Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
☒
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 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
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74-3262176
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(State
or other Jurisdiction of Incorporation or
Organization)
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(I.R.S.
Employer Identification No.)
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15150 Preston Road, Suite #300
Dallas, Texas
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75248
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(888) 791-9474
(Registrant’s
telephone number, including area code)
N/A
(Former
address)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
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Trading symbol(s)
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Name of exchange on which registered
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None
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N/A
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N/A
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Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No
☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer,” a “smaller
reporting company” and an “emerging growth
company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☒
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Smaller
reporting company
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☒
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Emerging growth
company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act:
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of
November 16, 2020, there were 531,023,743 shares of the
registrant’s common stock outstanding.
NATURALSHRIMP INCORPORATED
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020
TABLE OF CONTENTS
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2
ITEM 1. FINANCIAL
STATEMENTS
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30,
2020
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March 31,
2020
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(unaudited)
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ASSETS
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Current
assets
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Cash
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$315,601
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$109,491
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Prepaid
expenses
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154,117
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128,693
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Insurance
settlement
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-
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917,210
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Total
current assets
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469,718
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1,155,394
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Fixed
assets
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1,430,519
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707,808
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Other
assets
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Construction-in-process
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1,896,226
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-
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Right
of Use asset
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275,400
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275,400
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Deposits
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20,633
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178,198
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Total
other assets
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2,192,259
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453,598
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Total
assets
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$4,092,496
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$2,316,800
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities
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Accounts
payable
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$809,597
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$641,146
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Accrued
interest
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78,134
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81,034
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Accrued
interest - related parties
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161,520
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296,624
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Other
accrued expenses
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309,485
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1,204,815
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Short-term
Promissory Note and Lines of credit
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578,153
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570,497
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Bank
loan
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8,438
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8,904
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Payroll
Protection Program loan
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103,200
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-
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Convertible
debentures
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168,000
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463,161
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Notes
payable - related parties
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1,247,162
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1,221,162
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Dividends
payable
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94,306
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-
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Derivative
liability
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-
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176,000
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Warrant
liability
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-
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90,000
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Total
current liabilities
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3,557,995
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4,753,343
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Bank
loans, less current maturities
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210,509
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225,837
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Note
payable - related party, less current maturities
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263,604
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-
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Lease
Liability
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275,400
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275,400
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Total
liabilities
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4,307,508
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5,254,580
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Commitments and
contingencies (Note 10)
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Stockholders'
deficit
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Series A Convertible Preferred stock, $0.0001 par
value, 5,000,000 shares authorized, 5,000,000
shares issued and outstanding at September 30, 2020 and March 31,
2020
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500
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500
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Series B
Convertible Preferred stock, $0.0001 par value, 5,000 shares
authorized, 1,696 and 2,250 shares issued and outstanding at
September 30, 2020 and March 31, 2020, respectively
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-
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-
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Common stock,
$0.0001 par value, 900,000,000 shares authorized, 531,023,743 and
379,742,524 shares issued and outstanding at September 30, 2020 and
March 31, 2020, respectively
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53,103
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37,975
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Additional paid in
capital
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48,638,480
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43,533,242
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Accumulated
deficit
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(48,821,413)
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(46,427,396)
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Total
stockholders' deficit attributable to NaturalShrimp, Inc.
shareholders
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(129,330)
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(2,855,679)
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Non-controlling
interest in NAS
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(85,682)
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(82,101)
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Total
stockholders' deficit
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(215,012)
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(2,937,780)
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Total
liabilities and stockholders' deficit
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$4,092,496
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$2,316,800
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The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
3
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended
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For the Six months Ended
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September 30, 2020
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September 30, 2019
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September 30, 2020
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September 30, 2019
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Sales
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$-
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$-
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$-
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$-
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Operating
expenses:
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General
and administrative
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401,029
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378,371
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737,008
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637,737
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Research
and development
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79,550
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-
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79,550
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-
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Facility
operations
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68,271
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15,035
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79,643
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139,559
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Depreciation
and amortization
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8,896
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13,319
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19,677
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25,563
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Total
operating expenses
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557,746
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406,725
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915,878
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802,859
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Net loss from
operations
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(557,746)
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(406,725)
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(915,878)
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(802,859)
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37.1%
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14.1%
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Other
income (expense):
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Interest
expense
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(29,490)
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(57,043)
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(59,516)
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(119,531)
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Amortization
of debt discount
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-
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(254,994)
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-
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(476,373)
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Financing
costs
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(2,643)
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(82,949)
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(64,452)
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(164,218)
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Change
in fair value of derivative liability
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-
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(55,000)
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(29,000)
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(39,000)
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Loss
on warrant settlement
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-
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-
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-
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(50,000)
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Total
other income (expense)
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(32,133)
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(449,986)
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(152,968)
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(849,122)
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Loss
before income taxes
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(589,879)
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(856,711)
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(1,068,846)
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(1,651,981)
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Provision
for income taxes
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-
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-
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-
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-
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Net
loss
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(589,879)
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(856,711)
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(1,068,846)
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(1,651,981)
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Less
net loss attributable to non-controlling interest
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(1,686)
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(3,581)
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Net loss
attributable to NaturalShrimp Inc.
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(588,193)
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(856,711)
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(1,065,265)
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(1,651,981)
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Amortization of
beneficial conversion feature on Series B PS
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(807,000)
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-
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(1,100,000)
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Dividends
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(83,960)
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(228,752)
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Net loss available
for common stockholders
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$(1,479,153)
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$(856,711)
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$(2,394,017)
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$(1,651,981)
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EARNINGS
PER SHARE (Basic and diluted)
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$(0.00)
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$(0.00)
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$(0.01)
