We set forth below a list of our audited financial
statements included in this Annual Report on Form 10-K and their location.
Note 1. Nature of Operations and Summary
of Significant Accounting Policies
Background
Omni Shrimp, Inc. ("Omni" or the
"Company" or “we”) was organized on September 22, 2015 with executive offices located in Madeira Beach, Florida
on the Gulf of Mexico. Omni is a wholesaler of locally caught wild American shrimp, predominantly the highly popular Key West pink
variety. Customers are large distributors in the US, who then resell the product to grocery store chains, restaurants and other
retail stores in the Florida, Boston and New York markets.
Omni does not own vessels nor have employees
who are involved with the catching, transporting or processing of shrimp. Omni’s business model is as follows:
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We purchase shrimp from incoming vessels
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·
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Through brokers, we arrange for sales to distributors.
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·
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We refrigerate as inventory that we cannot immediately sell
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·
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We process at a facility in Louisiana if purchasers require certain needs (e.g.- shrimp are to be headless)
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·
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We send directly to customers the remainder
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Material Definitive Agreement
Issuance of Series E Preferred Stock for outstanding shares
of Omni Shrimp, Inc.
On June 23, 2016 (the "Effective Date"),
all of the shareholders of Omni entered into a Share Exchange Agreement (the "Exchange Agreement") with NaturalNano,
Inc. (OTC PK: NNAN) , 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 NNAN. In consideration for the exchange of those OMNI shares, the Company
issued 28,500 shares of a newly created Series E Preferred Stock of NNAN (the "Series E Preferred Stock").
The transaction closed on the Effective Date.
The Period between the Effective Date and December 31, 2016 shall heretofore been referred to as the “Acquisition Period.”
The Exchange Agreement is being accounted for as a reverse-merger
and recapitalization. The Company is the acquirer for financial reporting purposes, and Omni is the acquired company. Consequently,
the assets, liabilities and operations that will be reflected in the historical financial statements prior to the Merger will be
those of the Company and will be recorded at the historical cost basis of the Company, and the consolidated financial statements
after completion of the Merger will include the assets, liabilities and results of operations of the Company up to the day prior
to the closing of the Merger and the assets, liabilities and results of operations of the combined company from and after the closing
date of the Merger. The annexed unaudited pro forma combined financial information is based on individual historical financial
statements of the Company and Omni prepared under U.S. GAAP as adjusted to give effect to the Merger.
Assumption of Liabilities upon Acquisition
The Company agreed to assume approximately $2.8 million in liabilities
from the predecessor entity. Please see Note 11. Commitments and Contingencies for details of these liabilities.
Cancellation of Series B Preferred Stock and Series D Preferred
Stock
The Company cancelled the following shares of Preferred Stock owned
by the former Chief Executive of NaturalNano, Inc., James Wemett:
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·
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5,000 shares of Series B Preferred Stock
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·
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100 shares of Series D Preferred stock
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In consideration for this cancellation, the Company issued 2,000,000 warrants at $.05 per share for a period of six years.
Mr. Wemett exercised these warrants on a cashless exercise basis
and these shares were issued and included in the share count at December 31, 2016. For the year, Mr. Wemett received approximately
$63,000 in stock based compensation through warrant exercise.
Liquidity and Going Concern
Going Concern - The accompanying 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 year
ended December 31, 2016 of approximately $3,433,000, had negative working capital of $3,441,687 and a
stockholders’ deficiency of $3,441,687 at December 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
under its outstanding lines of credit. 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.
The Company’s management and Board of
Directors continue to actively assess the Company's operating structure with an objective to reduce ongoing expenses, increase
sources of recurring revenue as well as seeking additional debt or equity financing. The Company will continually evaluate
funding options including additional offerings of its securities to private and institutional investors and other credit facilities
as they become available. There can be no assurance as to the availability or terms upon which such financing alternatives might
be available.
Basis of Presentation
As a result of the reverse acquisition,
the accompanying consolidated financial statements include the operations and results of Omni Shrimp, Inc. These are the
Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statement of Shareholders’ Deficiency and
the Consolidated Statement of Cash Flows.
In the opinion of Management, the information
furnished in these financial statements reflects all activity, including adjustments, necessary for a fair reflection of the Company’s
financial position and activity for the years audited. Information for 2016 reflects all activity at Omni Shrimp, Inc. from
January 1, 2016 through December 31, 2016. Information for 2015 reflects all activity at Omni Shrimp, Inc. from the Date
of Inception (September 22, 2015) through December 31, 2015.
