What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 64 added, 40 removed, 278 unchanged (27% of the section changed)

34 unchanged sentences

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.

NaturalShrimp USA Corporation (“NSC”) and NaturalShrimp Global, Inc.

(“NS Global”) and Natural Aquatic Systems, Inc.

14 unchanged sentences

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.

The Company’s production facilities are located in La Coste, Texas and Webster City, Iowa.

NS Global, one of our wholly-owned subsidiaries, owns less than 1% of Norway Seafood A.S, (formerly NaturalShrimp International A.S.) in Oslo, Norway.

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The Company and F&T had previously jointly developed and patented a water treatment technology used or useful in growing aquatic species in re-circulating and enclosed environments (the “Patent”) with each party owning a fifty percent (50%) interest.

Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issued 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000.

Upon the closing of the Patents Agreement, the Company would purchase F&T’s interest in the Patent, F&T’s 100% interest in a second patent associated with the first Patent issued to F&T in March 2018, and all other intellectual property rights owned by F&T for a purchase price of $2,000,000 in cash and issue 9,900,990 shares of the Company’s common stock with a market value of $0.505 per share for a total fair value of $5,000,000, for a total acquisition price of $7,000,000.

The Company paid the cash purchase price on May 20, 2021 and the closing of the Patents Agreement took place on May 25, 2021.

As of June 30, 2021, the shares of common stock have not been issued and are therefore classified in Shares payable.

As of September 30, 2021, the shares of common stock have not been issued and are therefore classified in shares payable.

On August 25, 2021, the Company, through their 100% owned subsidiary NAS, entered into an Equipment Rights Agreements with Hydrenesis-Delta Systems, LLC (Hydrenesis-Delta") and a Technology Rights Agreement, in a sub-license agreement with Hydrenesis Aquaculture LLC ("Hydrenesis-Aqua"), The Equipment Rights involve specialized and proprietary equipment used to produce and control, dose, and infuse Hydrogas® and RLS® into both water and other chemical species, while the Technology sublicense pertains to the rights to Hydrogas® and RLS®.

Both Rights agreements are for a 10 year term, which shall automatically renew for ten year successive terms.

The term can be terminated by written notice by mutual consent, or by either party upon a breach of contract, insolvency or filing of bankruptcy.

The agreements accord the exclusive rights to purchase or distribute the technology, or buy or rent the equipment, in the Industry Sector, which is the primary business and revenue stream generated from indoor aquaculture farming of any species in the Territory, defined as anywhere in the world except for the countries in the Gulf Corporation Council.

The Company has three wholly-owned subsidiaries including NSC and NS Global and NAS.

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These funds were utilized to rebuild a 40,000 square foot production facility at the La Coste facility and to repurchase the equipment needed to replace what was lost in the fire.

Had this facility fire not occurred, the Company had expected that the first shrimp tanks harvest target date would have been April 2020.

The Company continues to work towards full capacity at this plant in LaCoste and expects that sales will be generated from the facility in the fourth calendar quarter of 2021.

While we have experienced supply chain issues due to COVID-19, we do expect ramping up full production of 3,000 pounds per week by the end of the first calendar quarter of 2022.

Also, the Company is expecting to break ground on an 80,000 square foot expansion in LaCoste within the next sixty days.

Results of Operations

Comparison of the Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020

We have not earned any significant revenues since our inception and, although we expect revenues to begin in six to nine months, we can provide no assurances as to how significant they will be at that time.

Our expenses for the three months ended June 30, 2021 are summarized as follows, in comparison to our expenses for the three months ended June 30, 2020:

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020

We have not earned any significant revenues since our inception and, although we expect revenues to begin in three to six months, we can provide no assurances as to how significant they will be at that time.

Our expenses for the three months ended September 30, 2021 are summarized as follows, in comparison to our expenses for the three months ended September 30, 2020:

Three Months Ended September 30,

Salaries and related expenses

2 unchanged sentences

Facility operations

Research and development

Depreciation and amortization

Operating expenses for the three months ended June 30, 2021 were $2,238,090, which is a 525% increase over operating expenses of $358,132 for the same period in 2020.

The overall change in expenses is mainly the result of a ramp up of costs based on the increase in the activity in planning operations, as well as the acquisition and addition of the Vero Blue facility.

Salaries increased by approximately $522,000, due to the new employees, as well as the $300,000 bonus paid to the CFO.

Operating expenses for the three months ended September 30, 2021 were $2,783,972, which is a 399% increase over operating expenses of $557,749 for the same period in 2020.

The overall change in expenses is mainly the result of a ramp up of costs based on the increase in the activity in planning operations, as well as the acquisition and addition of the Iowa facility.

Salaries increased by approximately $919,000, due to the new employees, as well as the $300,000 bonus paid to the CFO, and the $600,000 bonus to the President and Chief Technology Officer in accrued expenses, related parties.

Professional fees increased by approximately $120,000, due to attorneys work with the Company on acquisitions and equity offerings and SEC filings, as well as consultant and accounting fees.

The operating costs in 2020 were also decreased due to the slowdown of the progressing of testing and planning to begin commercial operations due to the fire at the Texas plant.

