Attached files

file filename
EX-32.2 - 07SEP PRIN FIN 906 CERT - NMI Health, Inc.exhibit32_2sep2007.htm
EX-32.1 - 07SEP PRIN EXEC 906 CERT - NMI Health, Inc.exhibit32_1sep2007.htm
EX-31.1 - 07SEP PRIN EXEC 302 CERT - NMI Health, Inc.exhibit31_1sep2007.htm
EX-31.2 - 07SEP PRIN FIN 302 CERT - NMI Health, Inc.exhibit31_2sep2007.htm

U.S. 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, 2007


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the Transition Period From ________ to_________


Commission File No. 000-27421


NANO MASK, INC.

(Exact Name of Small Business Issuer as Specified in its Charter)

(Formerly, Emergency Filtration Products, Inc.)



NEVADA

87-0561647

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



50 West Liberty Street, Suite 880, Reno, NV

89501

(Address of principal executive offices)

(Zip code)


Issuer's telephone number, including area code: (209) 275-9270


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 ý  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 ý


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  Noý


State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:


At June 24, 2011, there were outstanding 70,765,143 shares of the Registrant's Common Stock, $.001 par value.


THIS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007 IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT JUNE 30, 2011. SOME OF THE INFORMATION CONTAINED HEREIN REFERS TO HISTORICAL ACTIVITIES OF THE COMPANY FOR THE FISCAL PERIOD. SHAREHOLDER AND INVESTORS ARE ADVISED TO CONSULT THE COMPANY’S MORE RECENT FILINGS OF CURRENT REPORTS ON FORM 8-K AS WELL AS ADDITIONAL PERIODIC REPORTS FOR SUBSEQUENT PERIODS THAT THE COMPANY INTENDS TO FILE AS SOON AS POSSIBLE.






PART I


FINANCIAL INFORMATION


Table of Contents

Page

 

 

Part I Financial Information

 

 

 

Item 1. Financial Statements

 

 

 

Balance Sheets September 30, 2007 (Unaudited) and December 31, 2006

 

 

Statements of Operations (Unaudited) for the three and nine months ended September 30, 2007 and 2006

 

 

Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2007 and 2006

 

 

Notes to the Financial Statements (Unaudited)

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

10 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   13

 

 

Item 4. Controls and Procedures

13

 

 

Part II  Other Information

 

 

 

Item 1. Legal Proceedings

13

 

 

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

13

 

 

Item 3. Defaults by the Company on its Senior Securities

13

 

 

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

13

 

 

Item 5. Other Information

13

 

 

Item 6. Exhibits

13

 

 

Signatures

14








NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.)

Balance Sheets

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2007

 

2006

 

 

 

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

 

 $           70,478 

 

 $       5,578 

 

Accounts receivable, net of allowances for bad debts of $0 and $97,957,

    respectively, and for sales returns of $61,201 in 2006

 

       - 

 

          3,077 

 

Inventory

 

 

          - 

 

          349,555 

 

Prepaid expenses and other

 

 

              29,561 

 

              48,197 

 

 

 

 

 

            100,039 

 

            406,407 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

 

              28,000

 

            386,561 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

Patents and acquired technology, net

          - 

 

          11,500 

 

Other

 

 

                        - 

 

              28,810 

 

 

 

 

 

                        - 

 

              40,310 

 

 

 

 

 

 

 

 

 

 

 

 

 

 $         128,039 

 

 $         833,278 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

 

      $    293,047

 

 $         375,278 

 

Accrued expenses

 

 

          306,979 

 

          381,775 

 

Litigation settlement

 

 

          112,500 

 

          300,000 

 

Notes payable

 

 

            359,972 

 

              26,408 

 

 

 

 

 

         1,072,498 

 

         1,083,461 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIENCY)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, 50,000,000 shares authorized of $0.001 par value, 45,118,911 and 42,684,636 shares issued and outstanding

 

            45,119 

 

            42,685 

 

Additional paid-in capital

 

 

     18,735,220 

 

     17,206,751

 

Deferred compensation

 

 

-

 

    (588,000)

 

Deficit

 

 

     (19,724,798)

 

     (16,911,619)

 

 

 

 

 

          (944,459)

 

          (250,183)

 

 

 

 

 

 

 

 

 

 

 

 

 

 $         128,039

 

 $         833,278

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.








NANO MASK INC.

(Formerly, Emergency Filtration Products, Inc.)

