Omni Shrimp, Inc. - FORM 10-Q

Attached files

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EX-31.1 - Omni Shrimp, Inc.	v223536_ex31-1.htm
EX-32.1 - Omni Shrimp, Inc.	v223536_ex32-1.htm
EX-10.91 - Omni Shrimp, Inc.	v223536_ex10-91.htm
EX-10.92 - Omni Shrimp, Inc.	v223536_ex10-92.htm

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 : March 31, 2011

¨	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.)

11 Schoen Place, Pittsford NY		14534
(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 ¨ 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:

246,108,877 as of May 17, 2011

Table of Contents

PART I—FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statement 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		13
	Note Regarding Forward-Looking Statements

	Item 4.	Controls and Procedures	17

PART II—OTHER INFORMATION
	Item 1.	Legal Proceedings	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Defaults Upon Senior Securities	18
	Item 4.	Submission of Matters to a Vote of Security Holders	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	19

SIGNATURES			20

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NATURALNANO, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash	$	12,817		$	6,861
Accounts Receivable		24,557			13,694
Inventory		38,105			16,738
Prepaid expenses and other current assets		17,751			16,412
Total current assets		93,230			53,705

Property and equipment, net		117,038			145,177
Goodwill		80,332			80,332
Deferred financing costs, net		-			3,815
Total non-current assets		197,370			229,324
Total Assets	$	290,600		$	283,029
Liabilities and Stockholders' Deficiency
Liabilities
Current liabilities:
Senior secured convertible notes	$	3,569,000		$	3,604,000
Senior secured promissory notes		299,557			249,557
Subordinated secured convertible note, net of discount of $0 and $1,799, respectively		255,000			223,201
Unsecured promissory note		1,500			-
Accounts payable		505,347			507,556
Accrued expenses		105,954			103,368
Accrued interest		583,786			582,559
Accrued payroll		654,503			620,907
Deferred revenue		70,000			72,270
Registration rights liability		82,489			82,489
Derivative liability		114,941			60,909
Total current liabilities		6,242,077			6,106,816

Derivative liability		29,640			15,758
Contingent consideration related to business combination		22,107			22,107
Other long term liabilities		38,500			40,000
Total Liabilities		6,332,324			6,184,681

Stockholders’ Deficiency
Preferred Stock - $.001 par value, 10 million shares authorized
Series B - issued and outstanding 730,000 with an aggregate liquidation preference of $1,460		730			730
Series C - issued and outstanding 4,250,000 with an aggregate liquidation preference value of $8,500		4,250			4,250
Common Stock - $.001 par value 5 billion authorized, issued and outstanding 238,616,477 and 207,366,477, respectively		238,616			207,366
Additional paid in capital		19,132,765			19,028,358
Noncontrolling interest in subsidiary		36,711			33,325
Accumulated deficit		(25,454,796	)		(25,175,681	)
Total stockholders' deficiency		(6,041,724	)		(5,901,652	)
Total liabilities and stockholders' deficiency	$	290,600		$	283,029

See notes to consolidated financial statements

NATURALNANO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the three months ended
	March 31,
	2011			2010
Income:
Revenue	$	76,274		$	35,134
Cost of goods sold		21,956			6,402
Gross profit		54,318			28,732
Operating expenses:
Research and development		44,281			106,140
General and administrative		95,340			152,975
		139,621			259,115

Loss from Operations		(85,303	)		(230,383	)

Other income (expense):
Interest expense, net		(92,512	)		(189,006	)
Net (loss) gain on derivative liability		(67,914	)		194
(Loss) gain on forgiveness/modification of debt		(30,000	)		47,361
		(190,426	)		(141,451	)
Consolidated Net loss	$	(275,729	)	$	(371,834	)
Consolidated net income attributable to non-controlling interest in subsidiary		(3,386	)		-
Consolidated net loss attributable to the controlling interest	$	(279,115	)	$	(371,834	)

Loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average shares outstanding		233,870,586			105,500,400

See notes to consolidated financial statements

NATURALNANO, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY

(unaudited)

									Additional					Non-controlling
	Common Stock				Preferred Stock				Paid-in		Accumulated			Interest		Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			in Subsidiary		(Deficiency)
Balance at December 31, 2010		207,366,477	$	207,366		4,998,000	$	4,980	$	19,028,358	$	(25,175,681	)	$	33,325	$	(5,901,652	)
Grant of common stock for services @:
$0.001 to $.005 per share		4,500,000		4,500						2,000							6,500
$0.003 per share		3,750,000		3,750						7,500							11,250
Issuance of common stock as interest payment $ 0.05 per share		16,000,000		16,000						64,000							80,000
Warrant issued for services										2,907							2,907
Shares issued on debt conversion		7,000,000		7,000						28,000							35,000
Net income (loss) for the quarter ended 03/31/11												(279,115	)		3,386		(275,729	)
Balance at March 31, 2011		238,616,477	$	238,616		4,998,000	$	4,980	$	19,132,765	$	(25,454,796	)	$	36,711	$	(6,041,724	)

