “Vista Financing
Transaction”). Vista alleged that the Company failed to issue
certain shares of the Company’s common stock as was required
under the terms of the Vista Warrant. Vista sought money damages in
the approximate amount of $7,000,000, as well as costs and
reimbursement of expenses. On April 9, 2020 (the
“Closing”), the Company, Vista and David Clark
(“Clark”), a principal of Vista, (the
“Parties”) entered into a Settlement Agreement and
Release (the “Settlement Agreement”) whereby the
Company (i) paid to Vista the sum of $75,000, which the Company
wired on April 10, 2020, and (ii) issued to Vista 17,500,000 shares
of the Company’s common stock (the “Settlement
Shares”). For a period of time equal to 90-days from the
Closing, or July 8, 2020, the Company had the right, but not the
obligation, to purchase back from Vista 8,750,000 of the Settlement
Shares at a price equal to the greater of (i) the volume
weighted-average trading price (“VWAP”) of the Common
Shares over the five (5) preceding trading days prior to the date
of the delivery of the Company’s written notice of such
repurchase or (ii) $0.02 per share. The Settlement Agreement also
contained joint and mutual releases by all Parties from any and all
claims, demands, suits, debts, promises, damages, judgements,
executions, guaranties or warrants, whether known or unknown,
having to do with the Financing Transaction. On May 28, 2020, the
Company received $50,000 as consideration for waiving the purchase
option on the Settlement Shares, thereby allowing Vista to retain
all of the Settlement Shares.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
23
PART II
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 23, 2020, the closing price of our
common stock reported by the OTC Markets was $0.048 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.
Holders of Common Stock
As of
June 23, 2020, there were 81 shareholders of record of our common
stock. As of such date, 463,679,669 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, 2020.
Recent Sales of Unregistered Securities
Convertible Debentures
March 20, 2018 Debenture
On
March 20, 2018, the Company entered into a convertible note for the
principal amount of $84,000, convertible into shares of common
stock of the Company, which matured on December 20, 2018. On
September 20, 2018 the outstanding principal and $5,040 in accrued
interest of the note was purchased from the noteholder by a third
party, for $126,882. The additional $37,842 represented the
redemption amount owing to the original noteholder and increases
the principal amount due to the new noteholder and was recognized
as financing cost. The note bears interest at 12% for the first 180
days, which increases to 18% after 180 days, and 24% upon an event
of default. The note is convertible on the date beginning 180 days
after issuance of the note, at the lower of 60% of the lowest
trading price for the last 20 days prior to the issuance date of
this note, or 60% of the lowest trading price for the last 20 days
prior to conversion. In the event of a “DTC chill”, the
conversion rate is adjusted to 40% of the market price. Per the
agreement, the Company is required at all times to have authorized
and reserved ten times the number of shares that is actually
issuable upon full conversion of the note.
During
the first 180 days the convertible redeemable note was in effect,
the Company was allowed to redeem the note at amounts ranging from
125% to 150% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from the
issuance to 180 days from the date of issuance of the
debenture.
Additionally, the
Company also issued 255,675 shares of common stock of the Company
as a commitment fee.
24
During
the third fiscal quarter of 2019, in two separate conversions, the
holder converted $91,592 of principal into 16,870,962 shares of
common stock of the Company. On March 1, 2019, the holder converted
$28,579 of principal and $2,021 of accrued interest into 1,000,000
shares of common stock of the Company. On November 12, 2019, the
holder converted the remaining principal and accrued interest
balance into 179,984 shares of common stock of the
Company.
August 24, 2018 Debenture
On
August 24, 2018, the Company entered into a 10% convertible note in
the principal amount of $55,000, convertible into shares of common
stock of the Company, which matures August 24, 2019. The interest
rate increases to 24% per annum upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%. The notes are convertible into shares of the
Company’s common stock at a price per share equal to 57% of
the lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 47%, upon a “DTC
chill".
During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 130% to
145% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. On January 10,
2019 the outstanding principal of $55,000 and accrued interest of
$1,974 was purchased from the noteholder by a third party, for
$82,612. The additional $25,638 represents the redemption amount
owing to the original noteholder and increases the principal amount
due to the new noteholder and was recognized as financing
cost.
During
the fourth fiscal quarter of 2019, in three separate conversions,
the holder converted $57,164 of principal into 9,291,354 shares of
common stock of the Company.
September 14, 2018 Debenture
On
September 14, 2018, the Company entered into a 12% convertible
promissory note for $112,500, with an OID of $10,250, which matures
on March 14, 2019. On January 25, 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, who extended the maturity date. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. The interest
rate increases to a default rate of 24% for events as set forth in
the agreement, including if the market capitalization is below $5
million, or there are any dilutive issuances. There is also a cross
default provision to all other notes. In the event of default, the
outstanding principal balance increases to 150%, and if the Company
fails to maintain the required authorized share reserve, the
outstanding principal increases to 200%. Additionally, If the
Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there
are liquidation damages of 25% of principal, not to be below
$15,000. The Company must also obtain the noteholder's written
consent before issuing any new debt. Additionally, if the note is
not repaid by the maturity date the principal balance increases by
$15,000. The market capitalization is below $5 million and
therefore the note was in default, however, the holder has issued a
waiver to the Company on this default provision.
The
note is convertible into shares of the Company’s common stock
at a variable conversion rate that is equal to the lesser of 60% of
the lowest trading price for the last 20 days prior to the issuance
of the note or 60% of the lowest market price over the 20 days
prior to conversion. The conversion price shall be adjusted upon
subsequent sales of securities at a price lower than the original
conversion price. There are additional 10% adjustments to the
conversion price for events set forth in the agreement, including
if the conversion price is less than $0.01, if the Company is not
DTC eligible, the Company is no longer a reporting company, or the
note cannot be converted into free trading shares on or after nine
months from issue date. Per the agreement, the Company is required
at all times to have authorized and reserved three times the number
of shares that is actually issuable upon full conversion of the
note. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and is accounted for as a
derivative liability.
25
Additionally, in
connection with the debenture the Company also issued 3,000,000
shares of common stock of the Company as a commitment fee. The
shares are to be returned to the Treasury of the Company in the
event the debenture is fully repaid prior to the date which is 180
days following the issue date but are not required to be returned
if there is an event of default.
On
December 13, 2018 the holder converted $11,200 of principal into
4,000,000 shares of common stock of the Company. There were no
further conversions during the year ended March 31, 2020 with a
remaining outstanding principal balance of $171,620 as of March 31,
2020.
December 6, 2018 Debenture
On
December 6, 2018, the Company entered into an 10% convertible
promissory note for $210,460, which matures on September 6, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the “bid” price for its Common
Stock, on trading markets, including the OTCBB, OTCQB or an
equivalent replacement exchange. If the Company enters into a
3(a)(9) or 3(a)(10) issuance of shares there are liquidation
damages of 25% of principal, not to be below $15,000. The Company
must also obtain the noteholder's written consent before issuing
any new debt. The note is convertible at a fixed conversion price
of $0.01. If an event of default occurs, the fixed conversion price
is extinguished and replaced by a variable conversion rate that is
70% of the lowest trading prices during the 20 days prior to
conversion. The fixed conversion price shall reset upon any future
dilutive issuance of shares, options or convertible
securities.
On June
27, 2019 the holder converted $18,410 of principal and $15.590 of
interest into 3,000,000 shares of common stock of the Company. On
three occasions during the three months ended September 30, 2019,
the holder converted $137,000 of principal and $3,000 of interest
into 14,000,000 shares of common stock of the Company. The note was
fully converted on two occasions during October 2019, into
8,420,477 shares of common stock of the Company.
December 31, 2018 Debenture
On
December 31, 2018, the Company entered into an 10% convertible
promissory note for $135,910, which matures on September 30, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the “bid” price for its Common
Stock, on trading markets, including the OTCBB, OTCQB or an
equivalent replacement exchange. If the Company enters into a
3(a)(9) or 3(a)(10) issuance of shares there are liquidation
damages of 25% of principal, not to be below $15,000. The Company
must also obtain the noteholder’s written consent before
issuing any new debt. The note is convertible at a fixed conversion
price of $0.01. If an event of default occurs, the fixed conversion
price is extinguished and replaced by a variable conversion rate
that is 70% of the lowest trading prices during the 20 days prior
to conversion. The fixed conversion price shall reset upon any
future dilutive issuance of shares, options or convertible
securities.
On
January 6, 2020 the holder converted the entire principal balance
of $135,910, plus accrued interest of $13,893 into 14,980,353
shares of the common stock of the Company.
26
January 16, 2019 Debenture
On
January 16, 2019, the Company entered into an 10% convertible
promissory note for $205,436, with an OID of $18,686, for a
purchase price of $186,750, which matures on October 16, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the noteholder's
written consent before issuing any new debt. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities.
On two
occasions during the three months ended December 31, 2019, the
holder converted $101,661 of principal into 12,000,000 shares of
common stock of the Company. On March 11, 2020, the holder
converted the remaining $103,775 of principal and $2,681 of accrued
interest into 10,645,636 of shares of the common stock of the
Company.
February 4, 2019 Debenture
On
February 4, 2019, the Company entered into an 10% convertible
promissory note for $85.500, with an OID of $7,500, for a purchase
price of $75,000, which matures on November 4, 2019. During the
first 180 days the convertible redeemable note is in effect, the
Company may redeem the note at a prepayment percentage of 120% to
130% of the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. Per the agreement,
the Company is required at all times to have authorized and
reserved three times the number of shares that is actually issuable
upon full conversion of the note. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. If the Company
enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are
liquidation damages of 25% of principal, not to be below $15,000.
The Company must also obtain the noteholder's written consent
before issuing any new debt. The note is convertible at a fixed
conversion price of $0.01. If an event of default occurs, the fixed
conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in ASC 815-10-15-74(a) and would not be bifurcated
and accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $85,500
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest
method.
