UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 31, 2015
[ ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period __________ to  __________
	Commission File Number:000-54767

 

Rich Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada	46-3259117
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
9595 Wilshire Blvd., Suite 900 Beverly Hills, California 90212
(Address of principal executive offices)
(424) 230-7001
(Registrant’s telephone number)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

[ ] Large accelerated filer Accelerated filer	[ ] Non-accelerated filer
[X] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [] Yes [X] No

 

The number of shares outstanding of common stock as of February 9, 2016 was 8,457,906,689.

 

 

	TABLE OF CONTENTS	Page
PART I - FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	5
Item 4:	Controls and Procedures	5
PART II - OTHER INFORMATION
Item 1:	Legal Proceedings	5
Item 1A:	Risk Factors	5
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3:	Defaults Upon Senior Securities	11
Item 4:	Mine Safety Disclosures	11
Item 5:	Other Information	11
Item 6:	Exhibits	11

 

Unless otherwise indicated, in this Form 10-Q, references to “we,” “our,” “us,” the “Company,” or the “Registrant” refer to Rich Pharmaceuticals Inc., a Nevada corporation.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report.  Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms.  Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.  Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters.  Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs. You should not place undue reliance on these forward looking statements.

The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q.  Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.  You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we anticipate.

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements   

 

RICH PHARMACEUTICALS, INC.  

TABLE OF CONTENTS 

DECEMBER 31, 2015

 

Balance Sheets (Unaudited) as of December 31, 2015 and March 31, 2015	F-1
Statements of Operations (Unaudited) for the three and nine months ended December 31, 2015 and 2014	F-2
Statements of Cash Flows (Unaudited) for the nine months ended December 31, 2015 and 2014	F-3
Notes to Financial Statements	F-4 - F-23

 

 RICH PHARMACEUTICALS, INC.

BALANCE SHEETS (UNAUDITED)

AS OF DECEMBER 31, 2015 AND MARCH 31, 2015 

 

	December 31, 2015				March 31, 2015
ASSETS
Current Assets
Cash and equivalents	$	3,423			$	15,892
Prepaid expenses		—				7,578
Total Current Assets		3,423				23,470
Property and equipment, net		1,400				788
TOTAL ASSETS	$	4,823			$	24,258
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable	$	980,519			$	910,272
Accrued expenses		438,001				200,891
Due to related parties		70,078				6,067
Convertible notes payable, net of debt discount		193,194				402,131
Derivative liabilities		863,695				139,983
Total Current Liabilities		2,545,487				1,659,344
Long-term Liabilities
Convertible notes payable, net of debt discount		4,818				6,080
Derivative liabilities		27,747				77,775
Total Long-term Liabilities		32,565				83,855
Total Liabilities		2,578,052				1,743,199
Stockholders’ Deficit
Preferred stock, $.001 par value, 10,000,000 shares authorized, 6,000,000 shares issued and outstanding, respectively		6,000				6,000
Common stock, $0.001 par value, 375,030,000 shares authorized, 67,828,071 and 15,410,840 shares issued and outstanding,		67,828				15,411
Additional paid-in capital		6,645,611				5,694,628
Accumulated deficit		(9,292,668	)			(7,434,980	)
Total Stockholders’ Deficit		(2,573,229	)			(1,718,941	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	4,823			$	24,258

  

See accompanying notes to financial statements.

RICH PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2015 AND 2014

 

	Three Months ended December 31, 2015				Three Months ended December 31, 2014				Nine Months ended December 31, 2015				Nine Months ended December 31, 2014
REVENUES	$	—			$	—			$	—			$	—
OPERATING EXPENSES
Consulting expenses		4,300				7,981				10,300				169,192
Office expenses		30,361				30,950				76,255				73,268
Depreciation expense		206				118				443				355
Wages and taxes		100,326				543,311				283,119				789,266
Professional fees		105,339				261,412				197,623				590,955
Regulatory fees		1,510				6,548				18,759				42,195
Research and development		—				—				9,000				—
Stock-based compensation		35,348				497,654				227,740				679,095
Travel, meals and entertainment		21,205				10,649				35,797				50,332
TOTAL OPERATING EXPENSES		298,595				1,358,623				859,036				2,394,658
LOSS FROM OPERATIONS		(298,595	)			(1,358,623	)			(859,036	)			(2,394,658	)
OTHER INCOME (EXPENSE)
Amortization of debt discount		(134,975	)			(85,596	)			(405,963	)			(112,381	)
Change in value of derivative liability		(399,810	)			49,606				(169,624	)			40,871
Derivative expense		(47,469	)			(25,187	)			(382,713	)			(135,059	)
Interest expense		(19,872	)			(16,248	)			(40,127	)			(26,177	)
Interest expense – related party		(2	)			—				(226	)			—
		(602,128	)			(77,425	)			(998,653	)			(232,746	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(900,723	)			(1,436,048	)			(1,857,689	)			(2,627,404	)
PROVISION FOR INCOME TAXES		—				—				—				—
NET LOSS	$	(900,723	)		$	(1,436,048	)		$	(1,857,689	)		$	(2,627,404	)
NET LOSS PER SHARE: BASIC AND DILUTED	$	(0.02	)		$	(0.21	)		$	(0.03	)		$	(0.52	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED		46,854,700				6,711,422				63,288,358				5,057,023

  

See accompanying notes to financial statements.

RICH PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED DECEMBER 31, 2015 AND 2014

 

	Nine months ended December 31, 2015				Nine months ended December 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period	$	(1,857,689	)		$	(2,627,404	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense		443				355
Amortization of debt discount		405,963				118,339
Change in value of derivative liability		169,624				(40,871	)
Derivative expense		382,713				135,059
Warrants issued for services		42,871				—
Stock-based compensation		198,128				1,445,145
Changes in operating assets and liabilities:
Decrease in prepaid expenses		7,578				1,561
Increase in accounts payable		70,247				1,991
Increase (Decrease)  in accrued expenses		237,110				(68,568	)
Net Cash Used by Operating Activities		(343,012	)			(1,034,393	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets		(1,054	)			—
Net Cash Used by Investing Activities		(1,054	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received (repaid)		—				(147,050	)
Loans received (repaid) from/to related parties		64,011				(36,000	)
Proceeds from sale of common stock and warrants		62,415				607,050
Issuance of convertible note payable		205,171				603,829
Net Cash Provided by Financing Activities		331,597				1,027,829
Net Increase (Decrease) in Cash and Cash Equivalents		(12,469	)			(6,564	)
Cash and cash equivalents, beginning of period		15,892				12,387
Cash and cash equivalents, end of period	$	3,423			$	5,823
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	—			$	—
Income taxes paid	$	—			$	—
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION:
Stock deposits reclassified as common stock and stock warrants	$	—			$	147,050
Common stock issued for accrued expense	$	—			$	6,225
Original issue discounts recorded on notes payable	$	10,400			$	18,341
Debt discounts recorded on convertible notes payable	$	396,402			$	163,920
Acquisition of intangibles for stock	$	—			$	82,120
Debt/interest converted into common stock	$	454,077			$	197,183

  

See accompanying notes to financial statements.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

On August 9, 2010 the Company was incorporated as Nepia Inc. in the State of Nevada. From August 9, 2010 to July 18, 2013, the Company was in the business of developing, manufacturing, and selling small boilers aimed at farmers primarily in Southeast Asia. Beginning on July 19, 2013, the Company acquired bio-pharmaceutical intellectual property for the treatment of acute myeloid leukemia (AML) and is entering into phase II human studies. The goal is to perfect this indication for marketing purposes for distribution world-wide. On August 26, 2013, as a consequence of our new business direction, the Company changed its name to Rich Pharmaceuticals, Inc. (“Rich” or “the Company”).

 

On July 18, 2013, the Company designated, from our 10,000,000 authorized shares of preferred stock, par value $0.001, 6,000,000 shares of Series “A” Preferred Stock. Our Series “A” Preferred Stock has voting rights of 100 votes per share and votes with common shares as a single class.

 

On July 18, 2013, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents” and all related intellectual property associated with the patent. In consideration for the intellectual property the Company issued 827,670 common shares, and 6,000,000 Series “A” Preferred shares. The common and preferred shares were valued at $123,973. The Company further agreed to use its best efforts to complete a financing resulting in proceeds of at least $2,000,000. If the Company was unable to raise $400,000 according to the terms of the Assignment Agreement, the patent reverts back to Imagic, LLC and its principals. On January 17, 2014, the right of reversion was terminated in exchange for a payment of $20,000.

