UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2014___________________
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-49901
NATURALNANO, INC.
(Exact name of registrant as specified in its charter)
Nevada | 87-0646435 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
763 Linden Ave Rochester NY | 14625 | |
(Address of principal executive offices) | (Zip Code) |
585-267-4848
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by checkmark if the registrant has submitted electronically and posted on its Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
627,473,866 as of November 14, 2014
Table of Contents
PART I—FINANCIAL INFORMATION | |||
Item 1. | Financial Statements | ||
Consolidated Balance Sheets | 3 | ||
Consolidated Statements of Operations | 4 | ||
Consolidated Statements of Stockholders’ Deficiency | 5 | ||
Consolidated Statements of Cash Flows | 6 | ||
Notes to Consolidated Financial Statements | 7 | ||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
Note Regarding Forward-Looking Statements | |||
Item 4. | Controls and Procedures | 18 | |
PART II—OTHER INFORMATION | |||
Item 1. | Legal Proceedings | 20 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 | |
Item 3. | Defaults Upon Senior Securities | 20 | |
Item 4. | Mine Safety Disclosures | 20 | |
Item 5. | Other Information | 20 | |
Item 6. | Exhibits | 20 | |
SIGNATURES | 22 |
2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
NATURALNANO, INC.
(Unaudited)
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 18,597 | $ | - | ||||
Accounts Receivable | 7,300 | 23,206 | ||||||
Inventory | 12,076 | 13,246 | ||||||
Prepaid expenses and other current assets | 7,140 | 7,040 | ||||||
Receivable due from MJ Enterprises, net of reserve of $100,000 at September 30, 2014 and $0 at December 31, 2014 | 100,000 | - | ||||||
Total current assets | 145,113 | 43,492 | ||||||
Total Assets | $ | 145,113 | $ | 43,492 | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Notes payable (Note 2) | $ | 1,274,946 | $ | 4,088,425 | ||||
Accounts payable | 404,182 | 448,127 | ||||||
Accrued expenses | 123,588 | 130,331 | ||||||
Accrued interest | 192,919 | 611,261 | ||||||
Accrued payroll | 1,021,598 | 978,340 | ||||||
Registration rights liability | 12,324 | 82,489 | ||||||
Derivative liability (Note 3) | 369,551 | 32,419 | ||||||
Total current liabilities | 3,399,108 | 6,371,392 | ||||||
Total Liabilities | 3,399,108 | 6,371,392 | ||||||
Rights to reserved common shares (Note 2) | 54,289 | - | ||||||
Preferred Stock - $.001 par value, 10 million shares authorized | ||||||||
Series B - 5,000 shares issued and outstanding with an aggregate liquidation preference of $10 | 2,240 | 425 | ||||||
Series C - 0 and 2,857,266 shares issued and outstanding, with an aggregate liquidation preference value $0 and $5,175 respectively | - | 242,940 | ||||||
Commitments and contingencies | - | - | ||||||
Stockholders' Deficiency | ||||||||
Common Stock - $.001 par value 800,000,000 authorized with 597,473,866 and 554,339,146 shares issued and outstanding respectively | 597,474 | 554,339 | ||||||
Series D - issued and outstanding 100 shares | - | - | ||||||
Additional paid in capital | 21,351,972 | 21,176,747 | ||||||
Accumulated deficit | (25,259,970 | ) | (28,302,351 | ) | ||||
Total stockholders' deficiency | (3,310,524 | ) | (6,571,265 | ) | ||||
Total liabilities and stockholders' deficiency | $ | 145,113 | $ | 43,492 |
See notes to consolidated financial statements
3 |
NATURALNANO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Income: | ||||||||||||||||
Revenue | $ | 89,600 | $ | 18,674 | $ | 135,774 | $ | 141,992 | ||||||||
Cost of goods sold | 8,279 | 3,657 | 16,913 | 27,687 | ||||||||||||
Gross Profit | 81,321 | 15,017 | 118,861 | 114,305 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 17,082 | 14,031 | 40,076 | 41,623 | ||||||||||||
General and administrative | 97,013 | 81,884 | 389,254 | 265,150 | ||||||||||||
114,095 | 95,915 | 429,330 | 306,773 | |||||||||||||
Loss from operations | (32,774 | ) | (80,898 | ) | (310,469 | ) | (192,468 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense (net) | (50,362 | ) | (93,208 | ) | (242,626 | ) | (274,758 | ) | ||||||||
Net (loss) gain on derivative liability | 52,977 | 89,536 | (337,132 | ) | 12,848 | |||||||||||
Net (loss) gain on extinguishment/modification of debt | 325,335 | - | 4,032,608 | (10,336 | ) | |||||||||||
Provision for reserve on receivable due from MJ Enterprises | (100,000 | ) | - | (100,000 | ) | - | ||||||||||
Gain on dissolution of Combotexs | - | 39,373 | - | 39,373 | ||||||||||||
Other income (expense) | 227,950 | 35,701 | 3,352,850 | (232,873 | ) | |||||||||||
Net income (loss) from continued operations | 195,176 | (45,197 | ) | 3,042,381 | (425,341 | ) | ||||||||||
Net income from discontinued operations | - | - | - | 11,115 | ||||||||||||
Loss on write-off of discontinued operations | - | - | - | (11,179 | ) | |||||||||||
Consolidated net income (loss) | $ | 195,176 | ($ | (45,197 | ) | $ | 3,042,381 | ($ | 425,405 | ) | ||||||
Continuing operations income (loss) per common share - basic | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
Continuing operations income (loss) per common share - diluted | $ | na | $ | (0.00 | ) | $ | na | $ | (0.00 | ) | ||||||
Discontinued operations income (loss) per common share - basic and diluted | $ | na | $ | na | $ | na | $ | (0.00 | ) | |||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 597,473,866 | 311,664,926 | 592,101,776 | 240,252,062 | ||||||||||||
Fully diluted | 3,381,857,383 | na | 2,427,952,525 | na |
See notes to consolidated financial statements
4 |
NATURALNANO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(Unaudited)
Series D | Additional | |||||||||||||||||||||||||||
Common Stock | Preferred Stock | Paid in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficiency | ||||||||||||||||||||||
Balance at December 31, 2013 | 554,339,146 | $ | 554,339 | 100 | $ | - | $ | 21,176,747 | $ | (28,302,351 | ) | $ | (6,571,265 | ) | ||||||||||||||
Series C preferred shares converted to commons stock and change in value | 43,134,720 | 43,135 | - | - | 69,724 | - | 112,859 | |||||||||||||||||||||
Warrants issued for services | - | - | - | - | 105,501 | - | 105,501 | |||||||||||||||||||||
Net income for the nine months ended September30, 2014 | - | - | - | - | - | 3,042,381 | 3,042,381 | |||||||||||||||||||||
Balance at September 30, 2014 | 597,473,866 | $ | 597,474 | 100 | $ | - | $ | 21,351,972 | $ | (25,259,970 | ) | $ | (3,310,524 | ) |
See notes to consolidated financial statements
5 |
NATURALNANO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended | ||||||||
September 30, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Consolidated net income (loss) | $ | 3,042,381 | $ | (425,405 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Net (gain) loss on extinguishment/modification of debt | (4,032,608 | ) | 10,336 | |||||
Change in fair value of derivative liabilities | 337,132 | (12,848 | ) | |||||
Issuance of warrants for services | 105,501 | 8,721 | ||||||
Provision for reserve on receivable from MJ Enterprises | 100,000 | - | ||||||
Gain on dissolution of Combotexs | - | (39,373 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 15,906 | (20,306 | ) | |||||
Decrease in inventory | 1,170 | 6,229 | ||||||
Increase in other current assets | (100 | ) | (1,844 | ) | ||||
Increase in accounts payable and accrued expenses | 235,205 | 329,434 | ||||||
Net cash used in operating activities | (195,413 | ) | (145,056 | ) | ||||
Cash flows from investing activities | ||||||||
Deposit on bitcoin auction | (200,000 | ) | - | |||||
Return of bitcoin deposit | 200,000 | - | ||||||
Receivable from MJ Enterprises | (200,000 | ) | - | |||||
Net cash used in investing activities | (200,000 | ) | - | |||||
Cash flows from financing activities | ||||||||
Proceeds from senior secured promissory notes | 714,010 | 138,906 | ||||||
Proceeds from bitcoin promissory notes | 200,000 | - | ||||||
Repayment of bitcoin promissory notes | (200,000 | ) | - | |||||
Payment on extinguishment of debt | (300,000 | ) | - | |||||
Net cash provided by financing activities | 414,010 | 138,906 | ||||||
Increase in cash | 18,597 | (6,150 | ) | |||||
Cash at beginning of period | 0 | 6,160 | ||||||
Cash at end of period | $ | 18,597 | $ | 10 | ||||
Schedule of non-cash investing and financing activities: | ||||||||
Common stock issued for convertible notes | $ | - | $ | 19,913 | ||||
Common stock issued for accrued interest | $ | - | $ | 62,090 |
See notes to consolidated financial statements
6 |
NaturalNano, Inc.
For the three and nine months ended September 30, 2014 and 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES |
Interim Financial Statements
The consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 are unaudited. However, in the opinion of management of the Company, these 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 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 consolidated financial statements do not include all of the information required by U.S. generally accepted accounting principles for complete financial statements. These unaudited 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, 2013.