On
August 6, 2019, the Company exercised its option to redeem the
February 4, 2019 debenture, for a redemption price of approximately
$132,000. The principal of $85,500 and interest of approximately
$5,000 was derecognized with the additional $27,000 paid upon
redemption recognized as a financing cost and $15,000 for legal
fees. As a result of the redemption, the unamortized discount,
after amortization expense in fiscal year 2020 of $28,500, related
to the redeemed balance of $38,000 was immediately expensed,
resulting in a total of $65,500. The amortization expense
recognized during the year ended March 31, 2019 amounted to
approximately $19,000.
27
March 1, 2019 Debenture
On
March 1, 2019, the Company entered into an 10% convertible
promissory note for $168,000, with an OID of $18,000, for a
purchase price of $150,000, which matures on November 1, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 100% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the noteholder's
written consent before issuing any new debt. The note is
convertible at a fixed conversion price of $0.25. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities.
April 17, 2019 Debenture
On
April 17, 2019, the Company entered into an 10% convertible
promissory note for $110,000, with an OID of $10,000, for a
purchase price of $100,000, which matures on January 23, 2020. The
maturity date has been waived as of the date of this filing. During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at a prepayment percentage of 120%
to 130% of the outstanding principal and accrued interest based on
the redemption date’s passage of time ranging from 60 days to
180 days from the date of issuance of the debenture. Per the
agreement, the Company is required at all times to have authorized
and reserved three times the number of shares that is actually
issuable upon full conversion of the note. In the event of default,
as set forth in the agreement, the outstanding principal balance
increases to 150%. In addition to standard events of default, an
event of default occurs if the common stock of the Company shall
lose the “bid” price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the
noteholder’s written consent before issuing any new debt. The
note is convertible at a fixed conversion price of $0.124. If an
event of default occurs, the fixed conversion price is extinguished
and replaced by a variable conversion rate that is 70% of the
lowest trading prices during the 20 days prior to conversion. The
fixed conversion price shall reset upon any future dilutive
issuance of shares, options or convertible securities.
Preferred Stock
As of
March 31, 2020 and 2019, the Company had 200,000,000 preferred
stock authorized with a par value of $0.0001. Of this amount,
5,000,000 shares Series A preferred stock are authorized and
outstanding, and 5,000 shares Series B preferred stock are
authorized and 2,250 outstanding, respectively.
Series A Preferred Shares
On
August 15, 2018, the Company authorized 5,000,000 of their
Preferred Stock to be designated as Series A Convertible Preferred
Stock (“Series A Preferred Stock”), with a par value of
$0.0001. The Series A Preferred Stock shall have 60 to 1 voting
rights such that each share shall vote as to 60 shares of common
stock. The Series A Preferred Stockholders shall not be entitled to
receive dividends, if and when declared by the Board. Upon the
dissolution, liquidation or winding up of the Company, the holders
of Series A Preferred Stock shall be entitled to receive out of the
assets of the Company the sum of $0.00l per share before any
payment or distribution shall be made on the common stock, or any
other class of capital stock of the Company ranking junior to the
Series A Preferred Stock. The Series A Preferred Stock is
convertible, after two years from the date of issuance, with the
consent of a majority of the Series A Preferred Stockholders, into
the same number of shares of common stock of the Company as are
outstanding at the time.
28
On
August 21, 2018, the NaturalShrimp Holdings,
Inc.(“NSH”) shareholders exchanged 75,000,000 of the
shares of common stock of the Company which they held, into
5,000,000 newly issued Series A Preferred Stock. The shares of
common stock were returned to the treasury and cancelled. The
Series A Preferred Stock do not have any redemption feature and are
therefore classified in permanent equity. The conversion feature
was evaluated, and as at the commitment date the fair value of the
shares of common stock exchanged was greater than the fair value of
the shares into which they would be converted, it was determined
there was no beneficial aspect to the conversion
feature.
Series B Preferred Equity Offering
On
September 5, 2019, the Board authorized the issuance of 5,000
preferred shares to be designated as Series B Preferred Stock
(“Series B Preferred Stock”). The Series B Preferred
Stock have a par value of $0.0001, a stated value of $1,200 and no
voting rights. The Series B Preferred Stock are redeemable at the
Company's option, at percentages ranging from 120% to 135% for the
first 180 days, based on the passage of time. The Series B are also
redeemable at the holder’s option, upon the occurrence of a
triggering event, which includes a change of control, bankruptcy,
and the inability to deliver Series B Preferred Stock requested
under conversion notices. The triggering redemption amount is at
the greater of (i) 135% of the stated value or (ii) the product of
the volume-weighted average price (“VWAP”) on the day
proceeding the triggering event multiplied by the stated value
divided by the conversion price. As the redemption feature at the
holder’s option is contingent on a future triggering event,
the Series B Preferred Stock is considered contingently redeemable,
and as such the preferred shares are classified in equity until
such time as a triggering event occurs, at which time they will be
classified as mezzanine.
The
Series B 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.
On
September 17, 2019, the Company entered into a Securities Purchase
Agreement (“SPA”) with GHS Investments LLC, a Nevada
limited liability company (“GHS”) for the purchase of
up to 5,000 shares of Series B Preferred Stock at a stated value of
$1,200 per share, or for a total net proceeds of $5,000,000 in the
event the entire 5,000 shares of Series B Preferred Stock are
purchased. During the year ended March 31, 2020, the Company issued
2,250 Series B Preferred Shares in various tranches of the SPA,
totaling $2,250,000.
Common Stock
On
September 20, 2018, the Company increased their authorized common
shares to 900,000,000.
On
April 12, 2018, the Company sold 220,000 shares of its common stock
at $0.077 per share, for a total financing of $15,400.
On
February 14, 2019, the Company issued 225,000 shares of its common
stock to the original noteholder of the March 20, 2018 convertible
debenture. The fair value of the shares of $72,450 based on the
market price of $0.32 on the date of issuance, have been recognized
as a financing cost.
The
Company issued 6,719,925 shares of their common stock on July 17,
2018, upon cashless exercise of the warrants granted in connection
with a convertible debenture entered into in July of 2017, and on
August 28, 2018, 4,494,347 shares were issued upon cashless
exercise of the warrants granted in connection with the second
closing of the same convertible debenture.
The
Company issued 10,000,000 and 6,093,683 shares of common stock on
January 11, 2019 and February 8, 2019, respectively, upon cashless
exercise of the warrants granted in connection with a convertible
debenture entered into in September of 2017 Debenture.
29
Equity Financing Agreement 2018
On
August 21, 2018, the Company entered into an Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS Investments LLC, a Nevada limited
liability company (“GHS”). Under the terms of the
Equity Financing Agreement, GHS agreed to provide the Company with
up to $7,000,000 upon effectiveness of a registration statement on
Form S-1 (the “Registration Statement”) filed with the
U.S. Securities and Exchange Commission (the
“Commission”). The Registration Statement was filed and
deemed effective on September 19, 2018.
Following
effectiveness of the Registration Statement, the Company has the
discretion to deliver puts to GHS and GHS will be obligated to
purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $300,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to
purchase, and the Company may not put shares of the Company’s
Common Stock to GHS that would result in GHS’s beneficial
ownership equaling more than 9.99% of the Company’s
outstanding Common Stock. The price of each put share shall be
equal to eighty percent (80%) of the Market Price (as defined in
the Equity Financing Agreement). Puts may be delivered by the
Company to GHS until the earlier of thirty-six (36) months after
the effectiveness of the Registration Statement or the date on
which GHS has purchased an aggregate of $7,000,000 worth of Common
Stock under the terms of the Equity Financing Agreement.
Additionally, in accordance with the Equity Financing Agreement,
the Company shall issue GHS a promissory note in the principal
amount of $15,000 to offset transaction costs (the
“Note”). The Note bears interest at the rate of 8% per
annum, is not convertible and is due 180 days from the issuance
date of the Note.
During
the year ended March 31, 2020, the Company put to GHS for the
issuance of 14,744,646 shares of common stock for a total of
$1,774,000, at prices ranging from $0.15 to $0.09. During the year
ended March 31, 2019, the Company put to GHS for the issuance of
22,131,893 shares of common stock for a total of $464,516, at
prices ranging from $0.14 to $0.0046.
Equity Financing Agreement 2019
On
August 23, 2019, the Company entered into a new Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS. Under the terms of the Equity Financing
Agreement, GHS agreed to provide the Company with up to $11,000,000
upon effectiveness of a registration statement on Form S-1 (the
“Registration Statement”) filed with the U.S.
Securities and Exchange Commission (the
“Commission”).
Following
effectiveness of the Registration Statement, the Company shall have
the discretion to deliver puts to GHS and GHS will be obligated to
purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $500,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to purchase
and the Company may not put shares of the Company’s Common
Stock to GHS that would result in GHS’s beneficial ownership
equaling more than 4.99% of the Company’s outstanding Common
Stock. The price of each put share shall be equal to eighty percent
(80%) of the Market Price (as defined in the Equity Financing
Agreement). Puts may be delivered by the Company to GHS until the
earlier of thirty-six (36) months after the effectiveness of the
Registration Statement or the date on which GHS has purchased an
aggregate of $11,000,000 worth of Common Stock under the terms of
the Equity Financing Agreement.
The
Registration Rights Agreement provides that the Company shall (i)
use its best efforts to file with the Commission the Registration
Statement within 30 days of the date of the Registration Rights
Agreement; and (ii) have the Registration Statement declared
effective by the Commission within 30 days after the date the
Registration Statement is filed with the Commission, but in no
event more than 90 days after the Registration Statement is filed.
The Registration Statement was filed on October 8, 2019 and has not
yet been deemed effective.
30
The
Company utilized the funds from each of the foregoing sales of
common stock for facilities expansion, operating expenses, capital
expenditures and for general working capital.
Issuer Purchases of Equity Securities
During
the fiscal year ended March 31, 2020, we did not repurchase any of
our equity securities.
ITEM 6. SELECTED FINANCIAL DATA
Not
applicable.
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.
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 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.