Statements of Operations

(Unaudited)

 

For the Three Months Ended

 

For the Nine Months Ended

 

September 30,

 

September 30,

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

NET SALES

 $           900

 

 $     134,026

 

 $    14,396

 

 $  826,292

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

  Cost of sales

22,646

 

31,182

 

35,528

 

398,284

  Inventory write-down

376,879

 

-

 

376,879

 

-

  Loss on Disposition of Fixed Assets

291,129

 

-

 

291,129

 

-

  Impairment Losses on Intellectual Property

10,542

 

-

 

10,542

 

-

  Research and development

-

 

13,978

 

1,355

 

49,142

  Bad debts

-

 

52,297

 

977

 

80,598

  Selling, general and administrative

247,025

 

1,075,869

 

2,104.595

 

2,305,552

 

948,221

 

1,173,326

 

2,821,005

 

2,833,576

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

(947,321)

 

(1,039,300)

 

   (2,806,609)

 

(2,007,284)

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

  Interest expense

   (3,492)

 

(1,150)

 

        (6,888)

 

(2,331)

  Interest income

                    -

 

6,233

 

              318

 

14,425

  Loss on lease abandonment

                    -

 

(8,744)

 

                  -

 

(8,744)

  Gain on debt forgiveness

                    -

 

-

 

                  -  

 

   -  

 

   (3,492)

 

(3,661)

 

(6,570)

 

3,350

 

 

 

 

 

 

 

 

NET LOSS

$    (950,813)

 

$(1,042,961)

 

$(2,813,179)

 

$(2,003,934)

BASIC LOSS PER SHARE

 $          (0.02)

 

 $        (0.02)

 

 $        (0.06)

 

 $        (0.05)

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


45,118,911

 


 42,427,721

 

 44,681,990

 

 41,033,991

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.





















NANO MASK INC.

(Formerly, Emergency Filtration Products, Inc.)

Statements of Cash Flows

For the Nine Months Ended September 30, 2007 and 2006

(Unaudited)

 

 

 

 

 

 

 

 

 

2007

 

2006

 

     

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net loss

 $      (2,813,179)

 

 $        (2,003,934)

Adjustments to reconcile net loss to net cash

 

 

 

 used in operating activities:

 

 

 

 

Depreciation and loss impairment of fixed assets

              358,561

 

                 61,523

 

Amortization and loss impairment of patent costs

                11,500

 

                 55,713

 

Bad debts

                    977

 

                 80,598

 

Inventory write-down

             376,879

 

 

 

Valuation of options granted for services rendered

             280,903

 

 

 

Common stock issued for services

             588,000

 

              781,417

 

Loss on lease abandonment

                       

 

                  8,744

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

                2,100

 

              207,048

 

Inventory

             (27,324)

 

(1,574,553)

 

Deposits

              28,810

 

(25,348)

 

Prepaid expenses and other

             18,636

 

                42,520

 

Accounts payable

            (82,231)

 

              228,761

 

Litigation settlement payable

           (187,500)

 

 

 

Accrued expenses

              (74,796)

 

              153,914

 

 

Net Cash Used In Operating Activities

       (1,518,664)

 

(1,983,597)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Acquisition of property and equipment

                        

 

(156,562)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Common stock issued for cash, including through the exercise of warrants

           1,250,000

 

            2,077,500

 

Note Proceeds

             359,972

 

 

 

Repayments on notes payable

(26,408)

 

(46,610)

 

 

Net Cash Provided By Financing Activities

           1,583,564

 

           2,030,890

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

64,900

 

  (109,269)

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

5,578

 

                467,512

 

 

 

 

 

 

CASH AT END OF PERIOD

 $            70,478

 

$              358,243


The accompanying notes are an integral part of these financial statements.






NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited)

September 30, 2007


NOTE 1 - BASIS OF PRESENTATION


The interim financial information included herein is unaudited and has been prepared consistent with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Item 310(b) of Regulation S-B.  Accordingly, these financial statements do not include all information required by generally accepted accounting principles for annual financial statements.  These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2006, from which the balance sheet information as of that date is derived.  These interim financial statements contain all adjustments necessary in the opinion of management for a fair statement of results for the interim periods presented.


The results of operations for the three months ended September 30, 2007, are not necessarily indicative of the results to be expected for the full year.


Certain minor reclassifications in prior period amounts have been made to conform to the current period presentation.