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$(0.01)
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WEIGHTED
AVERAGE SHARES OUTSTANDING (Basic and diluted)
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451,549,772
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326,488,640
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419,177,832
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317,572,350
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The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
4
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
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Series A Preferred stock
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Series B Preferred stock
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Common stock
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Additional paid
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Accumulated
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Non-controlling
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Total stockholders'
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
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in Capital
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deficit
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interest
|
deficit
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Balance March
31, 2020
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5,000,000
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$500
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2,250
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$-
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379,742,524
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$37,975
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$43,533,243
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$(46,427,396)
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$(82,101)
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(2,937,780)
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Issuance of
common stock upon conversion
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37,926,239
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3,793
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222,644
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226,437
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Reclass of
derivative liability upon conversion or redemption of related
convertible debentures
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205,000
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205,000
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Purchase of
Series B Preferred shares
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1,250
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-
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1,250,000
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1,250,000
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Beneficial
conversion feature related to the Series B Preferred
Shares
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293,000
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(293,000)
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-
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Dividends
payable on Series B PS
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(144,792)
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(144,792)
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Series B PS
Dividends in kind issued
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50
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-
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56,458
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56,458
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Conversion of
Serries B PS to common stock
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(800)
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-
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33,569,730
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3,357
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(3,357)
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-
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Common stock
issued in Vista Warrant settlement
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17,500,000
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1,750
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608,250
|
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610,000
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Reclass of
warrant liability upon the cancellation of warrants under Vista
Warrant settlement
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90,000
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90,000
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Common stock
issued to consultant
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1,250,000
|
125
|
61,125
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61,250
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Net
loss
|
|
|
|
|
|
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(477,072)
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(1,895)
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(478,967)
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|
-
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Balance June
30, 2020
|
5,000,000
|
$500
|
2,750
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$-
|
469,988,493
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$47,000
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$46,316,363
|
$(47,342,260)
|
$(83,996)
|
$(1,062,394)
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Issuance of
common stock upon conversion
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1,014,001
|
101
|
125,635
|
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|
125,736
|
Purchase of
Series B Preferred shares
|
|
|
1,250
|
-
|
|
|
1,250,000
|
|
|
1,250,000
|
Beneficial
conversion feature related to the Series B Preferred
Shares
|
|
|
65
|
-
|
|
|
807,000
|
(807,000)
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|
-
|
Dividends
payable on Series B PS
|
|
|
|
|
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|
(83,960)
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|
(83,960)
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Series B PS
Dividends in kind issued
|
|
|
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|
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|
77,984
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|
|
77,984
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Conversion of
Serries B PS to common stock
|
|
|
(2,369)
|
-
|
58,521,249
|
5,852
|
(5,852)
|
|
|
-
|
Common stock
issued to consultant
|
|
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|
1,500,000
|
150
|
67,350
|
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|
67,500
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|
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|
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Net
loss
|
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|
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(588,193)
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(1,686)
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(589,879)
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Balance
September 30, 2020
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5,000,000
|
$500
|
1,696
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$-
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531,023,743
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$53,103
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$48,638,480
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$(48,821,413)
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$(85,682)
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$(215,012)
|
|
Series A Preferred stock
|
Series B Preferred stock
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Common stock
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Additional
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Accumulated
|
Non-controlling
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Total stockholders'
|
|||
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Shares
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Amount
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Shares
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Amount
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Shares
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Amount
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in Capital
|
deficit
|
interest
|
deficit
|
|
|
|
|
|
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|
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Balance April
1, 2019
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5,000,000
|
500
|
|
|
301,758,293
|
30,177
|
38,335,782
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(41,223,445)
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(2,856,986)
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Issuance of
shares under equity financing agreement
|
|
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|
11,482,721
|
1,148
|
1,498,852
|
|
|
1,500,000
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Issuance of
shares upon conversion
|
|
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3,000,000
|
300
|
29,700
|
|
|
30,000
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Beneficial
conversion feature
|
|
|
|
|
|
|
58,548
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|
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58,548
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|
|
|
|
|
|
|
|
|
|
-
|
Net
loss
|
|
|
|
|
|
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|
(795,270)
|
-
|
(795,270)
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|
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|
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Balance June
30, 2019
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5,000,000
|
$500
|
-
|
$-
|
316,241,014
|
$31,625
|
$39,922,882
|
$(42,018,715)
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$-
|
$(2,063,708)
|
|
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|
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|
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Purchase of
Series B Preferred shares
|
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|
250
|
-
|
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|
250,000
|
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|
250,000
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Issuance of
shares upon conversion
|
|
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14,000,000
|
1,400
|
138,600
|
|
|
140,000
|
Issuance of
shares under equity financing agreement
|
|
|
|
|
3,275,060
|
326
|
273,675
|
|
|
274,001
|
|
|
|
|
|
|
|
|
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|
Net
loss
|
|
|
|
|
|
|
|
(856,711)
|
|
(856,711)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2019
|
5,000,000
|
$500
|
250
|
$-
|
333,516,074
|
$33,351
|
$40,585,157
|
$(42,875,426)
|
|
$(2,256,418)
|
The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
5
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
For the Six
Months Ended
|
|
|
September
30,
2020
|
September
30,
2019
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
Net loss
attributable to NaturalShrimp Inc.
|
$(1,065,265)
|
$(1,651,981)
|
|
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
Depreciation
expense
|
19,677
|
25,563
|
Amortization of
debt discount
|
-
|
476,373
|
Change in fair
value of derivative liability
|
29,000
|
39,000
|
Default
penalty
|
41,112
|
27,000
|
Net loss
attributable to non-controlling interest
|
(3,581)
|
-
|
Shares issued for
services
|
128,750
|
-
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
Prepaid expenses
and other current assets
|
(25,424)
|
(72,826)
|
Deposits
|
-
|
(10,133)
|
Accounts
payable
|
168,448
|
63,571
|
Other accrued
expenses
|
(174,926)
|
37,268
|
Accrued
interest
|
13,000
|
-
|
Accrued interest -
related parties
|
18,096
|
82,862
|
|
|
|
Cash
used in operating activities
|
(851,113)
|
(983,303)
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
|
Cash paid for
machinery and equipment
|
(742,388)
|
(267,283)
|
Cash received from
Insurance settlement
|
917,210
|
-
|
Cash paid for
construction in process
|
(1,738,661)
|
(487,218)
|
|
|
|
CASH
USED IN INVESTING ACTIVITIES
|
(1,563,839)
|
(754,501)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Payments on bank
loan
|
(15,794)
|
(3,946)
|
Payment of
related party notes payable
|
(24,000)
|
-
|
Repayment line of
credit short-term
|
7,656
|
(104,008)
|
Proceeds from
Payroll Protection Program loan
|
103,200
|
-
|
Proceeds from
issuance of common shares under equity agreement
|
-
|
1,774,001
|
Proceeds from sale
of Series B Convertible Preferred stock
|
2,500,000
|
250,000
|
Proceeds from
convertible debentures
|
-
|
100,000
|
Payments on
convertible debentures
|
-
|
(85,500)
|
Payments on
convertible debentures, related party
|
-
|
(47,000)
|
Cash received in
relation to Vista warrant settlement
|
50,000
|
-
|
|
|
|
Cash
provided by financing activities
|
2,621,062
|
1,883,547
|
|
|
|
NET
CHANGE IN CASH
|
206,110
|
145,743
|
|
|
|
CASH
AT BEGINNING OF PERIOD
|
109,491
|
137,499
|
|
|
|
CASH
AT END OF PERIOD
|
$315,601
|
$283,242
|
|
|
|
INTEREST
PAID
|
$41,420
|
$36,669
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities:
|
|
|
Shares issued upon
conversion
|
$336,437
|
$170,000
|
Dividends in kind
issued
|
$134,443
|
$275,400
|
Shares issued on
Vista Warrant settlement
|
$610,000
|
$-
|
Note payable,
related party, issued in place of Settlement Agreement
|
$383,604
|
$-
|
The
accompanying footnotes are in integral part of these condensed
consolidated financial statements.
6
NATURALSHRIMP INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 1 – NATURE OF THE
ORGANIZATION AND BUSINESS
Nature of the Business
NaturalShrimp
Incorporated (“NaturalShrimp” or the
“Company”), a Nevada corporation, is a biotechnology
company and has developed a proprietary technology that allows it
to grow Pacific White shrimp (Litopenaeus vannamei, formerly
Penaeus vannamei) in an ecologically controlled, high-density,
low-cost environment, and in fully contained and independent
production facilities. The Company’s system uses technology
which allows it to produce a naturally-grown shrimp
“crop” weekly, and accomplishes this without the use of
antibiotics or toxic chemicals. The Company has developed several
proprietary technology assets, including a knowledge base that
allows it to produce commercial quantities of shrimp in a closed
system with a computer monitoring system that automates, monitors
and maintains proper levels of oxygen, salinity and temperature for
optimal shrimp production. Its initial production facility is
located outside of San Antonio, Texas.
The
Company has two wholly-owned subsidiaries including NaturalShrimp
Corporation, NaturalShrimp Global, Inc. and 51% owned Natural
Aquatic Systems, Inc. (“NAS”).
Going Concern
The
accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America (“GAAP”), assuming the Company
will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. For the six months ended September 30, 2020,
the Company had a net loss available for common stockholders of
approximately $2,394,000. At September 30, 2020, the Company had an
accumulated deficit of approximately $48,821,000 and a working
capital deficit of approximately $3,088,000. These factors raise
substantial doubt about the Company’s ability to continue as
a going concern, within one year from the issuance date of this
filing. The Company’s ability to continue as a going concern
is dependent on its ability to raise the required additional
capital or debt financing to meet short and long-term operating
requirements. During the six months ended September 30, 2020, the
Company received net cash proceeds of $2,500,000 from the sale of
2,500 Series B Preferred shares. Subsequent to September 30, 2020,
the Company received $250,000 from the sale of Series B Preferred
shares (See Note 11). Management believes that private placements
of equity capital and/or additional debt financing will be needed
to fund the Company’s long-term operating requirements. The
Company may also encounter business endeavors that require
significant cash commitments or unanticipated problems or expenses
that could result in a requirement for additional cash. If the
Company raises additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of its
current shareholders could be reduced, and such securities might
have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or
at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict our operations. The Company
continues to pursue external financing alternatives to improve its
working capital position. If the Company is unable to obtain the
necessary capital, the Company may have to cease
operations.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The
accompanying unaudited financial information as of and for the
three and six months ended September 30, 2020 and 2019 has been
prepared in accordance with GAAP in the U.S. for interim financial
information and with the instructions to Quarterly Report on Form
10-Q and Article 10 of Regulation S-X. In the opinion of
management, such financial information includes all adjustments
(consisting only of normal recurring adjustments) considered
necessary for a fair presentation of our financial position at such
date and the operating results and cash flows for such periods.