 

On July 19, 2013, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Sale Agreement”) with our prior officers and directors. Pursuant to the Sale Agreement, the Company transferred all assets and business operations associated with our boiler business in exchange for assumption of all obligations associated with that business and cancellation of loans amounting to $28,818. The cancellation of debt was recorded as additional paid-in capital. In consequence to the Sale Agreement two former officers sold 5,312,925 common shares held by them to our new officer/director. In turn, our new officer/director agreed to cancel 5,002,554 of those shares he received and returned them to treasury for retirement. Certain other shareholders also agreed to cancel 2,625,210 common shares.

 

On September 5, 2013, the Company increased the authorized common shares, par value $0.0010, from 900,000 shares to 375,030,000 shares. Correspondingly, the Company affirmed a forward split of 4.167 for 1 in which each shareholder was issued 4.167 common shares for each share held. All share and per share date included in these financial statements has been retrospectively adjusted to account for the stock split.

 

Effective February 11, 2016, the Company approved a reverse stock split of the common stock, par value $0.001 per share at a ratio of 1 for 100 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the reverse stock split for all periods.

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. At December 31, 2015 and March 31, 2015 the Company had $3,423 and $15,892, respectively, of unrestricted cash.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Basis of Presentation

The financial statements of the Company have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America and are presented in U.S. dollars. The Company has adopted a March 31 fiscal year end.

 

Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with a reading of the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, as filed with the U.S. Securities and Exchange Commission.

 

Property and Equipment

Property and equipment is recorded at cost and is depreciated using the straight-line method over the estimated useful lives of the related assets. The useful lives of the assets are as follows: Computer equipment, 3 years.

 

Long-Lived and Intangible Assets

The Company accounts for long-lived and intangible assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of March 31, 2014, the Company fully impaired their intangible assets to $0. During the year ended March 31, 2015, the Company acquired another intangible asset from a related party and valued it at the cost of the intangible to the related party totaling $82,120. As of March 31, 2015, the Company fully impaired their intangible assets to $0.

 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, amounts due to related parties, stock deposits, and a convertible note payable. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value of Financial Instruments (continued)

Level 1 – Observable inputs such as quoted prices in active markets;

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;

Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The Company did not have any level 1 or level 3 financial instruments at December 31, 2014. As of December 31, 2015, the derivative liabilities were considered a level 2 item; see Note 8.

 

Use of Estimates

The preparation of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

Revenue Recognition

The Company will recognize revenue when products are fully delivered or services have been provided and collection is reasonably assured.

 

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. On September 6, 2013, the Company approved the adoption of Rich Pharmaceuticals, Inc. 2013 Stock Option/Stock Issuance Plan (the "2013 Plan”). The 2013 Plan is intended to aid in recruiting and retaining key employees, directors or consultants and to motivate them by providing incentives through the granting of awards of stock options or other stock based awards. The 2013 Plan is administered by the board of directors. Directors, officers, employees and consultants and our affiliates are eligible to participate under the 2013 Plan. A total of 3,900,048 common shares have been reserved for awards under the 2013 Plan. During the year ended March 31, 2015, the Company granted 197,500 stock options to officers, directors, employees and consultants. During the period ended December 31, 2015, the Company granted 3,900,003 stock options to officers, directors, employees and consultants. The Company made the following modifications to the exercise prices of its options: January 12, 2015, the Company modified the exercise price on all outstanding stock options to $0.17; April 6, 2015, the Company modified the exercise price on all outstanding stock options to $0.08 per share; August 4, 2015, the Company modified the exercise price on all outstanding stock options to $0.01 per share.

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Basic Loss Per Share

The basic earnings (loss) per share is calculated by dividing the Company’s net income available to common shareholders by the weighted average number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity.

 

Recent Accounting Pronouncements

The Company does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment, recorded at cost, consisted of the following as of December 31, 2015 and March 31, 2015:

 

	December 31, 2015				March 31, 2015
Computer equipment	$	2,473			$	1,419
Less: accumulated depreciation		(1,073	)			(631	)
Property and equipment, net	$	1,400			$	788

 

The useful life of the computer equipment is 3 years.

 

Depreciation expense was $443 and $473 for the periods ended December 31, 2015 and March 31, 2015, respectively.

 

NOTE 3 – INTANGIBLE ASSETS

 

On July 18, 2013, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Phorbol esters as anti-neoplastic and white blood cell elevating agents” and all related intellectual property associated with the patent. In consideration for the intellectual property the Company issued 827,670 common shares and 6,000,000 Series “A” Preferred Stock. These shares were valued at a total of $123,973. The Company has also paid additional funds to third parties to further the development of this asset and terminate the right of reversion totaling $45,000. The Company analyzed the assets at March 31, 2014 and determined that the value could not be supported and impaired the assets to $0.

 

On October 6, 2014, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC and its principals to acquire certain assets including a US Patent entitled “Compositions and methods of use of Phorbol Esters for the treatment of Hodgkin’s Lymphoma”, and all related intellectual property, inventions and trade secrets, data and clinical study results. In consideration for the intellectual property the Company issued 2,207,920 common shares. These shares were valued at a total of $7,904,355; however, since the asset was acquired from a related party the Company valued the asset at the cost of the asset to the related party, $82,120, and treated the excess value as a deemed dividend reducing additional paid in capital. The Company analyzed the assets at March 31, 2015 and determined that the value could not be supported and impaired the assets to $0.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 4 – ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of December 31, 2015 and March 31, 2015:

 

	December 31, 2015				March 31, 2015
Wages and taxes		413,895				175,357
Accrued interest		24,107				25,534
Total accrued expenses	$	438,002			$	200,891

  

NOTE 5 – RELATED PARTY DEBT AND TRANSACTIONS

 

On July 19, 2013, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Sale Agreement”) with our prior officers and directors. Pursuant to the Sale Agreement, the Company transferred all assets and business operations associated with its boiler business in exchange for assumption of all obligations associated with that business and cancellation of loans amounting to $28,818. The cancellation of debt was recorded as additional paid-in capital.

 

During the year ended March 31, 2015 and 2014, the Company received loans from companies controlled by its new CEO or shareholders totaling $5,000 and $36,000, respectively. The loans are unsecured, non-interest bearing with no specific terms of repayment. The Company repaid all $41,000 of the loans during the year ended March 31, 2015.

 

Also during the year ended March 31, 2015, the Company received a $6,000 loan from a shareholder. The loan is unsecured and bears 8% interest. There is a total due of $6,000 as of December 31, 2015. Interest accrued on the 2015 note as of December 31, 2015 was $293.

 

During the period ending December 31, 2015, the Company received $37,300 in unsecured non-interest bearing loans from related parties. These loans are deemed to be short-term and are payable at the discretion of the Company.

 

On September 6, 2013, the Company entered into an Employment Agreement with our Chief Executive Officer, Chief Financial Officer, President and Secretary. The Employment Agreement provides for a term of two years; annual compensation of $275,000, a signing bonus of $68,750, and options to purchase up to 30,002 shares of common stock at an exercise price of $2.00 per share. The CEO earned $206,250 and $227,133 for the nine months ended December 31, 2015 and 2014 (respectively) as a result of this agreement, these amounts contribute to the $326,880 and $154,062 of officer compensation which is included in accrued expenses, as of December 31, 2015 and March 31, 2015.

 

NOTE 6 – STOCK DEPOSITS

 

The Company received deposits for future stock purchases during the year ended March 31, 2014 totaling $147,050. The Company signed subscription agreements with four investors on June 16, 2014 to grant 14,690 shares of common stock in exchange for the deposits. The remaining balance as of March 31, 2015 and December 31, 2015 is $0.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 - CONVERTIBLE NOTES PAYABLE

 

On March 11, 2014, the Company issued a convertible promissory note in the amount of $37,500. The note is due on December 13, 2014 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $37,500 of principal and $1,500 of interest into 21,593 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

On April 8, 2014, the Company issued a convertible note payable in the amount of $53,000. The note bears 8% interest and is due on January 14, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $53,000 of principal and $2,120 of interest into 60,890 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

On May 21, 2014, the Company issued a convertible note payable in the amount of $42,500. The note bears 8% interest and is due on February 23, 2015. The note is currently in default. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $42,500 of principal and $1,700 of interest into 152,524 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

On August 14, 2014, the Company issued a convertible note payable in the amount of $66,780 including an original issue discount of $3,380. The note bears 8% interest and is due on August 14, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $66,780 of principal and $2,850 of interest into 1,214,425 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

On August 14, 2014, the Company issued a convertible note payable in the amount of $58,300 including an original issue discount of $3,300. The note bears 8% interest and is due on August 14, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twenty-two (22) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $58,300 of principal and $2,527 of interest into 1,310,912 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE (CONTINUED)

 

On August 13, 2014, the Company issued a convertible note payable in the amount of $61,111 including an original issue discount of $5,500. The note has a one-time 12% interest charge and is due on August 14, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $61,111 of principal and $6,266 of interest into 1,403,700 shares of common stock leaving a remaining balance of $0. Accrued interest was $1,067 as of December 31, 2015.