NOTE 2 – LOSS PER SHARE


Following is information relative to the computation of basic loss per share for the three months ended September 30, 2007 and 2006:


 

 

For the Three Months Ended

For the Nine Months Ended

 

 

September 30,

September 30,

 

 

2007

2006

2007

2006

 

 

(Unaudited)

(Unaudited)

 

 

 

 

 

 

Net loss

 

 $  (950,813)

 $(1,042,961)

$(2,813,179)

$(2,003,934)

 

 

 

 

 

 

Weighted average shares

 

  45,118,911

42,427,721

44,681,990

  41,033,991

 

 

 

 

 

 

Basic loss per share

 

 $        (0.02)

$          (0.02)

$      (0.06)

 $        (0.05)


Weighted average shares issuable upon the exercise of outstanding stock warrants and options were not included in the foregoing calculations at September 30, 2007 and 2006, because in loss periods, to do so would be anti-dilutive.


NOTE 3 – GOING CONCERN


The Company’s financial statements are prepared using accounting principles generally applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has incurred negative cash flow from operations and significant losses, which have substantially increased its operating deficit at September 30, 2007.


The Company raised $1,250,000 through a private sale of common shares, $150,000 from its former President/CEO and an additional $1,100,000 from a significant shareholder.  In addition, this same significant shareholder loaned a total of $200,000 to the Company during July and August 2007, pursuant to two separate $100,000 unsecured promissory notes, each with a one-year term and interest at prime plus 2%.  Additional unsecured loans have been received by the Company through 2007 totaling approximately $667,000, which funds have been used to fund the continued operations of the Company.


Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.








NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited)

September 30, 2007


NOTE 3 – GOING CONCERN (Continued)


Nevertheless, the Company currently does not have sufficient capital to sustain its planned business activities for the next year.  Accordingly, management believes the Company will need to raise additional capital in the near future to sustain its operations, either through additional private placements of common stock or loans, possibly unsecured.  These funds will be required to either continue the Company’s efforts to obtain sales of its new products or to enable the Company to produce inventory sufficient to meet expected demand levels.


Throughout 2007 and most of 2008, the Company continued to make substantial efforts to secure authority from the FDA to market its NanoMask product in the U.S. and to export it from the U.S. On April 10, 2007, we received a response from the FDA on the latest submission that included additional requests for further information and testing (including efficacy, safety, and shelf-life), which we worked on completing.  These additional requests required additional scientific testing. However, on September 28, 2007 the FDA 510(k) application with the FDA was withdrawn, since the requested information and testing had not yet been completed.   On June 13, 2008, the Company filed a 510(k) pre-market notification with the U.S. FDA for the NanoMask product. However, the Company subsequently withdrew from this process when Applied refused to provide the nature of its NanoMask composition. In addition, the Company decided in late 2010 to apply its efforts in developing sales of two new, major products: Nano Silver Hospital products and Nano Zyme products.


Consequently, the Company’s ability to continue as a going concern will be dependent upon the success of management's future plans as set forth above, which cannot be assured.  The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.


NOTE 4 – SIGNIFICANT TRANSACTIONS


During the three months ended March 31, 2007, the Company issued a total of 2,434,275 shares of common stock in a private placement to two individuals for total proceeds of $1,250,000, without any identifiable offering costs.


The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model pursuant to Financial Accounting Standards Board (FASB) Statement 123, “Accounting for Stock-Based Compensation”, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options.  Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero.  Under the provisions of SFAS 123, total compensation expense of $161,320 was recorded for the nine months ended September 30, 2007, under the Black-Scholes option pricing model, for the 250,000 options that were fully vested.  


During April 2007, the Company granted 100,000 common stock options, each, to the Company’s Chief Operating Officer and Director of Regulatory Compliance, with an exercise price of $0.48 per option, exercisable until April 5, 2010.   The Company also granted 50,000 common stock options, each, to the Company’s four directors with an exercise price of $0.48 per option, exercisable until April 5, 2010.


In addition, the Company also granted, during July 2007, an additional 25,000 common stock options, each, to two separate consultants for services rendered related to the FDA 510(k) application process.  These options are exercisable at $0.31 per share for three years from the grant date.  These options vest, however, upon receipt by the Company of FDA clearance of its NanoMask products. Since the condition of FDA approval never occurred during the three year period, such options lapsed in July, 2010.