31
Corporate History
We were
incorporated in the State of Nevada on July 3, 2008 under the name
“Multiplayer Online Dragon, Inc.” Effective November 5,
2010, we effected an 8-for-1 forward stock split, increasing the
issued and outstanding shares of our common stock from 12,000,000
shares to 96,000,000 shares. On October 29, 2014, we effected a
1-for-10 reverse stock split, decreasing the issued and outstanding
shares of our common stock from 97,000,000 to
9,700,000.
On
November 26, 2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NSC and NS Global, and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On
January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In
connection with our receipt of approval from the Financial Industry
Regulatory Authority (“FINRA”), effective March 3,
2015, we amended our Articles of Incorporation to change our name
to “NaturalShrimp Incorporated.”
Business Overview
We are
a biotechnology company and have developed a proprietary technology
that allows us to grow Pacific White shrimp (Litopenaeus vannamei,
formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS
Global, one of our wholly-owned subsidiaries, owns less than 1% of
NaturalShrimp International A.S. in Europe. Our European-based
partner, NaturalShrimp International A.S., Oslo, Norway, is
responsible for the construction cost of its facility and initial
operating capital.
The
first facility built in Spain for NaturalShrimp International A.S.
is GambaNatural de España, S.L. The land for the first
facility was purchased in Medina del Campo, Spain, and construction
of the 75,000 sq. ft. facility was completed in 2016. Medina del
Campo is approximately seventy-five miles northwest of Madrid,
Spain.
On
October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas. On December 25, 2018, we were awarded U.S.
Patent “Recirculating Aquaculture System and Treatment Method
for Aquatic Species” covering all indoor aquatic species that
utilizes proprietary art.
The
Company has two wholly-owned subsidiaries, NSC and NS Global and
owns 51% of NAS.
32
Evolution of Technology and Revenue Expectations
Management has diligently analyzed all possible
options to finalize a strong financial go-forward strategy to
rebuild our shrimp production facilities. These strategies include
time-to-market, patented technologies, operational systems,
environmental impacts, employee safety, distribution, etc. As
previously reported, the Company committed to reviewing all options
including the acquisition and/or leasing of existing regional
production warehouses or any existing seafood facility that could
be quickly adapted to our technology processes and procedures. We
completed our evaluation during our fiscal first quarter of new
buildings, seafood production facilities, and the option of
rebuilding in La Coste. The evaluation process provided two best
options: first, acquisition of an existing seafood grow-out
facility and, second, building a new pilot plant on our La Coste
property. We identified an existing aquaculture grow-out facility
during our fiscal first quarter, but we were not able to consummate
a transaction under terms and conditions that would make the
purchase financially viable. During this process, management was
concurrently developing a detailed plan to rebuild the facility in
La Coste. We have committed $2.5 million to rebuild in La Coste
with plans to utilize its existing infrastructure. The
design will present a viable pathway to begin generating revenue
and producing shrimp on a commercially viable
scale.
Material Events During the Year
Facility Loss Due to Fire
On
March 18, 2020, there was a fire at the facility that destroyed a
large portion of the fixed assets of the Company. The property
destroyed had a net book value of $1,909,495, which was written off
and recognized in loss due to fire. The Company filed a claim with
their insurance company, and as of June 2, 2020, received all the
proceeds, which totaled $917,210. In accordance with ASC 610-30,
Other Income: Gains and Losses on Involuntary Conversions, a loss
of property due to destruction, such as a fire, which is replaced
by another asset such as cash or insurance proceeds is defined as
an involuntary conversion, and to the extent the cost of the assets
destroyed differs from the amount of monetary assets received, the
transaction results in the realization of a gain or loss that shall
be recognized as a separate component of income from continuing
operations. Therefore, there was a loss due to fire of $992,285
recognized on our financial statements. As the proceeds were
received subsequent to the year end at March 31, 2020, but prior to
the issuance of the financial statements, the $917,210 has been
recognized as insurance settlement on the accompanying financial
statements.
Vista Capital Investments, LLC Lawsuit Settlement
On April 30, 2019, a complaint was filed against
the Company in the U.S. District Court in Dallas, Texas alleging
that the Company breached a provision in a common stock
purchase warrant (the “Vista Warrant”) issued by the
Company to Vista Capital Investments, LLC (“Vista”).
Vista alleged that the Company failed
to issue certain shares of the Company’s Common Stock as was
required under the terms of the Warrant. Vista sought money damages
in the approximate amount of $7,000,000, as well as costs and
reimbursement of expenses.
On April 9, 2020, the Company, Vista and David
Clark, a principal of Vista, entered into a Settlement Agreement
and Release Agreement whereby the Company shall (i) pay to Vista
the sum of $75,000, which the Company wired on April 10, 2020, and
(ii) issue to Vista 17,500,000 shares of the Company’s Common
Stock (the “Settlement Shares”). For a period of time
equal to 90-days from the date of the settlement, or July 8, 2020,
the Company shall have the right, but not the obligation, to
purchase back from Vista 8,750,000 of the Settlement Shares at a
price equal to the greater of (i) the volume weighted-average
trading price of the Company’s common shares over the five
preceding trading days prior to the date of the delivery of the
Company’s written notice of such repurchase or (ii) $0.02 per
share. The Vista warrants outstanding were also cancelled as part
of the Settlement Agreement. The $75,000, as well as the fair
market value of the 17,500,000 common shares, which is $560,000
based on the market value of the Company’s common stock on
the settlement date of $0.32, has been accrued in accrued expenses
on the accompanying financial statements and recognized as a loss
on warrant settlement as of March 31, 2020. On May 28, 2020,
the Company received $50,000 as consideration for waiving the
purchase option on the Settlement Shares, thereby allowing Vista to
retain all of the Settlement Shares.
33
Results of Operations
Comparison of the Fiscal Year Ended March 31, 2020 and the Fiscal
Year Ended March 31, 2019
Revenue
We have
not earned any significant revenues since our
inception.
Expenses
Our
expenses for the year ended March 31, 2020 are summarized as
follows, in comparison to our expenses for the year ended March 31,
2019:
|
Years Ended
March 31,
|
|
|
2020
|
2019
|
Salaries and
related expenses
|
$486,088
|
$422,160
|
Rent
|
17,196
|
12,134
|
Professional
fees
|
454,571
|
234,932
|
Other general and
administrative expenses
|
652,476
|
200,595
|
Facility
operations
|
232,318
|
100,596
|
Research and
development
|
153,250
|
--
|
Depreciation
|
100,359
|
30,296
|
Total
|
$2,096,258
|
$1,000,713
|
Operating expenses
for the year ended March 31, 2020 were $2,096,258, representing an
increase of 109% compared to operating expenses of $1,000,713 for
the same period in 2019. The overall increase in expenses is mainly
due to the Company progressing with its testing and planning to
begin commercial operations (although disrupted by the fire in
mid-March of 2020), which resulted in a ramp-up of costs, including
increases for employees and related costs and general and
administrative costs composed of new consultants hired, travel
costs and maintenance and
repairs. Legal fees, included in professional fees, also
increased due to the registration statement and other securities
filings. Additionally, the Company’s subsidiary, NAS, began
activities during the quarter, which included costs for research
and development of their technology and the treatment lab.
Depreciation expense increased as the construction in process was
put into operation and began to be depreciated.
Liquidity, Financial Condition and Capital Resources
As of
March 31, 2020, we had cash on hand of $109,491 and a working
capital deficiency of approximately $3,598,000, as compared to cash
on hand of $137,499 and a working capital deficiency of
approximately $3,753,000 as of March 31, 2019. The slight decrease
in working capital deficiency for the year ended March 31, 2020 is
mainly due to an increase in current assets, consisting mostly of
the insurance settlement from the fire, offset by an increase in
accounts payable and accrued expenses, as well as the reclass to
non-current liabilities of the bank loan due to its renewal and as
discussed in further detail below.
Working Capital Deficiency
Our
working capital deficiency as of March 31, 2020, in comparison to
our working capital deficiency as of March 31, 2019, can be
summarized as follows:
|
March
31,
|
March
31,
|
|
2020
|
2019
|
Current
assets
|
$1,155,394
|
$178,685
|
Current
liabilities
|
4,753,343
|
3,931,618
|
Working capital
deficiency
|
$3,597,949
|
$3,752,933
|
34
The
increase in current assets is mainly due to the recognition of the
insurance settlement of approximately $917,000, which represents
the amount received by the Company subsequent to the year end from
the insurance company for the property damaged by fire on March 18,
2020, as well as an increase in prepaid expenses of approximately
$136,000 arising from certain legal retainers and deposits on
equipment. The increase in current liabilities is primarily due to
the accrual of the Vista warrant settlement of $634,000, plus
approximately $70,000 in accrued legal fees related to the
settlement. There additionally is an increase in current balances
on lines of credit, based on their maturity dates. The increase in
current liabilities is offset by the payoff of the related party
convertible debenture of $87,600 from the previous year’s
balance. All other current assets and liabilities are fairly
consistent to the prior year’s balances.
Cash Flows
Our
cash flows for the year ended March 31, 2020, in comparison to our
cash flows for the year ended March 31, 2019, can be summarized as
follows:
|
Year Ended March
31,
|
|
|
2020
|
2019
|
Net cash used in
operating activities
|
$(2,482,846)
|
$(990,334)
|
Net cash used in
investing activities
|
(1,232,704)
|
(211,830)
|
Net cash provided
by financing activities
|
3,687,542
|
1,315,383
|
Increase (decrease)
in cash and cash equivalents
|
$(28,008)
|
$113,219
|
The
increase in net cash used in operating activities in the year ended
March 31, 2020, compared to the same period in 2019, mainly relates
to the current year’s loss on warrant settlement of $635,000
and the loss due to fire of $992,286, plus a swing in the fair
value of the derivative liability from an increase in fair value of
$27,000 in fiscal 2020 to a decrease in the fair value of
$1,319,500 in fiscal 2019, offset by the previous year’s
approximate $3,745,000 loss on the exercise of warrants which did
not occur in the current year too, the decreases in the
amortization of the debt discount and financing costs for the year
ended March 31, 2019, as well as the decrease in the net loss of
approximately $2,337,000.
The net
cash used in investing activities in the year ended March 31, 2020
included an increase in the purchase of machinery and equipment as
the facility got further along to operations and there was no
longer any costs paid on construction in process on the new
facility as compared to the same period in 2019.
The net
cash provided by financing activities increased between periods,
with the increased cash provided by financing activities during the
year ended March 31, 2020 arising from the additional proceeds
received from the new equity financing agreement and the sale of
the Series B convertible preferred stock, offset by a decrease in
proceeds for new convertible debentures during fiscal 2020 as
compared to fiscal 2019 as well as payments made on one of the
lines of credit and the convertible debenture, related
party.
Our
cash position was approximately $109,000 as of March 31, 2020.
Management believes that our cash on hand and working capital are
not sufficient to meet our current anticipated cash requirements
through fiscal 2020, as described in further detail under the
section titled “Going
Concern” below.
Recent Financing Arrangements and Developments During the
Period
Short-Term Debt and Lines of Credit
The
Company also has a working capital line of credit with Extraco
Bank. On April 30, 2019, the Company renewed the line of credit for
$372,675. The line of credit bears an interest rate of 5.0% that is
compounded monthly on unpaid balances and is payable monthly. The
line of credit matures on April 30, 2020 and is secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the line of credit
is $372,675 and $473,029 at March 31, 2020 and March 31, 2019. On
April 12, 2019, prior to the renewal, the Company had paid $100,000
on the loan. On April 30, 2020, the line of credit was renewed with
a maturity date of April 30, 2021, for a balance of
$372,675.
35
The
Company also has additional lines of credit with Extraco Bank for
$100,000 and $200,000, which were renewed on January 19, 2019 and
April 30, 2019, respectively, with maturity dates of January 19,
2020 and April 30, 2020, respectively. On January 8, 2020, the
Company paid off the $100,000 line of credit. The lines of credit
bear an interest rate of 6.5% and 5%, respectively, that is
compounded monthly on unpaid balances and is payable monthly. They
are secured by certificates of deposit and letters of credit owned
by directors and shareholders of the Company. The balance of the
lines of credit was $178,778 and $276,958 at March 31, 2020 and
March 31, 2019, respectively. On April 30, 2020, the line of credit
was renewed with a maturity date of April 30, 2021, for a balance
of $177,778.
The
Company also has a working capital line of credit with Capital One
Bank for $50,000. The line of credit bears an interest rate of
prime plus 25.9 basis points, which totaled 31.4% as of March 31,
2019. The line of credit is unsecured. The balance of the line of
credit was $9,580 at both March 31, 2020 and March 31,
2019.
The
Company also has a working capital line of credit with Chase Bank
for $25,000. The line of credit bears an interest rate of prime
plus 10 basis points, which totaled 15.50% as of March 31, 2019.
The line of credit is secured by assets of the Company’s
subsidiaries. The balance of the line of credit is $10,237 at March
31, 2020 and March 31, 2019.
Bank Loan
On
January 10, 2017, the Company entered into a promissory note with
Community National Bank for $245,000, at an annual interest rate of
5% and a maturity date of January 10, 2020 (the “CNB
Note”). The CNB Note is secured by certain real property
owned by the Company in LaCoste, Texas, and is also personally
guaranteed by the Company’s President, as well as certain
shareholders of the Company. On January 10, 2020, the loan was
modified, with certain terms amended. The modified note is for the
principal balance of $222,736, with initial monthly payments of
$1,730 through February 1, 2037, when all unpaid principal and
interest will be due and payable. The loan has an initial yearly
rate of interest of 5.75% , which may change beginning on February
1, 2023 and each 36 months thereafter, to the Wall Street Journal
Prime Rate plus 1%, but never below 4.25%. The monthly payments may
change on the same dates as the interest changes. The Company is
also allowed to make payments against the principal at any time.
The balance of the CNB Note is $222,736 at March 31, 2020, $19,200
of which was in current liabilities, and $228,725 at March 31,
2019.
On
November 3, 2015, the Company entered into a short-term note
agreement with Community National Bank for a total value of
$50,000. The short-term note had a stated interest rate of 5.25%,
maturity date of December 15, 2017 and had an initial interest only
payment on February 3, 2016. On July 18, 2018, the short-term note
was replaced by a promissory note for the outstanding balance of
$25,298, which bears interest at 8% with a maturity date of July
18, 2021. The promissory note is guaranteed by an officer and
director. The balance of the promissory note at March 31, 2020 and
2019 was $12,005 and $20,193, respectively.
Convertible Debentures
On
March 20, 2018, the Company entered into a convertible note for the
principal amount of $84,000, convertible into shares of common
stock of the Company, which matures on December 20, 2018. The note
bears interest at 12% for the first 180 days, which increases to
18% after 180 days, and 24% upon an event of default. The note is
convertible on the date beginning 180 days after issuance of the
note, at the lower of 60% of the lowest trading price for the last
20 days prior to the issuance date of this note, or 60% of the
lowest trading price for the last 20 days prior to conversion. In
the event of a "DTC chill", the conversion rate is adjusted to 40%
of the market price. Per the agreement, the Company is required at
all times to have authorized and reserved ten times the number of
shares that is actually issuable upon full conversion of the note.
Additionally, the Company also issued 255,675 shares of common
stock of the Company as a commitment fee. The commitment shares
fair value was calculated as $28,124, based on the market value of
the shares of common stock of the Company at the closing date of
$0.11, and was recognized as part of the debt discount. During the
third fiscal quarter of 2019, in two separate conversions, the
holder converted $91,592 of principal into 16,870,962 shares of
common stock of the Company. During the fourth quarter of 2019 on
two separate occasions, the holder converted $46,759 of principal
and $7,142 of accrued interest into 5,670,707 shares of common
stock of the Company. On March 1,
2019, the holder converted $28,579 of principal and $2,021 of
accrued interest into 1,000,000 shares of common stock of the
Company. On November 12, 2019, the holder converted the remaining
principal and accrued interest balance into 179,984 shares of
common stock of the Company.
36
On
August 24, 2018, the Company entered into a 10% convertible note in
the principal amount of $55,000, convertible into shares of common
stock of the Company, which matures August 24, 2019. The interest
rate increases to 24% per annum upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%. The notes are convertible into shares of the
Company’s common stock at a price per share equal to 57% of
the lowest closing bid price for the last 20 days. The discount is
increased an additional 10%, to 47%, upon a “DTC chill".
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at amounts ranging from
130% to 145% of the principal and accrued interest balance, based
on the redemption date’s passage of time ranging from 60 days
to 180 days from the date of issuance of the debenture. On January
10, 2019 the outstanding principal of $55,000 and accrued interest
of $1,974 was purchased from the noteholder by a third party, for
$82,612. The additional $25,638 represents the redemption amount
owing to the original noteholder and increases the principal amount
due to the new noteholder and was recognized as financing cost.
During the fourth fiscal quarter of 2019, in three separate
conversions, the holder converted $57,164 of principal into
9,291,354 shares of common stock of the Company. There were no
further conversions during the year ended March 31, 2020, with a
remaining outstanding principal balance of $23,474 as of March 31,
2020.
On
September 14, 2018, the Company entered into a 12% convertible
promissory note for $112,500, with an OID of $10,250, which matures
on March 14, 2019. On January 25, 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. 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 interest rate increases to a default rate of 24% for events as
set forth in the agreement, including if the market capitalization
is below $5 million, or there are any dilutive issuances. There is
also a cross default provision to all other notes. In the event of
default, the outstanding principal balance increases to 150%, and
if the Company fails to maintain the required authorized share
reserve, the outstanding principal increases to 200%. Additionally,
If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares
there are liquidation damages of 25% of principal, not to be below
$15,000. The Company must also obtain the noteholder's written
consent before issuing any new debt. Additionally, if the note is
not repaid by the maturity date the principal balance increases by
$15,000. The market capitalization is below $5 million and
therefore the note was in default as of September 30, 2018. The
holder has issued a waiver to the Company on this default
provision. The note is convertible into shares of the
Company’s common stock at a variable conversion rate that is
equal to the lesser of 60% of the lowest trading price for the last
20 days prior to the issuance of the note or 60% of the lowest
market price over the 20 days prior to conversion. The conversion
price shall be adjusted upon subsequent sales of securities at a
price lower than the original conversion price. There are
additional 10% adjustments to the conversion price for events set
forth in the agreement, including if the conversion price is less
than $0.01, if the Company is not DTC eligible, the Company is no
longer a reporting company, or the note cannot be converted into
free trading shares on or after nine months from issue date. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. Additionally,
in connection with the debenture the Company also issued 3,000,000
shares of common stock of the Company as a commitment fee. The fair
value of the commitment shares was calculated as $34,500, based on
the market value of the shares of common stock at the closing date
of $0.012, and was recognized as part of the debt discount. The
shares are to be returned to the Treasury of the Company in the
event the debenture is fully repaid prior to the date which is 180
days following the issue date, but are not required to be returned
if there is an event of default. On December 13, 2018, the holder
converted $11,200 of principal into 4,000,000 shares of common
stock of the Company. There were no further conversions during the
year ended March 31, 2020 with a remaining outstanding principal
balance of $171,620 as of March 31, 2020.
On
December 6, 2018, the Company entered into an 10% convertible
promissory note for $210,460, which matures on September 6, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the noteholder's
written consent before issuing any new debt. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. On June 27, 2019 the
holder converted $18,410 of principal and $15,590 of interest into
3,000,000 shares of common stock of the Company. On three occasions
during the three months ended September 30, 2019, the holder
converted $137,000 of principal and $3,000 of interest into
14,000,000 shares of common stock of the Company. The note was
fully converted on two occasions during October 2019, into
8,420,477 shares of common stock of the Company.