Operating results for the three and six months ended September 30,
2020 are not necessarily indicative of the results that may be
expected for the entire year or for any other subsequent interim
period.
Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the rules of
the U.S. Securities and Exchange Commission, or the SEC. These
unaudited financial statements and related notes should be read in
conjunction with our audited financial statements for the year
ended March 31, 2020 included in the Company’s Annual
Report on Form 10-K filed with the SEC on June 26,
2020.
The
condensed consolidated balance sheet at March 31, 2020 has been
derived from the audited financial statements at that date but does
not include all of the information and footnotes required by
generally accepted accounting principles in the U.S. for complete
financial statements.
7
Consolidation
The
consolidated financial statements include the accounts of
NaturalShrimp Incorporated and its wholly-owned subsidiaries,
NaturalShrimp Corporation, NaturalShrimp Global and 51 % owned
Natural Aquatic Systems, Inc. All significant intercompany accounts
and transactions have been eliminated in
consolidation.
Use of Estimates
Preparing financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Basic and Diluted Earnings/Loss per Common Share
Basic
and diluted earnings or loss per share (“EPS”) amounts
in the consolidated financial statements are computed in accordance
with ASC 260 – 10 “Earnings per Share”, which
establishes the requirements for presenting EPS. Basic EPS is based
on the weighted average number of shares of common stock
outstanding. Diluted EPS is based on the weighted average number of
shares of common stock outstanding and dilutive common stock
equivalents. Basic EPS is computed by dividing net income or loss
available to common stockholders (numerator) by the weighted
average number of shares of common stock outstanding (denominator)
during the period. For the six months ended September 30, 2020, the
Company had approximately $168,000 in convertible debentures whose
approximately 672,000 underlying shares are convertible at the
holders’ option at a fixed conversion price of $0.25 which
were not included in the calculation of diluted EPS as their effect
would be anti-dilutive. For the six months ended September 30,
2019, the Company had approximately $1,033,000 in principal on
convertible debentures whose approximately 40,717,000 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
551,000 warrants with an exercise price of 45% of the
market price of the Company’s common stock, which were not
included in the calculation of diluted EPS as their effect would be
anti-dilutive.
Fair Value Measurements
ASC
Topic 820, “Fair Value
Measurement”, requires that certain financial
instruments be recognized at their fair values at our balance sheet
dates. However, other financial instruments, such as debt
obligations, are not required to be recognized at their fair
values, but GAAP provides an option to elect fair value accounting
for these instruments. GAAP requires the disclosure of the fair
values of all financial instruments, regardless of whether they are
recognized at their fair values or carrying amounts in our balance
sheets. For financial instruments recognized at fair value, GAAP
requires the disclosure of their fair values by type of instrument,
along with other information, including changes in the fair values
of certain financial instruments recognized in income or other
comprehensive income. For financial instruments not recognized at
fair value, the disclosure of their fair values is provided below
under “Financial
Instruments.”
Nonfinancial
assets, such as property, plant and equipment, and nonfinancial
liabilities are recognized at their carrying amounts in the
Company’s balance sheets. GAAP does not permit nonfinancial
assets and liabilities to be remeasured at their fair values.
However, GAAP requires the remeasurement of such assets and
liabilities to their fair values upon the occurrence of certain
events, such as the impairment of property, plant and equipment. In
addition, if such an event occurs, GAAP requires the disclosure of
the fair value of the asset or liability along with other
information, including the gain or loss recognized in income in the
period the remeasurement occurred.
The
Company did not have any Level 1 or Level 2 assets and liabilities
at September 30, 2020 and March 31, 2020.
The
Derivative liabilities are Level 3 fair value
measurements.
The
following is a summary of activity of Level 3 liabilities during
the six months ended September 30, 2020 and 2019:
8
Derivatives
|
2020
|
2019
|
Derivative
liability balance at beginning of period
|
$176,000
|
$157,000
|
Reclass to equity
upon conversion or redemption
|
(205,000)
|
-
|
Change in fair
value
|
29,000
|
39,000
|
Balance at end of
period
|
$-
|
$196,000
|
At
September 30, 2019, the fair value of the derivative liabilities of
convertible notes was estimated using the following
weighted-average inputs: the price of the Company’s common
stock of $0.17; a risk-free interest rate of 1.88%, and expected
volatility of the Company’s common stock of 110.05%, and the
various estimated reset exercise prices weighted by
probability.
Warrant liability
|
2020
|
2019
|
Warrant liability
balance at beginning of period
|
$90,000
|
$93,000
|
Reclass to equity
upon cancellation or exercise
|
(90,000)
|
-
|
Change in fair
value
|
-
|
-
|
Balance at end of
period
|
$-
|
$93,000
|
At
September 30, 2019, the fair value of the warrant liability was
estimated using the following weighted-average inputs: the price of
the Company’s common stock of $0.12; a risk-free interest
rate of 1.71%, and expected volatility of the Company’s
common stock of 268.05%.
Financial Instruments
The
Company’s financial instruments include cash and cash
equivalents, receivables, payables, and debt and are accounted for
under the provisions of ASC Topic 825, “Financial Instruments”. The
carrying amount of these financial instruments, with the exception
of discounted debt, as reflected in the consolidated balance sheets
approximates fair value.
Cash and Cash Equivalents
For the
purpose of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents. There were no cash
equivalents at September 30, 2020 and March 31, 2020.
Concentration of Credit Risk
The
Company maintains cash balances at two financial institution.
Accounts at this institution are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $250,000. As of September
30, 2020 the Company’s
cash balance exceeded FDIC coverage. As of March 31, 2020, the
Company’s cash balance did not exceed FDIC coverage.
The Company has not experienced any losses in such accounts and
periodically evaluates the credit worthiness of the financial
institutions and has determined the credit exposure to be
negligible.
9
Fixed Assets
Equipment is
carried at historical value or cost and is depreciated over the
estimated useful lives of the related assets. Depreciation on
buildings is computed using the straight-line method, while
depreciation on all other fixed assets is computed using the
Modified Accelerated Cost Recovery System (MACRS) method, which
does not materially differ from GAAP. Estimated useful lives are as
follows:
Buildings
|
27.5
– 39 years
|
Other
Depreciable Property
|
5
– 10 years
|
Furniture
and Fixtures
|
3
– 10 years
|
Maintenance and
repairs are charged to expense as incurred. At the time of
retirement or other disposition of equipment, the cost and
accumulated depreciation will be removed from the accounts and the
resulting gain or loss, if any, will be reflected in
operations.
The
consolidated statements of operations reflect depreciation expense
of approximately $9,000 and $20,000 for the three and six months
ended September 30, 2020 and $13,000 and $26,000 for the three and
six months ended September 30, 2019, respectively.
Commitments and Contingencies
Certain
conditions may exist as of the date the consolidated financial
statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management and its
legal counsel assess such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In
assessing loss contingencies related to legal proceedings that are
pending against the Company or unasserted claims that may result in
such proceedings, the Company’s legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or
expected to be sought therein.
If the
assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the
Company’s consolidated financial statements. If the
assessment indicates that a potentially material loss contingency
is not probable, but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if
determinable and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless
they involve guarantees, in which case the nature of the guarantee
would be disclosed.
Recently Issued Accounting Standards
As of
September 30, 2020, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board.
Each of these pronouncements, as applicable, has been or will be
adopted by the Company. Management does not believe the adoption of
any of these accounting pronouncements has had or will have a
material impact on the Company’s consolidated financial
statements.
Management’s Evaluation of Subsequent Events
The
Company evaluates events that have occurred after the balance sheet
date of September 30, 2020, through the date which the consolidated
financial statements were issued. Based upon the review, other than
described in Note 11 – Subsequent Events, the Company did not
identify any recognized or non-recognized subsequent events that
would have required adjustment or disclosure in the consolidated
financial statements.