 

On August 19, 2014, the Company issued a convertible note payable in the amount of $57,895 including an original issue discount of $2,895. The note bears 12% interest and is due on August 19, 2016. The loan becomes convertible immediately upon the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $57,895 of principal and $14,035 of interest (including a $10,000 penalty) into 1,798,250 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of March 31, 2015.

 

On September 18, 2014, the Company issued a convertible note payable in the amount of $64,500 including an original issue discount of $5,500. The note bears a one-time 12% interest charge and is due on September 18, 2015. The loan becomes convertible immediately upon the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. However, if the market price during the 20 day trading period (mentioned above) is below $0.03, then the conversion factor will be reduced to 55%. During the year ended March 31, 2015, the note holder converted $10,000 of principal into 181,819 shares of common stock leaving a remaining balance of $54,500. During the period ending December 31, 2015 the note holder converted $54,500 in principal and $8,240 in accrued interest into 1,879,597 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

On September 23, 2014, the Company issued a convertible note payable in the amount of $55,000. The note bears 8% interest and is due on June 23, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date. During the year ended March 31, 2015, the note holder converted $25,200 of the principle into 700,000 common shares leaving a remaining balance of $29,800. During the period ending December 31, 2015 the note holder converted $29,800 in principal and $2,158 in accrued interest into 864,672 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE (CONTINUED)

 

On October 6, 2014, the Company issued a convertible promissory note in the amount of $33,000. The note is due on July 6, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $33,000 in principal and $1,320 in accrued interest into 780,000 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

On November 6, 2014, the Company issued a convertible promissory note in the amount of $55,000. The note is due on May 6, 2015 and bears interest at 12% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 52.5% multiplied by lowest daily market price, for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $55,000 in principal and $3,553 in accrued interest into 2,813,634 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

On November 25, 2014, the Company issued a convertible promissory note in the amount of $43,000. The note is due on August 28, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder assessed a default fee of $3,510 to increase the balance of the note and also converted $46,510 in principal into 5,290,270 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

On December 16, 2014, the Company issued a convertible note payable in the amount of $33,333 including an original issue discount of $3,333. The note bears a one-time 12% interest charge and is due on December 16, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $32,472 in principal into 4,237,000 shares of common stock leaving a remaining balance of $861. Accrued interest was $5,635 as of December 31, 2015. This loan has an unamortized original issue discount of $1,605 as of the end of the period.

 

On January 9, 2015, the Company issued a convertible promissory note in the amount of $33,000. The note is due on October 13, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder assessed a default fee of $16,500 to increase the balance of the note and also converted $49,500 in principal and $1,320 in interest into 8,470,000 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE (CONTINUED)

 

On February 5, 2015, the Company issued a convertible promissory note in the amount of $54,000. The note is due on November 9, 2015 and bears interest at 8% per annum. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $7,670 in principal into 1,278,333 shares of common stock leaving a remaining balance of $46,330. Interest accrued on this note as of December 31, 2015 is $3,891. The Company is in default on the balance of this note.

 

On February 17, 2015, the Company issued a convertible note payable in the amount of $66,780 including an original issue discount of $6,780. The note bears 8% interest and is due on August 14, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $51,280 in principal and $2,051 in accrued interest into 5,992,424 shares of common stock leaving a remaining balance of $15,500. Accrued interest was $1,077 as of December 31, 2015. The Company is in default on the balance of this note.

 

On February 25, 2015, the Company issued a convertible note payable in the amount of $27,778 including an original issue discount of $2,778. The note bears a one-time 12% interest charge and is due on February 25, 2017. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 60% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $17,700 in principal into 2,950,000 shares of common stock leaving a remaining balance of $10,078. Interest accrued on this note for the period ended December 31, 2015 is $5,827. This loan has an unamortized original issue discount of $1,607 as of the end of the period.

 

On March 9, 2015, the Company issued a convertible note payable in the amount of $55,000. The note bears 8% interest and is due on December 9, 2015. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $18,439 in principal and $3,698 in accrued interest into 8,066,597 shares of common stock leaving a remaining balance of $36,561. Interest accrued on this note for the period ended December 31, 2015 is ($310). The Company is in default on the balance of this note.

 

On March 26, 2015, the Company issued a convertible note payable in the amount of $29,680 including an original issue discount of $1,680. The note bears 8% interest and is due on March 23, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued on this note as of December 31, 2015 is $1,820. This loan has an unamortized original issue discount of $420 as of the end of the period.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE (CONTINUED)

 

On March 2, 2015, the Company issued a convertible note payable in the amount of $58,300 including an original issue discount of $3,300. The note bears 8% interest and is due on August 14, 2015. The loan becomes convertible immediately at the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 58% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twenty-two (22) trading day period ending on the latest complete trading day prior to the conversion date. On March 2, 2015 the note holder converted $56,402 of the principle into 1,215,551 common shares leaving a remaining balance of $1,898. During the period ending December 31, 2015 the note holder converted $1,898 in principal and $20 in accrued interest into 53,000 shares of common stock leaving a remaining balance of $0. Accrued interest was $0 as of December 31, 2015.

 

On May 5, 2015, the Company issued a convertible note payable in the amount of $68,900 including an original issue discount of $3,900. The note bears 8% interest and is due on May 5, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 42% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued on this note for the period ended December 31, 2015 is $3,624. This loan has an unamortized original issue discount of $1,300 as of the end of the period.

 

On May 6, 2015, the Company issued a convertible note payable in the amount of $10,500. The note bears 8% interest and is due on February 8, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the thirty (30) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued on this note as of December 31, 2015 is $550.

 

On May 27, 2015, the Company issued a convertible note payable in the amount of $16,500. The note bears 8% interest rate and is due on May 28, 2016. The loan becomes convertible on May 27, 2015, the issue date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 65% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twelve (12) trading day period ending on the latest complete trading day prior to the conversion date. During the period ending December 31, 2015 the note holder converted $16,500 in principal and $344 in accrued interest into 2,591,323 shares of common stock leaving a remaining balance of $0. Interest accrued as of December 31, 2015 is $0.

 

On August 28, 2015, the Company issued a convertible note payable in the amount of $15,000. The note bears 8% interest and is due on August 28, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the lowest trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued on this note as of ended December 31, 2015 is $411.

 

On September 4, 2015, the Company issued a convertible note payable in the amount of $19,000. The note bears 8% interest and is due on June 4, 2016. The loan becomes convertible 180 days after the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 55% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued as of December 31, 2015 is $491.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 7 – CONVERTIBLE NOTE PAYABLE (CONTINUED)

 

On December 29, 2015, the Company issued a convertible note payable in the amount of $55,000. The note bears 8% interest rate and is due on December 30, 2016. The loan becomes convertible on December 29, 2015, the issue date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 65% multiplied by the market price, which is the average of the lowest three (3) trading prices for the common stock during the twelve (12) trading day period ending on the latest complete trading day prior to the conversion date. Interest accrued as of December 31, 2015 is $24.

 

NOTE 8 – DERIVATIVE LIABILITIES

 

In accordance with AC 815, the Company has bifurcated the conversion feature of their convertible notes and recorded a derivative liability on the date each note became convertible. The derivative liability was then revalued on each reporting date.

 

As detailed in Note 7 (above) the Company has issued several convertible notes in varying amounts and terms, with the following loans becoming convertible during the years ending March 31, 2015 and 2016: $37,500 note dated March 11, 2014; $53,000 note dated April 8, 2014; $42,500 note dated May 21, 2014; $55,000 note dated September 23, 2014; $66,780 note dated August 14, 2014; $58,300 note dated August 14, 2014; $64,500 note dated September 18, 2014; $58,300 note dated March 2, 2015; $61,111 note dated August 13, 2014; $57,895 note dated August 19, 2014; $33,333 note dated December 16, 2014; $27,778 note dated February 25, 2015; $33,000 noted dated October 6, 2014; $55,000 note dated November 6, 2014; $43,000 note dated November 25, 2014; $68,900 note dated May 5, 2015; $16,500 note dated May 27, 2015; $10,500 note dated May 6, 2015; $15,000 note dated August 28, 2015; $19,000 note dated September 4, 2015; $55,000 note dated December 29, 2015.