 

Restricted stock units are valued at the Companys stock price on the date of grant and amortized through expense over the requisite service period on a straight-line method. The Company’s estimation of fair value of share-based option awards on the date of grant using an option-pricing model is affected by the following assumptions regarding complex and subjective variables. Any changes in these assumptions may materially affect the estimated fair value of the share-based award.







NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited)

June 30, 2007


NOTE 4 - SIGNIFICANT TRANSACTIONS (Continued)


 

 

• 

Expected dividend yield — As the Company has not historically paid dividends, the dividend rate variable in the Black-Scholes model is zero.

 

 

 

 

• 

Risk-free interest rate — The risk free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of options.

 

 

 

 

• 

Expected term — The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. It is based upon an analysis of the historical behavior of option holders. Management believes historical data is reasonably representative of future exercise behavior.

 

 

 

 

• 

Expected volatility — The volatility assumption is based on the historical weekly price data of the Company’s stock over the preceding one-year period. Management evaluated whether there were factors during that period which were unusual and which would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors.

 

 

 

 

• 

Forfeiture rate — As share-based compensation expense recognized is based upon awards ultimately expected to vest, expense for grants is reduced for estimated forfeitures, at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Management has reviewed the historical forfeitures, for which there have been none, and as such will adjust for forfeitures at the end of the term.

NOTE 5 - SUBSEQUENT EVENTS


A private placement offering of 2,746,624 common shares was made during the three months ended June 30, 2008, for total net proceeds of $270,335.


On April 28, 2009 the Company announced that a majority of its shareholders had voted to change the Company’s name to Nano Mask, Inc., to better reflect its core business of developing, marketing, and producing its NanoMask products. A majority of shareholders further approved an increase in the Companys authorized capital to 100 million shares of common stock from the previous 50 million shares. 

 

In June, 2009, two unrelated note-holders agreed to convert their notes of $255,673, including interest of $30,637, into 1,826,237 units of common shares and warrants to purchase shares at an exercise price of $.50 per share, exercisable for two years until June 17, 2011. In addition, another unrelated note-holders agreed to convert his note of $5,386 into 41,431 common shares at $.13 per share.


Again in June 2009, the Company authorized issuance of  2,594,597 units of common shares and warrants (to purchase common shares at $.50 per share, exercisable for two years) for total proceeds of $464,000, settlement of $39,919 in expenses incurred by three key officers and conversion of a $15,000 loan made by a key officer.


Finally, the Company has received $87,500 in cash advances from two executive officers during 2010 and $58,500 in 2011. In July, 2010 an executive officer converted his note of $10,000 into 196,078 common shares. In addition, a significant shareholder has loaned the Company $25,000 with an interest rate of prime, plus 2%, payable in six months from February 22, 2011. Moreover, during 2011 the Board of Directors has authorized the conversion of $67,500 in loans from one of its executives into 1,937,907 common shares at an average $.035 per share.


In 2009 through 2011, the Company obtained forgiveness of obligations to vendors or negotiated amounts resulting in reductions of approximately $390,000 in trade payables and accrued expenses.












NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited)

September 30, 2007


NOTE 5 – SUBSEQUENT EVENTS (Continued)


The following table summarizes the issuance of common shares in subsequent periods and their related amounts for cash proceeds from private placement offerings, stock-based compensation and expense reimbursements and note payable conversions to common shares:


 


Cash Proceeds from Offerings

Stock-Based Compensation and Expense Reimbursements

Conversions

of

Notes Payable

Year ended December 31,

Common Shares

Amount

Common Shares

Amount

Common Shares

Amount

2008

2,746,624

$270,335

-

$            -

              -

$          -

 

 

 

 

 

 

 

2009

2,320,000

$464,000

1,543,333

$400,079

1,942,668

$276,059

 

 

 

 

 

 

 

2010

              -

$            -

4,041,315

$264,618

   196,078

$  10,000

 

 

 

 

 

 

 

Through June 30, 2011

               -

$            -

5,462,767

$180,800

1,937,907

$  67,500






ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Cautionary Statement Regarding Forward-looking Statements


This report may contain "forward-looking" statements.  Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of our future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions.


Overview


The Company is in the business of producing environmental masks and filters for medical devices that are designed to reduce the possibility of transmission of contagious diseases.  


Since its inception, the Company has been involved in the development of its technology.  Through September 30, 2007, revenues have not been adequate to cover operating expenses and thus, the Company has reported a loss in each of its years of existence.  Through September 30, 2007, the Company has funded itself by way of a series of private equity placements and had offset its accumulated deficit in this manner.