10
NOTE 3 – FIXED ASSETS
A
summary of the fixed assets as of September 30, 2020 and March 31,
2020 is as follows:
|
September 30,
2020
|
March 31,
2020
|
Land
|
$202,293
|
$202,293
|
Buildings
|
541,862
|
509,762
|
Machinery
and equipment
|
932,275
|
221,987
|
Autos
and trucks
|
19,063
|
19,063
|
|
1,695,493
|
953,105
|
Accumulated
depreciation
|
(264,974)
|
(245,297)
|
Fixed
assets, net
|
$1,430,519
|
$707,808
|
On
March 18, 2020, the Company’s research and development plant
in La Coste, Texas was destroyed by a fire. The Company believes
that it was caused by a natural gas leak, but the fire was so
extensive that the cause was undetermined. The majority of the
damage was to their pilot production plant, which destroyed a large
portion of the fixed assets of the Company. The property destroyed
had a net book value of $1,909,495, which was written off and
recognized as Loss due to fire during the year ended March 31,
2020. The Company filed a claim with their insurance company, and
as of June 2, 2020, received all the proceeds, which totaled
$917,210. The Company is currently purchasing replacement fixed
assets and reconstructing their pilot production
plant.
NOTE 4 – SHORT-TERM NOTE AND LINES OF CREDIT
The
Company has a working capital line of credit with Extraco Bank. On
April 30, 2020, the line of credit was renewed with a maturity date
of April 30, 2021 for a balance of $372,675. The line of credit
bears an interest rate of 5.0%, that is compounded monthly and to
be paid with the principal on the maturity date. The line of credit
matures on April 30, 2021 and is secured by certificates of deposit
and letters of credit owned by directors and shareholders of the
Company. The balance of the line of credit is $372,675 at both
September 30, 2020 and March 31, 2020.
The
Company also has an additional line of credit with Extraco Bank for
$200,000, which was renewed with a maturity date of April 30, 2021,
for a balance of $177,778. The lines of credit bear interest at a
rate of 5%, that is compounded monthly and to be paid with the
principal on the maturity date. The line of credit is secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the line of credit
was $177,778 at both September 30, 2020 and March 31,
2020.
The
Company also has a working capital line of credit with Capital One
Bank for $50,000. The line of credit bears an interest rate of
prime plus 25.9 basis points, which totaled 29.15% as of September
30, 2020. The line of credit is unsecured. The balance of the line
of credit was $9,580 at both September 30, 2020 and March 31,
2020.
The
Company also has a working capital line of credit with Chase Bank
for $25,000. The line of credit bears an interest rate of prime
plus 10 basis points, which totaled 13.25% as of September 30,
2020. The line of credit is secured by assets of the
Company’s subsidiaries. The balance of the line of credit is
$10,237 at September 30, 2020 and March 31, 2020.
11
NOTE 5 – BANK LOAN
On April 10, 2020, the Company obtained a Paycheck
Protection Program (“PPP”) loan in the amount of
$103,200 pursuant to the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”). Interest on the loan is
at the rate of 1% per year, and all loan payments are deferred for
six months, at which time the balance is payable in 18 monthly
installments if not forgiven in accordance with the CARES Act and
the terms of the promissory note executed by the Company in
connection with the loan. The promissory note
contains events of default and other provisions customary for a
loan of this type. As required,
the Company intends to use the PPP loan proceeds for payroll,
healthcare benefits, and utilities. The program provides
that the use of PPP Loan amount shall be limited to certain
qualifying expenses and may be partially or wholly forgiven in
accordance with the requirements set forth in the CARES
Act.
On
January 10, 2017, the Company entered into a promissory note with
Community National Bank for $245,000, at an annual interest rate of
5% and a maturity date of January 10, 2020 (the “CNB
Note”). The CNB Note is secured by certain real property
owned by the Company in LaCoste, Texas, and is also personally
guaranteed by the Company’s President, as well as certain
shareholders of the Company. On January 10, 2020, the loan was
modified, with certain terms amended. The modified note is for the
principal balance of $222,736, with initial monthly payments of
$1,730 through February 1, 2037, when all unpaid principal and
interest will be due and payable. The loan has an initial yearly
rate of interest of 5.75% , which may change beginning on February
1, 2023 and each 36 months thereafter, to the Wall Street Journal
Prime Rate plus 1%, but never below 4.25%. The monthly payments may
change on the same dates as the interest changes. The Company is
also allowed to make payments against the principal at any time.
The balance of the CNB Note is $218,947 at September 30, 2020,
$8,990 of which was in current liabilities, and $222,736 at March
31, 2020, of which $8,904 was in current liabilities.
On
November 3, 2015, the Company entered into a short-term note
agreement with Community National Bank for a total value of
$50,000, with a maturity date of December 15, 2017. On July 18,
2018, the short-term note was replaced by a promissory note for the
outstanding balance of $25,298, which bears interest at 8% with a
maturity date of July 18, 2021. The note is guaranteed by an
officer and director. The balance of the note at September 30, 2020
and March 31, 2020 was $7,656 and $12,005,
respectively.
Maturities on Bank
loan is as follows:
Years
ended:
|
|
March 31,
2021
|
$108,041
|
March 31,
2022
|
20,730
|
March 31,
2023
|
9,240
|
March 31,
2024
|
9,786
|
March 31,
2025
|
10,364
|
Thereafter
|
171,642
|
|
$329,803
|
NOTE 6 – CONVERTIBLE DEBENTURES
August 24, 2018 Debenture
On
August 24, 2018, the Company entered into a 10% convertible note in
the principal amount of $55,000, convertible into shares of common
stock of the Company, which matures August 24, 2019. The interest
rate increases to 24% per annum upon an event of default, as set
forth in the agreement, including a cross default to all other
outstanding notes, and if the debenture is not paid at maturity the
principal due increases by 10%. If the Company loses its bid price
the principal outstanding on the debenture increases by 20%, and if
the Company’s common stock is delisted, the principal
increases by 50%.
The
note is convertible into shares of the Company’s common stock
at a price per share equal to 57% of the lowest closing bid price
for the last 20 days. The discount is increased an additional 10%,
to 47%, upon a “DTC chill". The conversion feature meets the
definition of a derivative and therefore requires bifurcation and
will be accounted for as a derivative liability.
12
During
the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 130% to
145% of the principal and accrued interest balance, based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. On January 10,
2019 the outstanding principal of $55,000 and accrued interest of
$1,974 was purchased from the noteholder by a third party, for
$82,612. The additional $25,638 represents the redemption amount
owing to the original noteholder and increases the principal amount
due to the new noteholder and was recognized as financing
cost.
During
the fourth fiscal quarter of 2019, in three separate conversions,
the holder converted $57,164 of principal into 9,291,354 shares of
common stock of the Company. As a result of the conversions the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $65,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $171,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion, of $0.28 to $0.40; a risk-free interest
rate of 2.36% to 2.41% and expected volatility of the
Company’s common stock, of 343.98% to 374.79%, and the
various estimated reset exercise prices weighted by
probability.
On May
5, 2020, the remaining outstanding balance of $29,057 was converted
into 2,039,069 shares of common stock of the Company, at a
conversion rate of $0.014. As a result of the conversion the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $8,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $30,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion of $0.03; a risk-free interest rate of
0.13% and expected volatility of the Company’s common stock,
of 158.29%, and the various estimated reset exercise prices
weighted by probability.
September 14, 2018 Debenture
On
September 14, 2018, the Company entered into a 12% convertible
promissory note for $112,500, with an original issuance discount
(OID) of $10,250, which matures on March 14, 2019. There is a right
of prepayment in the first 180 days, but there is no right to repay
after 180 days. Per the agreement, the Company is required at all
times to have authorized and reserved three times the number of
shares that is actually issuable upon full conversion of the note.
The Company has not maintained the required share reservation under
the terms of the note agreement. The Company believes it has
sufficient available shares of the Company’s common stock in
the event of conversion for these notes. The interest rate
increases to a default rate of 24% for events as set forth in the
agreement, including if the market capitalization is below $5
million, or there are any dilutive issuances. There is also a cross
default provision to all other notes. In the event of default, the
outstanding principal balance increases to 150%, and if the Company
fails to maintain the required authorized share reserve, the
outstanding principal increases to 200%. Additionally, If the
Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there
are liquidation damages of 25% of principal, not to be below
$15,000. The Company must also obtain the noteholder's written
consent before issuing any new debt. Additionally, if the note is
not repaid by the maturity date the principal balance increases by
$15,000. The market capitalization has been below $5 million and
therefore the note was in default, however, the holder has issued a
waiver to the Company on this default provision.