See notes to consolidated financial statements

NATURALNANO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the three months ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net loss attributable to controlling interest	$	(279,115	)	$	(371,834	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		28,139			38,432
Amortization of discount on convertible notes		1,799			81,682
Amortization of deferred financing costs		3,815			21,220
Non-cash gain on forgiveness of debt		-			47,361
Fair value adjustment of derivative liabilities		67,914			(194	)
Issuance of stock for services		17,750			40,959
Issuance of stock for interest		80,000			46,951
Issuance of warrants for services		2,907			-
Loss on modification of debt		30,000			-
Income from non-controlling interest in subsidiary		3,386			-
Changes in operating assets and liabilities:
Increase in inventory		(21,367	)		(4,940	)
Increase in accounts receivable		(10,864	)		-
Decrease (increase) in other current assets		(1,339	)		63,646
Decrease (increase) in accounts payable, accrued payroll and accrued expenses		35,201			(2,554	)
Decrease in deferred revenue		(2,270	)		-
Decrease in other liability		(1,500	)		(1,500	)
Net cash used in operating activities		(45,544	)		(40,771	)
Cash flows from financing activities:
Proceeds from 10% senior secured Promissory Notes		50,000			-
Proceeds from unsecured Promissory Note		1,500			-
Net cash provided by financing activities		51,500			-
Increase (decrease) in cash and cash equivalents		5,956			(40,771	)
Cash at beginning of period		6,861			89,901
Cash at end of period	$	12,817		$	49,130

Supplemental disclosure of cash flow information:
Cash paid for interest during the period	$	5,671		$	-

Schedule of non-cash investing and financing activities:
Common stock issued for Convertible notes	$	35,000		$	-

See notes to consolidated financial statements

NaturalNano, Inc.

For the three months ended March 31, 2011 and 2010

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The consolidated financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 are unaudited. However, in the opinion of management of the Company, these financial statements reflect all material adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the 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 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, 2010.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate such estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts payable and accrued expenses, notes payable, capital leases and derivative liabilities. Fair values for all instruments except for derivative liabilities were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s convertible notes payable is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying value approximates the fair value of these debt instruments as of March 31, 2011 and December 31, 2010 based on rates charges being consistent with current market rates available to the Company.

Basis of Consolidation

The consolidated financial statements include the accounts of NaturalNano, Inc. (“NaturalNano” or the “Company”), a Nevada corporation, and its wholly owned subsidiary NaturalNano Research, Inc. (“NN Research”) a Delaware corporation. As of April 20, 2010 the consolidated financial statements reflect the acquisition of a 51% controlling interest in Combotexs, LLC, (“Combotexs”), a privately held New York limited liability company, pursuant to the terms of the Equity Purchase Agreement executed with Worldwide Medical Solutions LLC (“WMS”) (Refer to Note 3). All significant inter-company accounts and transactions have been eliminated in consolidation.

Description of the Business

NaturalNano (the “Company”), located in Pittsford, 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

•

polymers, plastics and composites

Combotexs is a technology company organized on October 28, 2009 and has had minimal revenue and markets Error Prevention/Safety Checklist Boards and Safety Training to hospitals and other industries such as healthcare, petrochemical and mining. Combotexs also has certain marketing and distributions agreements for various household products. The Company acknowledges the acquisition of Combotexs as a short term source for revenue, cash flow and a method of incorporating nanotubes found in halloysite clay into Combotexs products. NaturalNano will evaluate and develop certain Combotexs products with nano-enhanced materials that may result in future sales growth for both of these business entities.

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.

Divergence from Development Stage Company

The Company has previously presented its financial statements as a development stage enterprise. Effective January 1, 2011, the Company has diverged from reporting as a development stage company. In addition to selling samples of halloysite tubes for research and testing, the Company is also generating revenue from the sale of this product for use in commercial products. Also, as a result of the Combotexs business combination in 2010, the Company has normal recurring revenue.

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. As shown in the accompanying consolidated financial statements, the Company incurred a net loss for the three months ended March 31, 2011 of $279,115 and had negative working capital of $6,148,847 and a stockholders’ deficiency of $6,041,724 at March 31, 2011. Since inception the Company’s growth has been funded through a combination of convertible debt from private investors and from cash advances from its former parent and majority shareholder 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.

As of March 31, 2011, 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.

QETC rebate for fiscal year ended December 31, 2009

The QETC tax rebate for 2009 had been in audit since its filing in September of 2010. The Company received notice in March 2011 that the audit was complete and that the rebate for 2009 would be for $60,073. NaturalNano received the first payment of $43,615 in March of 2011 and that amount is reflected in the financial statements presented above as a reduction of general and administrative expenses. The Company received the final payment of $16,458 on April 14, 2011, which will be reflected in the financial statements for the second quarter of 2011.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Loss Per Share

Basic loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share gives effect to dilutive convertible preferred stock, convertible debt, options and warrants outstanding during the period. Shares to be issued upon the exercise of these instruments have not been included in the computation of diluted loss per share as their effect is anti-dilutive based on the net loss incurred.

As of March 31, 2011 there were 478,516,925 shares underlying preferred stock, convertible debt, outstanding options and warrants that could potentially dilute future earnings. These potentially dilutive shares have been limited by certain debt and equity agreements with Platinum, Platinum Advisors, Longview and Technology Innovations LLC (“TI”). 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.

2. DEBT AGREEMENTS

As of March 31, 2011 the Company had $3,868,557 in principal that was outstanding and past due under the terms of the Senior Secured Convertible Notes and Promissory Notes with Platinum Partners Long Term Growth IV (“Platinum”), Platinum Advisors and Longview Special Financing, Inc. (“Longview”). The Company entered into various Senior Secured Convertible Notes and Promissory Note obligations during the period from 2007 through 2010 with Platinum, Platinum Advisors and Longview, the holders of the Company’s primary debt obligations since 2007. The outstanding principal and all accrued and unpaid interest on these obligations was due and payable in full on various dates between March 6, 2009 and January 1, 2011. Platinum and Platinum Advisors have granted waivers of default, extended the due dates of all the outstanding principal balances to June 30, 2011, and waived the application of the 16% default interest rate. Additionally Platinum and Platinum Advisors waived the automatic adjustment of the conversion rate for past and future S-8 stock issuances made for compensation and payments of services. Longview has granted waivers of default, extended the due dates of all the outstanding principal balances to June 30, 2011, and waived the application of the 16% default interest rate. Additionally, Longview waived the automatic adjustment of the conversion rate for past and future S-8 stock issuances made for compensation and payments of services.

The 10% Convertible Note discussed below matures and all outstanding principal is due and payable on June 30, 2011.

On January 23, 2011, the Company borrowed a total of $50,000 with $15,000 from Platinum and $35,000 from Longview. These promissory notes were pursuant to the terms of the Senior Secured Promissory Note. Both the notes bear interest at the rate of 8% per annum and are due and payable on June 30, 2011.

During the first three months of 2011, the Company issued 16,000,000 shares of common stock to Platinum in payment of $80,000 of interest expense obligations on the Senior Secured Convertible Notes. In accordance with the debt agreement, these shares were issued to Platinum using a conversion price of $0.005 per common share.

During the first three months of 2011, the Company issued 7,000,000 shares of common stock to Alpha Capital Partners in payment of $35,000 of principal obligations on the Senior Secured Convertible Notes with Longview Special Finance. In accordance with the debt agreement, these shares were issued to Alpha Capital Partners using a conversion price of $0.005 per common share.

As of March 1, 2011 the Company had $225,000 in principal that was outstanding and due under the terms of the 10% Subordinated Secured Convertible Promissory Agreement (the “10% Convertible Note”) with Cape One Financial LP (“Cape One”). On March 15, 2011 the Company and Cape One entered into a forbearance agreement which altered the due date of the 10% Convertible Note from March 1, 2011 to June 30, 2011. As consideration for this forbearance, Cape One will be paid $30,000 which will be added to the principal balance of the note. In addition, the interest rate on the outstanding amount during the forbearance period will be adjusted from 10% to 18%. The forbearance agreement was considered and accounted for as a modification of debt and resulted in a loss of $30,000 for the three months ended March 31, 2011 reported in the statement of operations.

Registration Rights Agreement

On March 7, 2007, the Company entered into a Registration Rights Agreement with the Agent and the other investors, pursuant to which the Company agreed to prepare and file within 60 days of the March 7, 2007 agreement, a registration statement for resale under the Securities Act of 1933, the common stock issuable upon the exercise of the Warrants, in payment of interest on, or upon conversion of, the Notes. The Company further agreed to use its best efforts to cause the Registration Statement to be declared effective 120 days following the March 7, 2007 agreement date, or within 150 days if the Company receives a comment letter from the SEC, and to maintain such Registration Statement for the two year period following this date. This agreement allows for liquidated damages based on a daily amount of 0.0333% of the principal amount of the notes relating to the common stock issuable upon conversion of the Notes included in the Registration Statement.

As of March 31, 2011, the registration statement had not been updated with the requisite SEC filings and as such, the Company was in default of this provision of the Registration Rights Agreement. The lenders have provided the Company a forbearance agreement related to this default through June 30, 2011. The Company recorded a total of $146,028 in such liquidated damages as of December 17, 2007, the date the registration statement was declared effective. As of December 31, 2007, $63,539 of this obligation was paid in cash and $82,489 was recorded as an accrued liability. The lender has the option to settle the liquidated damages in common stock valued at the average price for the five days prior to the end of a payment period. At March 31, 2011 and December 31, 2010 the outstanding balance for this obligation was $82,489.

3. 51% ACQUISITION of COMBOTEXS, LLC

On April 20, 2010 the Company acquired a 51% interest in Combotexs, LLC, (“Combotexs”), a privately held New York limited liability company, pursuant to the terms of an Equity Purchase Agreement executed with Worldwide Medical Solutions LLC (“WMS”) the sole member of Combotexs. Combotexs is a technology company that has had minimal revenue since its inception in October 2009 and markets Error Prevention/Safety Checklist Boards and Safety Training to hospitals and other industries such as healthcare, petrochemical and mining. The Company acknowledges the acquisition of Combotexs as a short term source for revenue, cash flow and a method of incorporating nanotubes found in halloysite clay into Combotexs products.

In consideration for 51% of Combotexs, NaturalNano issued 20,000,000 shares of the Company’s common stock to WMS and in a contingent consideration arrangement, will grant up to 40,000,000 common stock warrants (based on future sales volumes). The grant of up to 40,000,000 warrants each entitles WMS to purchase one share of the Company’s common stock. The first 20,000,000 warrants become exercisable at a price of $.05 on the first day that of the first month after the gross sales of Combotexs exceeds $1,000,000 in the aggregate, net of taxes. The second 10,000,000 warrants become exercisable at a price of $.08 on the first day of the first month after the gross sales of Combotexs exceed $3,000,000 in the aggregate, net of taxes. The final 10,000,000 warrants become exercisable at a price of $.10 on the first day of the first month after the gross sales of Combotexs exceed $4,000,000 in the aggregate, net of taxes. The warrants have a term of five years from and after the date on which they become exercisable and provide for cashless exercise.

The Company accounted for the acquisition in accordance with ASC 805-10 “Business Combinations”, whereby the Company measured the identifiable assets acquired and liabilities assumed based on the acquisition date fair value. The Company is required to recognize and measure any related goodwill acquired in the business combination or a gain from a bargain purchase. In order to determine the goodwill or gain from a bargain purchase, the Company is required to determine the fair value of the consideration transferred in a business combination. The fair value is calculated as the sum of the acquisition date fair value of the assets transferred by the Company, the liabilities incurred by the Company and the equity interest issued by the Company.

The goodwill of $80,332 arising from the acquisition consists of future cash flow, utilization of nano technology within their products and future profits. None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the consideration paid for Combotexs and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

At April 20, 2010
Consideration
Equity 20,000,000 common shares of NNAN	$	22,690
Contingent consideration arrangement
20,000,000 warrants		13,849
10,000,000 warrants		5,632
10,000,000 warrants		2,626
Fair value of consideration transferred		44,797
Noncontrolling interest		43,040
	$	87,837

Recognized amounts of identifiable assets acquired and liabilities assumed
Inventory	$	6,548
Prepaid Expense and other assets		2,525
Fixed Asset		4,800
Accounts Payables		(6,368	)
Total Identifiable net assets		7,505
Goodwill		80,332
	$	87,837

The fair value of the 20,000,000 common shares issued as part of the consideration paid for Combotexs ($22,690) was determined by using an estimate of the enterprise value allocated to various instruments outstanding consistent with estimates used in valuing the derivative liability (See Note 5).

The fair value of the contingent consideration arrangement is in three parts, first, 20,000,000 warrants ($13,849) become exercisable on the first day of the first month after the gross sales of Combotexs from and after April 20, 2010 exceeds $1,000,000 in the aggregate, net of taxes. These warrants were valued using the Black-Scholes model and in determining the fair value per share for the warrants, the Company utilized key assumptions of an expected term of 7 years, exercise price of $.05, interest rate of 3.20%, a volatility rate of 150% and a probability factor of 100%. Second, 10,000,000 warrants ($5,632) were valued using the Black-Scholes model and in determining the fair value per share for the warrants, the Company utilized key assumptions of an expected term of 8 years, exercise price of $.08,interest rate of 3.50%, a volatility rate of 150% and a probability factor of 80%. Third, 10,000,000 warrants ($2,626) were valued using the Black-Scholes model and in determining the fair value per share for the warrants, the Company utilized key assumptions of an expected term of 10 years, exercise price of $.10,interest rate of 3.79%, a volatility rate of 150% and a probability factor of 30%.

Noncontrolling interest was calculated based on the fact the fair value of consideration transferred equaled 51% ($44,797) of the total Combotexs entity value, therefore 49% or the noncontrolling interest is $43,040.

The fair value of the assets acquired was based on current market values. Inventory, fixed asset, and prepaid expense were purchased within a 90 day period of April 20, 2010. Likewise the accounts payables were expenses incurred within the same 90 day period prior to April 20, 2010.

4. SEGMENT INFORMATION

In conjunction with the acquisition a 51% voting equity interest in Combotexs, the Company adopted ASC 280 Segment Reporting. The Company's reportable segments are strategic business units that offer different products and services. The Company’s reportable segments are organized, managed and internally reported separately because each business requires different technology and marketing strategies. The Company currently has two operating segments, NaturalNano and Combotexs. A summary of the two segments is as follows:

NaturalNano	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.
Combotexs	Production and marketing of Error Prevention/Safety Checklist Boards and Safety Training to hospitals and other industries such as healthcare, petrochemical and mining, as well as certain marketing and distributions agreements for various household products.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies of the Company. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein. For purposes of determining segment loss, corporate overhead is primarily included in NaturalNano, other than direct expense of Combotexs. The Company only operated in the NaturalNano business during the three months ended March 31, 2010. Approximate information concerning the Company’s operations by reportable segment as of and for the three months ended March 31, 2011 is as follows:

For the three months ended March 31, 2011	NaturalNano			Combotexs		Total

Segment profit (loss) from operations	$	(108,363	)	$	23,060	$	(85,303	)

Total assets		245,434			45,166		290,600
Revenues from external customers		1,160			75,114		76,274
Revenues from intersegment sales		5,640			-		5,640
Interest expense and amortization of debt discount		92,512			-		92,512
Depreciation and amortization		27,899			240		28,139
Significant non-cash items:
Equity based payments		20,657			-		20,657

Geographic Areas - The Company had no revenue and no long-lived assets in any country other than the United States for any period presented.

Major Customers - During the three months ended March 31, 2011, the Company derived 13% of its revenue from one customer, which is included in the Combotexs operating segment.

5. DERIVATIVE LIABILITY

The Company’s derivative liabilities as of March 31, 2011 are as follows:

The debt conversion feature embedded in the Senior Secured Convertible Notes entered into in March 2007, August 2008, September 2008 and October 2008 which contains 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.

The 162,093,910 warrants granted to Platinum Advisors LLC at an exercise price of $0.005 per share in 2007 as consideration for due diligence services in connection with the Senior Secured Convertible debt entered into in 2007. These warrants 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.

The debt conversion feature and the 45,000,000 warrants exercisable at $0.0025 per share granted in connection with the 10% 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.

The fair value of the derivatives is as follows:

Derivative Liability	March 31, 2011		December 31, 2010
Platinum Advisor’s warrants	$	29,640	$	16,197
Senior Secured Convertible Notes conversion feature		108,803		57,022
Subordinated Secured Convertible Note conversion feature		5,967		3,448
Cape One warrants		171		-
Total	$	144,581	$	76,667

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 input are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The derivative liabilities are measured at fair value using certain estimated factors such as volatility and probability and are classified within Level 3 of the valuation hierarchy. The following table provides a roll forward of the liabilities carried at fair value measured using significant unobservable inputs (level 3).

	For the three months ended
	March 31,
	2011		2010
Fair value – beginning	$	76,667	$	84,603
Loss (gain) recognized in Q1		67,914		(194	)
Fair value – ending	$	144,581	$	84,409

6. WARRANT AGREEMENT WITH TECHNOLOGY INNOVATIONS, LLC

On August 1, 2008, $900,000 of principal outstanding to TI, along with $129,600 of accrued and unpaid interest, was satisfied in exchange for a warrant. Under the warrant agreement, TI may purchase up to that number of shares that would give TI a beneficial ownership of not more than 4.99% of the Company. If the purchase occurs after February 13, 2009 and before the warrant expires on February 11, 2011, the purchase price shall be computed as $40 million divided by the fully diluted common shares outstanding on the date of exercise. These warrants expired unexercised on February 11, 2011.

7. STOCKHOLDERS EQUITY

During the first three months of 2011, the Company issued an aggregate of 3,750,000 shares of common stock to three individuals in connection with board services provided to the Company in an aggregate amount of $11,250. Each of the 3 individuals received 1,000,000 shares that vested immediately and 1,000,000 shares that vest quarterly throughout 2011 for services provided. The value of the shares will be recognized over the requisite service period resulting in $11,250 of compensation expense during the 3 months ended March 31, 2011.

On January 3, 2011, Mr. Jim Wemett was awarded 15,000,000 warrant shares, each warrant share grants the right to purchase one share of common stock, at an exercise price of $0.01 per warrant share, vesting over three years. The warrants expire January 3, 2016 and contain a cashless exercise provision. The fair value of the warrant on the date of grant was determined using the Black-Scholes model and was measured on the date of grant at $34,879. An expected volatility assumption of 150% has been used based on the volatility of the Company’s stock price utilizing a look-back basis and the risk-free interest rate of 3.36% has been derived from the U.S. treasury yield. The market price of the Company’s common stock on January 3, 2011 was $0.0028 per share. The expiration date used in the valuation model aligns with the warrant life of five years. The dividend yield was assumed to be zero. The fair value of the warrant will be recorded monthly over the 36 month life of the warrant. During the first quarter of 2011, the Company recorded $2,961 of expense for the vested portion of the warrant.

The Company issued 16,000,000 shares of common stock to Platinum in payment of $80,000 of interest expense obligations on the Senior Secured Convertible Notes. In accordance with the debt agreement, these shares were issued to Platinum using a conversion price of $0.005 per common share.

On February 11, 2011, Alpha Capital Partners (“Alpha”) converted $35,000 of principal on the Longview Senior Secured Convertible Notes into 7,000,000 common shares. In accordance with the debt agreement, these shares were issued to Alpha using a conversion price of $0.005 per common share.

During the first three months of 2011, the Company issued an aggregate of 4,500,000 shares of common stock to various individuals or entities in connection with professional consulting provided to the Company in an aggregate amount of $6,500.

The Company has issued warrants to purchase shares of its common stock to certain consultants and debt holders. As of March 31, 2011, there were common stock warrants outstanding to purchase an aggregate 274,534,651 shares of common stock pursuant to various warrant grant agreements.

8. INCENTIVE STOCK PLANS

Under the Company’s 2005 Incentive Stock Plan (the “2005 Plan”), the Amended and Restated 2007 Incentive Stock Plan (the “2007 Plan”), the 2008 Incentive Stock Plan (the “2008 Plan”) and the 2009 Stock Incentive Plan (the “2009 Plan”), officers, employees, directors and consultants may be granted options to purchase the Company’s common stock at fair market value as of the date of grant. Options become exercisable over varying vesting periods commencing from the date of grant and have terms of five to ten years. The plan also provides for the granting of performance-based and restricted stock awards. The shares of common stock underlying the plans are reserved by the Company from its authorized, but not issued common stock. Such shares are issued by the Company upon exercise by any option holder pursuant to any grant of such shares.

The Plans are authorized to grant awards as follows: the 2005 Plan is authorized to grant up to 14 million share unit awards, the 2007 Plan is authorized to grant up to 17 million share unit awards, the 2008 Plan is authorized to grant up to 800 million unit share awards, and the 2009 Plan is authorized to grant up to 20 million unit share awards.

A summary of the option activity for the three months ended March 31, 2011 is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Life-years

Outstanding at January 1, 2011		12,673,333	$	0.21		4.99
Granted/Exercises/Cancelled/Forfeited		0
Options outstanding at March 31, 2011		12,673,333	$	0.21		4.74

Options exercisable at March 31, 2011		12,673,333	$	0.21		4.74

9. CREDITOR CONCESSIONS

During the three months ended March 31, 2010, the Company entered into various agreements with certain vendors to settle accounts payable that were outstanding for amounts less than the liability that was recorded in the accompanying balance sheet. As a result of the agreements, a gain on forgiveness of debt of $47,361 was recognized in the first three months of 2010. These vendor concessions were treated as a gain in the period that the underlying agreements were reached. Included in the 2010 gain was a reduction in accrued consulting expenses payable to TI in the amount of $45,235 resulting from a final settlement agreement between TI and the Company dated March 17, 2010. No future payments are required under the TI consulting agreement. There was no forgiveness of debt during the three months ended March 31, 2011.

10. CONTINGENCIES

Legal Proceedings

On March 24, 2009 the Company received a demand notice from an attorney representing a group of certain former employees of the Company, including but not limited to the Company’s former President and Chief Financial Officer, demanding immediate payment of $331,265 for certain deferred compensation, severance and vacation benefits. Each of the former employees cited in the demand notice, as well as other former employees, had executed written agreements during 2008 that allowed the Company to defer certain of these compensation payments. The Company has accrued for earned and unused vacation benefits and deferred payroll costs for amounts electively deferred by these and other former employees as of December 31, 2009. The Company has retained counsel in connection with this demand and continues to evaluate this demand notice and has responded to this demand. No actions or probable settlement discussions between the parties have developed since the filing of this demand. Due to the Company’s current cash and liquidity position discussed above and the current evaluation of the items in the demand notice the timing of future payment of these outstanding amounts is uncertain. No further communication has been had regarding this notice.

During the third quarter ending September 30, 2010, two former employees, one involved in the March 24, 2009 demand, agreed to forgive the Company’s liability to them of $54,691 related to deferred compensation in exchange for shares of common stock.

11. SUBSEQUENT EVENTS

Subsequent to March 31, 2011 and prior to the filing of this report, the following items occurred:

Promissory Notes

On April 15, 2011, the Company borrowed $12,750 from Platinum Long Term Growth IV, LLC and $2,250 from Longview Special Finance Inc. pursuant to the terms of a Senior Secured Promissory Note. Both notes bear interest at the rate of 8% per annum are due and payable on June 30, 2011.

Insurance claim settlement

On April 18, 2011, the Company received notice from The Hartford that the insurance claim submitted in July of 2010 for a June 29, 2010 warehousing fire at a vendor location was settled and the Company would be receiving $31,589 as compensation for inventory damaged in the fire. The Company received the payment on May 4, 2011, which will be reflected in the financial statements for the second quarter of 2011.

Common stock issued

On May 12, 2011, the company issued 7,492,400 shares to Cape One Financial in payment of $30,000 principal and $7,462 interest on the 10% Convertible Note.

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 estimates 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.

General

Since inception through December 31, 2010, NaturalNano was a development stage company. Effective January 1, 2011, the Company has diverged from reporting as a development stage company as a result of the business combination with Combotexs. Our primary mission is to develop and exploit technologies in the area of advanced materials science, with an emphasis on additives to industrial and consumer products, taking advantage of technological advances we have developed in-house. These technologies include a specific focus on nanoscale materials using modifications to tubular and spherical materials found in clay. Our strategy is to develop patentable processes and technologies related to these nanoscale materials and to develop products in the polymers and plastics industries as well as the composites, cosmetics, household products and agrichemical industries.

Combotexs is dedicated to building upon the pioneering work of NaturalNano, to commercialize and distribute a wide variety of products incorporating materials that utilize nanotubes found in halloysite clay. From consumer packaged goods to industrial cleaning solutions and medical procedural checklists, nano technology is helping to make these products more effective and less expensive.

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 and Capital Resources

Liquidity and Going Concern

As of March 31, 2011, the Company had $3,868,557 in principal that was outstanding and past due under the terms of the Senior Secured Convertible Notes and Promissory Notes with Platinum Partners Long Term Growth IV (“Platinum”), Platinum Advisors and Longview Special Financing, Inc. (“Longview”). The Company entered into various Senior Secured Convertible Notes and Promissory Note obligations during the period from 2007 through 2010 with Platinum, Platinum Advisors and Longview, the holders of the Company’s primary debt obligations since 2007. The outstanding principal and all accrued and unpaid interest on these obligations was due and payable in full on various dates between March 6, 2009 and January 1, 2011. Platinum and Platinum Advisors have granted waivers of default, extended the due dates of all the outstanding principal balances to June 30, 2011, and waived the application of the 16% default interest rate. Additionally Platinum and Platinum Advisors waived the automatic adjustment of the conversion rate for past and future S-8 stock issuances made for compensation and payments of services. Longview has granted waivers of default, extended the due dates of all the outstanding principal balances to June 30, 2011, and waived the application of the 16% default interest rate. Additionally, Longview waived the automatic adjustment of the conversion rate for past and future S-8 stock issuances made for compensation and payments of services.

The 10% Convertible Note matures and all outstanding principal is due and payable on June 30, 2011.

Operating activities

Net cash used in operating activities in the three months ended March 31, 2011 and 2010 was $45,544 and $40,771, respectively. Cash used 2011 versus 2010 was only slightly higher year over year as a result of the strict management of cash. The net loss generated in the first three months of 2011 was $92,719 less than the prior year period. The Company continues to actively monitor spending and cash outflows in an effort to reduce costs until continuing revenue sources are developed. The Company is actively seeking opportunities to continue to reduce expenses and improve its liquidity position. We expect that total consolidated spending in 2011 to be equal if not slightly greater than the 2010 levels, although we will continue to invest in product and commercialization efforts as our cash position and liquidity allow.

Total adjustments to reconcile the net loss incurred to the cash used in operations aggregated $235,710 in the first three of 2011 versus $276,411 in first three months of 2010. The change in these non-cash items reflects decreases in amortization on debt discount and deferred financing costs on a year over year basis as the amortization of the items were fully amortized as of March 2011. For the three months ended March 31, 2011 and 2010 the Company recognized non-cash expenses of $5,614 and $102,902, respectively, for amortization of debt discount and deferred financing costs incurred in connection with the senior secured convertible debt and 10% subordinate secured convertible debt. Additionally, for the first three months of 2011 the Company recognized a loss adjustment to derivatives of $67,914 and for the same period of 2010 a gain of $194, a net increase of $68,108.

No reduction in outstanding liabilities during the first three months of 2011 resulted in a forgiveness of debt. During the first three months of 2010, the Company reduced outstanding liabilities through negotiations with certain vendors, resulting in a net gain on the forgiveness of debt of $47,361.

Investing activities

No cash was used in investing activities in the three months ended March 31, 2011 or 2010.

Financing Activities

Net cash provided from financing activities in the three months ended March 31, 2011 and 2010 was $51,500 and $0, respectively. The cash flows from financing activities in the three months of 2011 were a receipt of $1,500 in proceeds from a non-interest bearing Unsecured Promissory Note with the CEO, $35,000 in proceeds from Longview Special Finance and $15,000 in proceeds from Platinum Long Term Growth IV. No cash was used or provided from financing activities in the three months ended March 31, 2010.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Our actual results may differ from these estimates.

Refer to the Company’s December 31, 2010 report on Form 10K for a complete discussion of the critical accounting policies which have not changed during the first three months ended March 31, 2011.

Comparison of Statement of Operations for the three months ended March 31, 2011 and 2010

Revenue and Gross Profit

During the three months ended March 31, 2011 and 2010, the Company recorded $76,274 and $35,134, respectively in consolidated revenue. First quarter 2011 revenue included $1,160 from shipments of halloysite based products and $75,114 from Combotexs products including medical boards and related products. Consolidated cost of goods sold was $21,956 and $6,402 for the shipments completed in the respective quarters. Gross margin of $54,318 and $28,732 was realized for the three months ended March 31, 2011 and 2010, respectively.

Gross margin realized in the three months ended March 31, 2011 was 71% compared to 82% for three months ended March 31, 2010. The variance is attributable in two areas; first, the Combotexs products have a lower gross margin than the sale of halloysite based products. Second, the Company expects that it will experience significant variations in gross margins with its halloysite based products as it continues to introduce to market and develop new products and related applications. The Company expects that competitive pricing will be a continuing challenge as new products are developed and introduced and product acceptance and the Company’s production reputation develops.

	For the three months ended				Variance
	March 31,				increase
Sales, Cost of Goods, and Gross Margin	2011		2010		(decrease)
Halloysite based products, Sales	$	1,160	$	35,134	$	(33,974	)
Combotexs, Sales		75,114		-		75,114
		76,274		35,134		41,140
Halloysite cost of goods		1,500		6,402		(4,902	)
Combotexs cost of goods		20,456		-		20,456
Consolidated Gross Margin	$	54,318	$	28,732	$	25,586

Operating Expenses

Research and development expenses for the three months ended March 31, 2011 were $44,281 compared to $106,140 for the three months ended March 31, 2010. The Company recognized minimum licensing fees under the agreement with the Naval Research Laboratory of $53,000 in the three months ended March 31, 2010. There were no fees for the three months ended March 31, 2011. This reflects the re-negotiated license with the Naval Research Laboratory effective November 5, 2010 which eliminated the minimum royalties and now requires an annual license fee of $5,000 payable each October.

	For the three months ended				Variance
	March 31,				increase
Research and Development	2011		2010		(decrease)
Consulting services	$	4,020	$	8,839	$	(4,819	)
Patent costs		55		58,880		(58,825	)
Depreciation		27,899		28,589		(690	)
Rent & utilities		10,543		8,048		2,495
All other		1,764		1,784		(20	)
	$	44,281	$	106,140	$	(61,859	)

Total general and administrative expenses for the three months ended March 31, 2011 was $95,340 as compared to expenses of $152,975 for the three months ended March 31, 2010. The decrease in general and administrative expenses reflects the reduction in costs of the quarterly review by the external auditors, and the receipt of the New York State tax credit/refund ($43,615) which partially offset the costs of recertifying the Company’s legal status in the state of Nevada for the prior three years ($9,935), the costs of Combotexs, and the compensation of new board members ($11,250) during the same first quarter. 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
	March 31,				Increase
General and Administrative	2011		2010		(decrease)
Salaries & benefits	$	67,344	$	48,224	$	19,120
Consulting Services		10,069		-		10,069
Legal & professional fees		12,000		67,960		(55,960	)
Depreciation & amortization of intangible assets		240		9,843		(9,603	)
Insurance expense		1,106		1,104		2
Shareholder expense		20,925		3,294		17,631
State tax		(33,080)		2,037		(35,117	)
All other		16,736		20,513		(3,777	)
	$	95,340	$	152,975	$	(57,635	)

Other (Expense) Income

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.

The debt discount and deferred financing costs attributed to the Senior Secured Convertible Notes were fully amortized as of January 10, 2010. During the three months ending March 31, 2011 amortization of this maturing debt discount was $1,799 as compared to $81,862 for the three months ending March 31, 2010. During the fourth quarter of 2009, the Company issued $225,000 in 10% Subordinated Convertible Notes which resulted in interest expenses of $6,574 for the three months ending March 31, 2011 as compared to $5,625 for the three months ending March 31, 2010.

	For the three months ended						Variance
	March 31,						increase
Other (Expense) Income	2011			2010			(decrease)
Amortization of debt discount	$	(1,799	)	$	(81,682	)	$	(79,883	)
Interest to Senior convertible and promissory notes		(80,325	)		(80,508	)		(183	)
Interest to 10% Subordinated Secured Convertible Notes		(6,574	)		(5,625	)		949
Amortization of financing costs		(3,815	)		(21,220	)		(17,405	)
Interest earned on cash		1			29			(28	)
	$	(92,512	)	$	(189,006	)	$	(96,494	)

Net (loss) gain on derivative liability	$	(67,914	)	$	194		$	(68,108	)

Gain (loss) on forgiveness/modification of debt	$	(30,000	)	$	47,361		$	(77,361	)

During the first quarter of 2009 and in accordance with EITF 07-05, certain warrants and the embedded conversion of feature associated with the 8% convertible debt were recognized as derivative instruments and as such were re-characterized as derivative liabilities. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations. The re-measurement of these derivative liabilities resulted in a loss of $67,914 in the first quarter of 2011 and a gain of $194 during the first quarter of 2010.

During the first quarter of 2010, the Company entered into agreements with certain vendors to settle liabilities that were outstanding as of prior periods for amounts less than was recorded during those prior periods. The most significant item of debt forgiveness during the first quarter of 2010, in the amount of $45,235, reflects the March 17, 2010 agreement between the Company and Technology Innovations, LLC (“TI”) that capped the fees payable under the TI consulting agreement to the 750,000 common shares granted to TI during the first quarter of 2010. No future payments are required under the agreement.

The vendor concessions of $47,361 were treated as a gain in the first quarter of 2010, which is the period that the related vendor agreements were reached.

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, 2010 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.

The Company did not maintain a sufficient complement of qualified accounting personnel and controls associated with the segregation of duties were ineffective. During the fourth quarter of 2008 and the first half of 2009 the Company experienced the resignations in the positions of controller, Chief Financial Officer and Chief Executive Officer. These roles have been filled since the first quarter of 2009 by part time and contract staffing. To address the material weaknesses the Company performed additional analyses and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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, 2010.

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

None.

Item 3. Defaults Upon Senior Securities

Effective as of April 4, 2011 the Company entered into various Forbearance Agreements with Platinum Long Term Growth IV LLC and Platinum Advisors LLC relating to the Company’s default on various terms and conditions with borrowing agreements. Platinum Long Term Growth IV LLC and Platinum Advisors LLC 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 Notes until June 30, 2011 unless extended by the lenders in their discretion.

Effective as of April 4, 2011 the Company entered into a Forbearance Agreement with Platinum Long Term Growth LLC due to the Company’s default on various terms and conditions under the following borrowing agreements:

$2,750,000 8% Senior Secured Notes due March 6, 2009,

$150,000 8% Senior Secured Notes due March 6, 2009,

$59,500 8% Senior Secured Notes due January 31, 2010,

$190,000 8% Senior Secured Promissory Note due January 31, 2010,

$136,375 8% Senior Secured Promissory Note due January 31, 2010,

$5,000 8% Senior Secured Promissory Note due June 30, 2009,

$15,000 8% Senior Secured Promissory Note due June 30, 2009,

$25,000 16% Senior Secured Promissory Note due October 12, 2009, and

one or more secured bridge notes in the current principal amount of $153,884 (together the “Notes”).

Also, effective as of April 4, 2011 the Company entered into a Forbearance Agreement with Platinum Advisors LLC relating to the Company’s default on $97,500 of 8% Senior Secured Notes due March 6, 2009.

Effective as of April 5, 2011 the Company entered into a Forbearance Agreement with Longview Special Finance Inc. relating to the Company’s default on various terms and conditions with borrowing agreements. Longview Special Finance Inc. 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 Notes until June 30, 2011 unless extended by Longview Special Finance Inc. in their discretion. Due to the Company’s default on various terms and conditions under the following borrowing agreements:

$500,000 8% Senior Secured Notes due March 6, 2009,

$20,000 8% Senior Secured Notes due March 6, 2009,

$30,000 Senior Secured Promissory Note due January 31, 2010,

$25,500 Senior Secured Promissory Note due January 31, 2010,

$34,750 16% Senior Secured Promissory Note due January 31, 2010,

$40,000 16% Senior Secured Promissory Note due November 1, 2009,

$3,846 Senior Secured Promissory Note date January 1, 2011,

$3,077 Senior Secured Promissory Note date January 15, 2011, and

$9,000 Senior Secured Promissory Note date January 15, 2011.

These Forbearance Agreements also extend to the Registration Rights Agreement entered into by the Company on March 7, 2007. Platinum Long Term Growth, Platinum Advisors and Longview Special Finance have agreed to forbear from demanding payments defined in these agreements until June 30, 2011, respectively.

As of December 31, 2009, the Company was not in compliance with certain debt covenants of the Subordinated Secured Convertible Note including limitations on the use of proceeds. On March 20, 2010 the Company received a waiver from the Cape One Financial LP (“Cape One”) indicating that the Lender will not demand payment of principal, default interest and liquidated damages as a result of non-compliance with any existing covenant violations through January 1, 2011. On March 15, 2011, the Company entered into a forbearance agreement with Cape One which extended the due date from March 1, 2011 to June 30, 2011. As consideration for this forbearance, Cape One will be paid $30,000 which will be added to the principle balance of the note. In addition, the interest rate on the outstanding amount during he forbearance period will be adjusted to 18%.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Description

10.91		8% Senior Secured Promissory Note dated as of April 15, 2011 in the original principal amount of $2,250 issued by NaturalNano, Inc. and NaturalNano Research, Inc. to Longview Special Finance Inc.

10.92		8% Senior Secured Promissory Note dated as of April 15, 2011 in the original principal amount of $12,750 issued by NaturalNano, Inc. and NaturalNano Research, Inc. to Platinum Long Term Growth IV, LLC.

31.1		Certification of principal executive officer and principal accounting officer pursuant to section 302 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

SIGNATURES

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

		NaturalNano, Inc.

Date:	May 20, 2011	/s/ James Wemett
		James Wemett
		President and Director (Principal Executive, Financial and Accounting Officer)

Omni Shrimp, Inc. - FORM 10-Q - May 20, 2011

Attached files

Omni Shrimp, Inc. Reports