 

ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item.  The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with the above convertible debt.  During the period ended December 31, 2015, the Company recorded a total change in the fair market value of the derivative liabilities of $169,624.

 

The Company uses the Black-Scholes option pricing model to value the derivative liability upon the initial conversion date and at each reporting period.  Included in the model to value the derivative liabilities of the above loans are the following assumptions: stock price at valuation date of $0.02, exercise price of $0.006 - $0.050, dividend yield of zero, years to maturity of 0.3479 – 1.15, a risk free rate of 0.01% - 0.65%, and annualized volatility of 61% - 516%. The above loans were all discounted in full with the exception of the March 2, 2015 loan which had a debt discount of $46,370, the May 5, 2015 loan which had an initial debt discount of $41,222, and the May 27, 2015 loan which had an initial debt discount of $15,000. Based on the valuations on the initial valuation dates, the Company recognized debt discounts related to the conversion features totaling $396,402 and a derivative expense of $382,713 related to the excess value of the derivative liabilities. Once the loans are fully converted, the remaining derivative liability is reclassified to equity as additional paid-in capital. As of December 31, 2015, unamortized debt discount, including original issue discounts totaled $109,398. The derivative liabilities totaled $891,442 as of December 31, 2015, of which $27,747 related to long-term debt.

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS

 

The Company has 375,030,000 common shares authorized with a par value of $ 0.001 per share.

 

The Company has 10,000,000 preferred shares authorized with a par value of $ 0.001 per share.

 

On July 18, 2013, the Company designated, from the 10,000,000 authorized shares of preferred stock, 6,000,000 shares of Series “A” Preferred Stock. The Series “A” Preferred Stock has voting rights of 100 votes per share and votes with common shares as a single class.

 

On July 18, 2013, the Company granted 6,000,000 Series “A” Preferred shares and 827,670 common shares for the intellectual property. The common and preferred shares were valued at a total of $123,973.

 

On July 19, 2013, our new officer/director agreed to cancel 5,002,554 common shares and returned them to treasury. Certain other shareholders also agreed to cancel 2,625,210 common shares.

 

On September 5, 2013, the Company increased the authorized common shares from 900,000 to 375,030,000. Correspondingly, the Company affirmed a forward split of 4.167 for 1 in which each shareholder was issued 4.167 common shares for each share held. All share and per share date included in these financial statements has been retrospectively adjusted to account for the stock split.

 

On October 29, 2013, the Company granted 2,500 units at $30.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $50.00 and a one year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On December 11, 2013, the Company granted 2,500 units at $30.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $50.00 and a one year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On March 10, 2014, the Company issued 833 units at $30.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $50.00 and a one year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

The following is a summary of the inputs used to determine the value of the warrants issued in connection with common stock using the Black-Scholes option pricing model.

 

Date		October 29, 2013				December 11, 2013				March 10, 2014
Warrants			2,500				2,500				833
Stock price on grant date		$	30.00			$	2.00			$	2.00
Exercise price		$	50.00			$	50.00			$	50.00
Expected life			1 year				1 year				1 year
Volatility			147	%			64	%			65	%
Risk-free rate			0.12	%			0.11	%			0.13	%
Calculated value		$	10,473			$	0			$	0
Fair value allocation of proceeds		$	7,381			$	0			$	0

 

On April 4, 2014, the Company issued 833 units at $30.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $50.00 and a one year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

On April 24, 2014, the Company issued 10,000 units at $25.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $35.00 and a three year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On July 10, 2014, the Company issued 7,000 units at $4.30 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $15.00 and a three year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On July 29, 2014, the Company issued 7,000 units at $5.00 per unit. Each unit consisted of 1 share of common stock and one common stock warrant with an exercise price of $15.00 and a three year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On June 9, 2015, the Company issued 900,000 units at $0.02 per unit. Each unit consisted of one common stock warrant with an exercise price of $0.02 and a five year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

On December 15, 2015, the Company issued 4,000,000 units at $0.01 per unit. Each unit consisted of one common stock warrant with an exercise price of $0.01 and a five year term. The value of the warrants was derived by using the Black-Scholes valuation model. A summary of the valuation inputs is below.

 

The following is a summary of the inputs used to determine the value of the warrants issued in connection with common stock using the Black-Scholes option pricing model.

 

Date		April 4, 2014				April 24, 2014				July 10, 2014				July 29, 2014				June 9, 2015				Dec 15,2015
Warrants			833				10,000				7,000				7,000				900,000				4,000,000
Stock price on grant date		$	19.90			$	25.20			$	3.70			$	3.70			$	0.02			$	0.01
Exercise price		$	50.00			$	35.00			$	15.00			$	15.00			$	0.02			$	0.01
Expected life			1 year				3 year				3 year				3 year				5 year				5 year
Volatility			113	%			76	%			119	%			119	%			98	%			98	%
Risk-free rate			0.12	%			0.84	%			0.96	%			0.98	%			1.74	%			1.71	%
Calculated value		$	3,181			$	104,416			$	12,130			$	12,102			$	13,259			$	29,612
Fair value allocation of proceeds		$	2,822			$	73,653			$	8,637			$	8,992			$	13,259			$	29,612

 

The following is a summary of the warrant activity for the period from April 1, 2013 to December 31, 2015:

 

				Number of warrants				Weighted average exercise price
	Outstanding, April 1, 2013				—			$	0.00
	Granted				5,833			$	50.00
	Exercised				—				—
	Outstanding, March 31, 2014				5,833			$	50.00
	Granted				24,833			$	24.00
	Exercised				—				—
	Outstanding, March 31, 2015				30,666			$	29.00
	Granted				4,900,000			$	0.012
	Exercised				—				—
	Outstanding, December 31, 2015				4,930,666			$	0.192

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

On May 7, 2014, the Company granted 25,000 shares to a consultant for prior services rendered. The Company had accrued $300,000 for these services as of March 31, 2014.

 

On June 16, 2014, the Company issued 14,690 shares of common stock for stock deposits of $147,050. The Company had received the deposits during the year ended March 31, 2014.

 

On July 1, 2014, the Company granted 10,000 shares to a professional for prior legal services rendered. The Company had accrued $30,000 for these services as of June 30, 2014. The shares were valued on the grant date at the fair market value of $60,000 resulting in a loss on the issuance of shares of $30,000.

 

On October 6, 2014, the Company entered into an Asset Assignment Agreement (the “Assignment Agreement”) with Imagic, LLC, a related party, and its principals to acquire certain assets including a US Patent entitled “Compositions and methods of use of Phorbol Esters for the treatment of Hodgkin’s Lymphoma”, and all related intellectual property, inventions and trade secrets, data and clinical study results. In consideration for the intellectual property the Company issued 2,207,920 common shares. These shares were valued at a total of $7,904,355; however, since the asset was acquired from a related party the Company valued the asset at the cost of the asset to the related party, $82,120, and treated the excess value of $7,822,235 as a deemed dividend reducing additional paid in capital.

 

Also on October 6, 2014, the Board of Directors approved the issuance of 80,000 shares of common stock to the CEO and 40,000 shares of common stock to the Company’s attorney as bonuses. The shares were valued based on the closing stock price on the grant date for a total value of $429,600.

 

On November 19, 2014, the Company entered into an agreement with an unrelated vendor to provide six months of consulting services in exchange for 5,000 shares of common stock. The shares were valued based on the closing stock price on the grant date for a total value of $6,450. The entire contract was expensed as of March 31, 2015.

 

On August 13, 2014, the Company entered into an investment agreement with an investor to invest up to $4,000,000 to purchase the Company’s common stock. The price per share for each investment is determined by the lesser of: (1) 65% of the lowest traded price of the Company’s common stock during the ten consecutive trading days prior to the drawdown notice date or (2) 65% of the closing bid price on the day before the drawdown notice is submitted. During the year ended March 31, 2015, the Company issued 799,619 shares of common stock to this investor for total proceeds of $220,000.

 

On April 22, 2015, the Company sold 100,381 shares of common stock for $5,405 in cash, which was paid directly to a vendor for accounts payable.

 

On June 25, 2015, the Company sold 1,542,455 shares of common stock for $10,797 in cash, of which $3,750 was paid directly to professionals in connection with the expenses of that sale, and $7,047 was retained by the Company.

 

On July 7, 2015, the Company sold 1,619,423 shares of common stock for $11,336 in cash, of which $3,750 was paid directly to a vendor for professional services.