37
On
December 31, 2018, the Company entered into an 10% convertible
promissory note for $135,910, which matures on September 30, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the noteholder's
written consent before issuing any new debt. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. On January 6, 2020 the
holder converted the entire principal balance of $135,910, plus
accrued interest of $13,893 into 14,980,353 shares of the common
stock of the Company.
On
January 16, 2019, the Company entered into an 10% convertible
promissory note for $205,436, with an OID of $18,6867, for a
purchase price of $186,750.55, which matures on October 16, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3(a)(9) or 3(a)(10) issuance
of shares there are liquidation damages of 25% of principal, not to
be below $15,000. The Company must also obtain the noteholder's
written consent before issuing any issue new debt. The note is
convertible at a fixed conversion price of $0.01. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. On two occasions during
the three months ended December 31, 2019, the holder converted
$101,661 of principal into 12,000,000 shares of common stock of the
Company. On March 11, 2020, the holder converted the remaining
$103,775 of principal and $2,681 of accrued interest into
10,645,636 of shares of the common stock of the
Company.
On
February 4, 2019, the Company issued a 10% convertible promissory
note for $85,500, with an OID of $7,500, for a purchase price of
$75,000, which matures on November 4, 2019. During the first 180
days the convertible redeemable note is in effect, the Company may
redeem the note at a prepayment percentage of 120% to 130% of the
outstanding principal and accrued interest based on the redemption
date’s passage of time ranging from 60 days to 180 days from
the date of issuance of the debenture. Per the agreement, the
Company is required at all times to have authorized and reserved
three times the number of shares that is actually issuable upon
full conversion of the note. In the event of default, as set forth
in the agreement, the outstanding principal balance increases to
150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
"bid" price for its Common Stock, on trading markets, including the
OTCBB, OTCQB or an equivalent replacement exchange. If the Company
enters into a 3 (a)(9) or 3(a)(10) issuance of shares there are
liquidation damages of 25% of principal, not to be below $15,000.
The Company must also obtain the noteholder's written consent
before issuing any issue new debt. The note is convertible at a
fixed conversion price of $0.01. If an event of default occurs, the
fixed conversion price is extinguished and replaced by a variable
conversion rate that is 70% of the lowest trading prices during the
20 days prior to conversion. The fixed conversion price shall reset
upon any future dilutive issuance of shares, options or convertible
securities. On August 6, 2019, the Company exercised its option to
redeem the February 4, 2019 debenture, for a redemption price of
approximately $132,000. The principal of $85,500 and interest of
approximately $5,000 was derecognized with the additional $27,000
paid upon redemption recognized as a financing cost and $15,000 for
legal fees.
38
On
March 1, 2019, the Company entered into an 10% convertible
promissory note for $168,000, with an OID of $18,000, for a
purchase price of $150,000, which matures on November 1, 2019.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 100% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3 (a)(9) or 3(a)(10)
issuance of shares there are liquidation damages of 25% of
principal, not to be below $15,000. The Company must also obtain
the noteholder's written consent before issuing any new debt. The
note is convertible at a fixed conversion price of $0.25. If an
event of default occurs, the fixed conversion price is extinguished
and replaced by a variable conversion rate that is 70% of the
lowest trading prices during the 20 days prior to conversion. The
fixed conversion price shall reset upon any future dilutive
issuance of shares, options or convertible securities.
On
April 17, 2019, the Company entered into an 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.
During the first 180 days the convertible redeemable note is in
effect, the Company may redeem the note at a prepayment percentage
of 120% to 130% of the outstanding principal and accrued interest
based on the redemption date’s passage of time ranging from
60 days to 180 days from the date of issuance of the debenture. Per
the agreement, the Company is required at all times to have
authorized and reserved three times the number of shares that is
actually issuable upon full conversion of the note. In the event of
default, as set forth in the agreement, the outstanding principal
balance increases to 150%. In addition to standard events of
default, an event of default occurs if the common stock of the
Company shall lose the "bid" price for its Common Stock, on trading
markets, including the OTCBB, OTCQB or an equivalent replacement
exchange. If the Company enters into a 3 (a)(9) or 3(a)(10)
issuance of shares there are liquidation damages of 25% of
principal, not to be below $15,000. The Company must also obtain
the noteholder's written consent before issuing any new debt. The
note is convertible at a fixed conversion price of $0.124. If an
event of default occurs, the fixed conversion price is extinguished
and replaced by a variable conversion rate that is 70% of the
lowest trading prices during the 20 days prior to
conversion.
Sale and Issuance of Preferred Stock
On
August 15, 2018, the Company authorized 5,000,000 of their
Preferred Stock to be designated as Series A Convertible Preferred
Stock (“Series A Preferred Stock”), with a par value of
$0.001. The Series A Preferred Stock shall have 60 to 1 voting
rights such that each share shall vote as 60 shares of common
stock. The Series A Preferred Stockholders shall not be entitled to
receive dividends, if and when declared by the Board. Upon the
dissolution, liquidation or winding up of the Company, the holders
of Series A Preferred Stock shall be entitled to receive out of the
assets of the Company the sum of $0.00l per share before any
payment or distribution shall be made on the common stock, or any
other class of capital stock of the Company ranking junior to the
Series A Preferred Stock. The Series A Preferred Stock is
convertible, after two years from the date of issuance, with the
consent of a majority of the Series A Preferred Stockholders, into
the same number of shares of common stock of the Company as are
outstanding at the time.
On
August 21, 2018, the NaturalShrimp Holdings,
Inc.(“NSH”) shareholders exchanged 75,000,000 of the
shares of common stock of the Company which they held, into
5,000,000 newly issued Series A Preferred Stock. The shares of
common stock were returned to the treasury and
cancelled.
On
September 5, 2019, the Board authorized the issuance of 5,000
preferred shares to be designated as Series B Preferred Stock
(“Series B Preferred Stock”). The Series B Preferred
Stock have a par value of $0.0001, a stated value of $1,200 and no
voting rights. The Series B Preferred Stock are redeemable at the
Company's option, at percentages ranging from 120% to 135% for the
first 180 days, based on the passage of time. The Series B are also
redeemable at the holder’s option, upon the occurrence of a
triggering event which includes a change of control, bankruptcy,
and the inability to deliver Series B Preferred Stock requested
under conversion notices. The triggering redemption amount is at
the greater of (i) 135% of the stated value or (ii) the product of
the volume-weighted average price (“VWAP”) on the day
proceeding the triggering event multiplied by the stated value
divided by the conversion price. As the redemption feature at the
holder’s option is contingent on a future triggering event,
the Series B Preferred Stock is considered contingently redeemable,
and as such the preferred shares are classified in equity until
such time as a triggering event occurs, at which time they will be
classified as mezzanine.
39
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.
On
September 17, 2019, the Company entered into a Securities Purchase
Agreement (“SPA”) with GHS Investments LLC, a Nevada
limited liability company (“GHS”) for the purchase of
up to 5,000 shares of Series B Preferred Stock at a stated value of
$1,200 per share, or for a total net proceeds of $5,000,000 in the
event the entire 5,000 shares of Series B Preferred Stock are
purchased. During the year ended March 31, 2020, the Company issued
2,250 Series B Preferred Shares in various tranches of the SPA,
totaling $2,250,000.
Sale and Issuance of Common Stock
On
April 12, 2018, the Company sold 220,000 shares of its common stock
at $0.077 per share, for a total financing of $15,400.
On
February 14, 2019, the Company issued 225,00 shares of its common
stock to the original noteholder of the March 20, 2018 convertible
debenture. The fair value of the shares of $72,450 based on the
market price of $0.32 on the date of issuance, have been recognized
as a financing cost.
The
Company issued 6,719,925 shares of their common stock on July 17,
2018, upon cashless exercise of the warrants granted in connection
with a convertible debenture entered into in July of 2017, and on
August 28, 2018, 4,494,347 shares were issued upon cashless
exercise of the warrants granted in connection with the second
closing of the same convertible debenture.
The
Company issued 10,000,000 and 6,093,683 shares of their common
stock on January 11, 2019 and February 8, 2019, respectively, upon
cashless exercise of the warrants granted in connection with a
convertible debenture entered into in September of 2017
Debenture
During
the year ended March 31, 2020, the Company issued 63,239,585 shares
of the Company’s common stock upon conversion of
approximately $591,000 of their outstanding convertible debt and
approximately $48,000 of accrued interest.
During
the year ended March 31, 2019, the Company issued 226,217,349
shares of the Company’s common stock upon conversion of
approximately $1,318,000 of their outstanding convertible debt and
approximately $43,000 of accrued interest.
Equity Financing Agreement 2019
On
August 23, 2019, the Company entered into a new Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS. Under the terms of the Equity Financing
Agreement, GHS agreed to provide the Company with up to $11,000,000
upon effectiveness of a registration statement on Form S-1 (the
“Registration Statement”) filed with the
SEC.
Following
effectiveness of the Registration Statement, the Company shall have
the discretion to deliver puts to GHS and GHS will be obligated to
purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $500,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to purchase
and the Company may not put shares of the Company’s Common
Stock to GHS that would result in GHS’s beneficial ownership
equaling more than 4.99% of the Company’s outstanding Common
Stock. The price of each put share shall be equal to eighty percent
(80%) of the Market Price (as defined in the Equity Financing
Agreement). Puts may be delivered by the Company to GHS until the
earlier of thirty-six (36) months after the effectiveness of the
Registration Statement or the date on which GHS has purchased an
aggregate of $11,000,000 worth of Common Stock under the terms of
the Equity Financing Agreement.
40
The
Registration Rights Agreement provides that the Company shall (i)
use its best efforts to file with the Commission the Registration
Statement within 30 days of the date of the Registration Rights
Agreement; and (ii) have the Registration Statement declared
effective by the Commission within 30 days after the date the
Registration Statement is filed with the Commission, but in no
event more than 90 days after the Registration Statement is filed.