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 net income for the nine months ended September 30, 2014 of approximately $3,042,000, primarily from a non-cash gain on the extinguishment of debt , had negative working capital of approximately $3,254,000 and a stockholders’ deficiency of approximately $3,311,000 at September 30, 2014. 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 September 30, 2014, the Company continued to require waivers for debt covenant violations and extensions of maturity dates. Refer to Note 2 for lenders waivers and maturity extensions received from the lenders.
Basis of Consolidation
The 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 and Bitcoin Bidder, Inc. a Nevada corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.
NaturalNano established its subsidiary, Bitcoin Bidder, Inc. in June, 2014 for the sole purpose of bidding on bitcoins which were seized by the FBI and were sold at auction June 27, 2014. Bitcoin Bidder, Inc. was not successful at the auction and is expected to be dissolved in 2014.
Description of the Business
NaturalNano (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 |
During the nine months ended September 30, 2014 and 2013 the Company derived 93% of its total revenue from one customer.
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.
7 |
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, prepaids, 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 market 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 2014 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 ASC 740 which requires the 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 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 nine month periods ending September 30, 2014 and 2013.
Income (Loss) Per Share
Basic income (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, 2014 and 2013 there were 1,682,479,014 and 6,412,911,665 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 September 30, 2014 were an additional 2 billion 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. Approximately 84 million shares were excluded from the calculation of diluted earnings per share for the quarter ended September 30, 2014 and 4.9 million shares were excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2014 as their inclusion would have been anti-dilutive.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, ”Presentation of Financial Statements – Going Concern”, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity will be required to provide certain disclosures if conditions of events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2014-15 on our consolidated financial statements and have not yet determined when we will adopt the standard.
8 |
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” an updated standard on revenue recognition. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We have not yet selected a transition method and we are currently evaluating the effect the updated standard will have on our consolidated financial statements and related disclosures.
2. | NOTES PAYABLE |
Notes payable consisted of the following:
Notes Payable | September 30, 2014 | December 31, 2013 | ||||||
Senior Secured Convertible Notes | $ | 441,988 | $ | 3,124,403 | ||||
Senior Secured Promissory Notes | 398,938 | 692,922 | ||||||
Subordinated Secured Convertible Note | - | 271,100 | ||||||
2014 Convertible Promissory Notes | 434,020 | - | ||||||
$ | 1,274,946 | $ | 4,088,425 |
Senior Secured Convertible Notes and Senior Secured Promissory Notes
As of September 30, 2014, Notes payable on the balance sheet includes $840,926 ($3,817,325 at December 31, 2013) 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 through November 20, 2014. As a condition of this forbearance the interest rate on these notes has been increased to 18%.
2014 Senior Secured Promissory Notes
During the first quarter of 2014, the Company entered into various Senior Secured Convertible Promissory Notes aggregating $280,000. The 2014 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 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 2014 Senior Secured Promissory Notes bear interest, in arrears, at a rate of 18% per annum as a condition of forbearance and are payable in cash on dates ranging from November 20, 2014 to January 30, 2015.
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 2 billion 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. The Company estimated the total enterprise value based upon a combination of the trending of the firm value from December 2006 to September 2014, 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 these 2 billion share rights and other securities in the Company’s capital structure. The fair value of these 2 billion share rights was estimated at $54,289 and the Company recognized a gain on extinguishment of debt of $325,335 during the three months ended September 30, 2014 based on the excess of the value of the instruments settled over the estimated fair market value of the 2 billion share rights. As a result of the Company not having sufficient authorized shares to satisfy the issuance of these 2 billion share rights, conversion of all outstanding convertible debt, convertible preferred stock, warrants and options, the 2 billion share rights have been presented in temporary equity classification on the balance sheet.
During the nine month periods ended September 30, 2014 and September 30, 2013, the Company entered into forbearance agreements with Cape One which extended the due dates of certain outstanding notes and accrued interest. As consideration for this forbearance, the lender increased its principal balance outstanding by $40,000 and $30,000 in the respectively periods cited above. These amounts were added to the principal balance of the Initial Notes and the Company recognized a loss on modification of debt of $40,000 and $30,000, respectively in the nine month periods ended September 30, 2014 and September 30, 2013.
9 |
2014 Convertible Promissory Notes
During the third quarter of 2014 the Company sold an aggregate of $65,010 in 8% convertible promissory notes to certain accredited investors due and payable between September 27, 2014 and November 25, 2014. These notes are convertible into shares of the Company’s common stock at an initial conversion price of $0.001 per share subject to adjustment in the event of lower price issuances, subject to customary exceptions. The Company may prepay any amount due under the notes prior to the maturity date. The notes are subject to certain events of default which would cause all amounts due to become immediately payable. The Company is prohibited from effecting the conversion of the notes to the extent that as a result of such conversion, the note holders would beneficially own more than 4.99% of the issued and outstanding shares of the Company’s common stock. The Company has obtained a waiver of default on the outstanding principal through dates ranging from January 26, 2015 to January 30, 2015. As a condition of this forbearance the interest rate on these notes has been increased to 18%.
On June 27, 2014, the Company sold $300,000 in 8% convertible promissory notes to certain accredited investors due and payable on September 27, 2014. The Company used the proceeds from the sale of these notes for the payment described in the Payoff Agreement above with Platinum and Merit. These notes are convertible into shares of the Company’s common stock at an initial conversion price of $0.001 per share subject to adjustment in the event of lower price issuances, subject to customary exceptions. The Company may prepay any amount due under the notes prior to the maturity date. The notes are subject to certain events of default which would cause all amounts due to become immediately payable. The Company is prohibited from effecting the conversion of the notes to the extent that as a result of such conversion, the note holders would beneficially own more than 4.99% of the issued and outstanding shares of the Company’s common stock. The Company has obtained a waiver of default on the half of outstanding principal through to January 30, 2015 and the balance through January 26, 2015. As a condition of this forbearance the interest rate on these notes has been increased to 18%.
On May 8, 2014 the Company issued an 8% convertible promissory note in the amount of $45,000 that was due on June 30, 2014. The Company used the proceeds of this note for operating purposes. The May 8, 2014 note is convertible into shares of the Company’s common stock at a conversion price of $0.22 per share subject to adjustment in the event of lower price issuances, subject to customary exceptions. Based on the Company’s issuance of new notes subsequent to May 8, 2014, the conversion price was modified to $0.001 per share. The Company may prepay any amount due under the notes prior to the maturity date. The notes are subject to certain events of default which would cause all amounts due to become immediately payable. The Company is prohibited from effecting the conversion of the notes to the extent that as a result of such conversion, the note holders would beneficially own more than 4.99% of the issued and outstanding shares of the Company’s common stock. The Company has obtained a waiver of default on the outstanding principal through January 30, 2015. As a condition of this forbearance the interest rate on these notes has been increased to 18%.
On June 12, 2014 the Company issued an 8% convertible promissory note in the amount of $24,000 that is due and payable on September 27, 2014. The Company used the proceeds of this note for operating purposes. The June 12, 2014 note is convertible into shares of the Company’s common stock at a conversion price of $0.22 per share subject to adjustment in the event of lower price issuances, subject to customary exceptions. Based on the Company’s issuance of new notes subsequent to June 12, 2014 (see Note 7), the conversion price was modified to $0.001 per share. The Company may prepay any amount due under the notes prior to the maturity date. The notes are subject to certain events of default which would cause all amounts due to become immediately payable. The Company is prohibited from effecting the conversion of the notes to the extent that as a result of such conversion, the note holders would beneficially own more than 4.99% of the issued and outstanding shares of the Company’s common stock. The Company has obtained a waiver of default on the outstanding principal through January 30, 2015. As a condition of this forbearance the interest rate on these notes has been increased to 18%.
Payoff Agreement with Platinum Long Term Growth IV, LLC and Merit Consulting LLC
On June 26, 2014, the Company entered into a Payoff Agreement with two of its lenders (collectively referred to as “the holders”) where the holders agreed to surrender their outstanding promissory notes and debentures in the aggregate principal amount of $3,256,399 plus all accrued and unpaid interest amounting to $592,414 in consideration for an aggregate payment of $300,000. As further consideration, one of the lenders agreed to return its 2,587,674 shares of Series C Preferred Stock for cancellation. The Company reversed $70,165 in registration rights liabilities in connection with this Payoff Agreement. Effective upon the consummation of this Payoff Agreement, the Company had no further obligation to the holders pursuant to the terms of the preferred stock and the notes as defined in the Payoff Agreement. As a result of this Payoff Agreement, the Company recognized a gain on extinguishment of debt during the second quarter of 2014 in the amount of $3,747,273.
Bitcoin Promissory Notes
The Company established its subsidiary, Bitcoin Bidder, Inc. in June, 2014 for the sole purpose of bidding on bitcoins which had been seized by the FBI and were sold at auction June 27, 2014. In connection with this, the Company issued notes aggregating $2,150,000 under a Securities Purchase Agreement. Bitcoin Bidder, Inc. was not successful at the auction and $1,950,000 in borrowings was repaid to the lenders on June 30, 2014. The remaining $200,000 was repaid to the lenders in July, 2014 without any penalty or interest charges to NaturalNano. The Company intends to dissolve Bitcoin Bidder, Inc. in 2014.
3. | 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 September 2014, 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.