 

On July 15, 2015, the Company sold 1,439,282 shares of common stock for $10,075 in cash.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

On October 27, 2015, the Company sold 1,648,840 shares of common stock for $11,542 in cash.

 

During the year ended March 31, 2015 and the period ended December 31, 2015, the Company received, as listed, conversion notices from various note holders. The Company issued the following common shares to satisfy the conversion of the following debt and interest:

 

Date				Debt/Interest Converted				Common Stock Issued				Price per Share
	September 22, 2014			$	12,000				5,505			$	2.18
	October 1, 2014			$	12,000				6,487			$	1.85
	October 8, 2014			$	9,000				5,056			$	1.78
	October 16, 2014			$	6,000				4,546			$	1.32
	October 29, 2014			$	15,000				12,500			$	1.20
	November 3, 2014			$	10,000				8,197			$	1.22
	November 7, 2014			$	12,000				11,881			$	1.01
	November 19, 2014			$	18,120				28,312			$	0.64
	December 8, 2014			$	15,000				34,884			$	0.43
	December 15, 2014			$	12,000				42,857			$	0.28
	December 26, 2014			$	17,200				74,783			$	0.23
	February 11, 2015			$	29,900				747,500			$	0.04
	February 12, 2015			$	17,333				373,561			$	0.046
	February 13, 2015			$	17,894				372,800			$	0.048
	February 15, 2015			$	35,730				739,243			$	0.048
	February 17, 2015			$	17,003				366,440			$	0.046
	February 23, 2015			$	20,603				470,900			$	0.044
	February 23, 2015			$	17,003				366,440			$	0.046
	February 24, 2015			$	9,488				204,473			$	0.046
	February 26, 2015			$	42,030				1,050,750			$	0.040
	February 27, 2015			$	26,880				560,000			$	0.048
	March 2, 2015			$	56,402				1,215,551			$	0.046
	March 9, 2015			$	33,900				475,182			$	0.071
	March 10, 2015			$	25,200				700,000			$	0.036
	March 20, 2015			$	10,000				181,818			$	0.006
	March 31, 2015 Total			$	498,686				8,059,666

  

Effective February 11, 2016, the Company approved a reverse stock split of the common stock, par value $0.001 per share at a ratio of 1 for 100 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the reverse stock split for all periods.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

Date				Debt/Interest Converted				Common Stock Issued				Price per Share
	April 1, 2015			$	16,650				411,111			$	0.04050
	April 6, 2015			$	10,000				209,644			$	0.04770
	April 8, 2015			$	15,309				453,561			$	0.03375
	April 8, 2015			$	20,001				454,545			$	0.04400
	April 9, 2015			$	14,320				325,455			$	0.04400
	April 14, 2015			$	10,000				236,967			$	0.04220
	April 16, 2015			$	1,918				53,000			$	0.03619
	April 21, 2015			$	10,000				259,740			$	0.03850
	April 29, 2015			$	15,000				389,610			$	0.03850
	May 4, 2015			$	5,083				131,464			$	0.03866
	May 12, 2015			$	28,456				903,380			$	0.03150
	May 20, 2015			$	20,199				947,645			$	0.02131
	May 20, 015			$	17,240				783,636			$	0.02200
	May 27, 2015			$	13,568				701,801			$	0.01933
	May 29, 2015			$	15,000				882,353			$	0.01700
	June 11, 2015			$	9,897				942,609			$	0.01050
	June 16, 2015			$	14,100				1,175,000			$	0.01200
	June 16, 2015			$	13,565				1,130,417			$	0.01200
	June 22, 2015			$	7,415				1,235,833			$	0.00600
	June 22, 2015			$	14,384				2,479,924			$	0.00580
	June 23, 2015			$	7,752				1,292,000			$	0.00600
	September 16, 2015			$	7,974				1,772,033			$	0.00450
	September 28, 2015			$	10,000				1,666,667			$	0.00600
	September 29, 2015			$	10,620				1,770,000			$	0.00600
	October 7, 2015			$	2,250				375,000			$	0.00600
	October 7, 2015			$	8,400				1,400,000			$	0.00600
	October 19, 2015			$	9,720				1,620,000			$	0.00600
	November 2, 2015			$	4,424				1,966,124			$	0.00225
	November 23, 2015			$	10,000				1,666,667			$	0.00600
	November 30, 2015			$	16,844				2,591,323			$	0.00650
	December 9, 2015			$	1,746				775,991			$	0.00225
	December 17, 2015			$	5,332				919,319			$	0.00580
	December 28, 2015			$	1,341				596,200			$	0.00225
	December 28, 2015			$	17,700				2,950,000			$	0.00600
	December 28, 2015			$	14,305				2,384,167			$	0.00600
	December 28, 2015			$	14,963				2,579,916			$	0.00580
	December 29, 2015			$	8,395				1,399,167			$	0.00600
	December 29, 2015			$	7,670				1,278,333			$	0.00600
	December 30, 2015			$	6,651				2,956,248			$	0.00225
	Dec 31, 2015 Total			$	438,193				46,066,850

 

The Company accounts for employee stock-based compensation in accordance with the guidance of ASC Topic 718: Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option, whichever can be more clearly determined.

 

During the year ended March 31, 2014, the Company granted 475,033 stock options to officers, directors, employees and consultants. During the year ended March 31, 2015, the Company granted 197,500 stock options to officers, directors, employees and consultants. During the period ended December 31, 2015, the Company granted 3,900,003 stock options to officers, directors, employees and consultants The options have been re-priced twice as follows: (1) Effective January 12, 2015, the Company approved the re-pricing of all 672,533 previously granted options under the Company’s 2013 Equity Incentive Plan, which had exercise prices between $1.91984 per share and $30.0 per share, to $0.17 per share which was the closing price of the Company’s common stock on January 9, 2015. All of the other terms of the options remained unchanged.

 

(2) Effective April 6, 2015, the Company approved the re-pricing of all 2,712,535 previously granted options under the Company’s 2013 Equity Incentive Plan, which had exercise prices between $.08 per share and $0.17 per share, to $0.08 per share which was the closing price of the Company’s common stock on April 6, 2015. All of the other terms of the options remained unchanged. (3) Effective August 4, 2015, the Company approved the re-pricing of all 3,712,535 previously granted options under the Company’s 2013 Equity Incentive Plan, which had exercise prices between $.08 per share and $0.02 per share, to $0.02 per share which was the closing price of the Company’s common stock on August 4, 2015. All of the other terms of the options remained unchanged. The Company revalued all existing options on January 12, 2015 and again on April 6, 2015, and again on August 4, 2015 using the Black-Scholes option pricing model using the initial terms of the options and the modified terms of the options. The difference in the valuations was recorded as additional expense. The re-pricing of the options resulted in the recognition of an additional $50,448 on January 9, 2015 and an additional $9,316 on April 6, 2015, and an additional $47,463 on August 4, 2015 in related stock based compensation expense for those periods.

 

The following is a summary of the inputs used to determine the value of the options using the Black-Scholes option pricing model.

 

Date		September 6, 2013				February 7, 2014				March 14, 2014				May 7, 2014				July 23, 2014				October 6, 2014				April 6, 2015				June 9, 2015				December 15, 2015
Options			410,033				15,000				50,000				35,000				7,500				155,000				2,040,003				1,000,000				860,000
Stock price grant date		$	2.00			$	2.00			$	30.00			$	12.00			$	6.90			$	3.58			$	0.08			$	0.02			$	0.01
Initial Exercise price		$	1.91984			$	1.91984			$	30.00			$	12.00			$	6.90			$	1.91984			$	0.08			$	0.02			$	0.01
Modified Exercise price		$	0.01			$	0.01			$	0.01			$	0.01			$	0.01			$	0.01			$	0.01			$	0.01			$	0.01
Expected life			10.00				10.00				10.00				10.00				10.00				5.0				5.0				5.0				5.0
Volatility			76	%			74	%			74	%			73	%			88	%			101	%			99	%			99	%			84	%
Risk-free rate			2.94	%			2.71	%			2.65	%			2.56	%			2.53	%			1.04	%			1.31	%			1.74	%			1.70	%
Calculated value		$	663,307			$	23,825			$	1,182,141			$	315,772			$	45,109			$	454,798			$	120,778			$	14,838			$	5,736
Modified value		$	83,850			$	3,069			$	10,232			$	7,164			$	1,537			$	31,408			$	151,221			$	16,347			$	5,736

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 9 – EQUITY TRANSACTIONS (CONTINUED)

 

The following is a summary of the option activity for the period April 1, 2013 through December 31, 2015:

 

				Number of options				Weighted average exercise price
	Outstanding, April 1, 2013				—			$	0.00
	Granted				475,033			$	0.01
	Exercised				—				—
	Outstanding, March 31, 2014				475,033			$	0.01
	Granted				197,500			$	0.01
	Exercised				—				—
	Expired				—				—
	Outstanding, March 31, 2015				672,533			$	0.01
	Granted				3,900,003			$	0.01
	Exercised				—				—
	Expired				—				—
	Outstanding, December 31, 2015				4,572,536			$	0.01

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

The Company leases office space on a verbal month-to-month agreement. Monthly rent is approximately $2,800.