In July 2007, the Company entered into a letter of intent with Applied Nanoscience Inc. (“Applied”), a related company due to some common ownership, directors and employees.  On July 14, 2008, the Company and Applied entered into a definitive merger agreement. The final merger agreement required the approval of the Company’s shareholders as well as the shareholders of Applied.  The merger would likely have produced a number of significant recurring cost savings and made it easier to access capital markets, and to commercialize and get the Company’s products to market more quickly. However, on February 25, 2009, the merger agreement was unilaterally terminated by Applied.


Results of Operations for the Three Months Ended September 30, 2007 compared with 2006


Revenues:  During the three months ended September 30, 2007, the Company experienced a substantial decrease in revenues compared to the three months ended September 30, 2006 of approximately $133,000 due to the Companys election during late 2006 to suspend sales of the NanoMask and related filters until FDA clearance is obtained.  The Company also elected during early 2007 to postpone any further development and marketing of the emergency CPR assistance device, enabling the Company to devote all of its resources to the FDA clearance process of the NanoMask and filters.  


As previously discussed, during June 2008, the Company re-filed its 510(k) pre-market notification with the FDA for the NanoMask and filters.  The process, timing, and results of the submission are uncertain at the present time and will be determined solely by the FDA, though the Company has requested an expedited review pursuant to FDA guidance.  Upon receiving clearance from the FDA, if this occurs, the Company will immediately pursue a number of substantial domestic governmental and international sales opportunities, especially in geographical areas more prone to avian influenza outbreaks.


The majority of the revenues for the quarter ended September 30, 2007 (and an insignificant portion of the revenues for the quarter ended September 30, 2006) has been generated from the sale of the emergency CPR assistance device, and Superstat, a modified collagen hemostat, for which the Company has exclusive distribution rights to the U.S. and foreign governments and militaries.  However, as previously discussed, the Company elected during early 2007 to postpone any further development and marketing of the emergency CPR assistance device and Superstat, enabling the Company to devote all of its resources to the FDA clearance process of the NanoMask and filters.

 

Cost of Sales:  During the three months ended September 30, 2007, the Company experienced a marginal





decrease in cost of sales of approximately $9,000 compared to the three months ended September 30, 2006, which was not commensurate with the decrease in revenues for the same period, primarily due to high production costs under shutdown conditions.  The Company also recorded an inventory write-down of $376,879 during the quarter ended September 30, 2007, related to the raw filter mask components, since management had substantial doubts as to whether the raw materials had any future value or could currently be sold.  If FDA clearance were obtained, the masks and mask components will be required to be modified to fit with the anticipated design of the environmental filter.


Costs as a percentage of sales (exclusive of the write-down recorded of $376,879 for the quarter ended September 30, 2007) increased substantially for the three months ended September 30, 2007 compared to 53% for the three months ended September 30, 2006.  Since sales of all products were less than $1,000 during the current quarter, analysis of percentages by product are immaterial for comparative cost of sales to sales results and are no longer presented hereafter. The significant components of our cost of sales include actual product cost, including outsourced manufacturing and packaging, overhead allocations, salaries and wages, rent and utilities, freight and shipping, and royalties paid on revenues generated.


Operating Expenses: During the three months ended September 30, 2007, the Company experienced a substantial decrease in general and administrative expenses of approximately $829,000 or approximately 77% compared to the three months ended September 30, 2006, primarily attributable to decreases in advertising, wages and officer compensation. The significant components of our operating expenses include salaries and wages, consulting and other professional services, accounting, audit and legal fees, product and liability insurance, travel and office rent.


For the three months ended September 30, 2007, $6,000 of deferred compensation expense was recognized as an expense. There are no further reductions for deferred compensation in stockholder’s equity deficiency as of September 30, 2007.


After production and sale of the products was suspended during late 2006, the Company has aggressively attempted to reduce operating expenses, and continues to search for other means of reducing operating costs. The Company expects general and administrative expenses to be relatively low at the present time, until the Company is able to sell its products domestically, assuming FDA approval, at which time the Company will need to incur additional operating costs associated with the increase in revenues.


Research and development: Although not significant for the periods presented, the Company does not expect research and development costs to increase in the near future as it has determined to postpone any further development of additional pending products, allowing the Company to focus its entire resources to the FDA approval process of the NanoMask and filters.  If resources are available in the future, the Company intends to bring additional products to market, assuming those products are still viable at the time the resources are available. The significant components of the Companys research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.