Year End
The Company follows the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and has adopted a year-end of December 31.
Use of Estimates and Assumptions and
Critical Accounting Estimates and Assumptions
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(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates
for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or
operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial
statements were:
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(iii)
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Assumption as a going concern
: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
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(iv)
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Valuation allowance for deferred tax assets
: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
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Those significant accounting estimates or assumptions
bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates
or assumptions are difficult to measure or value.
Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.
Management regularly evaluates the key factors
and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Cash and Cash Equivalents
:
For
financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities
of three months or less to be cash or cash equivalents. There were no cash equivalents as of December 31, 2016.
Allowance for Doubtful Accounts:
The
collectability of our accounts receivable is evaluated through review of outstanding invoices and ongoing credit evaluations of
our customers’ financial condition. In cases where we are aware of circumstances that may impair a specific customer’s
ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due, and
thereby reduce the net recognized accounts receivable to the amount we reasonably believe will be collected. We also maintain an
allowance based on our historical collections experience. When we determine that collection is not likely, we write off accounts
receivable against the allowance for doubtful accounts
Inventories
Inventories are stated at the lower of cost or market. All of our
other inventories are valued using the first-in, first-out (“FIFO”) method. The Company evaluates inventory quarterly
for reserves for obsolescence.
The Company uses the First-In First Out method of accounting for
its inventory cost-flow assumption.
There was no inventory at December 31, 2015.
Property, Plant and Equipment
Property, plant, and equipment are stated at
acquisition cost, plus capitalized interest on borrowings during the actual construction period of major capital projects. At this
time, the Company has not Property Plant and Equipment.
Start-Up Costs:
In accordance
with ASC 720, “
Start-up Costs”,
the company expenses all costs incurred in connection with the start-up and
organization of the company.
Valuation of Long-Lived Assets
:
We
review the recoverability of our long-lived assets including land, equipment, goodwill and investments, when events or changes
in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment
is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and
without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment
loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based
on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived
assets, as well as other fair value determinations. No impairment was recognized during the year ended December 31, 2016 and 2015.
Revenue Recognition
: The Company
recognizes revenue during the period in which fish are delivered to the customer.
Income Taxes
The Company accounts for income taxes under
Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that
the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that
includes the enactment date.
The Company adopted section 740-10-25 of
the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes. Section
740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting
in interim periods and requires increased disclosures.
The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit
carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance
sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the
Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion,
adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Fair Value of Financial
Instruments:
FASB ASC 825, "Financial Instruments," requires entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties. As of December 31, 2016 and December 31, 2015,
the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.)
approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current
rates.
Fair Value Measurements:
The
Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure 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). The three levels
of inputs which prioritize the inputs used in measuring fair value are:
Level 1
: Inputs to the valuation methodology
are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2
: Inputs to the valuation methodology
include:
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Quoted prices for similar assets or liabilities in active markets;
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·
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Quoted prices for identical or similar assets or liabilities in inactive markets;
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·
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Inputs other than quoted prices that are observable for the asset or liability;
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·
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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If the asset or liability has a specified (contractual)
term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
: Inputs to the valuation methodology
are unobservable and significant to the fair value measurement.
The asset's or liability's fair value measurement
level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
When the Company changes its valuation inputs
for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors,
it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company
recognizes these transfers at the end of the reporting period that the transfers occur. For the period from January 1, 2016 through
December 31, 2016, there were no transfers of financial assets or financial liabilities between the hierarchy levels.
There were no assets and liabilities remeasured
at fair value on a recurring basis as of December 31, 2016.
Earnings per Common Share
:
We
compute net (loss) per share in accordance with FASB ASC 260,
Earning per Share
. FASB ASC 260 requires presentation
of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the
period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period.
As of December 31, 2016 there were 259,973,097
shares 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. Some of 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 9.99% 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 Pronouncement:
The Company has evaluated new relevant accounting for possible impact on our consolidated financial statements and deemed
their impact to be immaterial or non-applicable to the Company.
Note 2. Going Concern
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of business. The Company does not have a long period
of continued operations and has supported its operations to date through loans from entity with shared ownership. These matters,
among others, raise substantial doubt about the Company's ability to continue as a going concern.