The inventor of the intellectual property which was assigned to Rich Pharmaceuticals, Inc. in July 2013 by Imagic, LLC and Richard L. Chang’s Holdings, LLC is presently in declaratory relief litigation with Biosuccess Biotech, Co. LTD. (“Biosuccess”), a company who was previously assigned licensing rights in the intellectual property. In connection with this litigation, on January 17, 2014, the Company received notice of a complaint filed by Biosuccess against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (our CEO and a director) in the United States District Court, Central District of California Western Division (the “District Court”). The Complaint includes allegations of patent and copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unfair competition and other causes of actions against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (the “Litigation”). The Complaint seeks relief which includes compensatory damages, attorneys’ fees and costs, an award of treble damages, and such other relief as the court may deem just and proper. In January 2015, the trial in the Litigation was concluded in the Court. The Court has not rendered a verdict in the Litigation as of the date of filing.

 

The Company believes the allegations in the complaint are without merit and the Company intends to defend itself in the Litigation. However, the Company has incurred expenses and the diversion of financial resources and management personnel in responding to the complaint. Additionally, an adverse determination against the Company in the Litigation may subject us to significant liabilities or require us to seek licenses that may not be available from third parties on commercially favorable terms, if at all. Further, an adverse determination against the Company in the Litigation may require us to pay substantial financial damages, which can be tripled if the infringement is deemed willful, or be required to discontinue or significantly delay development, marketing, selling and licensing of the Company’s affected products and intellectual property rights.

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

NOTE 11 – LIQUIDITY AND GOING CONCERN

 

The Company has a working capital deficit, has not yet received revenues from sales of products or services, and has incurred losses since inception. These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

 

NOTE 12 – INCOME TAXES

 

As of December 31, 2015, the Company had net operating loss carry forwards of approximately $9,280,468 that may be available to reduce future years’ taxable income in varying amounts through 2033. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards.

 

The provision for Federal income tax consists of the following for the period ended December 31, 2015 and the year ended March 31, 2015:

 

	December 31, 2015				March 31, 2015
Federal income tax benefit attributable to:
Current operations	$	631,614			$	1,405,416
Less: valuation allowance		(631,614	)			(1,405,416	)
Net provision for Federal income taxes	$	—			$	—

 

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of December 31, 2015 and March 31, 2015:

 

	December 31, 2015				March 31, 2015
Deferred tax asset attributable to:
Net operating loss carryover	$	3,086,565			$	2,454,951
Less: valuation allowance		(3,086,565	)			(2,454,951	)
Net deferred tax asset	$	—			$	—

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $9,280,468 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

 

RICH PHARMACEUTICALS, INC.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2015

 

 

NOTE 13 – SUBSEQUENT EVENTS

 

Effective February 11, 2016, the Board of Directors of Rich Pharmaceuticals, Inc. approved a reverse stock split of the Company’s common stock, par value $0.001 per share at a ratio of 1 for 100 of each share issued and outstanding on the effective date. In addition, All options, warrants and convertible securities of the Company outstanding immediately prior to the Reverse Stock Split that have a fixed conversion price will be appropriately adjusted by dividing the number of shares of Common Stock into which the options, warrants and convertible securities are exercisable or convertible by 100 and multiplying the exercise or conversion price thereof by 100, as a result of the reverse stock split. These financial statements retroactively reflect the reverse stock split for both March 31, 2015 and December 31, 2015 periods.

 

On January 4, 2016 the Company converted $19,339 in principle into 3,223,213 shares of common stock in satisfaction of the terms of a convertible loan.

 

On January 4, 2016 the Company converted $28,500 in principle into 4,384,615 shares of common stock in satisfaction of the terms of a convertible loan.

 

On January 5, 2016 the Company converted $7,975 in principle and $132 in accrued interest into 3,603,227 shares of common stock in satisfaction of the terms of a convertible loan.

 

On January 6, 2016 the Company converted $16,070 in principle and $132 in accrued interest into 2,678,333 shares of common stock in satisfaction of the terms of a convertible loan.

 

On January 6, 2016 the Company converted $15,500 in principle and $1,097 in accrued interest into 2,861,607 shares of common stock in satisfaction of the terms of a convertible loan.

 

On January 22, 2016, the Company issued a convertible note payable in the amount of $60,500. The note bears 10% interest and is due on October 22, 2016. The loan becomes convertible the date of the note. The loan and any accrued interest can then be converted into shares of the Company’s common stock at a rate of 50% multiplied by the market price, which is the average of the lowest two (2) trading prices for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date.

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2015 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.

 

  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Company Overview

Results of Operations for the Three and Nine Months Ended December 31, 2015 and 2014

We generated no revenue for the three and nine months ended December 31, 2015. We do not anticipate earnings revenues until we are able to sell or license our products.

Our operating expenses during the three and nine months ended December 31, 2015 were $298,595 and $859,036 respectively, as compared with $1,358,623 and $2,394,658 for the same period ended 2014. The operating expenses for the three months ended December 31, 2015 consisted mainly of professional fees ($105,339), wages and taxes ($100,326), office expense ($30,361) and stock-based compensation ($35,348). The operating expenses for the nine months ended December 31, 2015 consisted mainly of professional fees ($197,623), wages and taxes ($283,119), office expense ($76,255) and stock-based compensation ($227,740).

Operating expenses for the three months ended December 31, 2014 consisted mainly of professional fees ($261,412), wages and taxes ($543,311), stock-based compensation ($497,654) and office expenses ($30,950). Operating expenses for the nine months ended December 31, 2014 consisted of professional fees ($590,955), wages and taxes ($789,266), stock-based compensation ($679,095), consulting expenses ($169,192), office expenses ($73,268) and travel and entertainment of ($50,332).

 

Other income (expenses) for the three and nine months ended December 31, 2015 were ($602,128) and ($998,653). Other income (expenses) for the three months ended December 31, 2015 consisted mainly of amortization of debt discount ($134,975), change in value of derivative liability ($399,810), derivative expense ($47,469) and interest expense ($19,872). Other income (expenses) for the nine months ended December 31, 2015 consisted mainly of amortization of debt discount ($405,963), change in value of derivative liability ($169,624), derivative expense ($382,713) and interest expense ($40,127).

 

Other income (expenses) for the three and nine months ended December 31, 2014 were ($77,425) and ($232,746). Other income (expenses) for the three months ended December 31, 2014 consisted mainly of amortization of debt discount ($85,596), change in value of derivative liability $49,606, derivative expense ($25,187) and interest expense ($16,248). Other income (expenses) for the nine months ended December 31, 2014 consisted mainly of amortization of debt discount ($112,381), change in value of derivative liability $40,871, derivative expense ($135,059) and interest expense ($26,177). 

We anticipate our operating expenses will continue to increase with our plan of operations.

Liquidity and Capital Resources

As of December 31, 2015, we had total current assets of $3,423; we had total current liabilities of $2,545,487; and we had a stockholders’ deficit of $2,573,229. Cash used in operating activities of $343,012 for the nine months ended December 31, 2015 was primarily due to a net loss of $1,857,689 partially offset by amortization of debt discount of $405,963, change in value of derivative liability $169,624, derivative expense of $382,713, stock-based compensation of $198,128, increase in accrued expenses of $237,110 and an increase in accounts payable of $70,247.

 

Cash flows used in investing activities of $1,054 for the nine months ended December 31, 2015 was primarily due to the acquisition of assets.

 

Cash flows provided by financing activities of $331,597 for the nine months ended December 31, 2015 was primarily due to loans received form related parties of $64,011, issuance of convertible notes payable of $205,171 and sale of common stock and warrants of $62,415.