The
note is convertible into shares of the Company’s common stock
at a variable conversion rate that is equal to the lesser of 60% of
the lowest trading price for the last 20 days prior to the issuance
of the note or 60% of the lowest market price over the 20 days
prior to conversion. The conversion price shall be adjusted upon
subsequent sales of securities at a price lower than the original
conversion price. There are additional 10% adjustments to the
conversion price for events set forth in the agreement, including
if the conversion price is less than $0.01, if the Company is not
DTC eligible, the Company is no longer a reporting company, or the
note cannot be converted into free trading shares on or after nine
months from issue date. Per the agreement, the Company is required
at all times to have authorized and reserved three times the number
of shares that is actually issuable upon full conversion of the
note. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and is accounted for as a
derivative liability.
On
December 13, 2018 the holder converted $11,200 of principal into
4,000,000 shares of common stock of the Company.
On
January 25, 2019 the outstanding principal of $101,550, plus an
additional $81,970 of default principal and $13,695 in accrued
interest of the note, resulting in a new balance of $197,215, was
purchased from the noteholder by a third party, who extended the
maturity date.
On
three separate dates during the first quarter of the fiscal year
ending March 31, 2021, the remaining outstanding balance was
converted into 35,887,170 shares of common stock of the Company, at
a conversion rate of $0.006. As a result of the conversion the
derivative liability related to the debenture was remeasured
immediately prior to the conversions with an overall increase in
the fair value of $8,000 recognized, with the fair value of the
derivative liability related to the converted portion, of $30,000
being reclassified to equity. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock
on the dates of conversion of $0.03; a risk-free interest rate of
0.13% and expected volatility of the Company’s common stock,
of 158.29%, and the various estimated reset exercise prices
weighted by probability.
13
March 1, 2019 Debenture
On
March 1, 2019, the Company entered into a 10% convertible
promissory note for $168,000, with an OID of $18,000, for a
purchase price of $150,000, which originally matured on November 1,
2019. The maturity date has been extended to September 1, 2020,
with the noteholders waiving the default penalties through December
31, 2020. During the first 180 days the convertible redeemable note
is in effect, the Company may redeem the note at a prepayment
percentage of 100% to 130% of the outstanding principal and accrued
interest based on the redemption date’s passage of time
ranging from 60 days to 180 days from the date of issuance of the
debenture. Per the agreement, the Company is required at all times
to have authorized and reserved three times the number of shares
that is actually issuable upon full conversion of the note. In the
event of default, as set forth in the agreement, the outstanding
principal balance increases to 150%. In addition to standard events
of default, an event of default occurs if the common stock of the
Company shall lose the “bid” price for its Common
Stock, on trading markets, including the OTCBB, OTCQB or an
equivalent replacement exchange. If the Company enters into a
3(a)(9) or 3(a)(10) issuance of shares there are liquidation
damages of 25% of principal, not to be below $15,000. The Company
must also obtain the noteholder’s written consent before
issuing any new debt. The note is convertible at a fixed conversion
price of $0.25. If an event of default occurs, the fixed conversion
price is extinguished and replaced by a variable conversion rate
that is 70% of the lowest trading prices during the 20 days prior
to conversion. The fixed conversion price shall reset upon any
future dilutive issuance of shares, options or convertible
securities. The conversion feature at issuance meets the definition
of conventional convertible debt and therefore qualifies for the
scope exception in ASC 815-10-15-74(a) and would not be bifurcated
and accounted for separately as a derivative liability. The Company
analyzed the conversion feature under ASC 470-20, “Debt with
conversion and other options”, and based on the market price
of the common stock of the Company on the date of funding as
compared to the conversion price, determined there was a $134,000
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method.
There was not any amortization expense recognized during the three
and six months ended September 30, 2020, as the beneficial conversion feature was
fully amortized as of September 30, 2019. The amortization expense
recognized during the three and six months ended September
30, 2019 amounted to
approximately $50,000.
April 17, 2019 Debenture
On
April 17, 2019, the Company entered into a 10% convertible
promissory note for $110,000, with an OID of $10,000, for a
purchase price of $100,000, which matures on January 23, 2020. The
maturity date has been extended until September 1, 2020. During the
first 180 days the convertible redeemable note is in effect, the
Company may redeem the note at a prepayment percentage of 120% to
130% of the outstanding principal and accrued interest based on the
redemption date’s passage of time ranging from 60 days to 180
days from the date of issuance of the debenture. Per the agreement,
the Company is required at all times to have authorized and
reserved three times the number of shares that is actually issuable
upon full conversion of the note. In the event of default, as set
forth in the agreement, the outstanding principal balance increases
to 150%. In addition to standard events of default, an event of
default occurs if the common stock of the Company shall lose the
“bid” price for its Common Stock, on trading markets,
including the OTCBB, OTCQB or an equivalent replacement exchange.
If the Company enters into a 3 (a)(9) or 3(a)(10) issuance of
shares there are liquidation damages of 25% of principal, not to be
below $15,000. The Company must also obtain the noteholder’s
written consent before issuing any new debt. The note is
convertible at a fixed conversion price of $0.124. If an event of
default occurs, the fixed conversion price is extinguished and
replaced by a variable conversion rate that is 70% of the lowest
trading prices during the 20 days prior to conversion. The fixed
conversion price shall reset upon any future dilutive issuance of
shares, options or convertible securities. The conversion feature
at issuance meets the definition of conventional convertible debt
and therefore qualifies for the scope exception in ASC
815-10-15-74(a) and would not be bifurcated and accounted for
separately as a derivative liability. The Company analyzed the
conversion feature under ASC 470-20, “Debt with conversion
and other options”, and based on the market price of the
common stock of the Company on the date of funding as compared to
the conversion price, determined there was an approximately $59,000
beneficial conversion feature to recognize, which will be amortized
over the term of the note using the effective interest method.
There was not any amortization expense recognized during the three
and six months ended September 30, 2020, as the beneficial conversion feature was
fully amortized as of September 30, 2019. The amortization
expense recognized during the three and six months ended September
30, 2019 amounted to approximately $20,000. On September 14, 2020,
the outstanding balance of $110,000 was converted into 1,014,001
shares of common stock of the Company, at a conversion rate of
$0.124.
NOTE 7 – STOCKHOLDERS’ DEFICIT
Preferred Stock
As of
September 30, 2020 and March 31, 2020, the Company had 200,000,000
shares of preferred stock authorized with a par value of $0.0001.
Of this amount, 5,000,000 shares of Series A preferred stock are
authorized and outstanding, and 5,000 shares Series B preferred
stock are authorized and 2,750 outstanding,
respectively.
Series B Preferred Equity Offering
On
September 17, 2019, the Company entered into a Securities Purchase
Agreement (“SPA”) with GHS Investments LLC, a Nevada
limited liability company (“GHS”) for the purchase of
up to 5,000 shares of Series B PS at a stated value of $1,200 per
share, or for a total net proceeds of $5,000,000 in the event the
entire 5,000 shares of Series B PS are purchased. During the six
months ended September 30, 2020 the Company received $2,500,000 for
the issuance of 2,500 Series B PS. During the six months ended
September 30, 2019, the Company received an initial tranche of
$250,000 under the SPA. Subsequent to
the period end, the Company issued 250 Series B Preferred
Shares in various tranches of the SPA, totaling
$250,000.
14
During
the six months ended September 30, 2020, the Company has converted
3,054 Series B PS plus 115 Series B PS dividends-in-kind into
92,090,979 shares of the Company’s common
stock.
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 as of
this filing has not yet been deemed effective.
Common Shares Issued to Consultants
On
August 24, 2020, the Company issued 1,500,000 shares of common
stock to a consultant per an agreement entered into on June 25,
2020. The agreement has a six month term, and therefore the fair
value of $67,500, based on the market value of $0.045 on the grant
date, will be recognized over the term of the agreement, with
$32,500 expensed during the three months ended September 30,
2020.
On June
12, 2020, the Company issued 1,250,000 shares of common stock to a
consultant, with the fair value of $61,250 based on the market
price of $0.049 on the date issued and which was recognized as
professional services in the three months ended June 30,
2020.
Options and Warrants
The
Company has not granted any options since inception.