The depreciation in the three months ended June 30, 2021, increased due to the new fixed assets acquired from Vero Blue, and the amortization in the current period is the result of the patent acquisition on May 19, 2021.

The approximately $457,644 increase in other general and administrative expenses includes maintenance work being done in the Texas and Iowa facilities and property taxes paid in Iowa.

Additionally, it is the result of the fact that the operating costs in 2020 were decreased due to the slowdown of the progressing of testing and planning to begin commercial operations due to the fire at the Texas plant.

The depreciation in the three months ended September 30, 2021, increased due to the new fixed assets acquired from Vero Blue, and the amortization in the current period is the result of the patent acquisition on May 19, 2021 and the License Agreements entered into on August 25, 2021.

Comparison of the Six Months Ended September 30, 2021 to the Six Months Ended September 30, 2020

Our expenses for the six months ended September 30, 2021 are summarized as follows, in comparison to our expenses for the six months ended September 30, 2020:

Six Months Ended September 30,

Salaries and related expenses

Professional fees

Other general and administrative expenses

Facility operations

Research and development

Depreciation and amortization

Operating expenses for the six months ended September 30, 2021 were $5,022,062, which is a 448% increase over operating expenses of $915,878 for the same period in 2020.

The overall change in expenses is mainly the result of a ramp up of costs based on the increase in the activity in planning operations, as well as the acquisition and addition of the Iowa facility, especially in general and administrative expenses and facility operations.

Salaries increased by approximately $1,441,000, due to the new employees, as well as the $300,000 bonus paid to the CFO, and the $600,000 bonus to the President and Chief Technology Officer in accrued expenses, related parties.

Professional fees increased by approximately $689,000, due to attorneys work with the Company on acquisitions and equity offerings and SEC filings, as well as consultant and accounting fees.

The increase in other general and administrative expenses of approximately $775,000 includes maintenance work being done in the Texas and Iowa facilities and property taxes paid in Iowa.

The depreciation in the six months ended September 30, 2021, increased due to the new fixed assets acquired from Vero Blue, and the amortization in the current period is the result of the patent acquisition on May 19, 2021 and the License Agreements entered into on August 25, 2021.

Liquidity, Financial Condition and Capital Resources

As of June 30, 2021, we had cash on hand of approximately $5,973,000 and working capital of approximately $4,445,000.

As of September 30, 2021, we had cash on hand of approximately $801,000 and working capital of approximately $5,121,000.

as compared to cash on hand of approximately $156,000 and a working capital deficiency of approximately $3,614,000 as of March 31, 2021.

The increase in working capital for the three months ended June 30, 2021, is mainly due to the increase in cash on-hand and decrease in convertible debentures, notes payable – related parties, lines of credit, as well as the forgiveness of the PPP loan.

The decrease in working capital for the six months ended September 30, 2021, is mainly due to the decrease in cash on-hand and increase in accounts payable and accrued expenses, offset by a decrease in notes payable – related parties.

Working Capital/(Deficiency)

Our working capital as of June 30, 2021, in comparison to our working capital deficiency as of March 31, 2021, can be summarized as follows:

Our working capital as of September 30, 2021, in comparison to our working capital deficiency as of March 31, 2021, can be summarized as follows:

September 30,

Current assets

2 unchanged sentences

$ (5,120,811 )

Current assets increased mainly because of the addition to cash as a result of the equity offerings during the three months ended June 30, 2021, of approximately $17,274,000, a portion of which was used in the patent and NAS acquisitions, as well as redemption of Series D Preferred shares.

The decrease in current liabilities is primarily due to the payoff of bank loans and lines of credit, convertible debt, notes payable to related parties, and the forgiveness of the PPP loan.

Our cash flows for the three months ended June 30, 2021, in comparison to our cash flows for the three months ended June 30, 2020, can be summarized as follows:

Three Months Ended June 30,

Net cash used in operating activities

$ (3,614,377 )

Current assets increased mainly because of the addition to cash as a result of the equity offerings during April through June 2021, of approximately $17,274,000, a portion of which was then used in the patent and NAS acquisitions, the License agreements, as well as redemption of Series D Preferred shares, offset by a decrease in prepaid expenses, due to the amortization.

The increase in current liabilities is primarily due to the $3 million in cash payments owed on the License agreements recorded in accounts payable and the $600,000 in accrued bonuses for the President and Chief Technology Officer (“CTO”), off set by the payoff of bank loans and lines of credit, convertible debt, notes payable to related parties, and the forgiveness of the PPP loan.

Our cash flows for the six months ended September 30, 2021, in comparison to our cash flows for the six months ended September 30, 2020, can be summarized as follows:

Six Months Ended September 30,

Net cash used in operating activities

$ (4,153,434 )

2 unchanged sentences

Net change in cash

The increase in net cash used in operating activities in the three months ended June 30, 2021, compared to the same period in 2020 is largely attributable to the increase in the net loss, plus the increase in accounts payable, and the decrease from the prior period in the amount of payments towards deposits on fixed assets,

The net cash used in investing activities in the three months ended June 30, 2021 includes $2,000,000 in the patent acquisition and $1,000,000 in the acquisition of shares of the non-controlling interest, as well as approximately $750,000 for construction in process.