Given the nascent nature of the Company’s
operations, we believe it is difficult to forecast demands for cash at this time; The Company's cash position may not be significant
enough to support the Company's daily operations. If necessary, management plans to raise additional capital through the issuance
of common stock, issuance of debt or through any other means management feels is appropriate. management believes that the actions
presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue
as a going concern. While the Company believes in the viability of its strategy to generate revenues and in its ability to raise
additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent
upon the Company's ability to further implement its business plan and generate revenues.
The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a going concern
Note 3. Accounts Receivable
Accounts Receivable totaled $156,650 as
of December 31, 2016. The Company has no set up any reserve against accounts receivable at this time. Accounts receivable
represent sales of shrimp not yet paid for. Sales terms vary with each contract but payment is on average received within 30
days. Included in Accounts receivable at December 31, 2016 are $19,494 from a related party.
Note 4. Inventory
Inventory represents the cost of shrimp caught
but not yet sold. Shrimp may be retained for up two years in a refrigerated environment. Inventory totaled $119,813 at December
31, 2016.
Note 5. Property and Equipment, Net
Property and equipment consist of the following
at December 31, 2016 and 2015:
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2016
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2015
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Property and Equipment
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$
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1,860
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$
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-
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Accumulated depreciation
|
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(1,063
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)
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-
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Property and equipment, net
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$
|
797
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$
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-
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Property and Equipment is Office furniture
and equipment located at our Madeira Beach headquarters. Depreciation expense on property and equipment for the years ended December
31, 2016 and 2015,was $1,063 and $-0- respectively.
Note 6. Convertible Notes Payable
Convertible Notes payable totaled $734,998
at December 31, 2016. as follows:
Total convertible debt at December 31, 2016 was as follows;
Assumption of convertible debt per Surrender and Exchange Agreement
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$
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1,428,325
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Cape One Master Fund II LLP Convertible Promissory note
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344,000
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Cash Financings
|
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136,275
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Consulting Notes
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60,000
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Less: Unamortized Discount
|
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(1,233,602
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)
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Total Convertible debt at December 31, 2016
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$
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734,998
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Assumption of Convertible Notes Per Surrender and Amendment Agreement
The following debtholders of the Predecessor entity agreed to reduce
the face value of the obligations owed to them by approximately $300,000 as well as approximately $600,000 in accrued in interest.
Subsequent to these reductions, the amounts owed to these creditors, which were assumed by Omni were as follows:
$1,430,005 in convertible notes payable as detailed below
$28,563 in accrued interest (accounted
for as accrued interest on the Balance sheet at December 31, 2016)
Date Issued
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Description
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Purchaser
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Original
Amount
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Face value
Outstanding at
December 31,
2016
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6/29/16
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Interest at the rate of 10%, and convertible
into the Company’s common stock at a 50% discount of the lowest closing bid price during the 30 trading days prior to conversion.
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Alpha Capital
Anstalt, LLC
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$
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900,000
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$
|
900,000
|
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|
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|
|
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6/29/16
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Interest at the rate of 10%, and convertible into the Company’s common stock at a 50% discount of the lowest closing bid price during the 30 trading days prior to conversion.
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Marlin Capital
LLC
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$
|
210,000
|
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$
|
210,000
|
|
|
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|
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|
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6/29/16
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Interest at the rate of 10%, and convertible into the Company’s common stock at a 50% discount of the lowest closing bid price during the 30 trading days prior to conversion.
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Bull Hunter
LLC
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$
|
140,000
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$
|
140,000
|
|
|
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|
|
|
|
|
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|
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6/29/16
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Interest at the rate of 10%, and convertible into the Company’s common stock at a 50% discount of the lowest closing bid price during the 30 trading days prior to conversion.
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Oscaleta Partners
LLC
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$
|
180,005
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$
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178,325
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Total Convertible debt from Surrender and Amendment Agreement
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$
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1,430,005
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$
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1,428,325
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The Company accounted for the
assumption of the convertible promissory notes in accordance with ASC 815 “Derivatives and fair market value and are
marked to market through earnings at the end of each reporting period. The assumed value of the note is recorded net of a
discount of $1,430,005. The debt discount relates to fair value of the conversion option. The debt discount is charged to
interest expense ratably over the term of the convertible note. The fair value of the conversion option on the date of
issuance in excess of the face amount of the note was recorded to interest expense on the date of issuance. At the balance
sheet date, the remaining unamortized balance was $93,762. These notes mature on December 31, 2017 and bear an interest rate
of 10%.