The
Company granted warrants in connection with various convertible
debentures in previous periods. The remaining outstanding warrants
were cancelled in connection with the legal settlement with Vista
Capital Investments, LLC, on April 9, 2020. See discussion in Note
10. The related warrant liability was revalued upon cancellation on
April 9, 2020, resulting in no change to the fair value of the
warrant liability and the $90,000 fair value was reclassified to
equity.
As of
September 30, 2019, there were 551,452 (after adjustment) remaining
warrants to purchase shares of common stock outstanding, classified
as a warrant liability, which were to expire on January 31, 2022,
with an exercise price of 45% of the market value of the common
shares of the Company on the date of exercise.
15
NOTE 8 – RELATED PARTY TRANSACTIONS
Accrued Payroll – Related Parties
Included in other
accrued expenses on the accompanying consolidated balance sheet is
approximately $84,000 owing to the President of the Company, and
approximately $175,000, owing to a key employee (which includes
$50,000 in both fiscal years, from consulting services prior to his
employment) as of both September 30, 2020 and March 31, 2020. These
amounts include both accrued payroll and accrued allowances and
expenses.
NaturalShrimp Holdings, Inc.
On
January 1, 2016 the Company entered into a notes payable agreement
with NaturalShrimp Holdings, Inc.(“NSH”), a
shareholder. Between January 16, 2016 and March 7, 2016, the
Company borrowed $134,750 under this agreement. An additional
$601,361 was borrowed under this agreement in the year ended March
31, 2017. The note payable has no set monthly payment or maturity
date with a stated interest rate of 2%. As of September 30, 2020
and March 31, 2020 the outstanding balance is approximately
$735,000. At September 30, 2020 and March 31, 2020, accrued
interest payable was approximately $58,000 and $51,000,
respectively.
Shareholder Notes
The
Company has entered into several working capital notes payable to
multiple shareholders of NSH and Bill Williams, a former officer
and director, and a shareholder of the Company, for a total of
$486,500. The notes are unsecured and bear interest at 8%. These
notes had stock issued in lieu of interest and have no set monthly
payment or maturity date. The balance of these notes was $356,404
at September 30, 2020 and $426,404 at March 31, 2020, respectively,
and is classified as a current liability on the consolidated
balance sheets. At September 30, 2020 and March 31, 2020, accrued
interest payable was approximately $140,000 and $240,000,
respectively.
On July
15, 2020, the Company issued a promissory note to Ms. Williams in
the amount of $383,604 to settle the amounts that had been
recognized per the separation agreement with the late Mr. Bill
Williams dated August 15, 2019 (Note 10) for his portion of the
related party notes and related accrued interest discussed above,
and accrued compensation and allowances. The note bears interest at
one percent per annum, and calls for monthly payments of $8,000
until the balance is paid in full.
Shareholders
Beginning in 2010,
the Company started entering into several working capital notes
payable with various shareholders of NSH for a total of $290,000
and bearing interest at 8%. The balance of these notes at September
30, 2020 and March 31, 2020 was $54,647 and is classified as a
current liability on the consolidated balance sheets.
NOTE 9 – LEASE
On June
24, 2019, the Company entered into a service and equipment lease
agreement for water treatment services, consumables and equipment.
The lease term is for five years, with a renewal option of an
additional five years, with a monthly lease payment of $5,000. The
Company analyzed the classification of the lease under ASC 842, and
as it did not meet any of the criteria for a financing lease it has
been classified as an operating lease. The Company determined the
Right of Use asset and Lease liability values at inception
calculated at the present value of all future lease payments for
the lease term, using an incremental borrowing rate of 5%. The
Lease Liability will be expensed each month, on a straight line
basis, over the life of the lease. As of September 30, 2020 and
March 31, 2020, the lease is on hold while the Company waits for
new equipment to be delivered and installed. As the lease is on
hold there has been no lease expense or amortization of the Right
of Use asset for the three and six months ended September 30,
2020.
For the
three and six months ended September 30, 2019 the lease expense was
$15,000, and the amortization of the Right of Use asset was
$11,702.
16
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements –Gerald
Easterling
On
April 1, 2015, the Company entered into an employment agreement
with Gerald Easterling at the time as the Company’s
President, effective as of April 1, 2015 (the “Employment
Agreement”).
The
Employment Agreement is terminable at will and each provide for a
base annual salary of $96,000. In addition, the Employment
Agreement provides that the employee 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
Employment Agreement provides that in the event the employee is
terminated without cause or resigns for good reason (as defined in
their Employment Agreement), the employee will receive, as
severance the employee’s base salary for a period of 60
months following the date of termination. In the event of a change
of control of the Company, the employee may elect to terminate the
Employment Agreement within 30 days thereafter and upon such
termination would receive a lump sum payment equal to 500% of the
employee’s base salary.
The
Employment Agreement contains certain restrictive covenants
relating to non-competition, non-solicitation of customers and
non-solicitation of employees for a period of one year following
termination of the employee’s Employment
Agreement.
On
August 15, 2019, the late Mr. Bill Williams resigned from his
position as Chairman of the Board and Chief Executive Officer of
the Company, effective August 31, 2019. Mr. Easterling replaced him
as the Chief Executive Officer of the Company. The separation
agreement calls for the continued payment of salary, at $8,000
semi-monthly, until his accrued compensation in the amount of
approximately $217,000 is paid off, as well as his monthly rent,
medical and automobile payments to continue to be paid and deducted
against the accrued compensation and debt. After the accrued
compensation is fully paid, the payments shall be $10,000 per month
against the remaining debt balance, until such balance is paid in
full. On July 15, 2020, the Company issued a promissory note to Ms.
Williams in the amount of $383,604 to settle the amounts agreed to
in the separation agreement for accrued compensation and debt (see
Note 8).
Vista Capital Investments, LLC
On
April 30, 2019, a complaint was filed against the Company in the
U.S. District Court in Dallas, Texas alleging that the Company
breached a provision in a common stock purchase warrant (the
“Vista Warrant”) issued by the Company to Vista Capital
Investments, LLC (“Vista”). Vista 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 (“Clark’), a principal of Vista, (the
“Parties”) entered into a Settlement Agreement and
Release (the “Settlement Agreement”) whereby the
Company shall (i) pay to Vista the sum of $75,000, which the
Company wired on April 10, 2020, and (ii) issue to Vista 17,500,000
shares of the Company’s Common Stock (the “Settlement
Shares”). For a period of time equal to 90-days from the date
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. On May
18, 2020, the Company received $50,000 as consideration for waiving
the purchase option on the Settlement Shares, thereby allowing
Vista to retain all of the Settlement Shares. The Vista warrants outstanding were cancelled as
part of the Settlement Agreement.
RGA Labs, Inc.
On February 18, 2020, RGA Labs, Inc.
(“RGA”) filed suit against the Company in the Illinois
Circuit Court (23rd
District) alleging that the Company
owed RGA money pursuant to a written contract for the design and
manufacture of certain water treatment equipment commissioned by
the Company. The Company disputed the allegations and has
counterclaimed against RGA for additional costs and expenses
incurred by the Company in correcting, repairing and retro-fitting
the equipment to enable it to work in the Company’s
facilities. The amount in controversy is not
material.
17
Gary Shover
A
shareholder of NaturalShrimp Holdings, Inc. (“NSH”),
Gary Shover, filed suit against the Company on August 11, 2020 in
the Northern District of Texas, Dallas Division, alleging breach of
contract for the Company’s failure to exchange common shares
of the Company for shares Mr. Shover owns in NSH. The Company has
filed its answer to the complaint and is seeking to settle the
matter with Mr. Shover with the approval of the Federal District
Court. A settlement stipulation has been prepared and approved by
the parties and will be filed with the Court along with a proposed
order.
Vista Capital Investments, LLC
On April 30, 2019, a complaint was filed against
the Company in the U.S. District Court in Dallas, Texas alleging
that the Company breached a provision in a common stock
purchase warrant (the “Vista Warrant”) issued by the
Company to Vista Capital Investments, LLC (“Vista”).