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The Company’s derivative liabilities as of September 30, 2014 and December 31, 2013 are as follows:
· | The debt conversion feature embedded in the Senior Secured Convertible Notes entered into in March 2007 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.) | |
· | The debt conversion feature and the 2,647,059 warrants exercisable at $0.425 per share granted in connection with the Subordinated Secured Convertible Note entered into in November 2009. These agreements contain anti-dilution provisions that would be triggered if the Company issued instruments with rights to the Company’s common stock at prices below the exercise price (described in Note 2.) | |
· | The debt conversion feature embedded in the 2014 Convertible Promissory Notes entered into in 2014 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, 2014 and December 31, 2013. |
The fair value of the derivative liabilities as of September 30, 2014 and December 31, 2013 are as follows:
September 30 2014 | December 31, 2013 | |||||||
Derivative Instrument | ||||||||
Senior Secured Convertible Notes conversion feature | $ | 37,549 | $ | 18,045 | ||||
Subordinated Secured Convertible Note conversion feature | - | 3,946 | ||||||
2014 Convertible Promissory Notes conversion feature | 249,683 | - | ||||||
Warrant liability | 82,319 | 10,428 | ||||||
Total | $ | 369,551 | $ | 32,419 |
The increase in the fair value of the derivative liability of $337,132 was recognized as a loss on change in derivative liability in the statement of operations for the nine months ended September 30, 2014. 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. |
Fair Value Valuation Hierarchy Measurement
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 Company’s derivative liability was determined utilizing Level 3 inputs.
4. | STOCKHOLDERS EQUITY |
As of September 30, 2014 the Company was authorized to issue up to 800,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Increase in Authorized Common Stock: On July 1, 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, 2014 there were 1,682,479,014 shares underlying preferred stock, convertible debt, outstanding options and warrants that could potentially dilute future earnings. In addition to these potentially dilutive shares were an additional 2 billion 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. The Company does not have sufficient authorized shares to satisfy conversion of all the potentially dilutive instruments. (See Note 7 Subsequent Events.)
Preferred Stock Issuances
Each share of the Series B and Series C 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). Both the Series B and Series C designations 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. Accordingly, the votes attributable to the Series B and Series C Convertible Preferred constitutes 4.99% of the aggregate votes attributable to the Company’s outstanding shares on an as converted basis and the votes attributable to Series B and Series C Convertible Preferred, voting together represent approximately 9.98% of the aggregate votes attributable to the Company’s outstanding shares (on an as converted basis).
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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 and C preferred shares have been moved into temporary equity classification on the balance sheet.
During the second quarter of 2014, Platinum elected to convert 269,592 shares of their Series C preferred shares into 43,134,720 common shares at the conversion rate of 160 common shares per each Series C share. In connection with the June 27, 2014 Payoff Agreement (Note 2) all shares of the remaining Series C preferred shares were cancelled.
Warrants Grants
The Company has issued warrants to purchase shares of its common stock to certain consultants and debt holders. As of September 30, 2014 and December 31, 2013 there were common stock warrants outstanding to purchase an aggregate of 166,235,294 and 118,235,294 shares of common stock, respectively, pursuant to the warrant grant agreements.
On May 8, 2014, the Company granted a total of 48,000,000 warrants to certain consultants, the Company’s CEO and the Company’s independent board member. These warrants, included in the summary below, grant the right to purchase one share of common stock at an exercise price of $0.0014 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 $105,501. An expected volatility assumption of 289% was used based on the volatility of the Company’s stock price utilizing a look-back basis and the risk-free interest rate of 1.63% 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 $0.0022 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:
2014 | ||||||||||||
Shares | Weighted Average Exercise Price | Weighted Average Remaining Life-years | ||||||||||
Outstanding at January 1, 2014 | 118,235,294 | $ | 0.0142 | 5.9 | ||||||||
Granted | 48,000,000 | 0.0014 | ||||||||||
Cancelled or forfeited | - | |||||||||||
Warrants outstanding at September 30, 2014 | 166,235,294 | $ | 0.0105 | 5.0 | ||||||||
Warrants exercisable at September 30, 2014 | 166,235,294 | $ | 0.0105 | 5.0 |
5. | INCENTIVE STOCK PLANS |
A summary of the status of the outstanding incentive stock plans is presented below at September 30, 2014 and December 31, 2013:
Shares | Weighted Average Exercise Price | Weighted Average Remaining Life-years | ||||||||||
Options outstanding at January 1, 2014 | 709,020 | $ | 3.57 | 2.11 | ||||||||
Options granted/exercises/cancelled/forfeited | - | |||||||||||
Options outstanding at September 30, 2014 | 709,020 | $ | 3.57 | 1.36 | ||||||||
Options exercisable at September 30, 2014 | 709,020 | $ | 3.57 | 1.36 |
All compensation costs for the above options have been previously recognized in operations.
6. | DISCONTINUED OPERATIONS |
In the second quarter of 2013, the Company ceased all activities associated with the Medical Board business segment. The Company assessed this segment and determined that inadequate income had been generated relative to the efforts of production and administrative support. The Statement of Operations for the nine month period ended September 30, 2013 reflects the Medical Board business as a discontinued operation. The nine months ended September 30, 2013 included revenues from this discontinued operation of $14,750, cost of goods sold of $3,635 and gross margin of $11,115. In connection with this decision to exit the Medical Board business, the Company filed a Certificate of Dissolution on May 10, 2013 with the state of New York under section 1003 of the Business Corporation Law in connection with the unanimous written consent of the shareowners of Combotexs. The Nanotechnology business remains as the Company’s only reportable operating segment.
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7. | SUBSEQUENT EVENTS |
ViralProtec business line
On November 5, 2014 the Company announced the new business line, ViralProtec, (www.viralprotec.com) a division of NaturalNano. ViralProtec, is a reseller for Ebola 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.
8% Convertible Promissory Notes
On October 20, 2014, the Company issued $260,000 in convertible promissory notes. The notes are due on January 30, 2015 bears interest at 8% per annum. The notes and the interest accrued are convertible into the Company’s common stock at any time prior to maturity (provided that such conversion does not result in the holder and its affiliates beneficially owning in excess of 4.99% of the issued and outstanding Common Stock) at $0.001 per share subject to adjustment upon the occurrence of certain anti-dilution events.
Common Stock Issued
On October 30, 2014, the Company issued 30 million common shares to Alpha Capital in payment of $12,000 in accrued interest on the 8% Senior Secured Convertible Promissory Notes.
Increase in Authorized Shares and Reverse Split
On July 18, 2014 the holder of the Company’s preferred D shares, which controls 51% of all votes in matters subject to shareholder approval, approved an amendment to the Company’s articles of incorporation and to increase the number of authorized common and preferred shares from 800,000,000 and 10,000,000, respectively. Additionally, a reverse split was authorized for the issued and outstanding shares of common stock in a range of 100 to one to 600 to one. On November 4, 2014, the Company abandoned its July 18, 2014 proposal to increase the number of authorized shares of common stock. The increase in authorized preferred shares and the reverse split are still approved and have not been affected as of November 14, 2014.
Other Events
On October 20, 2014, the Company executed an agreement with ZA Capital LLC to provide strategic consulting services and public relations. The six month fee for these services of $100,000 has been paid to ZA Capital.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q and other reports that we file with the SEC contain statements that are considered forward-looking statements that involve risks and uncertainties. These include statements about our expectations, plans, objectives, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar expressions. Such forward looking statements include statements addressing operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to revenue realization, revenue growth, earnings, earnings per share, or similar projections. These statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed for the reasons described in this report. You should not place undue reliance on these forward-looking statements.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors such as:
· | the ability to raise capital to fund our operations until we generate adequate cash flow internally; | |
· | the terms and timing of product sales and licensing agreements; | |
· | our ability to enter into strategic partnering and joint development agreements; | |
· | our ability to competitively market our controlled release and filled tube products; | |
· | the successful implementation of research and development programs; | |
· | our ability to attract and retain key personnel; | |
· | general market conditions. |
Our actual results may differ materially from management’s expectations. The following discussion and analysis should be read in conjunction with our financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue in the future, or that any conclusion reached herein will necessarily be indicative of actual operating performance in the future. Such discussion represents only the best present assessment of our management.
The forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The Company
NaturalNano, Inc. (the “Company”), located in Rochester, New York, is engaged in the development and commercialization of material additives based on nanomaterials technology utilizing halloysite nanotubes (HNTs). The Company provides additives designed to improve the processing characteristics and mechanical properties of engineering thermoplastics and additives designed to optimize release of active agent such as vitamins and fragrance in cosmetics products. NaturalNano holds patents relating to the commercial use of HNTs in composite materials as well as specialized techniques used in the refinement and processing of HNTs and intermediaries that it ships to customers. HNT materials used as a surface treatment have also shown promise in medical research in stem cell collection and in trapping circulating cancer cells. The Company is also exploring surface treatments related to improved adhesion of protective coatings for polymer components used in several commercial applications.
ViralProtec business line
On November 5, 2014 the Company announced the new business line, ViralProtec, (www.viralprotec.com) a division of NaturalNano. ViralProtec, is a reseller for Ebola 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 of multiple sources.
NaturalNano is domiciled in the state of Nevada as a result of the merger with Cementitious Materials, Inc., (“CMI”), which was completed on November 29, 2005.
Liquidity
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 net income for the nine months ended September 30, 2014 of approximately $3,042,000, primarily from a non-cash gain on the extinguishment of debt, had negative working capital of approximately $3,254,000 and a stockholders’ deficiency of approximately $3,311,000 at September 30, 2014. 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.