As of December 31, 2015 and the date of this report, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. Our continuation as a going concern is dependent upon our ability to obtain additional financing and to generate profits and positive cash flow. We will require additional cash of $2,000,000 over the next twelve months to cover the costs of overhead and operations, drug manufacturing, maintaining our patent portfolio, and conducting clinical trials for the indication Acute Myeloid Leukemia (“AML”). We plan to raise the required capital pursuant to a private debt or equity financing in the near term, but there is no guarantee or assurances that we will be able to do so. 

Reverse Stock Split

 

Effective as of February 11, 2016, the Company completed a reverse stock split of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1 for 100 of each share issued and outstanding on the effective date (the “Reverse Stock Split”). Prior to the Reverse Stock Split, the Company was authorized to issue 37,503,000,000 shares of Common Stock. As a result of the Reverse Stock Split, the authorized shares of Common Stock are now 375,030,000. As of February 10, 2016, there were approximately 8,457,906,689 shares of Common Stock outstanding. As a result of the Reverse Stock Split, there were approximately 84,579,066 shares of Common Stock outstanding as of February 11, 2016 (subject to adjustment due to the effect of rounding fractional shares into whole shares). The Reverse Stock Split did not have any effect on the stated par value of the Common Stock.

 

The shares of Common Stock begin trading on a split-adjusted basis on February 11, 2016. The Company’s trading symbol was changed to “RCHAD” for a period of 20 business days following February 11, 2016, after which the “D” will be removed from the Company’s trading symbol, which will revert to the original symbol of “RCHA”. In connection with the Reverse Stock Split, the Company’s CUSIP number changed to 76303T308.

 

As of February 11, 2016, the total number of shares of the Company’s Common Stock held by each stockholder was converted automatically into the number of whole shares of Common Stock equal to (i) the number of issued and outstanding shares of Common Stock held by such stockholder immediately prior to the Reverse Stock Split, divided by (ii) 100. No fractional shares will be issued, and no cash or other consideration will be paid. Instead, the Company will issue one whole share of the post-Reverse Stock Split Common Stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. 

Off Balance Sheet Arrangements

As of December 31, 2015, there were no off balance sheet arrangements.

Going Concern

We have negative working capital and have not yet received revenues from sales of products or services. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2015. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of December 31, 2015, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we were not been able to remediate the material weaknesses identified above. To remediate such weaknesses, and subject to our ability to obtain additional funding, we plan to implement the following changes during our fiscal year ending March 31, 2016: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal controls over financial reporting during the period ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

As previously disclosed, the inventor of the intellectual property which was assigned to the Company in July 2013 by Imagic, LLC and Richard L. Chang’s Holdings, LLC is presently in declaratory relief litigation with Biosuccess Biotech, Co. LTD. (“Biosuccess”), a company who was previously assigned licensing rights in the intellectual property. In connection with this litigation, on January 17, 2014, the Company received notice of a complaint filed by Biosuccess against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (our CEO and a director) in the United States District Court, Central District of California Western Division (the “District Court”). The Complaint includes allegations of patent and copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unfair competition and other causes of actions against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (the “Litigation”). The Complaint seeks relief which includes compensatory damages, attorneys’ fees and costs, an award of treble damages, and such other relief as the court may deem just and proper. As previously disclosed on January 4, 2016, the Litigation has been settled through a confidential mediation process supervised by the Federal Court and the Litigation is now in the process of being dismissed with prejudice by the Federal Court.

 

Item 1A: Risk Factors. An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this quarterly report on Form 10Q, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the above section entitled "Forward-Looking Statements" for a discussion of what types of statements are forward-looking statements as well as the significance of such statements in the context of this report.

 

Risks Related To Our Business

 

We are a development stage company and may never commercialize any of our products or services or earn a profit. Prior to July 19, 2013, we were a “shell” company with no or nominal operations. We recently became funded and commenced operations. We are a development stage company in the business of developing treatments for Acute Myelogenous Leukemia (AML). We currently have no products ready for commercialization, have not generated any revenue from operations and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our technology. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue from our technology or attain profitability, we will not be able to sustain operations. Because of the numerous risks and uncertainties associated with developing and commercializing our technology, we are unable to predict the extent of any future losses or when we will become profitable, if ever. We may never become profitable and you may never receive a return on an investment in our common stock. An investor in our common stock must carefully consider the substantial challenges, risks and uncertainties inherent in the attempted development and commercialization of medical treatments. We may never successfully commercialize our technology, and our business may fail.

 

We will need to raise substantial additional capital to commercialize our technology, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts. As of the date of this Annual Report on Form 10K, we have limited cash resources. Due to our expectation that we will continue to incur losses in the future, we will be required to raise additional capital to complete the development and commercialization of our technology. During the next 12 months and potentially thereafter, we will have to raise additional funds to continue the development and commercialization of our technology. When we seek additional capital, we may seek to sell additional equity and/or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our technologies, restrict our operations or obtain funds by entering into agreements on unattractive terms.

 

Our ability to successfully commercialize our technology will depend largely upon the extent to which third-party payors reimburse the costs for our treatment in the future. Physicians and patients may decide not to order our products unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid pay a substantial portion of the price of the treatment. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that our product candidates are:

 

• not experimental or investigational;

• effective;

• medically necessary;

• appropriate for the specific patient;

• cost-effective;

• supported by peer-reviewed publications; and

• included in clinical practice guidelines.

 

Market acceptance, sales of products based upon our technology, and our profitability may depend on reimbursement policies and health care reform measures. Several entities conduct technology assessments of medical treatments and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a treatment or procedure. The levels at which government authorities and third-party payors, such as private health insurers and health maintenance organizations, may reimburse the price patients pay for such products could affect whether we are able to commercialize our products. Our technology may receive negative assessments that may impact our ability to receive reimbursement of the treatment. Since each payor makes its own decision as to whether to establish a policy to reimburse a treatment, seeking these approvals may be a time-consuming and costly process. We cannot be sure that reimbursement in the U.S. or elsewhere will be available for any of our products in the future. If reimbursement is not available or is limited, we may not be able to commercialize our products.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for our product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our treatment or reduce the payment rate for our treatment, which would reduce our revenue.

 

The commercial success of our product candidates will depend upon the degree of market acceptance of these products among physicians, patients, health care payors and the medical community. The use of our treatment technology has never been commercialized for any indication. Even if approved for sale by the appropriate regulatory authorities, physicians may not order treatment based upon out technology, in which event we may be unable to generate significant revenue or become profitable. Acceptance of our technology will depend on a number of factors including:

 

• acceptance of products based upon our technology by physicians and patients;

• successful integration into clinical practice;

• adequate reimbursement by third parties;

• cost effectiveness;

• potential advantages over alternative treatments; and

• relative convenience and ease of administration.

 

We will need to make leading physicians aware of the benefits of using our technology through published papers, presentations at scientific conferences and favorable results from our clinical studies. In addition, we will need to gain support from thought leaders who believe that our treatment will provide superior results. Ideally, we will need these individuals to publish support papers and articles which will be necessary to gain acceptance of our products. There is no guarantee that we will be able to obtain this support. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to order our treatment for their patients and consequently our revenue and profitability will be limited.

 

If our potential treatments are unable to compete effectively with current and future treatments targeting similar markets as our potential products, our commercial opportunities will be reduced or eliminated. The medical treatment industry for AML and stroke is intensely competitive and characterized by rapid technological progress. In each of our potential product areas, we face significant competition from large biotechnology, medical diagnostic and other companies. The technologies associated with the medical industry are evolving rapidly and there is intense competition within such industry. Certain companies have established technologies that may be competitive to our technology and any future products that we develop. Some of these competing companies may use different approaches or means to obtain results, which could be more effective or less expensive than our treatments. Moreover, these and other future competitors have or may have considerably greater resources than we do in terms of technology, sales, marketing, commercialization and capital resources. These competitors may have substantial advantages over us in terms of research and development expertise, experience in clinical studies, experience in regulatory issues, brand name exposure and expertise in sales and marketing as well as in operating central laboratory services. Many of these organizations have financial, marketing and human resources greater than ours; therefore, there can be no assurance that we can successfully compete with present or potential competitors or that such competition will not have a materially adverse effect on our business, financial position or results of operations.

 

Since our technology is under development, we cannot predict the relative competitive position of any product based upon the technology. However, we expect that the following factors will determine our ability to compete effectively: safety and efficacy; product price; turnaround time; ease of administration; performance; reimbursement; and marketing and sales capability.

 

If our clinical studies do not prove the superiority of our technologies, we may never sell our products and services. The results of our clinical studies may not show that treatment results using our technology are superior to existing treatment. In that event, we will have to devote significant financial and other resources to further research and development, and commercialization of products using our technologies will be delayed or may never occur.