Vista 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 (“Clark’), a principal of Vista, (the
“Parties”) entered into a Settlement Agreement and
Release (the “Settlement Agreement”) whereby the
Company shall (i) pay to Vista the sum of $75,000, which the
Company wired on April 10, 2020, and (ii) issue to Vista 17,500,000
shares of the Company’s Common Stock (the “Settlement
Shares”). For a period of time equal to 90-days from the date
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. On May
18, 2020, the Company received $50,000 as consideration for waiving
the purchase option on the Settlement Shares, thereby allowing
Vista to retain all of the Settlement Shares. The Vista warrants outstanding were also cancelled
as part of the Settlement Agreement. The $75,000, as well as the
fair market value of the 17,500,000 common shares, which is
$560,000 based on the market value of the Company’s common
stock on the settlement date of $0.32, was accrued in Accrued
expenses on the accompanying March 31, 2020 Balance Sheet and
recognized as Loss on Warrant settlement in the fourth quarter of
the year ending March 31, 2020.
NOTE 11 – SUBSEQUENT EVENTS
Subsequent to the three months ended
September 30, 2020, the Company
issued 250 Series B Preferred Shares in various tranches of the
SPA, totaling $250,000.
On
August 11, 2020, the Company issued a press release announcing that
it has signed a letter of intent to acquire the assets of Alder
Aqua, formerly known as VeroBlue Farms, in Webster City, Iowa,
including, but not limited to, the real property, equipment, tanks,
rolling stock, inventory, permits, contracts, customer lists and
contracts and other such assets used in the operation of the
business. The purchase price will be $10,000,000, consisting of a
$5,000,000 down payment and notes due in 36 and 48 months. The
acquisition is subject to successful due diligence by the Company
and is expected to close in the fourth quarter of 2020.
Additionally, the facilities located in Blairsburg, Iowa and
Buckeye, Iowa are included in the transaction.
18
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q
includes a number of forward-looking statements that reflect
management’s current views with respect to future events and
financial performance. Forward-looking statements are
projections in respect of future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may,”
“should,” “expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential” or “continue” or the negative
of these terms or other comparable terminology. These statements include statements
regarding the intent, belief or current expectations of us and
members of our management team, as well as the assumptions on which
such statements are based. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future
performance and involve risk and uncertainties, and that actual
results may differ materially from those contemplated by such
forward-looking statements. These statements are only
predictions and involve known and unknown risks, uncertainties and
other factors, including the risks set forth in the section
entitled “Risk Factors” in our Annual Report on Form
10-K for the fiscal year ended March 31, 2020, as filed with the
U.S. Securities and Exchange Commission (the “SEC”) on
June 26, 2020, any of which may cause our company’s or our
industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied in our forward-looking statements. These risks and factors
include, by way of example and without limitation:
●
our ability on a
timely basis to successfully rebuild our research and development
plant in La Coste, Texas which was completely destroyed by a fire
on March 18, 2020;
●
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 outbreak of
COVID-19);
●
intellectual
property claims brought by third parties; and
●
the impact of any
industry regulation.
19
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.
As used
in this Quarterly Report on Form 10-Q and unless otherwise
indicated, the terms “Company,” “we,”
“us,” and “our” refer to NaturalShrimp
Incorporated and its wholly-owned subsidiaries: NaturalShrimp
Corporation (“NSC”) and NaturalShrimp Global, Inc.
(“NS Global”) and our 51% owned subsidiary, Natural
Aquatic Systems, Inc. Unless otherwise specified, all dollar
amounts are expressed in United States Dollars.
Corporate History
We were
incorporated in the State of Nevada on July 3, 2008 under the name
“Multiplayer Online Dragon, Inc.” Effective November 5,
2010, we effected an 8-for-1 forward stock split, increasing the
issued and outstanding shares of our common stock from 12,000,000
shares to 96,000,000 shares. On October 29, 2014, we effected a
1-for-10 reverse stock split, decreasing the issued and outstanding
shares of our common stock from 97,000,000 to
9,700,000.
On
November 26, 2014, we entered into an Asset Purchase Agreement (the
“Agreement”) with NaturalShrimp Holdings, Inc. a
Delaware corporation (“NSH”), pursuant to which we
agreed to acquire substantially all of the assets of NSH which
assets consisted primarily of all of the issued and outstanding
shares of capital stock of NSC and NS Global, and certain real
property located outside of San Antonio, Texas (the
“Assets”).
On
January 30, 2015, we consummated the acquisition of the Assets
pursuant to the Agreement. In accordance with the terms of the
Agreement, we issued 75,520,240 shares of our common stock to NSH
as consideration for the Assets. As a result of the transaction,
NSH acquired 88.62% of our issued and outstanding shares of common
stock; NSC and NS Global became our wholly-owned subsidiaries, and
we changed our principal business to a global shrimp farming
company.
In
connection with our receipt of approval from the Financial Industry
Regulatory Authority (“FINRA”), effective March 3,
2015, we amended our Articles of Incorporation to change our name
to “NaturalShrimp Incorporated.”
Business Overview
We are
a biotechnology company and we have developed a proprietary
technology that allows us to grow Pacific White shrimp (Litopenaeus
vannamei, formerly Penaeus vannamei) in an ecologically controlled,
high-density, low-cost environment, and in fully contained and
independent production facilities. Our system uses technology which
allows us to produce a naturally-grown shrimp “crop”
weekly, and accomplishes this without the use of antibiotics or
toxic chemicals. We have developed several proprietary technology
assets, including a knowledge base that allows us to produce
commercial quantities of shrimp in a closed system with a computer
monitoring system that automates, monitors and maintains proper
levels of oxygen, salinity and temperature for optimal shrimp
production. Our initial production facility is located outside of
San Antonio, Texas.
NS
Global was a 50% shareholder of
NaturalShrimp Europe GmBH, which ultimately re-domiciled from
Switzerland to Norway in the name of NaturalShrimp International
A.S. and later changed its name to Gamba International, A.S.,
supplied the original technology and design support for the first
production subsidiary formed in Medina del Campo, Spain and
operated as GambaNatural de España, S.L. Today, NS Global
holds less than 1% ownership in Norwegian-based Noray Seafood A.S.
(formally Gamba International A.S.).
On
October 16, 2015, we formed Natural Aquatic Systems, Inc.
(“NAS”). The purpose of the NAS is to formalize the
business relationship between our Company and F&T Water
Solutions LLC for the joint development of certain water
technologies. The technologies shall include, without limitation,
any and all inventions, patents, intellectual property and know-how
dealing with enclosed aquatic production systems worldwide. This
includes construction, operation, and management of enclosed
aquatic production, other than shrimp, facilities throughout the
world, co-developed by both parties at our facility located outside
of La Coste, Texas. On December 25, 2018, we were awarded U.S.
Patent “Recirculating Aquaculture System and Treatment Method
for Aquatic Species” covering all indoor aquatic species that
utilizes proprietary art.
The
Company has two wholly-owned subsidiaries, NSC and NS Global and
owns 51% of NAS.
20
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 would be replacing the previous
tanks with 40 new fiberglass tanks (600,000 gallons) at a cost of
approximately $400,000 allowing complete production flexibility
with more smaller tanks. The Company had expected that the first
shrimp tanks harvest target date will be April 2020.
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 expect
this facility to be operational by January 2021.
21
Results of Operations
Comparison of the Three Months Ended September 30, 2020 to the
Three Months Ended September 30, 2019
Revenue
We have
not earned any significant revenues since our inception and,
although we expect revenues to begin in the third quarter of 2021,
we can provide no assurances as to how significant they will be at
that time.
Expenses
Our
expenses for the three months ended September 30, 2020 are
summarized as follows, in comparison to our expenses for the three
months ended September 30, 2019:
|
Three Months
Ended September 30,
|
|
|
2020
|
2019
|
|
|
|
Salaries and
related expenses
|
$103,818
|
$118,022
|
Professional
fees
|
159,178
|
88,815
|
Other general and
administrative expenses
|
133,824
|
167,788
|
Rent
|
4,209
|
3,746
|
Facility
operations
|
68,271
|
15,035
|
Research and
development
|
79,550
|
-
|
Depreciation
|
8,896
|
13,319
|
Total
|
$557,746
|
$406,725
|
Operating expenses
for the three months ended September 30, 2020 were $557,746, which
is an approximately 37% increase over operating expenses of
$406,725 for the same period in 2019. The overall change in
expenses is mainly due to the increase in professional fees
resulting from an increase in legal fees this period, related in
part to the warrant settlement with Vista, the new expense for
research and development and an increase in accounting consulting
fees, over the same period in the previous year. The increase of
approximately $53,000 in the three months ended September 30, 2020
for facility operations and the research and development is a
result of the Company recommencing with its testing and start-up
operations in the production plant. All other costs between periods
are fairly consistent.