Cape One Master Fund II LP
Convertible Promissory Notes
Omni assumed $344,000 of
convertible notes owed to Cape One Master Fund II LP. The Notes have a face value of $344,000, carry an 8% interest rate, mature
on June 30, 2017 and are convertible at $.02 per share.
The Company accounted for the assumption of the convertible promissory note in accordance with ASC 815
“Derivatives and fair market value and are marked to market through earnings at the end of each reporting period. The assumed
value of the note is recorded net of a discount of $344,000. The debt discount relates to fair value of the conversion option.
The debt discount is charged to interest expense ratably over the term of the convertible note. The fair value of the conversion
option on the date of issuance in excess of the face amount of the note was recorded to interest expense on the date of issuance.
At the balance sheet date, the remaining unamortized balance was $120,980
Cash Financings
During the Fiscal Year the
Company received financings of $136,275 as follows:
November 25, 2016 Financing
|
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$
|
7,500
|
|
December 27, 2016 Financing
|
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$
|
128,775
|
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Total
|
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$
|
136,275
|
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November 25, 2016 Financing
On that date, the Company issued a note for
$7,500 The Note is convertible into the Company’s common stock at a 50% discount of the lowest closing bid price during the
30 trading days prior to conversion.
The Company accounted for the issuance of the convertible
promissory note in accordance with ASC 815 “Derivatives and fair market value and are marked to market through earnings at
the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $7,500. The debt
discount relates to fair value of the conversion option. The debt discount is charged to interest expense ratably over the term
of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note
was recorded to interest expense on the date of issuance. At the balance sheet date, the remaining unamortized balance was $6,532.
December 27, 2016 Financing
On that date, the Company issued a note for
$128,775 comprised of various financings throughout the year. These notes were combined into a single Note which was recorded on December 27, ,2016. The Note
is convertible into the Company’s common stock at a 50% discount of the lowest closing bid price during the 30 trading days
prior to conversion.
The Company accounted for the issuance of the convertible
promissory note in accordance with ASC 815 “Derivatives and fair market value and are marked to market through earnings at
the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $128,775. The debt
discount relates to fair value of the conversion option. The debt discount is charged to interest expense ratably over the term
of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note
was recorded to interest expense on the date of issuance. At the balance sheet date, the remaining unamortized balance was $127,364.
Notes Issued for Consulting services totaled
$60,000 as follows:
October 1, 2016
|
|
$
|
20,000
|
|
November 1, 2016
|
|
$
|
20,000
|
|
December 1, 2016
|
|
$
|
20,000
|
|
Total
|
|
$
|
60,000
|
|
Consulting Notes
On October 1, 2016 the Company issued a convertible
promissory note in the principal amount of $20,000 to an unrelated party. The convertible note matures on April 1, 2017 with the
stated interest rate at 10%. The note is convertible into the Company’s common stock at a 50% discount of the lowest closing
bid price during the 30 trading days prior to conversion. The conversion price is subject to anti-dilution protection and down
round provisions in the event that the Company issues additional equity securities at a price less than the conversion price. The
Company may prepay the note at 150% of the entire outstanding principal amount of the note plus any accrued but unpaid interest.
The Company accounted for the issuance of the convertible
promissory note in accordance with ASC 815 “Derivatives and fair market value and are marked to market through earnings at
the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $20,000. The debt
discount relates to fair value of the conversion option. The debt discount is charged to interest expense ratably over the term
of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note
was recorded to interest expense on the date of issuance. At the balance sheet date, the remaining unamortized balance was $9,945.
On November 1, 2016 the Company issued a convertible
promissory note in the principal amount of $20,000 to an unrelated party. The convertible note matures on May 1, 2017 with the
stated interest rate at 10%. The note is convertible into the Company’s common stock at a 50% discount of the lowest closing
bid price during the 30 trading days prior to conversion. The conversion price is subject to anti-dilution protection and down
round provisions in the event that the Company issues additional equity securities at a price less than the conversion price. The
Company may prepay the note at 150% of the entire outstanding principal amount of the note plus any accrued but unpaid interest.
The Company accounted for the issuance of the convertible
promissory note in accordance with ASC 815 “Derivatives and fair market value and are marked to market through earnings at
the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $20,000. The debt
discount relates to fair value of the conversion option. The debt discount is charged to interest expense ratably over the term
of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note
was recorded to interest expense on the date of issuance. At the balance sheet date, the remaining unamortized balance was $13,333.
On December 1, 2016 the Company issued a convertible
promissory note in the principal amount of $20,000 to an unrelated party. The convertible note matures on June 30, 2017 with the
stated interest rate at 10%. The note is convertible into the Company’s common stock at a 50% discount of the lowest closing
bid price during the 30 trading days prior to conversion. The conversion price is subject to anti-dilution protection and down
round provisions in the event that the Company issues additional equity securities at a price less than the conversion price. The
Company may prepay the note at 150% of the entire outstanding principal amount of the note plus any accrued but unpaid interest.
The Company accounted for the issuance of the convertible
promissory note in accordance with ASC 815 “Derivatives and fair market value and are marked to market through earnings at
the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $20,000. The debt
discount relates to fair value of the conversion option. The debt discount is charged to interest expense ratably over the term
of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note
was recorded to interest expense on the date of issuance. At the balance sheet date, the remaining unamortized balance was $16,685.
Note 7: Advances from Related Party
Commencing in the fourth quarter of the Fiscal year, Ms. Linda
Giampietro, a related party of the Company advanced funds to the Company. Currently, Ms. Giampietro is owed $127,148 under these
arrangements. All advances bear interest at a rate of 1% per month with a minimum commitment on each advance of thirty days.
Note 8: Due to Related Party
The Company has been given access to the Line of Credit that Madeira
Beach Seafood, Inc.(“MBS”) has with Bank of America. As of December 31, 2016, Omni Shrimp has utilized $196,000 from
that line of credit. Interest, charge at a rate of 5.25% per year, is paid by Omni to MBS who then pays the bank. The liability
to Bank of America lies with MBS
Prior to the onset of operations at Omni Shrimp, Inc., MBS advance
Omni $20,000 for the commencement of operations. Additionally, they funded Omni and additional $5,743 for expenses. As such, the
liability to MBS is $25,743.
At December 31, 2016, the amount owed to MBS is as follows:
Amount forwarded from MBS from Bank of America line
|
|
$
|
196,000
|
|
Amount advanced by MBS to Omni Shrimp, Inc.
|
|
|
25,743
|
|
|
|
|
|
|
Amount outstanding at December 31, 2016
|
|
$
|
221,743
|
|
Note 9. Derivative Liability
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 December 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. A Black Scholes model was used to test for
reasonableness and results were adjusted as appropriate. 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 December 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 December 31, 2016 and December 31, 2015.
|
The fair value of the derivative liabilities as of December 31,
2016 and December 31, 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Derivative Instrument
|
|
|
|
|
|
|
|
|
Notes conversion feature liability
|
|
$
|
2,077,850
|
|
|
$
|
|
|
Warrant liability
|
|
|
88,041
|
|
|
|
|
|
Total
|
|
$
|
2,165,891
|
|
|
$
|
|
|
Fair Value Valuation Hierarchy Measurement
FASB ASC 820 establishes a valuation hierarchy for disclosure of
the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows.
|
□
|
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 derivative
liabilities are measured at fair value using certain estimated factors such as volatility and probability and are classified within
Level 3 of the valuation hierarchy. The following table provides a roll forward of the liabilities carried at fair value measured
using significant unobservable inputs (level 3).
Note 10.
Stockholders' Equity
Common Stock
Common Stock Issuances
During 2016, the Company issued 942,527 common
shares in satisfaction of $5,577 of principal obligations plus accrued interest to lenders on convertible debt.
Warrants
The
company still has the following immaterial warrants outstanding from prior to our reverse merger on June 23, 2016
.
As of December
31, 2016, the aggregate intrinsic value of the stock options outstanding and exercisable was $0.
|
|
2015
|
|
|
2016
|
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
life-Years
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
life-Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding: beginning of the year
|
|
|
545,294
|
|
|
$
|
1.13
|
|
|
|
5.9
|
|
|
|
1,217,941
|
|
|
$
|
0.35
|
|
|
|
4.9
|
|
Granted during the year
|
|
|
675,000
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
2,450,000
|
|
|
|
0.05
|
|
|
|
6.0
|
|
Cancelled or forfeited
|
|
|
(2,353
|
)
|
|
$
|
102.00
|
|
|
|
|
|
|
|
(2,450,000
|
)
|
|
$
|
0.05
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding: end of year
|
|
|
1,217,941
|
|
|
$
|
0.35
|
|
|
|
4.9
|
|
|
|
1,217,941
|
|
|
$
|
0.35
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable: end of year
|
|
|
1,217,941
|
|
|
$
|
0.35
|
|
|
|
4.9
|
|
|
|
1,217,941
|
|
|
$
|
0.35
|
|
|
|
3.9
|
|
Preferred Stock Series E
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.
There are currently 28,500 shares of Series E Preferred stock with
a face value of $35. Dividends of $26,099 have been accrued since issuance.
The Series E Preferred stock has a liquidation preference of $1,023,599
as follows:
Shares outstanding
|
|
|
28,500
|
|
|
|
|
|
|
Face value per share
|
|
$
|
35
|
|
|
|
|
|
|
Total face value
|
|
|
997,500
|
|
|
|
|
|
|
Accrued dividends
|
|
|
26,099
|
|
|
|
|
|
|
Liquidation preference at December 31, 2016
|
|
$
|
1,023,599
|
|
Preferred Stock Cancellations
As a part of the Forbearance Agreement, 5,000
shares of Series B Preferred stock and 100 shares of Series D Preferred stock were also cancelled.
Incentive Stock Plans
Under the Company’s 2005 Incentive Stock
Plan (the “2005 Plan”), the Amended and Restated 2007 Incentive Stock Plan (the “2007 Plan”), the 2008
Incentive Stock Plan (the”2008 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”), the 2011 Stock
Incentive Plan (the “2011 Plan”) and the 2012 Stock Incentive Plan (the “2012 Plan”), officers, employees,
directors and consultants may be granted options to purchase the Company’s common stock at fair market value as of the date
of grant. Options become exercisable over varying vesting periods commencing from the date of grant and have terms of five to ten
years. The plans also provide for the granting of performance-based and restricted stock awards. The shares of Common
Stock underlying the plans are reserved by the Company from its authorized, but not issued Common Stock. Such shares are issued
by the Company upon exercise by any option holder pursuant to any grant of such shares. The Plans are authorized to grant awards
as follows: the 2005 Plan is authorized to grant up to 823,529 share unit awards, the 2007 Plan is authorized to grant up to 1,000,000
share unit awards, and the 2008 Plan is authorized to grant up to 47,058,824 unit share awards. The 2009 Plan is authorized to
grant up to 1,176,471 share unit awards. The 2011 Plan is authorized to grant up to 1,470,588 share unit awards. The 2012 Plan
is authorized to grant up to 1,764,706 share unit awards.
Employee stock compensation expense was $0
for the years ended December 31, 2016 and 2015. No option grants were made in 2016 or 2015.
A summary of the status of outstanding incentive
stock plans is presented below:
|
|
2016
|
|
|
2015
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life-years
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life-years
|
|
Outstanding beginning of year
|
|
|
1,099
|
|
|
$
|
2.008
|
|
|
|
2.53
|
|
|
|
2,363
|
|
|
$
|
2.008
|
|
|
|
3.53
|
|
Granted during the year
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited
|
|
|
(
|
)
|
|
$
|
|
|
|
|
|
|
|
|
(1,264
|
)
|
|
|
|
|
|
|
|
|
Options outstanding end of year
|
|
|
1,099
|
|
|
$
|
2.008
|
|
|
|
1.53
|
|
|
|
1,099
|
|
|
$
|
1,070
|
|
|
|
2.53
|
|
Options exercisable end of year
|
|
|
1,099
|
|
|
$
|
2.008
|
|
|
|
1.05
|
|
|
|
1,099
|
|
|
$
|
1,070
|
|
|
|
2.53
|
|
As of December 31, 2016, the aggregate intrinsic value of the stock
options outstanding and exercisable was $0.
Note 11. Commitments and Contingencies
Material Definitive Agreement
Issuance of Series E Preferred Stock for outstanding shares
of Omni Shrimp, Inc.
On June 23, 2016 (the "Effective Date"),
all of the shareholders of Omni entered into a Share Exchange Agreement (the "Exchange Agreement") with NaturalNano,
Inc. (OTC PK: NNAN) , 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 NNAN. In consideration for the exchange of those OMNI shares, the Company
issued 28,500 shares of a newly created Series E Preferred Stock of NNAN(the "Series E Preferred Stock").
The transaction closed on June 23, 2016.
Assumption of Liabilities upon Acquisition
Pursuant to the Share Exchange Agreement, the Company
accepted the following liabilities:
Debt from the Surrender and Exchange Agreement
|
|
$
|
1,430,005
|
|
|
(See Note 6: Convertible Notes Payable)
|
|
|
|
|
|
|
|
Debt owed to Cape One Master Fund II, LP
|
|
|
344,000
|
|
|
(See Note 6: Convertible Notes Payable)
|
|
|
|
|
|
|
|
Derivative Liability
|
|
|
618,833
|
|
|
|
|
|
|
|
|
|
|
Accrued Wages
|
|
|
343,720
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
|
103,254
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
28,563
|
|
|
|
|
|
|
|
|
|
|
Impariment of Acquisition
|
|
$
|
2,868,374
|
|
|
|
Note 12. Relationships with Affiliates
The Management of the Company and the owners of MBS are the same.
The Company believes that the following relationships with these parties are to be disclosed:
Shared Management
The CEO, COO and Executive Vice President, Mr. Wrynn, Mr. Stelcer
and Ms. Giampietro, respectively are all employees of MBS. No liability has been incurred by the Company to compensate MBS for
their services in 2016.
Use of Line of Credit
The Company funds its operations in part through
the use of MBS’ outstanding line of credit with Bank of America. Interest on the line of credit is 5.25% per annum. As of
December 31, 2016, the Company has borrowed $196,000 under this arrangement
Loans from MBS
MBS has loaned the Company approximately $25,000
since its inception. These loans are promissory notes with no due date or interest rate
Rental of Office space
The Company rents its office space from MBS.
Monthly rent is $1,500.
Shared Administrative Personnel
The accounting and record-keeping function at Omni Shrimp, Inc.
is provided by personnel at MBS. No fee is charged for these services
The Company's President and Chief Executive
Officer did not receive a management fee or other compensation in connection with his services to the Company. The Company reimburses
its President and Chief Executive Officer for all direct and indirect costs of services provided and other expenses necessary or
appropriate to the conduct of our business.
Related party assets and liabilities
The following represent amounts due/from MBS at December 31,
2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Accounts receivable
|
|
$
|
19,494
|
|
|
$
|
-
|
|
Accounts payable
|
|
$
|
281
|
|
|
$
|
-
|
|
Note 13. Segment information
The Company's operates in one segment, sales
of shrimp and related products.
Note 14. Leases
The Company leases its office space at
13613 Gulf Boulevard, Madeira Beach FL. The monthly rent is $1,500, and rent expense for the year was $10,500.
Note 15. Income taxes
Following is a summary of the components giving rise to the income
tax benefit for the years ended December 31:
The benefit for income taxes consists of the following:
|
|
2016
|
|
|
2015
|
|
Currently payable
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Total currently payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(85,162
|
)
|
|
$
|
(434
|
)
|
State
|
|
$
|
(
-
|
)
|
|
$
|
(
-
|
)
|
Total deferred
|
|
$
|
(85,162
|
)
|
|
$
|
(434
|
)
|
Less: increase in valuation allowance
|
|
|
85,162
|
|
|
|
434
|
|
Net deferred
|
|
|
-
|
|
|
|
-
|
|
Total income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The differences between the United States statutory federal income
tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Statutory United States Federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
|
Change in Fair value of derivative liability
|
|
|
4.2
|
%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Impairment of Acquisition
|
|
|
(28.4
|
)%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-deductible interest
|
|
|
(7.3
|
)%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(3.5
|
)%
|
|
|
(35.0
|
)%
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Note 16. Subsequent Events
Issuance of Debt
On January 1, 2017, the Company issued a note
for $20,000 for consulting services. The convertible promissory note bears no interest and matures on July 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. As of the date of this filing,
there have been no conversions of this Note and the entire amount is outstanding.
On February 1, 2017, the Company issued a note
for $20,000 for consulting services. The convertible promissory note bears no interest 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. As of the date of this filing,
there have been no conversions of this Note and the entire amount is outstanding.
On March 1, 2017, the Company issued a note
for $20,000 for consulting services. The convertible promissory note bears no interest 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. As of the date of this filing,
there have been no conversions of this Note and the entire amount is outstanding.
On March 21, 2017 the Company issued a convertible
promissory note in the principal amount of $57,000 to an unrelated party. The convertible note matures on April 30, 2016 with the
stated interest rate at 10%. The note is convertible into the Company’s common stock at a 30% discount of the lowest closing
bid price during the 30 trading days prior to conversion. The conversion price is subject to anti-dilution protection and down
round provisions in the event that the Company issues additional equity securities at a price less than the conversion price. The
Company may prepay the note at 150% of the entire outstanding principal amount of the note plus any accrued but unpaid interest.
On April 1, 2017, the Company issued a note for $5,000 for consulting
services. The convertible promissory note bears no interest and matures on October 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 priceequal to 50% of the lowest closing bid
price for the twenty days prior to the conversion. As of the date of this filing, there have been no conversions of this Note and
the entire amount is outstanding.
Conversion of Debt and Issuance of Shares
Subsequent to the Balance sheet date, the Company
made the following issuances of shares for conversion of debt:
Date
|
|
Shares issued
|
|
|
Principal and accrued interest converted
|
|
|
|
|
|
|
|
|
1/4/17
|
|
|
383,296
|
|
|
$
|
2,146
|
|
1/9/17
|
|
|
362,207
|
|
|
|
2,028
|
|
1/26/17
|
|
|
293,011
|
|
|
|
2,637
|
|
2/17/17
|
|
|
455,272
|
|
|
|
5,690
|
|
3/9/17
|
|
|
455,191
|
|
|
|
6,145
|
|
Total
|
|
|
1,948,977
|
|
|
$
|
18,646
|
|
Consulting Agreement
Commencing with April 1, 2017, the rate for consulting services
under the Consulting Agreement was $5,000 per month.
Change in Independent Registered Public Accounting Firm
On February 16 , 2017 Scrudato & Co.,
PA (“Scrudato”) notified the Board of Directors (the "Board") of the Company that it had determined to resign
as the Company's independent registered public accounting firm, effective immediately . On February 17, 2017 , the Board determined
to engage DLL CPAS LLC as its new independent registered public accounting firm to replace Scrudato
Scrudato’s reports on the Company's
financial statements for the year ended December 31, 2015 , did not contain an adverse opinion or disclaimer of opinion, and were
not qualified or modified as to uncertainty, audit scope, or accounting principles, except that Scrudato’s reports contained
an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern.
The decision to engage DLL CPAS LLC as
the Company's new auditor (as discussed below) was approved by the Board.
During the year ended December 31, 2016,
there were no disagreements between the Company and Scrudato on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Scrudato , would have caused
it to make reference to the subject matter of the disagreement in connection with its reports on the Company's financial statements
for such years.
On February 17 , 2017 , the Board determined
to engage DLL CPAS LLC as its new independent registered public accounting firm responsible for auditing its financial statements.
Executive Compensation Contracts
In February 2017 , the Corporation entered
into Employment Agreements with (i) Mr. Colm Wrynn - the President and Chief Executive Officer, (2) Mr. Daniel Stelcer - the Secretary
and Chief Operating Officer, and (3) Ms. Linda Giampietro –Vice President effective as of January 1,2017, Messrs. Wrynn and
Stelcer and Ms. Giampietro have provided services to the Corporation with minimal compensation since June 2016. Messrs. Wrynn and
Stelcer and Ms. Giampietro are each a controlling person of the Corporation. The Agreements, provide for annual base compensation
of $120,000 per year and related fringe benefits. Copies of the Agreements are annexed by reference as Exhibits 10.198 , 10.199
and 10.200 in this Form 10K.
Change in Legal Entity
As of April 6, 2017, Omni Shrimp, Inc. is the
new name of the Company.
Note 17: Officers and directors
Changes in Control
of Registrant.
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 is 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.
The Company has also
changed its name from Natural Nano, Inc. to Omni Shrimp, Inc. concomitant with its change in business model and approval from regulatory
authorities. The name change was effective by a Merger Agreement on April 6, 2017.