NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
1.
|
PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
|
Interim Financial Statements
The condensed consolidated financial statements
as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 are unaudited. However, in the opinion of management
of the Company, these condensed consolidated financial statements reflect all material adjustments, consisting solely of normal
recurring adjustments, necessary to present fairly the consolidated financial position and results of operations for such interim
periods. The results of operations for the interim periods presented are not necessarily indicative of the results to be obtained
for a full year. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X for smaller reporting companies. Accordingly, these condensed consolidated financial statements do not include all
of the information required by U.S. generally accepted accounting principles for complete financial statements. These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Liquidity and Going Concern
Going Concern - The accompanying
condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss for the
three months ended March 31, 2016 of approximately ($3,000), had negative working capital of approximately $4,378,000 and a
stockholders’ deficiency of approximately $4,733,000 at March 31, 2016. Since inception the Company’s growth has
been funded through a combination of convertible and non-convertible debt from private investors and from cash advances from
its former parent Technology Innovations, LLC. These factors, among others, may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its obligations, to obtain additional financing, renegotiate the
terms of existing financing obligations and ultimately to attain successful operations. The ability to successfully achieve
those items is uncertain. The financial statements do not include any adjustments that might result from the uncertainty.
As of March 31, 2016, the Company continued
to require waivers for debt covenant violations and extensions of maturity dates. Refer to Note 2 for lender waivers and maturity
extensions received from the lenders.
Basis of Consolidation
The condensed consolidated financial statements
include the accounts of NaturalNano, Inc. (“NaturalNano” or the “Company”), a Nevada corporation, and its
wholly owned subsidiaries NaturalNano Research, Inc. (“NN Research”) a Delaware corporation. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Description of the Business
New
lines of Business
Shrimp
Omni Shrimp
On June 23, 2016, the Company
announced the acquisition of all the outstanding shares of, Omni Shrimp (“Omni”) a Florida corporation, located
in Madeira Beach, Florida on the Gulf of Mexico. Omni is a seller of wild American shrimp. Omni wholesales its locally caught
shrimp, predominantly the highly popular Key West pink variety, to large distributors in the United States, who then resell
the product to grocery store chains, restaurants and other retail stores in the Florida, Boston and New York markets. See
Note 7. Subsequent Events for more detail.
Omni believes that it differentiates itself
from its competitors not only by the quality of its product but its relationships with distributors allowing it to get its product
to market as quickly as possible in order to guarantee freshness and taste.
Existing lines of Business (as of
March 31, 2016)
On June 23, 2016, the following businesses
were transferred to the former Management of the Company. See Note 8 to the Consolidated Financial statements below.
Nanotechnology
The Company, located in Rochester, New
York, is engaged in the development and commercialization of material science technologies with an emphasis on additives to polymers
and other industrial and consumer products by taking advantage of technology advances developed in-house. The Company’s current
activities are directed toward research, development, production and marketing of its proprietary technologies relating to the
treatment and separation of nanotubes from halloysite clay and the development of related commercial applications for cosmetics,
health and beauty products and polymers, plastics and composites.
ViralProtec
In the fourth quarter of 2014, the Company
announced the new business line, ViralProtec, (www.viralprotec.com) a division of NaturalNano. ViralProtec, is a reseller for healthcare
personal protective equipment (PPE) and ancillary supplies. Our mission is to provide personal protective equipment for caregivers for
infectious patient care that meet or exceed CDC and WHO guidelines. ViralProtec was created in response of the public concern
and publicity surrounding the risk to caregivers and other responders created by the Ebola virus. The Company will maintain inventory
on hand for customers to order complete protection kits from a single source instead multiple sources.
Significant Accounting Policies
Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions
that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ
materially from these estimates. On an ongoing basis, we evaluate such estimates. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about
the carrying values of assets and liabilities.
Fair Value of Financial Instruments
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
|
·
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
·
|
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
|
A financial asset or liability’s
classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The carrying amounts reported in the balance sheet of cash, accounts receivable, inventory, prepaid assets, accounts payable and
accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair
value of notes payable approximates their carrying value as the terms of this debt reflects market conditions. The Company’s
derivative liability was determined utilizing Level 3 inputs.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and then is revalued at
each reporting date, with changes in fair value reported in the consolidated statement of operations. For stock based derivative
financial instruments, the Company estimated the total enterprise value based upon trending the firm value from December 2006 to
March 2016 considering company specific factors including the changes in forward estimated revenues and market factors, market
multiples for comparable companies, and the Company’s market share price, all equally weighted. Once the enterprise
value was determined an option pricing model was used to allocate the enterprise value to the individual derivative securities
in the Company’s capital structure. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within twelve months of the balance sheet date.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation.
Income Taxes
The Company accounts for income taxes in
accordance with FASB ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for
the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement
of deferred income tax items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets
being reduced by available tax benefits not expected to be realized. The Company recognizes penalties and accrued interest
related to unrecognized tax benefits in income tax expense. Income tax expense was $0 for the three month periods ending March
31, 2016 and 2015.
Loss Per Share
Loss per common share is computed by dividing
net income or loss by the weighted-average number of shares of common stock outstanding during the period. Diluted income or loss
per common share gives effect to dilutive convertible preferred stock, convertible debt, options and warrants outstanding during
the period. Shares to be issued upon the exercise of these instruments have not been included in the computation of diluted loss
per share as their effect is anti-dilutive based on the net loss incurred.
As of March 31, 2016 and 2015 there were
39,567,578 and 9,130,044 shares, respectively, underlying preferred stock, convertible debt, outstanding options and warrants that
could potentially dilute future earnings. In addition to these potentially dilutive shares as of March 31, 2015 were an
additional 6,666,667 reserved shares underlying the July 23, 2014 Exchange and Right to Shares Agreement with Cape One Master Fund
II LLP further described in Note 2 below.
These potentially dilutive shares have
been limited by certain debt and equity agreements with lenders. These agreements provide limitations on the conversion of the
dilutive instruments such that the number of shares of Common Stock that may be acquired by the holder upon conversion of such
instruments shall be limited to ensure that following such conversion the total number of shares of Common Stock then beneficially
owned by the holder does not exceed 4.99% of the total number of issued and outstanding shares of Common Stock. The Company does
not have sufficient authorized shares to satisfy conversion of all the potentially dilutive instruments.
Recent Accounting Pronouncements
In July 2015, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-011 to Topic 330, Inventory. This
ASU requires entities using inventory costing methods other than last-in-first-out and retail inventory method to value their inventory
at the lower of cost and net realizable value. This ASU is effective for fiscal years beginning after December 15, 2016 and is
to be applied prospectively. Early adoption of this ASU is permitted. The Company does not expect adoption of this ASU to have
a material impact on its Consolidated Financial Statements.
Notes payable consisted of the following:
Notes Payable
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Senior Secured Convertible Notes
|
|
$
|
441,988
|
|
|
$
|
441,988
|
|
Senior Secured Promissory Notes
|
|
|
398,938
|
|
|
|
398,938
|
|
2014-2015 Convertible Promissory Notes
|
|
|
739,515
|
|
|
|
745,015
|
|
Convertible Promissory Notes
|
|
|
344,000
|
|
|
|
344,000
|
|
Total Notes Payable Outstanding
|
|
|
1,924,441
|
|
|
|
1,929,941
|
|
Total Notes- Non-current portion
|
|
|
(344,000
|
)
|
|
|
-0-
|
|
Total Notes Payable Outstanding-Current
|
|
$
|
1,580,441
|
|
|
$
|
1,929,941
|
|
Senior Secured Convertible Notes and
Senior Secured Promissory Notes
As of March 31, 2016 and December 31, 2015
Notes payable on the balance sheets includes $840,926 for senior secured convertible and non-convertible senior secured promissory
notes. The conversion rate for principal and accrued interest on Senior Secured Convertible Notes is 75% of the lowest
volume weighted average price (VWAP) of the Company’s common stock for the 1, 5 or 10 days immediately prior to the conversion.
As further described below, the Company has defaulted on certain provisions of the notes. The Company has obtained a waiver of
default on the outstanding principal. As a condition of this forbearance the interest rate on certain
of these notes has been increased to 18%.
2014-2015 Convertible Promissory Notes
During nine months ended March 31, 2016,
the Company entered into two Senior Secured Convertible Promissory Notes aggregating $61,000. The 2014-2015 Senior Secured Promissory
Notes are secured by, among other things, (i) the continuing security interest in certain assets of the Company pursuant to the
terms of the Initial Notes dated March 7, 2007, (ii) the Pledge Agreement, as defined in the Initial Notes, and (iii) the Patent
Security Agreement, dated as of March 6, 2007. The proceeds from the 2014-2015 Senior Secured Promissory Notes are available for
general working capital purposes and cannot be used to redeem or make any payment on account of any securities due to the Lenders. The
Company has obtained a waiver of default on the outstanding principal through November 30, 2015. As a condition of this forbearance
the interest rate on certain of these notes has been increased to 18%. On March 10, 2016, an investor converted $5,500 of principal
into 110,000 shares.
On February 15, 2015, the Company granted
300,000 warrants to the Company’s board members with an exercise price of $0.10 per share and on May 30, 2015, the Company
granted 375,000 warrants to the Company’s board members and one consultant with an exercise price of $0.05 per share. The
2014-2015 Convertible Promissory Notes were convertible into shares at $0.30 per share subject to adjustment in the event of lower
price issuances, subject to customary exceptions. Based on the Company’s issuance of warrants described above, the conversion
price on these debt obligations were modified to $0.05 per share.
Subordinated Secured Convertible Note
and Exchange and Right to Shares Agreement - Cape One Master Fund II LP
On July 23, 2014, the Company and Cape
One Master Fund II LLP agreed to exchange the Subordinated Secured Convertible Note and related accrued and unpaid interest totaling
a combined $379,624 in exchange for 6,666,667 reserved shares of the Company’s common stock. The Company and Cape One agreed
that a beneficial ownership limitation of 4.99% shall be maintained at all times as to the number of the shares of the common stock
outstanding immediately after giving effect to the issuance of the common stock issuable under this agreement. Cape One also agreed
to a Lockup provision in the agreement that specifies that Cape One will not sell, transfer or hypothecate any of the reserved
shares until Alpha Capital Anstalt has received $3,500,000 from the proceeds of sales of shares obtained upon conversion of notes
issued by the Company and held by Alpha as of the date of this agreement. Upon expiration of the Lockup period, Cape One shall
be allowed to sell the lesser of (i) 5% of the daily trading volume of the Company’s common stock or, (ii) 10% of the reserved
shares in any calendar month.
2015 Exchange of Cape One Master Fund
II LLP shares for Convertible Promissory Notes
On December 15, 2015, the Company’s
board of directors determined that it was in the best interest of the corporation to exchange 6,666,667 reserved shares of the
Company’s common stock, held by Cape One Master Fund II LLP (as described below), for four convertible promissory notes totaling
$344,000 with an interest rate of 8% per annum due June 30, 2017. These promissory notes are convertible to common stock at the
rate of $0.05 per share. In the event that the Company shall, at any time, issue any additional shares of common stock or equivalents
at a price per share less than the $0.05 conversion price then the conversion price for these convertible promissory notes shall
be reduced. The Company recognized a loss on the exchange of the rights to reserved commons shares upon the issuance of these convertible
promissory notes of approximately $305,000 in 2015. On January 5, 2016 the conversion price on the debt was adjusted to $0.02 per
share upon the issuance of 450,000 warrants exercisable at $0.02 per share.
The Company’s reportable segments
are strategic business units that offer different products and services. The Company’s reportable segments are organized,
managed and internally reported separately because each business requires different technology and marketing strategies. The Company
currently has two operating segments, Nanotechnology and ViralProtec.
The accounting policies of the segments
are the same as those described in the summary of significant accounting policies of the Company. The Company accounts
for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. The
Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would
report the results contained herein. For purposes of determining segment loss, corporate overhead is primarily included
in Nanotechnology, other than direct expense of ViralProtec.
A summary of the two segments is as follows:
Nanotechnology
|
Research, development, production and marketing of its proprietary technologies relating to the treatment and separation of nanotubes from halloysite clay and the development of related commercial applications for cosmetics, health and beauty products and polymers, plastics and composites.
|
ViralProtec
|
Distributor and reseller of personal protective equipment and supplies to protect medical workers from infection and contagious incidents.
|
Information concerning the Company’s
operations by reportable segment for the three and nine months ended March 31, 2016 and 2015 are as follows:
|
|
Nanotechnology
|
|
|
ViralProtec
|
|
|
Consolidated
|
|
|
|
For the three months ended
|
|
|
For the three months ended
|
|
|
For the three months ended
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
122,448
|
|
|
$
|
67,827
|
|
|
$
|
-
|
|
|
|
47,258
|
|
|
$
|
122,448
|
|
|
$
|
115,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) from operations
|
|
|
30,574
|
|
|
|
(180,260
|
)
|
|
$
|
-
|
|
|
|
13,221
|
|
|
|
30,574
|
|
|
$
|
(167,039
|
)
|
Interest expense
|
|
|
(78,033
|
)
|
|
|
(65,095
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(78,033
|
)
|
|
|
(65,095
|
)
|
Gain on derivative liabilities
|
|
|
39,068
|
|
|
|
146,277
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,068
|
|
|
|
146,277
|
|
Gain on forgiveness, conversions and modification of debt
|
|
|
5,634
|
|
|
|
7,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,634
|
|
|
|
7,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(2,757
|
)
|
|
$
|
(91,178
|
)
|
|
$
|
-0-
|
|
|
|
13,221
|
|
|
$
|
(2,757
|
)
|
|
$
|
(77,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
53,919
|
|
|
$
|
40,738
|
|
|
$
|
91,773
|
|
|
|
184,698
|
|
|
$
|
145,692
|
|
|
$
|
225,436
|
|
Geographic Areas -
The Company had no long-lived assets
in any country other than the United States for any period presented.
For stock based derivative financial instruments,
the Company estimated the total enterprise value based upon a combination of the trending of the firm value from December 2006
to March 2016, market comparables, and the market value of the Company’s stock, considering company specific factors including
the changes in forward estimated revenues and market factors. Once the enterprise value was determined an option pricing
model was used to allocate the enterprise value to the individual derivative and other securities in the Company’s capital
structure. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet
as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve
months of the balance sheet date.
The Company’s derivative liabilities
as of March 31, 2016 and December 31, 2015 are as follows:
·
|
The debt conversion feature embedded in the various Convertible Promissory Notes which contain anti-dilution provisions that would be triggered if the Company issued instruments with rights to the Company’s common stock at prices below this exercise price (described in Note 2.)
|
·
|
Derivative liabilities related to outstanding warrants and options due to the Company having insufficient authorized shares to satisfy the exercise or conversion of all outstanding instruments as of March 31, 2016 and December 31, 2015.
|
The fair value of the derivative liabilities as of March 31,
2016 and December 31, 2015 are as follows:
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Note conversion feature liabilities
|
|
$
|
646,155
|
|
|
$
|
686,255
|
|
Warrant liability
|
|
|
1,438
|
|
|
|
759
|
|
Total
|
|
|
647,593
|
|
|
|
687,014
|
|
Derivative Liability-non-current
|
|
|
9,675
|
|
|
|
-
|
|
Derivative liability-current
|
|
$
|
637,918
|
|
|
$
|
687,014
|
|
The change in the fair value of the derivative
liability resulted in a gain of $39,421and $146,277 in the first quarter of 2016 and 2015, respectively and has been recognized
in the related statement of operations. Significant fluctuations in the variables used in calculating the value of the Company’s
derivative liabilities could have significant impact on the fair market valuation.
As of March 31, 2016 the Company was authorized
to issue up to 800,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Authorized Common Stock:
In 2013
the Company received a unanimous written consent in lieu of a meeting from the members of the Board of Directors and a
written consent from the Series D stockholder to amend its articles of incorporation to increase the Company’s
authorized common shares to 800,000,000 common shares. As of March 31, 2016 there were 29,959,112 shares underlying preferred
stock, convertible debt, outstanding options and warrants that could potentially dilute future earnings. The company does not
have sufficient authorized shares to facilitate conversion of all the potentially dilutive instrument.
Preferred Stock Issuances
The Series B Convertible Preferred Stock is
convertible into 160 shares of the Company’s common stock and votes on an as-converted basis (with each share having 160
votes). The Series B designation limits the holders’ rights to convert its Convertible Preferred Stock, and the aggregate
voting powers, to no more than 4.99% of the votes attributable to the total outstanding common shares. As a result of the
Company not having sufficient authorized shares to satisfy the conversion of all outstanding convertible debt, share rights, convertible
preferred stock, warrants and options, the Series B preferred shares have been moved into temporary equity classification on the
balance sheet.
Warrants Grants
The Company has issued warrants to purchase
shares of its common stock to certain consultants and debt holders. As of March 31, 2016 and December 31, 2015 there were common
stock warrants outstanding to purchase an aggregate of 1,217,941 and 1,217,941 shares of common stock, respectively, pursuant to
the warrant grant agreements.
On February 15, 2015, the Company granted a
total of 300,000 warrants to the Company’s board members. These warrants, included in the summary below, grant the right
to purchase one share of common stock at an exercise price of $0.10 per share. The warrants were fully vested as of the grant date
and contain a cashless exercise provision. The fair value of the warrants on the date of grant was determined using the Black-Scholes
model and was measured on the date of grant at $61,106. An expected volatility assumption of 140% was used based on
the volatility of the Company’s stock price utilizing a look-back basis and the risk-free interest rate of 1.62% which was
derived from the U.S. treasury yields on the date of grant. The market price of the Company’s common stock on
the grant date was $0.22 per share. The expiration date used in the valuation model aligns with the warrant life of
five years as indicated in the agreements. The dividend yield was assumed to be zero.
On January 6, 2016, the Company granted a total
of 450,000 warrants to the Company’s board members and one consultant. These warrants, included in the summary below, grant
the right to purchase one share of common stock at an exercise price of $0.02 per share. The warrants were fully vested as of the
grant date and contain a cashless exercise provision. The fair value of the warrants on the date of grant was determined using
the Black-Scholes model and was measured on the date of grant at $25,292. An expected volatility assumption of 140%
was used based on the volatility of the Company’s stock price utilizing a look-back basis and the risk-free interest rate
of 1.00% which was derived from the U.S. treasury yields on the date of grant. The market price of the Company’s
common stock on the grant date was $0.06 per share. The expiration date used in the valuation model aligns with the
warrant life of five years as indicated in the agreements. The dividend yield was assumed to be zero
A summary of the outstanding warrants is presented below:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life-years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
1,217,941
|
|
|
$
|
.35
|
|
|
|
4.32
|
|
Issued
|
|
|
450,000
|
|
|
$
|
.02
|
|
|
|
4.77
|
|
Exercised
|
|
|
(450,000
|
)
|
|
$
|
.07
|
|
|
|
9.04
|
|
Warrants outstanding at March 31, 2016
|
|
|
1,217,941
|
|
|
$
|
.33
|
|
|
|
2.74
|
|
A summary of the status of the outstanding incentive stock plans
is presented below:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Life-years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2016
|
|
|
1,099
|
|
|
$
|
2,008
|
|
|
|
1.32
|
|
Options outstanding at March 31, 2016
|
|
|
1,099
|
|
|
$
|
2,008
|
|
|
|
1.07
|
|
Options exercisable at March 31, 2016
|
|
|
1,099
|
|
|
$
|
2,008
|
|
|
|
1.07
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All compensation costs for the above options
have been previously recognized in operations. As of March 31, 2016, the aggregate intrinsic value of the stock options outstanding
and exercisable was $0. There were no option grants made in the three month periods ended March 31, 2016 and 2015.
Material Definitive Agreement
The Company announced
on June 23, 2016 (the “Effective Date”) , it entered into a Share Exchange Agreement (the "Exchange Agreement")
with all of the shareholders of Omni Shrimp, Inc., a Florida corporation ("Omni"), pursuant to which the shareholders
exchanged with the Company all of the outstanding shares of stock of Omni and Omni thereupon became a wholly owned subsidiary of
the Company. In consideration for the exchange of those Omni shares, the Company issued 28,500 shares of a newly created
Series E Preferred Stock of the Company (the "Series E Preferred Stock").
As a result of their ownership
of the Series E Preferred Stock, the Omni shareholders acquired the right to vote 95% of the voting control of the Company. The
Series E Preferred Stock is also convertible into common stock which, in the aggregate, would represent up to 95% of the outstanding
common stock after the conversion. In addition, on the Effective Date, the holders of all of the Company's outstanding Series B
and Series D Preferred Stock, including James Wemett, who was a director of the Company and was an officer and principal
shareholder of the company prior to the effective date, as the holder of the Series D shares, surrendered those shares to
the Company.
In connection with the
Exchange Agreement and the disposition of the company's existing business, the company has relocated its principal offices to 13613
Gulf Boulevard, Madeira Beach, Florida 33738.
Forebearance Agreement
Concurrent with the Exchange Agreement on the Effective Date, owners
of the Senior Secured Convertible Notes and the Promissory Notes agreed to surrender the following back to the Company:
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Approximately $300,000 of face value debt and accrued interest
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5,000 shares of Series B Preferred Stock
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The Company did not issue any additional consideration for these
securities
Transfer of Former Lines of Business
Subsequent to the closing
of the Exchange Transaction pursuant to which Omni became a wholly-owned subsidiary of the Company, the Company entered into an
Asset Purchase Agreement, with James Wemett, who had been the President and CEO of the Company until the closing of the Exchange
Transaction and NaturalNano Corp., a New York corporation wholly-owned by Mr. Wemett ("Transferee"), pursuant to which
the Transferee acquired all right, title and interest to those specific business activities of the Company which the Company had
been conducting immediately prior to the closing of the Exchange Transaction, specifically, (i) developing and commercializing
material additives based on a technology utilizing halloysite nanotubes, which line of business the Company had been engaged in
for more than three years prior to the Effective Date, and (ii) reselling Ebola personal protective equipment and ancillary supplies.
These business activities generated revenues for the Company, which revenues increased from $125,638 in 2012 to $368,066 in 2015.
In connection with the
transaction contemplated by the Asset Purchase Agreement, Mr. Wemett waived all accumulated compensation due to him from the Company,
the Transferee assumed certain liabilities relating to those transferred business activities, the Company and Mr. Wemett exchanged
releases, and the Company issued to Mr. Wemett a six year divisible Warrant with cashless exercise rights to purchase up to
2,000,000 shares of the Company's common stock at a purchase price of $0.05 per share.
Management Change
As disclosed in an Information
Statement pursuant to Rule 14f filed on June 27, 2016, two of the Company's directors, Isaac Onn and Alex Ruckdaschel, resigned
from those positions on June 15, 2016. Neither of the resignations was the result of any disagreement with the management of the
Company.
On June 21, 2016, to fill
one of the Board vacancies, Colm Wrynn was elected as a director of the Company.
On the Effective Date,
James Wemett resigned as an officer of the Company and Colm Wrynn, the President of Omni became the President and Chief Executive
Officer of the Company, and Daniel Stelcer, a Vice President of Omni became the Secretary and Chief Operating Officer of the Company.
Mr. Wemett resigned as a director of the Company, and Mr. Stelcer will be appointed in his stead, effective as of ten (10) days
after the delivery to the shareholders of the Company of an Information Statement pursuant to Rule 14f-1.
Change in Independent Registered Public
Accounting Firm
On August 3, 2016, the
Board of Directors of the Company notified Freed Maxick CPAs, P.C (“Freed Maxick”) that it had determined to dismiss
them as the Company’s independent registered public accounting firm, effective as of August 3, 2016. Also on August 3, 2016,
the Board determined to engage Scrudato & Co., PA as its new independent registered public accounting firm to replace Freed
Maxick. Please see our form 8-K filed on August 3, 2016 for more detail.
Issuance of Common shares and Conversion
of debt
On April 13, 2016, the Company issued 220,656
shares for the exercise of cashless warrants
On July 6, 2016, the Company issued 142,811
shares due to the conversion of $1,000 of notes payable plus $785 of accrued interest.
Issuance
of Debt
On
August 8, 2016, the Company borrowed $20,000 from a third party. The convertible promissory note bears interest at 10% per
annum and matures on August 1, 2017. The third party has the option to convert all or a portion of the note plus accrued
interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the
conversion.
New Lease
Commencing August
1, 2016, for a period of twelve months, the Company entered into a lease for its Madeira Beach location. The monthly rent shall
be $1,500.