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As of September 30, 2014 the Company owed $1,467,865 to lenders in the form of notes payable and accrued interest. Much of this debt is convertible into the Company’s common stock at terms beneficial to the lenders compared to the market price of the Company’s common stock. The Company continues to rely on these lenders to provide additional loans to cover Company expenses and to provide forbearance agreements extending the due dates of the various notes. As September 30, 2014, the Company continued to require waivers for debt covenant violations and extensions of maturity dates. Refer to Note 2 of the consolidated financial statements for lenders waivers and maturity extensions received.
Operating activities
Net cash used in operating activities in the nine months ended September 30, 2014 and 2013 was $195,413 and $145,056, respectively. The net income generated in the nine month period of 2014 was $3,042,381 compared to a net loss of $425,405 in the prior year period. Included in the income for the nine months ended September 30, 2014 earnings is $4,032,608 in non-cash gains on extinguishment of debt. The Company continues to actively monitor spending and cash outflows in an effort to reduce costs until continuing revenue sources are developed. The Company continues to evaluate opportunities to reduce expenses and improve its liquidity position. We expect that total consolidated spending in 2014 to be comparable to the 2013 levels, although we will continue to invest in product and commercialization efforts as our cash position and liquidity allow.
Total non-cash adjustments to reconcile the net income (loss) to the cash used in operations aggregated a net reduction of $3,489,975 in the nine months ended September 30, 2014 compared to $33,164 in the nine months ended September 30, 2013. The change in these non-cash items reflects the net gains on extinguishment of debt, and the change in the fair market value of warrant and derivative liabilities.
Investing activities
During 2014, the Company entered into a purchase agreement to acquire all the issued and outstanding membership interest in MJ Enterprises (“MJE”). In connection with this purchase agreement, the Company advanced $200,000 to MJE. The Company decided during the first quarter of 2014 not to pursue this acquisition. The $200,000 advance was due and payable from MJE due on June 30, 2014.The Company believes this amount will be collected from MJE and is actively pursuing all collection efforts. During the third quarter of 2014, the Company provided a reserve of $100,000 on the potential non-recovery of the full amount due from MJE.
The Company established its subsidiary, Bitcoin Bidder, Inc. in June, 2014 for the sole purpose of bidding on bitcoins which had been seized by the FBI and were sold at auction June 27, 2014. In connection with this, the Company issued notes aggregating $200,000 under a Securities Purchase Agreement and Securities Agreement. Bitcoin Bidder, Inc. used this advance as a deposit to participate in the auction process. The Company was not successful at the auction. The $200,000 deposit were returned to the Company and all related borrowing was repaid in July, 2014 without any penalty or interest charges to NaturalNano. Bitcoin Bidder, Inc. is expected to be dissolved in 2014.
Financing Activities
Net cash provided from financing activities in the nine months ended September 30, 2014 and 2013 was $414,010 and $138,906, respectively. The cash flows from financing activities in 2014 include the receipt of an aggregate of $300,000 in new borrowing in connection with the Payoff Agreement with Platinum Long Term Growth IV LLC and Merit Advisors LLC. Other convertible and non-convertible promissory notes aggregating $714,010 were received for operating uses in the nine month period ended September 30, 2014. The Payoff Agreement included $300,000 in cash disbursed to settle the remaining liabilities with PLTG and Merit. The cash flows from financing activities in 2013 reflect a receipt of $114,300 in proceeds from Platinum Long Term Growth IV LLC and $24,606 in proceeds from Alpha.
The Company established its subsidiary, Bitcoin Bidder, Inc. in June 2014 for the sole purpose of bidding on bitcoins which had been seized by the FBI and were sold at auction June 27, 2014. In connection with this, the Company issued notes aggregating $2,150,000 under a Securities Purchase Agreement and Securities Agreement that allowed borrowings of up to $2,150,000. Bitcoin Bidder, Inc. was not successful at the auction and $1,950,000 in borrowings was repaid to the lenders on June 30, 2014. The remaining $200,000 was repaid to the lenders in July, 2014 without any penalty or interest charges to NaturalNano.
Critical Accounting Policies and Estimates
Refer to the Company’s December 31, 2013 report on Form 10K for a complete discussion of the critical accounting policies which have not changed during the nine months ended September 30, 2014.
Comparison of Statement of Operations for the three months ended September 30, 2014 and 2013
Revenue and Gross Profit
During the three months ended September 30, 2014 and 2013, the Company recorded $89,600 and $18,674, respectively in revenue from continuing operations. Cost of goods sold was $8,279 and $3,657 for the shipments of nanotechnology formulations completed in the respective quarters. Gross margin of $81,321 and $15,017 was realized for the three months ended September 30, 2014 and 2013, respectively.
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Fluctuations in products sales year over year is a result of the unique market application of these products. The Company expects that it will experience significant variations in sales and gross margins with its Nanotechnology products as it continues to introduce to market and develop new products and related applications. Gross margin realized in the three months ended September 30, 2014 was 90% compared to 80% for three months ended September 30, 2013. In the second quarter of 2013, the Company exited the Medical Board segment operations (See Note 6 “Discontinued Operations”).
Operating Expenses
Research and development expenses for the three months ended September 30, 2014 were $17,082 compared to $14,031 for the three months ended September 30, 2013. Future research and development expenditure levels will be largely depend upon the availability of discretionary cash flow which is anticipated to be limited.
For the three months ended | Variance | |||||||||||
September 30, | increase | |||||||||||
Research and Development | 2014 | 2013 | (decrease) | |||||||||
Salaries and benefits | 7,260 | - | 7,260 | |||||||||
Rent & utilities | 6,570 | 11,327 | (4,757 | ) | ||||||||
All other | 3,252 | 2,704 | 548 | |||||||||
$ | 17,082 | $ | 14,031 | $ | 3,051 |
Total general and administrative expenses for the three months ended September 30, 2014 was $97,013 as compared to expenses of $81,884 for the three months ended September 30, 2013. The increase in expenses in 2014 is primarily the result of increases in salaries, consulting and professional fees as the Company reassesses is business objectives and future financing opportunities. Management continues to actively assess the Company’s operating structure with the objective align cash expenditures and expenses with growth in total revenue.
For the three months ended | Variance | |||||||||||
September 30, | Increase | |||||||||||
General and Administrative | 2014 | 2013 | (decrease) | |||||||||
Salaries & benefits | $ | 51,881 | $ | 46,156 | $ | 5,725 | ||||||
Consulting Services | 15,124 | 7,884 | 7,240 | |||||||||
Legal & professional fees | 8,124 | 12,415 | (4,291 | ) | ||||||||
Rent and utilities | 3,000 | - | 3,000 | |||||||||
Insurance expense | 1,010 | 850 | 160 | |||||||||
Shareholder and Board expense | 10,550 | 8,501 | 2,049 | |||||||||
All other | 7,324 | 6,078 | 1,246 | |||||||||
$ | 97,013 | $ | 81,884 | $ | 15,129 |
Other Expense
Other expense consists of interest expense on convertible and promissory notes outstanding and other debt related financing and amortization expenses considered components of interest expense for financial reporting.
For the three months ended | Variance | |||||||||||
September 30, | increase | |||||||||||
Other Expense | 2014 | 2013 | (decrease) | |||||||||
Interest to Senior convertible and promissory notes | $ | (45,977 | ) | $ | (81,259 | ) | $ | (35,282 | ) | |||
Interest to 10% Subordinated secured convertible notes | (4,385 | ) | (11,949 | ) | (7,564 | ) | ||||||
$ | (50,362 | ) | $ | (93,208 | ) | $ | (42,846 | ) | ||||
Net gain on derivative liability | $ | 52,977 | $ | 89,536 | $ | (36,599 | ) | |||||
Provision for reserve on receivable from MJE | $ | 100,000 | - | $ | 100,000 |
The decrease in interest expense for the third quarter of 2014 as compared to the third quarter of 2013 reflects the decrease in outstanding debt as a result of the payoff agreement with Platinum Long Term Growth IV, LLC and Merit Consulting effective June 26, 2014.
The gain on derivative liability in the third quarter of 2014 is the result of updated valuations performed for the Company on instruments that, due to the nature of the instruments and the Company’s current number of authorized common shares being insufficient to facilitate conversion or exercise of all outstanding instruments, result in derivative liabilities. During the third quarter the Company removed the derivative liability associated with the Subordinated Secured Convertible Note conversion feature as the underlying note was satisfied through the Right to Shares Agreement issued to Cape One Master Fund II LP on July 23, 2014.
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The Company and Cape One Master Fund II LLP agreed to exchange the Subordinated Secured Convertible Note and related accrued and unpaid interest in exchange for 2 billion 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.
The fair market value of the Right to reserved commons shares due to Cape One was determined based on the Company estimated the total enterprise value based upon trending the firm value from December 2006 to September 2014 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 Rights to reserved shares due to Cape One was measured as $54,289 at September 30, 2014. The Company recorded a gain on extinguishment of debt of due to Cape One of $325,335 in the third quarter of 2014 based on the agreement between the parties to eliminate all outstanding principal and interest on the Subordinated Secured Convertible Notes in the amount of $379,624.
The loss on derivatives also reflects the 2014 convertible debt granted in the current year.
The Company recorded a $100,000 provision for the future collection of the receivable due from MJ Enterprises in the third quarter of 2014. The Company will aggressively pursue the collection of this amount with all possible avenues for recovery. As the amount has now been past due since June 30, 2014, the Company provided for the potential non-recovery of the full amount outstanding.