The prior year’s cash spent on investing activities consisted mainly of the $917,210 of cash proceeds received from the insurance settlement for the fire to the pilot production plant, offset by cash paid for machinery and equipment.

The increase in net cash used in operating activities in the six months ended September 30, 2021, compared to the same period in 2020 is largely attributable to the increase in the net loss, plus the increase in accounts payable, offset by the increase in the depreciation and amortization and the accrued bonuses for the President and CTO.

The net cash used in investing activities in the six months ended September 30, 2021 includes $2,000,000 in the patent acquisition and $1,000,000 in the acquisition of shares of the non-controlling interest, the $2,350,000 for the License agreement, as well as approximately $646,000 for machinery and equipment and $1,298,000 for construction in process.

The prior year’s cash spent on investing activities consisted mainly of the cash paid for machinery and equipment and construction in process, offset by $917,210 of cash proceeds received from the insurance settlement for the fire to the pilot production plant.

The net cash provided by financing activities increased by approximately $9,471,000 between periods.

1 unchanged sentence

In the same period in the prior year, the financing activities primarily arose from the proceeds received from the sale of Series B convertible Preferred Shares and the $103,200 received from the PPP loan.

Our cash position was approximately $5,973,000 as of June 30, 2021.

Our cash position was approximately $801,000 as of September 30, 2021.

Management believes that our cash on hand and working capital are not sufficient to meet our current anticipated cash requirements for additional anticipated capital expenditures, operating expenses and scale-up of operations for the next twelve months.

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The line of credit is unsecured.

The balance of the line of credit was $9,580 at both June 30, 2021 and March 31, 2021.

The balance of the line of credit was $9,580 at both September 30, 2021 and March 31, 2021.

The Company also has a working capital line of credit with Chase Bank for $25,000.

1 unchanged sentence

The line of credit is secured by assets of the Company’s subsidiaries.

The balance of the line of credit is $10,237 at June 30, 2021 and March 31, 2021.

The balance of the line of credit is $10,237 at September 30, 2021 and March 31, 2021.

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 April 16, 2021, the Company filed for the forgiveness of the PPP loan and was approved for forgiveness of such loan on April 26, 2021.

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The Company is also allowed to make payments against the principal at any time.

The balance of the CNB Note is $212,810 at June 30, 2021, $8,990 of which was in current liabilities, and $222,736 at March 31, 2021, of which $8,904 was in current liabilities.

The balance of the CNB Note is $210,738 at September 30, 2021, $10,380 of which was in current liabilities, and $214,452 at March 31, 2021, of which $8,725 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.

1 unchanged sentence

The note is guaranteed by an officer and director.

The balance of the note at June 30, 2021 and March 31, 2021 was $789 and $3,124, respectively.

The note was paid off in full in July of 2021.

The balance of the note at March 31, 2021 was $3,124.

Convertible Debentures

25 unchanged sentences

Therefore, the difference between the fair value of the Series E Preferred Stock transferred to the holder of the Series D Preferred Stock and the carrying amount of the Series D Preferred Stock immediately prior to the exchange, which was $3,258,189, was accounted for in a manner similar to a dividend.

During the three months ended September 30.

2021, 1,200 shares of Series E Preferred Stock were converted into 4,114,286 shares of common stock.

In addition, in relation to the Offering, on April 15, 2021, the Company redeemed the remaining 2,450 of the Series D PS for $3,513,504.

52 unchanged sentences

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The Company did not have any Level 1,Level 2 or Level 3 assets and liabilities at June 30, 2021 and March 31, 2021.

The Company did not have any Level 1, Level 2 or Level 3 assets and liabilities at September 30, 2021 and March 31, 2021.

Basic and Diluted Earnings/Loss per Common Share

2 unchanged sentences

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 three months ended June 30, 2021, the Company had 10,000,000 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

For ,the three months ended June 30,2020, the Company had approximately $278,000 in convertible debentures whose approximately 1,560,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.124 to $0.25 for fixed conversion rates which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

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, 2021, the Company had with Redeemable Convertible Preferred stock with approximately 9,842,000 underlying common shares, and 10,000,000 warrants outstanding which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

For the six months ended September 30, 2020, the Company had approximately $168,000 in convertible debentures whose approximately 1,560,000 underlying shares are convertible at the holders’ option at conversion prices ranging from $0.124 to $0.25 for fixed conversion rates which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.

Impairment of Long-lived Assets and Long-lived Assets

5 unchanged sentences

Recently Adopted Accounting Pronouncements

Our recently adopted accounting pronouncements are more fully described in Note 2 to our financial statements included herein for the quarter ended June 30, 2021.

Our recently adopted accounting pronouncements are more fully described in Note 2 to our financial statements included herein for the quarter ended September 30, 2021.

Recently Issued Accounting Standards

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The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

During the year ended March 31, 2021, there were several new accounting pronouncements issued by the Financial Accounting Standards Board.

During the period ending September 30, 2021, 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.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis