NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
|
1.
|
PRINCIPAL BUSINESS ACTIVITY, MATERIAL DEFINITIVE AGREEMENT AND SIGNIFICANT ACCOUNTING POLICIES
|
Interim Financial Statements
The condensed consolidated financial statements
include the following: 1) Balance sheets as of September 30, 2016 and December 31, 2015; 2) Statements of Operations for the three
months ended September 30, 2016; 3) Statement of Operations from the Date of Acquisition (June 23, 2016) through September 30,
2016 (“Acquisition Period”) ; 4) Statement of Operations from the period Date of Inception (September 22, 2015) through
September 2015 (“Inception Period”) 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 net income for the Acquisition Period of
approximately $26,000 and had negative working capital and stockholders’ deficiency of approximately $3,866,000 at September
30, 2016. Since, inception the Company’s growth has been funded through the issuance of convertible debt, borrowings under
lines of credit and internal operations 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.
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 Omni Shrimp, Inc., a Florida corporation. All significant inter-company accounts and transactions have
been eliminated in consolidation.
Accounting for Reverse Capitalization
The Company follows the guidelines set forth
in
Topic 12: Reverse Acquisitions and Reverse Capitalizations of the SEC Financial Reporting
Manual (“SEC Manual”)
for the acquisition of Omni Shrimp, Inc. (“Omni”) (See
Material Definitive Agreement
below.) For accounting
purposes, Omni Shrimp, Inc. (“Omni”) has been deemed the acquiring entity due to the fact that the owners of Omni have
effective voting and operating control of the combined company. The Company believes it was not a shell company.
On July 5, 2016, the staff
of the Securities and Exchange Commission’s Division of Corporation Finance advised the Company that in light of the information
set forth in the Form 8-K filed on June 29, 2016, the Staff was of the opinion that the Company was a “shell company”
as defined in Rule 405 under the Securities Act of 1933 and Rule 12b-2 of the Exchange Act. The Company replied with a letter to
the Staff contesting the factual basis of such determination, and the Staff replied with a subsequent letter affirming its prior
determination.
The Company intends to
have further communications with the Staff regarding their determination as to the Company’s shell company status.
The financial statements
enclosed herewith were prepared on the assumption that the Company was not a shell company on June 23, 2016 and is not a shell
company at the present time.
Pursuant to the SEC Manual, the Company
filed a form 8-K/A on September 1, 2016 and November 14, 2016, and in Item 9.01 of those filings, the Company reported
the required financial statements, including audited financial statements of Omni and pro forma financial information.
Material Definitive Agreement
On June 23,
2016 (the “Effective Date”), the Company announced that 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 surrendered those shares to the Company.
Additionally, on the Effective
Date the Company entered into an Asset Purchase Agreement with James Wemett, the former President and CEO, pursuant to which Mr.
Wemett acquired all right, title and interest to the existing business activities of the Company prior to that date; specifically,
those activities were (i) developing and commercializing material additives based on a technology utilizing halloysite nanotubes
and (ii) reselling Ebola personal protective equipment and ancillary supplies, and assumed the related liabilities. In connection
with that transaction, Mr. Wemett waived all accumulated compensation due to him from the Company.
In connection with the
Asset Purchase Agreement, the Company and Mr. Wemett exchanged releases, and the Company issued to Mr. Wemett a six year divisible
Warrant with cashless exercise to purchase up to 2,000,000 shares of the Company's common stock at a purchase price of $0.05 per
share.
Surrender and Amendment Agreement (“Surrender and Amendment”)
Concurrent with the Material Definitive Agreement
on the Effective Date, owners of the Senior Secured Convertible Notes and Promissory Notes agreed to surrender the following back
to the Company:
|
·
|
$150,436 of face value debt, and
|
|
·
|
$79,411 of related accrued interest.
|
The Company did not issue any additional consideration
for these securities.
In addition, the Company retired the following
owned by its former Chief Executive Officer
|
·
|
5,000 shares of Series B Preferred Stock
|
|
·
|
100 shares of Series D Preferred stock
|
Concurrent with this retirement, the Company
issued 2,000,000 warrants
Description of the Business
Omni Shrimp, Inc.
(Omni) was formed on September 22, 2015 in the State of Florida and acquired NaturalNano, Inc. under a Share Exchange
Agreement effective June 23, 2016. Omni’s sole business activity is as a wholesale provider of shrimp. According to
National Fisheries Institute (NFI), shrimp is the most consumed seafood within the United States at over 4 pounds of shrimp
consumed per person in the United States annually. Shrimps come in many varieties which are differentiated by their
color.
Omni specializes in the
very high, domestic and wild caught shrimp called Key West Pink Shrimp also referred to as “pinks”. They derive their
name from their pink color which is the result of growing up in the coral sands off the west coast of Florida. Key West Pink Shrimp
are also great tasting and may be enjoyed as “peel and eat” or in a wide variety of recipes. The harvesting season
for “Pinks” is from November through June. Throughout the year, Omni also purchases and sells “Brown” and
“White” shrimp also grown in the United States and harvested in the wild.
Omni believes
that it differentiates itself from its competitors not only by the quality of its product but its relationships with Shrimp
boat captains and fishermen, shrimp seafood company owners and some of the top shrimp processors in the U.S. These
relationships allow Omni to get its product to market as quickly as possible in order to guarantee freshness and taste. The
vessels who supply Omni’s shrimp have refrigeration units and freezing capabilities on board which locks in freshness.
Additionally, Omni uses a large, approved, industry accepted processor in Louisiana which allows our haul to get out to the
dining public within two to three days of catch resulting in delivery of fresh shrimp with uncompromised taste to our
customers.
Most consumers in the
United States are not aware of the origin of their store-bought or restaurant purchased shrimp. Omni’s shrimp
product is free of pesticide, chemicals and antibiotics, caught in the U.S. and wild caught, facts that we believe is highly attractive,
becoming more and more sought after and beneficial in terms of our eventual marketing success.
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
September 30, 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 period of Acquisition and period of Inception.
Net income/ (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 September 30, 2016 and 2015 there
were 71,101,371 and -0- shares, respectively, underlying preferred stock, convertible debt, outstanding options and warrants
that could potentially dilute future earnings.
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.
Shares associated with the issuance of Series
E Preferred stock are reported on an as converted basis
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.
2. NOTES PAYABLE
Notes payable at September 30, 2016 consisted of the following:
Notes Issued under the Surrender and Amendment Agreement
|
|
$
|
1,428,650
|
|
Cape One Master Notes
|
|
|
344,000
|
|
Notes Issued Subsequent to Surrender and Amendment Agreement
|
|
|
49,630
|
|
Bridge loans
|
|
|
136,743
|
|
|
|
|
|
|
Total
|
|
$
|
1,959,023
|
|
Notes Issued under the Surrender and Amendment
Agreement
On the Effecttive date, the Company entered
into the Surrender and Amendment Agreement. Pursuant to this agreement, the Company entered into certain modificiations of outstanding
indebtedness to four bondholders.
In total, the Company retired $150, 436 and $79,411 of accrued interest.
See
Surrender and Amendment Agreement
in Note 1. above,
Each Amending Holder waives
any reset, repricing or ratchet right such Amending Holder may have related to the Retained Notes for any issuances of the Company's
common stock or common stock equivalents that have occurred prior to the date of this Agreement.
b. The issuance of the
Series E Preferred Shares pursuant to the Share Exchange Agreement shall be an Exempt Issuance (as define in the Retained Notes)
and shall not trigger any reset, repricing or ratchet right such Amending Holder may have related to the Retained Notes.
c. The Conversion Price
of the Retained Notes is amended to be the lower of: (i) the conversion price as would be in effect pursuant to the terms of the
Retained Notes as currently in effect; or (ii) 50% of the lowest closing bid price of the Company's common stock on its principal
trading market as reported by Bloomberg LP, for the twenty trading days prior to the date of conversion.
d. The Maturity Date of
the Retained Notes is hereby extended to one year from the date of this Agreement.
e. Except for the notes
held by Oscaleta Partners LLC All interest that has accrued through the date hereof is waived and all interest that will accrue
on the Retained Notes will be payable on the Maturity Date.
The following lists the creditors and the amounts owed to each
Alpha Anstalt Capital
|
|
$
|
900,000
|
|
Marlin Capital Investments LLC
|
|
|
210,000
|
|
Bull Hunter LLC
|
|
|
140,000
|
|
Oscaleta Partners LLC*
|
|
|
178,600
|
|
|
|
|
|
|
Total Convertible debt
|
|
$
|
1,428,650
|
|
* - Net of $1,355 of Notes Payable converted
Cape One Master Notes
On December 15, 2015, NaturalNano Corp. exchanged 6,666,667 shares
for Notes totaling $344,000. These notes are due on September 30, 2017 and are convertible at $.02 per share.
Notes Issued Subsequent to Surrender and Amendment Agreement
Notes Issued subsequent to Surrender and Amendment comprised $49,630
as follows:
Notes reclassified from Bridge notes
|
|
$
|
27,785
|
|
|
|
|
|
|
Newly issued debt
|
|
|
21,845
|
|
|
|
|
|
|
Total debt
|
|
$
|
49,630
|
|
Notes reclassified from Bridge Notes
During the prior quarter , Notes which were originally issued as
promissory notes were renegotiated to be convertible into shares of common stock at a 50% discount to the closing bid price for
the twenty days prior to conversion. Such notes totalled $27,785.
Newly Issued Debt
During the quarter ended September 30, 2016, the following notes
were issued:
On August 10, 2016, the Company issued a
note for $15,000 for proceeds received. The convertible promissory bears interest at a rate of ten percent 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. The
Company recorded a debt discount of $4,596 based on the fair value of the common stock into which the note is convertible
into and allocated $10,404 of the proceeds to the note $658 of interest expense was amortized into interest expense for the
quarter ended September 30, 2016. As of the date of this filing, there have been no conversions of this Note and the entire
amount is outstanding
On August 31, 2016, the Company issued a note
for $15,000 for proceeds received. The convertible promissory bears interest at a rate of ten percent and matures on September
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. The Company recorded a debt discount
of $4,596 based on the fair value of the common stock into which the note is convertible into and allocated $10,404 of the proceeds
to the note $378 of interest expense was amortized into interest expense for the quarter ended September 30, 2016. As of the date
of this filing, there have been no conversions of this Note and the entire amount is outstanding
A reconciliation of the Notes follows;
|
|
August 10, 2016
|
|
|
August 31, 2016
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds received
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Applied
|
|
|
(4,596
|
)
|
|
|
(4,596
|
)
|
|
|
(9,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount amortized into
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
658
|
|
|
|
378
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value of notes
|
|
$
|
11,062
|
|
|
$
|
10,782
|
|
|
$
|
21,845
|
|
Bridge Loans
Bridge loans are short term notes taken on demand. They totaled
$136,743 at September 30, 2016 as follows:
The $136,743 at Omni Shrimp, Inc. was as follows:
Date Issued Originally
|
|
Amount
|
|
|
Interest Rate
|
|
|
Holder
|
February 12, 2016
|
|
$
|
111,000
|
|
|
|
5.25
|
%
|
|
Madeira Beach Seafood, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
April 7, 2016
|
|
|
25,743
|
|
|
|
5.25
|
%
|
|
Madeira Beach Seafood, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,743
|
|
|
|
|
|
|
|
Subsequent to the Acquisition of Omni and the disposition of the
Nanotechnology and Viral Protec businesses, the Company operates in only segment, shrimp. Therefore, segment data is not required.
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 September 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 September 30, 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 September 30, 2016 and December 31, 2015.
|
The fair value of the derivative liabilities as of September 30,
2016 and December 31, 2015 are as follows:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Note conversion feature liabilities
|
|
$
|
552,719
|
|
|
$
|
686,255
|
|
Warrant liability
|
|
|
2,976
|
|
|
|
759
|
|
Total
|
|
|
555,695
|
|
|
|
687,014
|
|
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 September 30, 2016 there were approximately 71 million 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 E Convertible Preferred Stock is
convertible into 95% of the Company’s common stock and votes on an as-converted basis. The Series E 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.
Preferred Stock Cancellations
As a part of the June 23rd Surrender
& Amendment Agreement, 5,000 shares of Series B Preferred stock and 100 shares of Series D Preferred
stock were also cancelled.
Warrants Grants
The Company has issued warrants to purchase
shares of its common stock to certain consultants and debt holders. As of June 23, 2016 and December 31, 2015 there were common
stock warrants outstanding to purchase an aggregate of 2,917,941 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
On June 23, 2016, the Company granted a total of 2,000,000 warrants
to the Company’s former Chief Executive Officer. These warrants, included in the summary below, grant the right to purchase
one share of common stock at an exercise price of $0.05 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 $.031. 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 $0.034 per share. The expiration date used in the valuation model aligns with the warrant life of nine 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
|
|
|
|
3.82
|
|
Issued
|
|
|
2,450,000
|
|
|
$
|
.05
|
|
|
|
5.73
|
|
Exercised
|
|
|
(750,000
|
)
|
|
$
|
.05
|
|
|
|
4.50
|
|
Warrants outstanding at September 30, 2016
|
|
|
2,917,941
|
|
|
$
|
.17
|
|
|
|
4.50
|
|
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 exercisable at September 30, 2016
|
|
|
1,099
|
|
|
$
|
2,008
|
|
|
|
.82
|
|
All compensation costs for the above options
have been previously recognized in operations. As of September 30, 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 September 30, 2016 and 2015.
Issuance of Debt
On October 14, 2016, the Company borrowed
$15,000 from a third party. The convertible promissory note bears interest at 8% per annum and matures on October 15, 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.
On November 15, 2016, the Company
borrowed $21,000 from a third party. The convertible promissory note bears interest at 8% per annum and matures on November 15,
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.