Comparison of Statement of Operations for the nine months ended September 30, 2014 and 2013
Revenue and Gross Profit
During the nine months ended September 30, 2014 and 2013, the Company recorded $135,774 and $141,992, respectively in revenue from continuing operations. Cost of goods sold was $16,913 and $27,687 for the shipments of nanotechnology formulations completed in the respective quarters. Gross margin of $118,861 and $114,305 was realized for the nine months ended September 30, 2014 and 2013, respectively.
Fluctuations in products sales year over year is a result of the unique market application of these products. The Company expects that it will experience significant variations in sales and gross margins with its Nanotechnology products as it continues to introduce to market and develop new products and related applications. Gross margin realized was 87% during the nine month period ended September 30, 2014 and 81% in the nine month period ended September 30, 2013.
Operating Expenses
Research and development expenses for the nine months ended September 30, 2014 were $40,076 compared to $41,623 for the nine months ended September 30, 2013. Future research and development expenditure levels will be largely depend upon the availability of discretionary cash flow which is anticipated to be limited.
For the nine months ended | Variance | |||||||||||
September 30, | increase | |||||||||||
Research and Development | 2014 | 2013 | (decrease) | |||||||||
Salaries and benefits | $ | 15,966 | $ | 9,633 | 6,333 | |||||||
Rent & utilities | 18,800 | 30,721 | (11,921 | ) | ||||||||
All other | 5,310 | 1,269 | 4,041 | |||||||||
$ | 40,076 | $ | 41,623 | $ | (1,547 | ) |
Total general and administrative expenses for the nine months ended September 30, 2014 was $389,254 as compared to expenses of $265,150 for the nine months ended September 30, 2013. The increase is a primarily driven by the expense incurred in the second quarter of 2014 related to warrants issued for services in the amount of $105,501. Management continues to actively assess the Company’s operating structure with the objective align cash expenditures and expenses with growth in total revenue.
For the nine months ended | Variance | |||||||||||
September 30, | Increase | |||||||||||
General and Administrative | 2014 | 2013 | (decrease) | |||||||||
Salaries & benefits | $ | 137,199 | $ | 136,702 | $ | 497 | ||||||
Warrants granted for services | 105,501 | - | 105,501 | |||||||||
Legal & professional fees | 75,095 | 74,340 | 755 | |||||||||
Rent and utilities | 9,300 | - | 9,300 | |||||||||
Insurance expense | 3,995 | 4,097 | (102 | ) | ||||||||
Shareholder and Board expense | 29,363 | 30,233 | (870 | ) | ||||||||
All other | 28,801 | 19,778 | 9,023 | |||||||||
$ | 389,254 | $ | 265,150 | $ | 124,104 |
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Other Expense
Other expense consists of interest expense on convertible and promissory notes outstanding and other debt related financing and amortization expenses considered components of interest expense for financial reporting.
For the nine months ended | Variance | |||||||||||
September 30 | increase | |||||||||||
Other Expense | 2014 | 2013 | (decrease) | |||||||||
Interest to Senior convertible and promissory notes | $ | (212,042 | ) | $ | (238,248 | ) | $ | (26,206 | ) | |||
Interest to 10% Subordinated secured convertible notes | (30,554 | ) | (36,500 | ) | (5,946 | ) | ||||||
$ | (242,596 | ) | $ | (274,748 | ) | $ | (32,152 | ) | ||||
Net gain (loss) on derivative liability | $ | (337,162 | ) | $ | 12,848 | $ | (350,010 | ) | ||||
Gain (loss) on forgiveness/modification of debt | $ | 4,032,608 | $ | (10,336 | ) | $ | 4,042,944 | |||||
Provision for reserve on receivable from MJE | $ | (100,000 | ) | $ | - | $ | 100,000 |
The decrease in interest expense for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 is due to reduction in borrowing in 2014 offset as a result of the payoff agreement with Platinum Long Term Growth IV, LLC and Merit Consulting effective June 26, 2014.
The loss on derivative liability in 2014 reflects updated valuations performed for the Company on instruments that, due to the nature of the instruments and the Company’s current number of authorized common shares being insufficient to facilitate conversion or exercise of all outstanding instruments, result in derivative liabilities. During the second quarter of 2014 warrant grants representing 48 million common shares were granted for services provided to the Company. There were no warrant grants in the third quarter of 2014. The loss on derivatives also reflects the 2014 convertible debt granted in second quarter.
The Company recorded a $100,000 provision for the future collection of the receivable due from MJ Enterprises in the third quarter of 2014. The Company will aggressively pursue the collection of this amount with all possible avenues for recovery. As the amount has now been past due since June 30, 2014, the Company provided for the potential non-recovery of the full amount outstanding.
The Company regularly received forbearance agreements from lenders due to the Company being in default of loan requirements. From time to time the lenders, as consideration for the forbearance agreements, add amounts to the principal of the outstanding notes. These amounts are recorded as losses on modification of debt in the income statement. On June 26, 2014, the Company entered into a Payoff Agreement with two of its lenders (collectively referred to as “the holders”) where the holders agreed to surrender their outstanding promissory notes and debentures in the aggregate principal amount of $3,256,399 plus all accrued and unpaid interest amounting to $592,414 in consideration for an aggregate payment of $300,000. As further consideration, one of the lenders agreed to return its 2,587,674 shares of Series C Preferred Stock for cancellation. The Company reversed $70,165 in registration rights liabilities in connection with this Payoff Agreement. Effective upon the consummation of this Payoff Agreement, the Company had no further obligation to the holders pursuant to the terms of the preferred stock and the notes as defined in the Payoff Agreement. As a result of this Payoff Agreement, the Company recognized a gain on extinguishment of debt during the second quarter of 2014 in the amount of $3,747,273. During 2014 and 2013, $40,000 and $30,000, respectively, was added to the outstanding principal owed to Cape One in exchange for forbearance.
Item 4. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management is responsible for establishing and maintaining effective disclosure controls and procedures. Our Chief Executive Officer has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the CEO as appropriate, to allow timely decisions regarding required disclosure.
Based on this evaluation, and in light of the material weaknesses in our internal control over financial reporting that are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective. The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.
18 |
The Company did not maintain a sufficient complement of qualified accounting personnel and controls associated with the segregation of duties were ineffective. Notwithstanding these material weaknesses, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented.
There can be no assurance, however, that our disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in our periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
19 |
PART II—OTHER INFORMATION
There have been no material developments to the legal proceeding disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
On October 30, 2014, the Company issued 30,000,000 common shares to Alpha Capital in a transaction exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) of such Act. We issued these shares in connection with a Notice of Conversion received from Alpha Capital as specified under the terms and conditions of the 8% Senior Secured Convertible Debt. These shares were converted at $0.0004 per share in payment of $12,000 of accrued interest on the related notes.
Item 3. Defaults Upon Senior Securities
The Company entered into Forbearance Agreements with Alpha Capital Anstalt, Marlin Capital Investments and Bull Hunter LLC effective on July 18, 2014, November 14, 2014 and September 27, 2014, respectively, relating to the Company’s default on various terms and conditions with borrowing agreements. The lenders agreed to not take any action or exercise or move to enforce any rights or remedies provided for in the various loan documents or otherwise available to it, under law or equity, due to the events of default under the existing Senior Secured Convertible and Promissory Notes due to Alpha until November 20, 2014 and until January 30, 2015 for the 2014 Convertible Promissory Notes. The debt owed to Marlin and Bull Hunter has been waived through January 26, 2015.
Item 4. Mine Safety Disclosures
Not applicable.
None.
20 |
Exhibit No. |
Description | |
10.173 | Forbearance Agreement effective July 18, 2014 between Alpha Capital Anstalt and NaturalNano, Inc. and NaturalNano Research, Inc. | |
10.174 | Forbearance Agreement effective September 1, 2014 between Marlin Capital Investments LLC and NaturalNano, Inc. and NaturalNano Research, Inc. | |
10.175 | Forbearance Agreement effective September 27, 2014 between Bull Hunter LLC and NaturalNano, Inc. and NaturalNano Research, Inc. | |
10.176 | 8% Convertible Promissory Note dated 8/15/14 in the original principal amount of $15,000 issued by NaturalNano Inc. to Marlin Capital Investments LLC due and payable on November 25, 2014. | |
10.177 | 8% Convertible Promissory Note dated 10/20/14 in the original principal amount of $130,000 issued by NaturalNano Inc. to Marlin Capital Investments LLC due and payable on January 30, 2015. | |
10.178 | 8% Convertible Promissory Note dated 8/18/14 in the original principal amount of $15,000 issued by NaturalNano Inc. to Alpha Capital Anstalt due and payable on November 25, 2014. | |
10.179 | 8% Convertible Promissory Note dated 10/20/14 in the original principal amount of $130,000 issued by NaturalNano Inc. to Alpha Capital Anstalt due and payable on January 30, 2015. | |
10.180 | 8% Convertible Promissory Note dated 9/27/14 in the original principal amount of $54,000 issued by NaturalNano Inc. to Alpha Capital Anstalt due and payable on November 20, 2014. | |
10.181 | Forbearance Agreement effective November 14, 2014 between Alpha Capital Anstalt and Natural Nano, Inc. and NaturalNano Research, Inc. | |
31.1 | Certification of principal executive officer and principal accounting officer pursuant to section 302(a) of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of principal executive officer and principal accounting officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
21 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NaturalNano, Inc. | |||
Date: | November 14, 2014 | /s/ James Wemett | |
James Wemett | |||
President and Director | |||
(Principal Executive, Financial and Accounting Officer) |
22 |
Exhibit 10.173
Exhibit 10.174
Exhibit 10.175
Exhibit 10.176
THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
NATURALNANO, INC.
8% CONVERTIBLE PROMISSORY NOTE
$15,000 |
Original Issuance Date: August 15, 2014
|
NATURALNANO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to Marlin Capital Investments, LLC or its assigns (the “Holder”), the principal amount of fifteen Thousand Dollars ($15,000) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum (“Interest”) until paid in full or converted as provided herein.
1. Repayment of the Note. The Principal Amount outstanding hereunder shall be payable in cash on November 25, 2014 (the “Maturity Date”). The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below).
2. Prepayment of the Note. The Company may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.
3. Conversion.
(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.
(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Company at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Company shall immediately, but in no event later than three (3) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.
(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Company. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents (as defined below)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 3(d). The Holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately. Any increase will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
(e) Adjustments for Issuance of Additional Securities. In the event that the Company shall, at any time, from time to time, issue or sell any additional shares of Common or pursuant to Common Stock Equivalents (hereafter defined) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock. The provisions of this Section 3(e) shall apply if (a) the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of this Section 3(e). Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(e) with respect to an Excepted Issuance. “Excepted Issuance” means (i) securities issued as full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not primarily for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans that have been approved by a majority of the stockholders and a majority of the independent members of the board of directors of the Company or in existence as such plans are constituted on the original issuance date of this Note, (iv) the Company’s issuance of securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the original issuance date of this Note on the terms then in effect and (v) any and all securities required to be assumed by the Company by the terms thereof as a result of any of the foregoing even if issued by a predecessor acquired in connection with a business combination, merger or share exchange.
(f) Other Adjustments. If the Company shall at any time or from time to time after the original issuance date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the original issuance date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:
(1) | the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and |
(2) | the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
If the Company shall at any time or from time to time after the original issuance date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.
If at any time or from time to time after the original issuance date of this Note there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Company with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 3(f) will increase the Conversion Price as otherwise determined pursuant to this Section 3.
(g) Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or (ii) the conversion of the entire Principal Amount and Interest then due hereunder.
5. Taxes or other Issuance Charges. The Company shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.
6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:
(i) | the Company shall fail to pay any amount under the Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; |
(ii) | the Company shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable; |
(iii) | any representation or warranty made by or on behalf of the Company in or in connection with the issuance of this Note, or in any report, certificate or other document furnished pursuant to or in connection with the issuance of this Note, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached; |
(iv) | the Company shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Holder to the Company; |
(v) | an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered; |
(vi) | the Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (v) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; |
(vii) | the Company shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due; |
(viii) | one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against the Company and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; |
(ix) | any default by the Company under, or the occurrence of any event of default as defined in, any other indebtedness owed by the Company; |
(x) | any event, transaction, action or omission of or involving the Company shall occur which Holder reasonably believes will result in a material adverse effect on the Company’s business and operations; |
(xi) | this Note shall cease to be, or shall be asserted by the Company or other obligor thereunder not to be, in full force and effect |
(b) Remedies. Upon the occurrence of an Event of Default, and in every such event (other than an event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), at any time during the continuance of such event, Holder may, at its sole election, by notice to the Company, declare all amounts under the Note then outstanding to be due and payable in whole (or in part, in which case any amounts under the Note not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding amount under the Note so declared to be due and payable, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), amounts under the Note then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company.
7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.
8. Waiver by the Company. The Company hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.
9. Usury Savings Clause. The Company and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Company’s and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.
11. Miscellaneous.
(a) Use of Proceeds. The Company covenants to use the proceeds from the sale of this Note for the payment and full satisfaction of the Company’s obligations under certain outstanding indebtedness of the Company to be approved by the Holder.
(b) Governing Law; Venue. This Note shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York as such laws are applied by the New York courts to contracts solely performed within its borders, except with respect to the conflicts of law provisions thereof. Any legal suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby shall be instituted exclusively in New York County, New York. The parties hereto hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the federal and state courts located in New York County, New York in any such suit, action or proceeding. This Note shall be deemed an unconditional obligation of Company for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Company by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Company are parties or which Company delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Company’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
(c) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that the Holder may assign all or any portion of this Note without the consent of the Company.
(d) Notices. Any notice or other document required or permitted to be given or delivered to the parties hereto shall be in writing and sent: (i) by fax, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail, with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid), to the following addresses:
(i) | If to the Company, at: |
763 Linden Ave.
Rochester, New York 14625
(ii) | If to a Holder, at: |
Marlin Capital Investments LLC, Florida
(e) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company and the Holder.
(f) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company.
NATURALNANO, INC.
By: | ||
Name: | James Wemett | |
Title: | President |
EXHIBIT A
Date: |
NATURALNANO, INC.
Attn:
CONVERSION NOTICE
The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder in the principal amount of $150,000 by the Company (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.
A. | Date of conversion: | |||
B. | Conversion #: | |||
C. | Conversion Amount: | |||
D. | Conversion Price: | |||
E. | Conversion Shares: | |||
F. | Remaining Note Balance: |
Please transfer the Conversion Shares to the undersigned at:
Address:
Sincerely,
By: | ||
Name: |
Exhibit 10.177
THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
NATURALNANO, INC.
8% CONVERTIBLE PROMISSORY NOTE
$130,000 |
Original Issuance Date: October 20, 2014
|
NATURALNANO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to Marlin Capital Investments, LLC or its assigns (the “Holder”), the principal amount of One Hundred Thirty Thousand ($130,000) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum (“Interest”) until paid in full or converted as provided herein.
1. Repayment of the Note. The Principal Amount outstanding hereunder shall be payable in cash on January 30, 2015 (the “Maturity Date”). The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below).
2. Prepayment of the Note. The Company may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.
3. Conversion.
(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.
(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Company at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Company shall immediately, but in no event later than three (3) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.
(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Company. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents (as defined below)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 3(d). The Holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately. Any increase will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
(e) Adjustments for Issuance of Additional Securities. In the event that the Company shall, at any time, from time to time, issue or sell any additional shares of Common or pursuant to Common Stock Equivalents (hereafter defined) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock. The provisions of this Section 3(e) shall apply if (a) the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of this Section 3(e). Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(e) with respect to an Excepted Issuance. “Excepted Issuance” means (i) securities issued as full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not primarily for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans that have been approved by a majority of the stockholders and a majority of the independent members of the board of directors of the Company or in existence as such plans are constituted on the original issuance date of this Note, (iv) the Company’s issuance of securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the original issuance date of this Note on the terms then in effect and (v) any and all securities required to be assumed by the Company by the terms thereof as a result of any of the foregoing even if issued by a predecessor acquired in connection with a business combination, merger or share exchange.
(f) Other Adjustments. If the Company shall at any time or from time to time after the original issuance date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the original issuance date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:
(1) | the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and |
(2) | the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
If the Company shall at any time or from time to time after the original issuance date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.
If at any time or from time to time after the original issuance date of this Note there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Company with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 3(f) will increase the Conversion Price as otherwise determined pursuant to this Section 3.
(g) Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or (ii) the conversion of the entire Principal Amount and Interest then due hereunder.
5. Taxes or other Issuance Charges. The Company shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.
6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:
(i) | the Company shall fail to pay any amount under the Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; |
(ii) | the Company shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable; |
(iii) | any representation or warranty made by or on behalf of the Company in or in connection with the issuance of this Note, or in any report, certificate or other document furnished pursuant to or in connection with the issuance of this Note, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached; |
(iv) | the Company shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Holder to the Company; |
(v) | an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered; |
(vi) | the Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (v) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; |
(vii) | the Company shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due; |
(viii) | one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against the Company and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; |
(ix) | any default by the Company under, or the occurrence of any event of default as defined in, any other indebtedness owed by the Company; |
(x) | any event, transaction, action or omission of or involving the Company shall occur which Holder reasonably believes will result in a material adverse effect on the Company’s business and operations; |
(xi) | this Note shall cease to be, or shall be asserted by the Company or other obligor thereunder not to be, in full force and effect |
(b) Remedies. Upon the occurrence of an Event of Default, and in every such event (other than an event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), at any time during the continuance of such event, Holder may, at its sole election, by notice to the Company, declare all amounts under the Note then outstanding to be due and payable in whole (or in part, in which case any amounts under the Note not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding amount under the Note so declared to be due and payable, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), amounts under the Note then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company.
7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.
8. Waiver by the Company. The Company hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.
9. Usury Savings Clause. The Company and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Company’s and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.
11. Miscellaneous.
(a) Use of Proceeds. The Company covenants to use the proceeds from the sale of this Note for the payment and full satisfaction of the Company’s obligations under certain outstanding indebtedness of the Company to be approved by the Holder.
(b) Governing Law; Venue. This Note shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York as such laws are applied by the New York courts to contracts solely performed within its borders, except with respect to the conflicts of law provisions thereof. Any legal suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby shall be instituted exclusively in New York County, New York. The parties hereto hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the federal and state courts located in New York County, New York in any such suit, action or proceeding. This Note shall be deemed an unconditional obligation of Company for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Company by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Company are parties or which Company delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Company’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
(c) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that the Holder may assign all or any portion of this Note without the consent of the Company.
(d) Notices. Any notice or other document required or permitted to be given or delivered to the parties hereto shall be in writing and sent: (i) by fax, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail, with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid), to the following addresses:
(i) | If to the Company, at: |
763 Linden Ave.
Rochester, New York 14625
(ii) | If to a Holder, at: |
Marlin Capital Investments LLC, Florida
(e) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company and the Holder.
(f) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.
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SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company.
NATURALNANO, INC.
By: | ||
Name: | James Wemett | |
Title: | President |
EXHIBIT A
Date: |
NATURALNANO, INC.
Attn:
CONVERSION NOTICE
The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder in the principal amount of $150,000 by the Company (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.
A. | Date of conversion: | |||
B. | Conversion #: | |||
C. | Conversion Amount: | |||
D. | Conversion Price: | |||
E. | Conversion Shares: | |||
F. | Remaining Note Balance: |
Please transfer the Conversion Shares to the undersigned at:
Address:
Sincerely,
By: | ||
Name: |
Exhibit 10.178
THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
NATURALNANO, INC.
8% CONVERTIBLE PROMISSORY NOTE
$15,000 |
Original Issuance Date: August 18, 2014
|
NATURALNANO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to Alpha Capital Anstalt or its assigns (the “Holder”), the principal amount of fifteen Thousand Dollars ($15,000) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum (“Interest”) until paid in full or converted as provided herein.
1. Repayment of the Note. The Principal Amount outstanding hereunder shall be payable in cash on November 25, 2014 (the “Maturity Date”). The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below).
2. Prepayment of the Note. The Company may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.
3. Conversion.
(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.
(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Company at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Company shall immediately, but in no event later than three (3) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.
(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Company. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents (as defined below)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 3(d). The Holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately. Any increase will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
(e) Adjustments for Issuance of Additional Securities. In the event that the Company shall, at any time, from time to time, issue or sell any additional shares of Common or pursuant to Common Stock Equivalents (hereafter defined) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock. The provisions of this Section 3(e) shall apply if (a) the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of this Section 3(e). Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(e) with respect to an Excepted Issuance. “Excepted Issuance” means (i) securities issued as full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not primarily for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans that have been approved by a majority of the stockholders and a majority of the independent members of the board of directors of the Company or in existence as such plans are constituted on the original issuance date of this Note, (iv) the Company’s issuance of securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the original issuance date of this Note on the terms then in effect and (v) any and all securities required to be assumed by the Company by the terms thereof as a result of any of the foregoing even if issued by a predecessor acquired in connection with a business combination, merger or share exchange.
(f) Other Adjustments. If the Company shall at any time or from time to time after the original issuance date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the original issuance date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:
(1) | the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and |
(2) | the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
If the Company shall at any time or from time to time after the original issuance date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.
If at any time or from time to time after the original issuance date of this Note there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Company with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 3(f) will increase the Conversion Price as otherwise determined pursuant to this Section 3.
(g) Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or (ii) the conversion of the entire Principal Amount and Interest then due hereunder.
5. Taxes or other Issuance Charges. The Company shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.
6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:
(i) | the Company shall fail to pay any amount under the Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; |
(ii) | the Company shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable; |
(iii) | any representation or warranty made by or on behalf of the Company in or in connection with the issuance of this Note, or in any report, certificate or other document furnished pursuant to or in connection with the issuance of this Note, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached; |
(iv) | the Company shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Holder to the Company; |
(v) | an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered; |
(vi) | the Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (v) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; |
(vii) | the Company shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due; |
(viii) | one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against the Company and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; |
(ix) | any default by the Company under, or the occurrence of any event of default as defined in, any other indebtedness owed by the Company; |
(x) | any event, transaction, action or omission of or involving the Company shall occur which Holder reasonably believes will result in a material adverse effect on the Company’s business and operations; |
(xi) | this Note shall cease to be, or shall be asserted by the Company or other obligor thereunder not to be, in full force and effect |
(b) Remedies. Upon the occurrence of an Event of Default, and in every such event (other than an event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), at any time during the continuance of such event, Holder may, at its sole election, by notice to the Company, declare all amounts under the Note then outstanding to be due and payable in whole (or in part, in which case any amounts under the Note not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding amount under the Note so declared to be due and payable, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), amounts under the Note then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company.
7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.
8. Waiver by the Company. The Company hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.
9. Usury Savings Clause. The Company and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Company’s and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.
11. Miscellaneous.
(a) Use of Proceeds. The Company covenants to use the proceeds from the sale of this Note for the payment and full satisfaction of the Company’s obligations under certain outstanding indebtedness of the Company to be approved by the Holder.
(b) Governing Law; Venue. This Note shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York as such laws are applied by the New York courts to contracts solely performed within its borders, except with respect to the conflicts of law provisions thereof. Any legal suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby shall be instituted exclusively in New York County, New York. The parties hereto hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the federal and state courts located in New York County, New York in any such suit, action or proceeding. This Note shall be deemed an unconditional obligation of Company for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Company by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Company are parties or which Company delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Company’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
(c) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that the Holder may assign all or any portion of this Note without the consent of the Company.
(d) Notices. Any notice or other document required or permitted to be given or delivered to the parties hereto shall be in writing and sent: (i) by fax, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail, with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid), to the following addresses:
(i) | If to the Company, at: |
763 Linden Ave.
Rochester, New York 14625
(ii) | If to a Holder, at: |
Alpha Capital Anstalt
Pradafant 7
9490 Furstentums, Vaduz
Lichtenstein
Fax: 011-42-32323196
(e) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company and the Holder.
(f) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.
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IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company.
NATURALNANO, INC.
By: | ||
Name: | James Wemett | |
Title: | President |
EXHIBIT A
Date: |
NATURALNANO, INC.
Attn:
CONVERSION NOTICE
The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder in the principal amount of $150,000 by the Company (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.
A. | Date of conversion: | |||
B. | Conversion #: | |||
C. | Conversion Amount: | |||
D. | Conversion Price: | |||
E. | Conversion Shares: | |||
F. | Remaining Note Balance: |
Please transfer the Conversion Shares to the undersigned at:
Address:
Sincerely,
By: | ||
Name: |
Exhibit 10.179
THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
NATURALNANO, INC.
8% CONVERTIBLE PROMISSORY NOTE
$130,000 |
Original Issuance Date: October 20, 2014
|
NATURALNANO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to Alpha Capital Anstalt or its assigns (the “Holder”), the principal amount of One Hundred Thirty Thousand ($130,000) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum (“Interest”) until paid in full or converted as provided herein.
1. Repayment of the Note. The Principal Amount outstanding hereunder shall be payable in cash on January 30, 2015 (the “Maturity Date”). The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below).
2. Prepayment of the Note. The Company may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.
3. Conversion.
(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.
(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Company at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Company shall immediately, but in no event later than three (3) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.
(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Company. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents (as defined below)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 3(d). The Holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately. Any increase will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
(e) Adjustments for Issuance of Additional Securities. In the event that the Company shall, at any time, from time to time, issue or sell any additional shares of Common or pursuant to Common Stock Equivalents (hereafter defined) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock. The provisions of this Section 3(e) shall apply if (a) the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of this Section 3(e). Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(e) with respect to an Excepted Issuance. “Excepted Issuance” means (i) securities issued as full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not primarily for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans that have been approved by a majority of the stockholders and a majority of the independent members of the board of directors of the Company or in existence as such plans are constituted on the original issuance date of this Note, (iv) the Company’s issuance of securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the original issuance date of this Note on the terms then in effect and (v) any and all securities required to be assumed by the Company by the terms thereof as a result of any of the foregoing even if issued by a predecessor acquired in connection with a business combination, merger or share exchange.
(f) Other Adjustments. If the Company shall at any time or from time to time after the original issuance date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the original issuance date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:
(1) | the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and |
(2) | the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
If the Company shall at any time or from time to time after the original issuance date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.
If at any time or from time to time after the original issuance date of this Note there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Company with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 3(f) will increase the Conversion Price as otherwise determined pursuant to this Section 3.
(g) Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or (ii) the conversion of the entire Principal Amount and Interest then due hereunder.
5. Taxes or other Issuance Charges. The Company shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.
6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:
(i) | the Company shall fail to pay any amount under the Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; |
(ii) | the Company shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable; |
(iii) | any representation or warranty made by or on behalf of the Company in or in connection with the issuance of this Note, or in any report, certificate or other document furnished pursuant to or in connection with the issuance of this Note, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached; |
(iv) | the Company shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Holder to the Company; |
(v) | an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered; |
(vi) | the Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (v) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; |
(vii) | the Company shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due; |
(viii) | one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against the Company and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; |
(ix) | any default by the Company under, or the occurrence of any event of default as defined in, any other indebtedness owed by the Company; |
(x) | any event, transaction, action or omission of or involving the Company shall occur which Holder reasonably believes will result in a material adverse effect on the Company’s business and operations; |
(xi) | this Note shall cease to be, or shall be asserted by the Company or other obligor thereunder not to be, in full force and effect |
(b) Remedies. Upon the occurrence of an Event of Default, and in every such event (other than an event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), at any time during the continuance of such event, Holder may, at its sole election, by notice to the Company, declare all amounts under the Note then outstanding to be due and payable in whole (or in part, in which case any amounts under the Note not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding amount under the Note so declared to be due and payable, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), amounts under the Note then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company.
7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.
8. Waiver by the Company. The Company hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.
9. Usury Savings Clause. The Company and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Company’s and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.
11. Miscellaneous.
(a) Use of Proceeds. The Company covenants to use the proceeds from the sale of this Note for the payment and full satisfaction of the Company’s obligations under certain outstanding indebtedness of the Company to be approved by the Holder.
(b) Governing Law; Venue. This Note shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York as such laws are applied by the New York courts to contracts solely performed within its borders, except with respect to the conflicts of law provisions thereof. Any legal suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby shall be instituted exclusively in New York County, New York. The parties hereto hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the federal and state courts located in New York County, New York in any such suit, action or proceeding. This Note shall be deemed an unconditional obligation of Company for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Company by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Company are parties or which Company delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Company’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
(c) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that the Holder may assign all or any portion of this Note without the consent of the Company.
(d) Notices. Any notice or other document required or permitted to be given or delivered to the parties hereto shall be in writing and sent: (i) by fax, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail, with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid), to the following addresses:
(i) | If to the Company, at: |
763 Linden Ave.
Rochester, New York 14625
(ii) | If to a Holder, at: |
Alpha Capital Anstalt
Pradafant 7
9490 Furstentums, Vaduz
Lichtenstein
Fax: 011-42-32323196
(e) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company and the Holder.
(f) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.
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SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company.
NATURALNANO, INC.
By: | ||
Name: | James Wemett | |
Title: | President |
EXHIBIT A
Date: |
NATURALNANO, INC.
Attn:
CONVERSION NOTICE
The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder in the principal amount of $150,000 by the Company (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.
A. | Date of conversion: | |||
B. | Conversion #: | |||
C. | Conversion Amount: | |||
D. | Conversion Price: | |||
E. | Conversion Shares: | |||
F. | Remaining Note Balance: |
Please transfer the Conversion Shares to the undersigned at:
Address:
Sincerely,
By: | ||
Name: |
Exhibit 10.180
THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
NATURALNANO, INC.
8% CONVERTIBLE PROMISSORY NOTE
$54,000 |
Original Issuance Date: July 28, 2014
|
NATURALNANO, INC., a Nevada corporation (the “Company”), for value received, hereby promises to pay to Alpha Capital Anstalt or its assigns (the “Holder”), the principal amount of Fifty-Four Thousand Dollars ($54,000) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of eight percent (8%) per annum (“Interest”) until paid in full or converted as provided herein. Twenty Four Thousand Dollars ($24,000) of the principal was funded on June 12, 2014, and interest on such amount shall accrue from June 12, 2014.
1. Repayment of the Note. The Principal Amount outstanding hereunder shall be payable in cash on September 27, 2014 (the “Maturity Date”). The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below).
2. Prepayment of the Note. The Company may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.
3. Conversion.
(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.
(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Company at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Company shall immediately, but in no event later than three (3) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.
(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Company. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.
(d) Holder’s Conversion Limitations. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents (as defined below)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 3(d). The Holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately. Any increase will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
(e) Adjustments for Issuance of Additional Securities. In the event that the Company shall, at any time, from time to time, issue or sell any additional shares of Common or pursuant to Common Stock Equivalents (hereafter defined) (“Additional Shares of Common Stock”), at a price per share less than the Conversion Price then in effect or without consideration, then the Conversion Price upon each such issuance shall be reduced to a price equal to the consideration per share paid for such Additional Shares of Common Stock. The provisions of this Section 3(e) shall apply if (a) the Company, at any time after the Issuance Date, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), or (b) any rights or warrants or options to purchase any such Common Stock or Convertible Securities (collectively, the “Common Stock Equivalents”) shall be issued or sold. If the price per share for which Additional Shares of Common Stock may be issuable pursuant to any such Common Stock Equivalent shall be less than the applicable Conversion Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Conversion Price in effect at the time of such amendment or adjustment, then the applicable Conversion Price upon each such issuance or amendment shall be adjusted as provided in the first sentence of this Section 3(e). Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(e) with respect to an Excepted Issuance. “Excepted Issuance” means (i) securities issued as full or partial consideration in connection with a strategic merger, acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not primarily for the purpose of raising capital and which holders of such securities or debt are not at any time granted registration rights equal to or greater than those granted to the Holder, (iii) the Company’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans that have been approved by a majority of the stockholders and a majority of the independent members of the board of directors of the Company or in existence as such plans are constituted on the original issuance date of this Note, (iv) the Company’s issuance of securities upon the exercise or exchange of or conversion of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the original issuance date of this Note on the terms then in effect and (v) any and all securities required to be assumed by the Company by the terms thereof as a result of any of the foregoing even if issued by a predecessor acquired in connection with a business combination, merger or share exchange.
(f) Other Adjustments. If the Company shall at any time or from time to time after the original issuance date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased. If the Company shall at any time or from time to time after the original issuance date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:
(1) | the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and |
(2) | the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. |
If the Company shall at any time or from time to time after the original issuance date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.
If at any time or from time to time after the original issuance date of this Note there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Company with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.
Other Events. If any event occurs of the type contemplated by the provisions of this Section 3(f) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights or phantom stock rights), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 3(f) will increase the Conversion Price as otherwise determined pursuant to this Section 3.
(g) Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or (ii) the conversion of the entire Principal Amount and Interest then due hereunder.
5. Taxes or other Issuance Charges. The Company shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.
6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:
(i) | the Company shall fail to pay any amount under the Note when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; |
(ii) | the Company shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable; |
(iii) | any representation or warranty made by or on behalf of the Company in or in connection with the issuance of this Note, or in any report, certificate or other document furnished pursuant to or in connection with the issuance of this Note, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached; |
(iv) | the Company shall fail to observe or perform any covenant, condition or agreement contained in this Note (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Holder to the Company; |
(v) | an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered; |
(vi) | the Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (v) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; |
(vii) | the Company shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due; |
(viii) | one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against the Company and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company to enforce any such judgment; |
(ix) | any default by the Company under, or the occurrence of any event of default as defined in, any other indebtedness owed by the Company; |
(x) | any event, transaction, action or omission of or involving the Company shall occur which Holder reasonably believes will result in a material adverse effect on the Company’s business and operations; |
(xi) | this Note shall cease to be, or shall be asserted by the Company or other obligor thereunder not to be, in full force and effect |
(b) Remedies. Upon the occurrence of an Event of Default, and in every such event (other than an event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), at any time during the continuance of such event, Holder may, at its sole election, by notice to the Company, declare all amounts under the Note then outstanding to be due and payable in whole (or in part, in which case any amounts under the Note not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding amount under the Note so declared to be due and payable, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (v), (vi) or (vii) of Section 6(a), amounts under the Note then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Note, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company.
7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.
8. Waiver by the Company. The Company hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.
9. Usury Savings Clause. The Company and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Company’s and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.
10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Company, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Company until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.
11. Miscellaneous.
(a) Use of Proceeds. The Company covenants to use the proceeds from the sale of this Note for the payment and full satisfaction of the Company’s obligations under certain outstanding indebtedness of the Company to be approved by the Holder.
(b) Governing Law; Venue. This Note shall be enforced, governed and construed in all respects in accordance with the laws of the State of New York as such laws are applied by the New York courts to contracts solely performed within its borders, except with respect to the conflicts of law provisions thereof. Any legal suit, action or proceeding arising out of or relating to this Note or the transactions contemplated hereby shall be instituted exclusively in New York County, New York. The parties hereto hereby: (i) waive any objection which they may now have or hereafter have to the venue of any such suit, action or proceeding, and (ii) irrevocably consent to the jurisdiction of the federal and state courts located in New York County, New York in any such suit, action or proceeding. This Note shall be deemed an unconditional obligation of Company for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Company by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Company are parties or which Company delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Company’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.
(c) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that the Holder may assign all or any portion of this Note without the consent of the Company.
(d) Notices. Any notice or other document required or permitted to be given or delivered to the parties hereto shall be in writing and sent: (i) by fax, if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail, with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid), to the following addresses:
(i) | If to the Company, at: |
763 Linden Ave.
Rochester, New York 14625
(ii) | If to a Holder, at: |
Alpha Capital Anstalt
Pradafant 7
9490 Furstentums, Vaduz
Lichtenstein
Fax: 011-42-32323196
(e) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company and the Holder.
(f) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company.
NATURALNANO, INC.
By: | ||
Name: | James Wemett | |
Title: | President |
EXHIBIT A
Date: |
NATURALNANO, INC.
Attn:
CONVERSION NOTICE
The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder in the principal amount of $150,000 by the Company (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.
A. | Date of conversion: | |||
B. | Conversion #: | |||
C. | Conversion Amount: | |||
D. | Conversion Price: | |||
E. | Conversion Shares: | |||
F. | Remaining Note Balance: |
Please transfer the Conversion Shares to the undersigned at:
Address:
Sincerely,
By: | ||
Name: |
Exhibit 10.181
EXHIBIT 31.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, James Wemett, certify that:
1) | I have reviewed this quarterly report on Form 10-Q of NaturalNano, Inc. (the “registrant”) for the period ended September 30, 2014, |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | As the registrant's certifying officer I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5) | As the registrant's certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: November 14, 2014
By: | /s/ James Wemett | |
Name: | James Wemett | |
Title: | President | |
(Principal Executive, Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of NaturalNano, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report"), I, James Wemett, President of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2014
By: | /s/ James Wemett | |
Name: | James Wemett | |
Title: | President | |
(Principal Executive, Financial and Accounting Officer) |
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