The Registration Statement was filed on October 8, 2019 and as of
this filing has not yet been deemed effective
Equity Financing Agreement 2018
On
August 21, 2018, the Company entered into an Equity Financing
Agreement (“Equity Financing Agreement”) and
Registration Rights Agreement (“Registration Rights
Agreement”) with GHS Investments LLC, a Nevada limited
liability company (“GHS”). Under the terms of the
Equity Financing Agreement, GHS agreed to provide the Company with
up to $7,000,000 upon effectiveness of a registration statement on
Form S-1 (the “Registration Statement”) filed with the
U.S. Securities and Exchange Commission (the
“Commission”). The Registration Statement was filed,
and deemed effective on September 19, 2018.
Following
effectiveness of the Registration Statement, the Company has the
discretion to deliver puts to GHS and GHS will be obligated to
purchase shares of the Company’s common stock, par value
$0.0001 per share (the “Common Stock”) based on the
investment amount specified in each put notice. The maximum amount
that the Company shall be entitled to put to GHS in each put notice
shall not exceed two hundred percent (200%) of the average daily
trading dollar volume of the Company’s Common Stock during
the ten (10) trading days preceding the put, so long as such amount
does not exceed $300,000. Pursuant to the Equity Financing
Agreement, GHS and its affiliates will not be permitted to purchase
and the Company may not put shares of the Company’s Common
Stock to GHS that would result in GHS’s beneficial ownership
equaling more than 9.99% of the Company’s outstanding Common
Stock. The price of each put share shall be equal to eighty percent
(80%) of the Market Price (as defined in the Equity Financing
Agreement). Puts may be delivered by the Company to GHS until the
earlier of thirty-six (36) months after the effectiveness of the
Registration Statement or the date on which GHS has purchased an
aggregate of $7,000,000 worth of Common Stock under the terms of
the Equity Financing Agreement. Additionally, in accordance with
the Equity Financing Agreement, the Company shall issue GHS a
promissory note in the principal amount of $15,000 to offset
transaction costs (the “Note”). The Note bears interest
at the rate of 8% per annum, is not convertible and is due 180 days
from the issuance date of the Note.
During
the year ended March 31, 2020, the Company put to GHS for the
issuance of 14,757,781 shares of common stock for a total of
$1,774,000, at prices ranging from $0.15 to $0.09. During the year
ended March 31, 2019, the Company put to GHS for the issuance of
22,131,893 shares of common stock for a total of $464,516, at
prices ranging from $0.14 to $0.0046.
Shareholder Notes Payable
On
April 20, 2017, the Company issued an additional Six Percent (6%)
Unsecured Convertible Note to Dragon Acquisitions in the principal
amount of $140,000. The note accrues interest at the rate of six
percent (6%) per annum, and matures one (1) year from the date of
issuance. Upon an event of default, the default interest rate will
be increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The note is convertible
into shares of the Company’s common stock at a conversion
price of $0.30 per share, subject to adjustment. As of March 31,
2019, the Company has paid $52,400 on this note, with $87,600
remaining outstanding as of March 31, 2019. During the year ending
March 31, 2020, on three separate dates, the Company paid the
remaining balance in full.
Going Concern
The
accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, 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, 2020, the Company had a net loss available
for common stockholders of approximately $5,204,000. At March
31, 2020, the Company had an accumulated deficit of approximately
$46,427,000 and a working capital deficit of approximately
$3,598,000. 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. Additionally, on March
18, 2020, the Company’s facility, which was near completion,
was destroyed in a fire. 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 2020 fiscal year, the Company
received net cash proceeds of approximately $100,000 from the
issuance of convertible debentures, approximately $1,774,000 from
issuance of the Company’s common stock through an equity
financing agreement and $2,250,000 from the sale of Series B
Preferred stock. Subsequent to March 31, 2020, the Company received
$1,000,000 from the purchase of approximately 1,000 Series B
preferred shares (see Note 13). Management believes that the future
funding to be received in relation to the equity financing
agreement and the sale of Series B preferred shares under the
securities purchase agreement (see Note 7), will assist in the
funding of the 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.
41
Management’s
plans include rebuilding the facility within the next year, and to
begin operations. The Company plans to improve the growth rate of
the shrimp and the environmental conditions of its production
facilities. Management also plans to acquire a hatchery in which
the Company can better control the environment in which to develop
the post larvaes. If management is unsuccessful in these efforts,
discontinuance of operations is possible. The consolidated
financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
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 $1,000,000 from the purchase of
approximately 1,000 Series B preferred shares. However, not
including funds needed for capital expenditures or to pay down
existing debt and trade payables, we anticipate that we will need
to raise an additional $2,500,000 to cover all of our operational
expenses over the next 12 months, not including any capital
expenditures needed as part of any commercial scale-up of our
equipment. These funds may be raised through equity financing, debt
financing, or other sources, which may result in further dilution
in the equity ownership of our shares. There can be no assurance
that additional financing will be available to us when needed or,
if available, that such financing can be obtained on commercially
reasonable terms. If we are not able to obtain the additional
necessary financing on a timely basis, or if we are unable to
generate significant revenues from operations, we will not be able
to meet our other obligations as they become due, and we will be
forced to scale down or perhaps even cease our
operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
significant accounting policies are more fully described in the
notes to our financial statements included in this Annual Report on
Form 10-K for the fiscal year ended March 31, 2020. We believe that
the accounting policies below are critical for one to fully
understand and evaluate our financial condition and results of
operations.
Fair Value Measurement
The
fair value measurement guidance clarifies that fair value is an
exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that
market participants would use in the valuation of an asset or
liability. It establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
the fair value measurement guidance are described
below:
Level 1
- Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical assets or
liabilities;
42
Level 2
- Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the
full term of the asset or liability; or
Level 3
- Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
Company did not have any Level 1 or Level 2 assets and liabilities
at March 31, 2020 and 2019.
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, 2020, the Company
had approximately $469,000 in convertible debentures whose
approximately 12,518,000 underlying shares are convertible at the
holders’ option at conversion prices ranging from $0.01 to
$0.25 for fixed conversion rates, and 57% - 60% of the defined
trading price for variable conversion rates, and approximately
2,916,000 warrants with an exercise price of 45% of the market
price of the Company’s common stock, which were not included
in the calculation of diluted EPS as their effect would be
anti-dilutive. Included in the diluted EPS for the year ended March
31, 2019, the Company had approximately $1,097,000 in convertible
debentures whose approximately 66,376,000 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% of the defined trading price for variable conversion rates and
approximately 444,000 warrants with an exercise price of 45% of the
market price of the Company’s common stock, which were not
included in the calculation of diluted EPS as their effect would be
anti-dilutive.
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.
Impairment of Long-lived Assets and Long-lived Assets
The
Company will periodically evaluate the carrying value of
longlived assets to be held and used when events and
circumstances warrant such a review and at least annually. The
carrying value of a longlived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the longlived asset.
Fair value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses on
longlived assets to be disposed of are determined in a
similar manner, except that fair values are reduced for the cost to
dispose.
43
Recent Accounting Standards
During
the year ended March 31, 2020 and through the date of this report,
there were several new accounting pronouncements issued by the
Financial Accounting Standards Board (“FASB”). Each of
these pronouncements, as applicable, has been or will be adopted by
the Company. Management does not believe the adoption of any of
these accounting pronouncements has had or will have a material
impact on the Company’s consolidated financial
statements.
Recently Issued Accounting Standards
In June
2018, the FASB issued ASU 2018-07, Compensation—Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, which aligns accounting for share-based
payments issued to nonemployees to that of employees under the
existing guidance of Topic 718, with certain exceptions. This
update supersedes previous guidance for equity-based payments to
nonemployees under Subtopic 505-50, Equity—Equity-Based
Payments to Non-Employees. This guidance was adopted by the Company
as of April 1, 2019, and the adoption
resulted in the recognition of a Right of Use Asset
(“ROU”) and a Lease Liability for a new equipment lease
entered into on June 24, 2019.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard
requires all leases that have a term of over 12 months to be
recognized on the balance sheet with the liability for lease
payments and the corresponding right-of-use asset initially
measured at the present value of amounts expected to be paid over
the term. Recognition of the costs of these leases on the income
statement will be dependent upon their classification as either an
operating or a financing lease. Costs of an operating lease will
continue to be recognized as a single operating expense on a
straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). The Company
adopted ASU 2016-02 on April 1, 2019, and the adoption did not have
a material impact on the Company’s financial position or
results of operations.
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
to Financial 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.
44
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
Management of and
its consolidated subsidiaries is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
internal control over financial reporting is a process designed
under the supervision of its principal executive and principal
financial officers and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of its 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. 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, 2020 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, 2020 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 deficiency, or a combination of 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’s 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 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.
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;
●
continue to obtain
sufficient resources to achieve adequate segregation of duties;
and
●
continue to develop
policies and procedures on internal control over financial
reporting and monitor the effectiveness of operations on existing
controls and procedures.
45
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 our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that
permit us 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, 2020 that
have materially affected, or that are reasonably likely to
materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
46
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
|
72
|
President,
Secretary, Director
|
2015
|
William
Delgado
|
61
|
Treasurer,
Chief Financial Officer, Director
|
2014
|
Tom
Untermeyer
|
61
|
Chief
Operating Officer
|
2019
|
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, 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.
47
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 – Chief Operating Officer
Mr.
Untermeyer is a co-founder of the Company and 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.
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 two formal meeting in the fiscal year-ended
March 31, 2020. 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.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section
16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange
Commission and to provide us with copies of those
filings.
48
Based
solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, we believe
that during the fiscal year ended March 31, 2020, none of our
officers, directors and greater than 10% percent beneficial owners
failed to comply on a timely basis with all applicable filing
requirements under Section 16(a) of the Exchange Act.
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, Suite 300,
Dallas, TX 75248.
Director Nominations
As of
March 31, 2020, 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 our Principal Executive Officer and
Chairman of the Board of Directors. We have determined that 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 our 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 our 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, 2020 and 2019 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.
49
Summary Compensation Table
Name and
Principal
|
|
|
|
Stock
|
Option
|
Non-Equity
Incentive
Plan
|
All
Other
|
|
Position
|
Year
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Compensation
|
Total
|
Bill G.
Williams,
|
2020
|
$96,000
|
-
|
-
|
-
|
-
|
$15,561
|
$111,561
|
Former Chairman
of the Board and
Former CEO (1)
|
2019
|
$56,000
|
-
|
-
|
-
|
-
|
$6,416
|
$62,416
|
|
|
|
|
|
|
|
|
|
Gerald
Easterling,
|
2020
|
$112,000
|
-
|
-
|
-
|
-
|
$14,745
|
$126,745
|
Chairman of the
Board and CEO (2)
|
2019
|
$116,000
|
-
|
-
|
-
|
-
|
$6,236
|
$122,636
|
|
|
|
|
|
|
|
|
|
William
Delgado,
|
2020
|
$-
|
-
|
-
|
-
|
-
|
-
|
$-
|
CFO (3)
|
2019
|
$-
|
-
|
-
|
-
|
-
|
-
|
$-
|
|
|
|
|
|
|
|
|
|
Tom
Untermeyer,
|
2020
|
$112,000
|
-
|
-
|
-
|
-
|
$699
|
$112,699
|
COO (4)
|
2019
|
$8,000
|
-
|
-
|
-
|
-
|
$-
|
$8,000
|
(1)
Mr. Williams is
entitled to receive medical insurance reimbursement, of which
$6,416 was paid during the fiscal year ending March 31, 2019, and
for which $640 is accrued as of March 31, 2019 and $8,061 was paid
during the fiscal year ending March 31, 2020. Mr. Williams is also
entitled to an automobile allowance of $500 per month, of which
none was paid, and for which $7,500 was paid during the fiscal year
ending March 31, 2020 and $16,000 is accrued at March 31, 2020. On
August 15, 2019, Mr. Williams retired from his position as CEO of
the Company. Mr. Williams passed away on April 12, 2020, although
the Company continues to make payments per agreements with Mr.
Williams before his death.
(2
Mr. Easterling is
entitled to receive medical insurance reimbursement, of which
$6,237 was paid during the fiscal year ending March 31, 2019 and
for which $595 is accrued as of March 31, 2019 and $7,245 was paid
during the fiscal year ending March 31, 2020 and $9,448 is accrued
at March 31, 2020. Mr. Easterling is also entitled to an automobile
allowance of $500 per month, of which none was paid, and for which
$18,500 is accrued at March 31, 2020.
(3)
Mr. Delgado received
no compensation from the Company during the fiscal years ended
March 31, 2020 and 2019.
(4)
As of March 31,
2020 and 2019, Mr. Untermeyer is owed $116,000 and $128,000,
respectively, for accrued and unpaid salary. Mr. Untermeyer is
entitled to receive medical insurance reimbursement, of which $699
was paid during the fiscal year ending March 31, 2020.
Employment Agreements
Bill G. Williams
On
April 1, 2015, the Company entered into an employment agreement
with Bill G. Williams as the Company’s Chief Executive
Officer. The agreement was terminable and provided for a base
annual salary of $96,000. In addition, the agreement provided that
the Mr. Williams was entitled, at the sole and absolute discretion
of the Company’s Board of Directors, to receive performance
bonuses. Mr. Williams was also entitled to certain benefits
including health insurance and monthly allowances for cell phone
and automobile expenses.
The
agreement provided that, in the event Mr. Williams is terminated
without cause or resigns for good reason (each as defined in the
agreement), Mr. Williams would 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. Williams
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 contained 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.
50
On
August 15, 2019, Mr. Williams resigned from his position as
Chairman of the Board and Chief Executive Officer of the Company,
effective August 31, 2019. Mr. Williams’s resignation was not
the result of any disagreement with the Company on any matter
relating to the Company’s operations, policies or practices.
Mr. Williams passed away on April 12, 2020.
Gerald Easterling
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.
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.
51
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.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following tables set forth certain information regarding our voting
shares beneficially owned as of June 25, 2020 and is based on
463,679,669 shares of common stock issued and outstanding, for (i)
each stockholder known to be the beneficial owner of 5% or more of
our outstanding shares of common stock, (ii) each named executive
officer and director, and (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) 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 is 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 of persons is deemed to
have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of
June 25, 2020. For purposes of computing the percentage of
outstanding shares of our common stock 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 25, 2020 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 beneficial ownership. Except as otherwise indicated,
the address of each of the shareholders listed below is: 15150
Preston Road, Suite #300, Dallas, TX 75248.
|
Shares
Beneficially Owned
|
|
% of
Total
|
||||
|
Common
Stock
|
Series A
Preferred(1)
|
Series B Preferred
(2)
|
Voting
Power
|
|||
Name and Title
of Beneficial Owner
|
Shares
|
% (3)
|
Shares
|
% (4)
|
Shares
|
% (5)
|
|
Gerald
Easterling(6)
|
520,240
|
*
|
5,000,000(7)
|
100
|
|
|
39.35
|
Chief Executive Officer,
President, Secretary
& Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
Delgado(8)
|
5,215,719
|
1.12
|
|
|
|
|
*
|
Treasurer, Chief Financial Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom
Untermeyer
|
|
|
|
|
|
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Directors & Officers as a Group (3 persons)
|
5,735,959
|
1.23
|
5,000,000
|
100
|
|
|
40.03
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
(1)
The Series A
Preferred Stock is convertible, at the written consent of a
majority of the outstanding shares of Series A Stock, in an amount
of shares of common stock equal to 100% of the then outstanding
shares of common stock at the time of such conversion. Each share
of Series A Preferred Stock is entitled to vote sixty (60) shares
of Common Stock for each one (1) share of Series A Preferred Stock
held.
(2)
Series B
designation
(3)
Based on
463,679,669 shares of common stock outstanding as of June 24,
2020
(4)
Based on 5,000,000
shares of Series A Preferred outstanding as of June 24, 2020
(5)
Based on 5,000
shares of Series B Preferred outstanding as of June 24, 2020
(6)
The shares are held
by NaturalShrimp Holdings, Inc. (“NaturalShrimp”), of
which Mr. Easterling is Chairman of the Board and the Chief
Executive Officer. Mr. Easterling has shared voting and dispositive
power over the shares held by NaturalShrimp Holdings, Inc.
(7)
On August 21, 2018,
the Company entered into a Stock Exchange Agreement (the
“Exchange Agreement”) with NaturalShrimp, the
Company’s majority shareholder, which is controlled by our
Chief Executive Officer, whereby the Company issued to
NaturalShrimp 5,000,000 shares of Series A Preferred in exchanged
for 75,000,000 shares of common stock of the Company. The
75,000,000 shares of common stock were subsequently returned to the
Company’s treasury and cancelled.
(8)
The shares are held
by Dragon Acquisitions LLC, of which Mr. Delgado is the managing
member.
*
Less than
1%
52
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, 2020, 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.
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, 2020 and 2019, approximately $735,000 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%.
Bill G. Williams
We had
entered into several working capital notes payable to the late Bill
Williams, a former officer and director and a shareholder of the
Company, for a total of $486,500 since inception. These notes are
demand notes, had stock issued in lieu of interest and had no set
monthly payment or maturity date. The balance of these notes at
March 31, 2020 and 2019 was $426,404 and $426,404, respectively,
and is classified as a current liability on the consolidated
balance sheets. At March 31, 2020 and 2019, accrued interest
payable was $275,054 and $266,616, respectively.
53
William Delgado
On
April 20, 2017, the Company issued a six percent (6%) unsecured
convertible note to Dragon Acquisitions in the principal amount of
$140,000. The note matures one (1) year from the date of issuance.
Upon an event of default, the default interest rate will be
increased to twenty-four percent (24%), and the total amount of
principal and accrued interest shall become immediately due and
payable at the holder’s discretion. The note is convertible
into shares of the Company’s common stock at a conversion
price of $0.30 per share, subject to adjustment. As of March 31,
2020, $140,000 of the note balance has been repaid.
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
was 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. On January 10, 2020, the CNB Note was amended with
a new loan amount of $222,736 principal, plus interest. Interest is
5.75% per annum. Monthly installments of $1,780 are due on the
first of each month, beginning March 1, 2020, with a maturity date
February 1, 2037. The balance of the CNB Note was $222,736 and
$228,759 as of March 31, 2020 and 2019, respectively.
Named Executive Officers and Current Directors
For
information regarding compensation for our named executive officers
and current directors, see “Executive
Compensation”.
Director Independence
Our
board of directors consists of Gerald Easterling and William
Delgado. 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 National 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 directors are independent directors.