22
Comparison of the Six Months Ended September 30, 2020 to the Six
Months Ended September 30, 2019
Revenue
We have
not earned any significant revenues since our inception and,
although we expect revenues to begin in the third quarter of 2021,
we can provide no assurances as to how significant they will be at
that time.
Expenses
Our
expenses for the six months ended September 30, 2020 are summarized
as follows, in comparison to our expenses for the six months ended
September 30, 2019:
|
Six Months Ended
September 30,
|
|
|
2020
|
2019
|
|
|
|
Salaries and
related expenses
|
$214,533
|
$227,532
|
Professional
fees
|
287,486
|
149,611
|
Other general and
administrative expenses
|
227,146
|
252,782
|
Rent
|
7,843
|
7,812
|
Facility
operations
|
79,643
|
139,559
|
Research and
development
|
79,550
|
-
|
Depreciation
|
19,677
|
25,563
|
Total
|
$915,878
|
$802,859
|
Operating expenses
for the six months ended September 30, 2020 were $915,878, which is
an increase of approximately 14% as compared to operating expenses
for the same period in 2019. The overall change in expenses is
mainly due to the increase in professional fees and the new expense
for research and development, offset by the decrease in facility
operations between the periods. The increase in professional fees
is due to an increase in legal fees this period, related in part to
the Vista warrant settlement, and an increase in accounting
consulting fees, over the same period in the previous year. The
decrease of approximately $60,000 in facility operations is a
result of the fire on March 18, 2020, at our pilot production
plant, which is currently in the process of being rebuilt. While we
have been starting up the testing and start-up operations in the
current quarter of 2020, facility operation expenses for the six
months are lower due to reduction of work as a result of the fire.
In the three months ending September 30, 2019, the Company was
progressing with its testing and planning to begin commercial
operations, which had resulted in a ramp-up of costs. All other
costs between periods are fairly consistent.
Liquidity, Financial Condition and Capital Resources
As of
September 30, 2020, we had cash on hand of approximately $316,000
and a working capital deficiency of approximately $3,088,000, as
compared to cash on hand of approximately $109,000 and a working
capital deficiency of approximately $3,598,000 as of March 31,
2020. The decrease in working capital deficiency for the six months
ended September 30, 2020 is mainly due to the decrease in current
liabilities as a result of decreases in convertible debt and the
related derivatives due to conversions of approximately $336,000 of
convertible debt, the Vista settlement in April of 2020, which was
accrued as of March 31, 2020 and which consisted of $560,000 in
accrued expenses and $90,000 in warrant liability, as well as the
issuance of the related party note to Ms. Williams in exchange for
the amounts owed under the late Mr. William’s settlement
agreement, a portion of which in now non-current. This is offset by
a decrease in current assets as a result of the collection of the
insurance settlement of approximately $917,000.
23
Working Capital Deficiency
Our
working capital deficiency as of September 30, 2020, in comparison
to our working capital deficiency as of March 31, 2020, can be
summarized as follows:
|
September
30,
|
March
31,
|
|
2020
|
2020
|
Current
assets
|
$469,718
|
$1,155,394
|
Current
liabilities
|
3,557,995
|
4,753,343
|
Working capital
deficiency
|
$3,088,277
|
$3,597,949
|
The
decrease in current assets is due to the receipt of the insurance
settlement of approximately $917,000 which was in current assets as
of March 31, 2020. While this decreased current assets as compared
to the prior year end, the remaining proceeds have increased cash
as of September 30, 2020, by approximately $206,000. The decrease
in current liabilities is primarily due to the issuance of the
shares of the Company’s common stock in the current period
related to the Vista warrant settlement, with a fair value of
$560,000, plus the cash payment to Vista of $75,000 on April 10,
2020, which were both included in accrued expenses as of March 31.
2020, along with the reclassification of the $90,000 warrant
liability to equity upon cancellation of the Vista warrants. The
current liabilities also were decreased by the conversion of
approximately $336,000 of principal of convertible notes and the
related reclassification to equity of the total derivative
liability upon conversion. Additionally, the issuance of the
related party note to Ms. Williams in exchange for the amounts owed
under the late Mr. William’s settlement agreement, also
resulted in a decrease to current liabilities as a portion of the
new note payable in now non-current. Lastly, there also is an
increase of approximately $169,000 in accounts
payable.
Cash Flows
Our
cash flows for the six months ended September 30, 2020, in
comparison to our cash flows for the six months ended September 30,
2019, can be summarized as follows:
|
Six Months Ended
September 30,
|
|
|
2020
|
2019
|
Net cash used in
operating activities
|
$(851,113)
|
$(983,303)
|
Net cash used in
investing activities
|
(1,563,839)
|
(754,501)
|
Net cash provided
by financing activities
|
2,621,062
|
1,883,547
|
Net change in
cash
|
$206,110
|
$145,743
|
The
decrease in net cash used in operating activities in the six months
ended September 30, 2020 compared to the same period in 2019 is
attributable partly due to the decrease in the net loss, as well as
the approximately $129,000 fair value of the shares issued for
services. There also was the decrease in accrued expenses, which
was a result of the settlement with Vista and in accrued interest
due to related parties, stemming from the issuance of the new Ms.
Williams note payable in settlement of the late Mr. Williams
separation agreement. This is offset in the current period of no
longer recognizing amortization of debt discount, which was
$476,373 in the prior period.
The net
cash used in investing activities in the six months ended September
30, 2020 includes cash paid for machinery and equipment and
construction in process to rebuild the plant and is offset by the
$917,210 of cash proceeds received from the insurance settlement
for the fire to the pilot production plant. In the same period in
2019, the Company used cash for investing activities to purchase
machinery and equipment and payments on construction in process on
the new facility.
The net
cash provided by financing activities increased by approximately
$738,000 between periods. For the current period, the Company
received $2,500,000 from the Securities Purchase Agreement for the
sale of Series B Convertible Preferred Stock, as well as $103,200
from a Paycheck Protection Program
(“PPP”) loan, which is expected to be forgiven
within the current year, and $50,000 connected to the Vista warrant
settlement. In the same period in the prior year, the financing
activities primarily arose from the proceeds received from the
equity financing agreement of $1,774,000 and $100,000 proceeds from
a new convertible debenture in April of 2019, and $250,000 from the
initial tranche of the Stock Purchase Agreement of the Series B
Convertible Preferred Stock, offset by payments made on the credit
line and convertible debentures in fiscal 2020.
Our
cash position was approximately $316,000 as of September 30, 2020.
Management believes that our cash on hand and working capital are
not sufficient to meet our current anticipated cash requirements
for the next twelve months, as more fully described
below.
24
Recent Financing Arrangements and Developments During the
Period
Short-Term Debt and Lines of Credit
The
Company has a working capital line of credit with Extraco Bank. On
April 30, 2020, the line of credit was renewed with a maturity date
of April 30, 2021 for a balance limit of $372,675. The line of
credit bears an interest rate of 5.0%, that is compounded monthly
and to be paid with the principal on the maturity date. The line of
credit matures on April 30, 2021 and is secured by certificates of
deposit and letters of credit owned by directors and shareholders
of the Company. The balance of the line of credit is $372,675 at
both September 30, 2020 and March 31, 2020.
The
Company also has an additional line of credit with Extraco Bank for
$200,000, which was renewed with a maturity date of April 30, 2021,
for a balance of $177,778. The lines of credit bear interest at a
rate of 5%, that is compounded monthly and to be paid with the
principal on the maturity date. The line of credit is secured by
certificates of deposit and letters of credit owned by directors
and shareholders of the Company. The balance of the line of credit
was $177,778 at both September 30, 2020 and March 31,
2020.
The
Company also has a working capital line of credit with Capital One
Bank for $50,000. The line of credit bears an interest rate of
prime plus 25.9 basis points, which totaled 29.15% as of September
30, 2020. The line of credit is unsecured. The balance of the line
of credit was $9,580 at both September 30, 2020 and March 31,
2020.
The
Company also has a working capital line o