 

If we do not receive regulatory approvals, we may not be able to develop and commercialize our technology. We will need FDA approval to market products based on our technology in the United States and approvals from foreign regulatory authorities to market products based on our technology outside the United States. We have not yet filed an application with the FDA to obtain approval to market any of our proposed products. If we fail to obtain regulatory approval for the marketing of products based on our technology, we will be unable to sell such products and will not be able to sustain operations. The regulatory review and approval process, which may include evaluation of preclinical studies and clinical trials of products based on our technology, as well as the evaluation of manufacturing processes and contract manufacturers’ facilities, is lengthy, expensive and uncertain. Securing regulatory approval for products based upon our technology may require the submission of extensive preclinical and clinical data and supporting information to regulatory authorities to establish such products’ safety and effectiveness for each indication. We have limited experience in filing and pursuing applications necessary to gain regulatory approvals.

 

Regulatory authorities generally have substantial discretion in the approval process and may either refuse to accept an application, or may decide after review of an application that the data submitted is insufficient to allow approval of any product based upon our technology. If regulatory authorities do not accept or approve our applications, they may require that we conduct additional clinical, preclinical or manufacturing studies and submit that data before regulatory authorities will reconsider such application. We may need to expend substantial resources to conduct further studies to obtain data that regulatory authorities believe is sufficient. Depending on the extent of these studies, approval of applications may be delayed by several years, or may require us to expend more resources than we may have available. It is also possible that additional studies may not suffice to make applications approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval, which might cause us to cease operations.

 

If we are unable to protect our intellectual property effectively, we may be unable to prevent third parties from using our technologies, which would impair our competitive advantage. We will rely on patent protection as well as a combination of copyright and trade secret protection, and other contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we fail to protect our intellectual property, we will be unable to prevent third parties from using our technologies and they will be able to compete more effectively against us. We cannot assure you that the patent issued to us will not be challenged, invalidated or held unenforceable. We cannot guarantee you that we will be successful in defending challenges made in connection with our patent and any future patent applications. In addition to our patent and any future patent applications, we will rely on contractual restrictions to protect our proprietary technology. We will require our employees and third parties to sign confidentiality agreements and employees to also sign agreements assigning to us all intellectual property arising from their work for us. Nevertheless, we cannot guarantee that these measures will be effective in protecting our intellectual property rights. 

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology. The inventor of the intellectual property which was assigned to the Company in July 2013 by Imagic, LLC and Richard L. Chang’s Holdings, LLC is presently in declaratory relief litigation with Biosuccess Biotech, Co. LTD. (“Biosuccess”), a company who was previously assigned licensing rights in the intellectual property. In connection with this litigation, on January 17, 2014, the Company received notice of a complaint filed by Biosuccess against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (our CEO and a director) in the United States District Court, Central District of California Western Division (the “District Court”). The Complaint includes allegations of patent and copyright infringement, misappropriation of trade secrets, breach of fiduciary duty, unfair competition and other causes of actions against the Company, Imagic, LLC, Richard L. Chang’s Holdings, LLC, and Ben Chang (the “Litigation”). The Complaint seeks relief which includes compensatory damages, attorneys’ fees and costs, an award of treble damages, and such other relief as the court may deem just and proper. As previously disclosed on January 4, 2016, the Litigation has been settled through a confidential mediation process supervised by the Federal Court and the Litigation is now in the process of being dismissed with prejudice by the Federal Court. The Company incurred substantial legal fees in defending the Litigation and could incur additional fees in the future.

 

Also, our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. There may be third-party patents, patent applications and other intellectual property relevant to our potential products that may block or compete with our products or processes. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions. In addition, we cannot assure you that we would prevail in any of these suits or that the damages or other remedies if any, awarded against us would not be substantial. Claims of intellectual property infringement may require us to enter into royalty or license agreements with third parties that may not be available on acceptable terms, if at all. We may also become subject to injunctions against the further development and use of our technology, which would have a material adverse effect on our business, financial condition and results of operations. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

 

Our financial statements have been prepared assuming that the Company will continue as a going concern. We have generated losses to date and have limited working capital. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report included herein. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

 

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends and, consequently, the only opportunity for investors to achieve a return on their investment is if a trading market develops and investors are able to sell their shares for a profit or if our business is sold at a price that enables investors to recognize a profit.   We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

 

Corporate and Other Risks

 

Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director.  Our Company’s certificate of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director.

 

We are responsible for the indemnification of our officers and directors. Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our certificate of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

 

Certain provisions of our Certificate of Incorporation may make it more difficult for a third party to effect a change-of-control. Our certificate of incorporation authorizes the Board of Directors to issue up to 10,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of the Board of Directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

 

The issuance of Preferred Stock to our Chief Executive Officer provides him with voting control which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company. Our Chief Executive Officer has 6,000,000 shares of Preferred Stock which provide him with 100 to 1 voting rights over shares of common stock. This ownership provides him with voting control over matters which require shareholder approval. This concentration of voting power could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. If you acquire shares of our common stock, you may have no effective voice in the management of our Company.  Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. 

 

We are dependent for our success on a few key individuals.  Our success depends on the skills, experience and performance of key members of our management team.  Each of those individuals may voluntarily terminate his relationship with the Company at any time. Were we to lose one or more of these key individuals, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our executive officers.

 

Capital Market Risks

 

Our common stock recently commenced trading and has limited volume and high price volatility, so you may be unable to sell your shares to raise money or otherwise desire to liquidate your shares.  The Company’s common stock commenced trading March 14, 2014 on the OTC Markets. The trading volume has been very limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTC stocks and certain major brokerage firms restrict their brokers from recommending OTC stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect our underlying value. The market price of our common stock is subject to wide fluctuations, and may be subject to further fluctuations based on announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

 

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance.  Stockholders should be aware that, according to Securities and Exchange Commission (“SEC”) Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

 

We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock.  Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.

 

We may be unable to list our common stock on NASDAQ or on any securities exchange. Although we may apply to list our common stock on NASDAQ or the American Stock Exchange in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. If our common stock begins trading, until such time as we would qualify for listing on NASDAQ, the American Stock Exchange or another trading venue, our common stock would trade on OTC Markets or OTC Bulletin Board or another over-the-counter quotation system where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors.  Consequently, if our common stock begins trading, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.

 

Future sales and issuances of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price. There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

 

Conversion of our convertible notes into common stock could result in additional dilution to our stockholders. We have issued convertible notes which are convertible into shares of our common stock at conversion prices which are at a discount to the then current trading price of our common stock. Additionally, upon the occurrence of certain events of default (including conditions outside of our control) the note holders are entitled to increased repayment and interest rates, as well as other remedies. The note holders have anti-dilution and conversion reset provisions which are triggered by the issuance of lower priced securities. The Company has issued a significant number of shares of common stock as a result of the conversion of these convertible notes and expects to continue to issue a significant number of shares in the future. For example, as of July 11, 2014, the number of outstanding shares of the Company was 420,463,772; as of June 22, 2015 the number of outstanding shares of the Company was 3,097,091,736; as of October 9, 2015 the number of outstanding shares of the Company was 4,420,461,736; and as of February 10, 2016 the number of outstanding shares of the Company was 8,457,906,689. A significant portion of these additional share issuances resulted from the conversion of convertible notes. As shares of our common stock are issued due to the conversion of some or all of the convertible notes in the future, the ownership interests of existing stockholders will continue to be diluted and such dilution is expected to be significant.

 

The Company’s common stock was the subject of an unauthorized spam stock promotion. In April 2014, the Company was made aware of spam stock promotion regarding shares of the Company. The Company received complaints, and was forwarded emails and links to social media sites, relating to unsolicited messages containing false and misleading information regarding the Company and its stock price. The spam mails touted RCHA as "the opportunity of the year" that could go past "2 or 3 dollars". The Company did not, and does not, authorize, endorse or sponsor these illegal spam stock promotions or any of the information contained in the emails. However, the spam stock promotions caused the OTC Markets to place a skull and crossbones next to the Company’s stock symbol on the OTC Markets website warning investors with respect to the Company’s stock, and may have caused reputational damage to the Company and its stock. The Company does not have the ability to stop or restrict any future spam stock promotions which may occur and any such future promotions could have an adverse effect on the Company and its share price.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2015 formatted in Extensible Business Reporting Language (XBRL).

**Provided herewith

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	Rich Pharmaceuticals, Inc.
Date:	February 22, 2016
	By: /s/ Ben Chang Ben Chang Title: Chief Executive Officer and Director