54
ITEM 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES
Audit and Accounting Fees
Effective April 11,
2015, our Board of Directors engaged Turner, Stone & Company
(“TSC”) as its independent registered public accounting
firm to audit our annual financial statements. The following tables
set forth the fees billed to us for professional services rendered
by TSC for the years ended March 31, 2020 and 2019:
Services
|
2020
|
2019
|
Audit
fees
|
$53,750
|
$45,700
|
Audit related
fees
|
-
|
-
|
Tax
fees
|
-
|
-
|
All other
fees
|
-
|
-
|
Total
fees
|
$53,750
|
$45,700
|
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
PART IV
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
|
56
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
|
10-K
|
10.64
|
07/01/2019
|
57
12% Convertible
Redeemable Note, Back End Note, 2 of 2, dated January 29, 2018 with
Adar Bays, LLC
|
10-K
|
10.65
|
07/01/2019
|
|
12% Collateralized
Secured Promissory Note, 1 of 2, dated January 29, 2018 from Adar
Bays, LLC
|
10-K
|
10.66
|
07/01/2019
|
|
12% Collateralized
Secured Promissory Note 2of2, dated January 29, 2018 from Adar
Bays, LLC
|
10-K
|
10.67
|
07/01/2019
|
|
Securities Purchase
Agreement dated January 29, 2018 with Adar Bays, LLC
|
10-K
|
10.68
|
07/01/2019
|
|
12% Convertible
Promissory Note dated January 30, 2018 with Power Up Lending Group
Ltd.
|
10-K
|
10.69
|
07/01/2019
|
|
Securities Purchase
Agreement dated January 30, 2018 with Power Up Lending Group
Ltd.
|
10-K
|
10.70
|
07/01/2019
|
|
Debt Purchase
Agreement dated February 8, 2018 between Labrys Fund LP and Adar
Bays, LLC
|
10-K
|
10.71
|
07/01/2019
|
|
12% Convertible
Promissory Note dated March 9, 2018 with Power Up Lending Group
Ltd.
|
10-K
|
10.72
|
07/01/2019
|
|
Securities Purchase
Agreement dated March 9, 2018 with Power Up Lending Group
Ltd.
|
10-K
|
10.73
|
07/01/2019
|
|
Securities Purchase
Agreement dated March 20, 2018 with Jefferson Street Capital,
LLC
|
10-K
|
10.74
|
07/01/2019
|
|
12% Secured
Convertible Promissory Note dated March 20, 2018 with Jefferson
Street Capital, LLC
|
10-K
|
10.75
|
07/01/2019
|
|
Securities Purchase
Agreement dated March 20, 2018 with BlueHawk Capital,
LLC
|
10-K
|
10.76
|
07/01/2019
|
|
12% Secured
Convertible Promissory Note dated March 20, 2018 with BlueHawk
Capital, LLC
|
10-K
|
10.77
|
07/01/2019
|
|
Securities Purchase
Agreement dated April 12, 2018 with One44 Capital, LLC
|
10-K
|
10.78
|
07/01/2019
|
|
10% Collateralized
Secured Promissory Note dated April 12, 2018 with One44 Capital,
LLC
|
10-K
|
10.79
|
07/01/2019
|
|
10% Convertible
Redeemable Note, Back End Note, dated April 12, 2018 with One44
Capital, LLC
|
10-K
|
10.80
|
07/01/2019
|
|
Securities Purchase
Agreement dated April 27, 2018 with BlueHawk Capital,
LLC
|
10-K
|
10.81
|
07/01/2019
|
|
12% Convertible
Promissory Note dated April 27, 2018 from BlueHawk Capital,
LLC
|
10-K
|
10.82
|
07/01/2019
|
|
10% Secured
Promissory Note issued to GHS Investments, LLC dated December 6,
2018
|
10-K
|
10.83
|
07/01/2019
|
|
Securities Purchase
Agreement dated December 6, 2018 with GHS Investments
LLC
|
10-K
|
10.84
|
07/01/2019
|
|
10% Secured
Promissory Note issued to GHS Investments, LLC dated December 31,
2018
|
10-K
|
10.85
|
07/01/2019
|
|
Securities Purchase
Agreement dated December 31, 2018 with GHS Investments
LLC
|
10-K
|
10.86
|
07/01/2019
|
|
10% Convertible
Promissory Note dated January 16, 2019 with GHS Investments
LLC
|
10-K
|
10.87
|
07/01/2019
|
|
10% Convertible
Promissory Note dated February 4, 2019 with GHS Investments
LLC
|
10-K
|
10.88
|
07/01/2019
|
|
10% Convertible
Promissory Note dated March 1, 2019 with GHS Investments
LLC
|
10-K
|
10.89
|
07/01/2019
|
|
Securities Purchase
Agreement dated March 1, 2019 with GHS Investments LLC
|
10-K
|
10.90
|
07/01/2019
|
|
10%
Convertible Promissory Note dated April 17 2019 with GHS
Investments LLC
|
10-Q
|
10.1
|
08/14/2019
|
|
Securities
Purchase Agreement dated April 17, 2019 with GHS Investments
LLC
|
10-Q
|
10.2
|
08/14/2019
|
|
Services,
Consumables, Equipment Lease Agreement dated June 6, 2019 with
Hydrenesis Aquaculture, LLC
|
10-Q
|
10.3
|
08/14/2019
|
|
Equity
Financing Agreement dated August 23, 2019 with GHS Investments
LLC
|
8-K
|
10.1
|
09/19/2019
|
|
Registration
Rights Agreement dated August 23, 2019 with GHS Investments
LLC
|
8-K
|
10.2
|
09/19/2019
|
|
Securities
Purchase Agreement dated September 17, 2019 with GHS Investments
LLC
|
10-Q
|
10.1
|
11/14/2019
|
21.1*
|
Subsidiaries of the Registrant.
|
|
|
|
31.1**
|
Rule
13a-14(a) / 15d-14(a) Certification of Chief Executive
Officer.
|
|
|
|
31.2**
|
Rule
13a-14(a) / 15d-14(a) Certification of Chief Financial
Officer.
|
|
|
|
32.1**
|
Section
1350 Certification of Chief Executive Officer.
|
|
|
|
32.2**
|
Section
1350 Certification of Chief Financial Officer.
|
|
|
|
101.INS*
|
XBRL
Instance Document
|
|
|
|
101.SCH*
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF*
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB*
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE*
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
*
Filed
herewith.
**
To be
filed by amendment
58
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:
/s/ Gerald
Easterling
|
|
Gerald
Easterling
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
Date:
June 26, 2020
|
|
By:
/s/ William
Delgado
|
|
William
Delgado
|
|
Chief
Financial Officer and Treasurer (Principal Financial Officer and
Principal Accounting Officer)
|
|
Date:
June 26, 2020
|
|
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
|
|
Title(s)
|
|
Date
|
/s/ Gerald Easterling
|
|
Chief
Executive Officer and Chairman of the Board of Directors (Principal
Executive Officer)
|
|
Date:
June 26, 2020
|
Gerald
Easterling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ William Delgado
|
|
Chief
Financial Officer, Treasurer
and
Director (Principal Financial Officer and Principal Accounting
Officer)
|
|
Date:
June 26, 2020
|
William
Delgado
|
|
|
|
|
59
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
NATURALSHRIMP INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2020 and
2019
TABLE OF CONTENTS
|
Page
|
|
|
F-1
|
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2020 and 2019, and the related consolidated statements of
operations, stockholders’ deficit, and cash flows for the
years then ended, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of March 31, 2020 and 2019,
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.
/s/
Turner, Stone & Company, L.L.P.
Dallas,
Texas
June
26, 2020
We have
served as the Company’s auditor since 2015.
F-1
NATURALSHRIMP INCORPORATED AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
|
March 31,
2020
|
March 31,
2019
|
Current
assets
|
|
|
Cash
|
$109,491
|
$137,499
|
Notes
receivable
|
-
|
1,700
|
Inventory
|
-
|
4,200
|
Prepaid
expenses
|
128,693
|
35,286
|
Insurance
settlement
|
917,210
|
-
|
|
|
|
Total
current assets
|
1,155,394
|
178,685
|
|
|
|
Fixed
assets
|
707,808
|
1,178,589
|
|
|
|
Other
assets
|
|
|
Construction-in-process
|
-
|
377,504
|
Right
of Use asset
|
275,400
|
-
|
Deposits
|
178,198
|
10,500
|
|
|
|
Total
other assets
|
453,598
|
388,004
|
|
|
|
Total
assets
|
$2,316,800
|
$1,745,278
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$641,147
|
$576,029
|
Accrued
interest
|
81,034
|
96,735
|
Accrued
interest - related parties
|
296,624
|
295,184
|
Other
accrued expenses
|
1,204,815
|
512,508
|
Short-term
Promissory Note and Lines of credit
|
570,497
|
119,225
|
Bank
loan
|
8,904
|
228,725
|
Notes
payable - related parties
|
1,221,162
|
1,271,162
|
Derivative
liability
|
176,000
|
157,000
|
Warrant
liability
|
90,000
|
93,000
|
Total
current liabilities
|
4,753,343
|
3,931,618
|
|
|
|
Bank
loans, less current maturities
|
225,837
|
20,193
|
Lines
of credit
|
-
|
650,453
|
Lease
Liability
|
275,400
|
-
|
|
|
|
Total
liabilities
|
5,254,580
|
4,602,264
|
Commitments and
contingencies (Note 12)
|
|
|
Stockholders'
deficit
|
|
|
Series A Convertible Preferred stock, $0.0001 par
value, 5,000,000 shares authorized, 5,000,000
shares issued and outstanding at March 31, 2020 and March 31,
2019
|
500
|
500
|
Series B
Convertible Preferred stock, $0.0001 par value, 5,000 shares
authorized, 2,250 and 0 shares issued and outstanding at March 31,
2020 and March 31, 2019, respectively
|
-
|
-
|
Common stock,
$0.0001 par value, 900,000,000 shares authorized, 379,742,524 and
301,758,293 shares issued and outstanding at March 31, 2020 and
March 31, 2019, respectively
|
37,975
|
30,177
|
Additional paid in
capital
|
43,533,242
|
38,335,782
|
Accumulated
deficit
|
(46,427,396)
|
(41,223,445)
|
Total
stockholders' deficit attributable to NaturalShrimp, Inc.
shareholders
|
(2,855,679)
|
(2,856,986)
|
|
|
|
Non-controlling
interest in National Acquatic Systems, Inc.
|
(82,101)
|
-
|
|
|
|
Total
stockholders' deficit
|
(2,937,780)
|
(2,856,986)
|
|
|
|
Total
liabilities and stockholders' deficit
|
$2,316,800
|
$1,745,278
|
The
accompanying notes are an integral part of these consolidated
financial statements
F-2
NATURALSHRIMP INCORPORATED AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the Year Ended
|
|
|
March 31,
2020
|
March 31,
2019
|
|
|
|
Sales
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Facility
operations
|
232,318
|
100,596
|
General
and administrative
|
1,610,331
|
869,821
|
Research
and development
|
153,250
|
-
|
Depreciation
and amortization
|
100,359
|
30,296
|
|
|
|
Total
operating expenses
|
2,096,258
|
1,000,713
|
|
|