Liquidity and Capital Resources


The Company has not been able, in the past, to generate sufficient net cash inflows from operations to sustain its business efforts as well as to accommodate its growth plans. During 2007, funds were raised totaling approximately $667,000 through the issuance of unsecured promissory notes from various individuals.  Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.


             Beginning in the third quarter of 2008, the United States has been experiencing a severe and widespread recession accompanied by, among other things, instability in the financial markets and reduced credit availability, and is also engaged in war, all of which are likely to continue to have far reaching effects on economic activity in the country for an indeterminate period. The effects and probable duration of these conditions and related risks and uncertainties on the Company's ability to obtain financing, success in its marketing efforts and ultimately, profitable operations and positive cash flows, cannot be estimated at this time.






The Company does not believe, however, that it currently has sufficient capital to sustain its business efforts for the next twelve months.  Accordingly, the Company will need to raise additional capital in the near future to sustain operations.  The funds were intended to continue the Company’s efforts to obtain FDA clearance of its products, or assuming the Company obtained FDA clearance, to enable it to increase its production of inventory, sufficient to meet the expected demands. The Company is also working on minimizing operating expenses, to the extent possible, by reducing overhead costs, salaries, and other consulting and professional fees, in order to conserve available cash.


              Accordingly, for these and other reasons, in their report on the Company’s 2006 financial statements, the Company’s auditors expressed substantial doubt as to the Company’s ability to continue as a going concern.


              Management is also working on reducing the Company’s operating expenses, primarily overhead costs, salaries, consulting and professional fees, to the extent possible, to conserve available cash pending FDA clearance of the Company’s products.


              The Company intended to pursue additional domestic and international distributor agreements, pending the outcome of the FDA process.  Once cleared by the FDA, the Company expected the demand for its environmental masks and filters to substantially increase, enabling the Company to be able to generate sufficient cash flow from operations to cover its ongoing expenses. These efforts were largely abandoned in the latter part of 2008.


Impact of Inflation


At this time, the Company does not anticipate that inflation will have a material impact on current or future operations.


Critical Accounting Policies and Estimates


Except with regard to the estimated useful lives of patents and acquired technology, the net realizable value of the Company’s inventory due to shelf-life issues and design, the allowance for bad debts on accounts receivable, and the effective provision of a 100% deferred income tax asset valuation allowance, (discussed below), the Company does not employ any critical accounting policies or estimates that are either selected from among available alternatives or require the exercise of significant management judgment to apply or that if changed are likely to materially affect future periods.  


Management reviews the carrying value of the technology assets annually based on its current marketing activities, plans and expectations, and the perceived effects of competitive factors and possible obsolescence, whether any write-downs should be taken or whether the estimated useful lives should be shortened.  


Management also reviews the carrying value of its inventory periodically for evidence of impairment and considers, based on its current marketing activities, plans and expectations, and the perceived effects of competitive factors and possible obsolescence due to shelf-life issues on the environmental filters, whether any write-downs should be taken.


Management also reviews the collectability of outstanding receivables based upon historical collection history from each customer, the age of the receivables, and the customers wherewithal to pay the outstanding balance, and records an estimated allowance for bad debts sufficient to cover any potential losses to be incurred for non-collections.


Except with regard to the estimated useful lives of patents and acquired technology, the allowance for bad debts on accounts receivable, and the effective provision of a 100% deferred income tax asset valuation allowance, the Company does not employ any critical accounting policies or estimates that are either selected from among available alternatives or require the exercise of significant management judgment to apply or that if changed are likely to materially affect future periods..


Recent Accounting Pronouncements






While there have been Financial Accounting Standards Board (FASB) pronouncements made effective subsequent to the issuance of these financial statements, none would have required restatement of the financial statements herein nor have they had any significant effect on future financial statements of the Company.


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We are exposed to changes in prevailing market interest rates affecting the return on our investments but do not consider this interest rate market risk exposure to be material to our financial condition or results of operations.  We invest primarily in bank money market funds with short-term (less than one year) maturities.  The carrying amount of these investments approximates fair value due to the short-term maturities.  Under our current policies, we do not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage our exposure to changes in interest rates or commodity prices.

ITEM 4

CONTROLS AND PROCEDURES


Our principal executive and principal financial officers have participated with management in the evaluation of effectiveness of the controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act as of the end of the period covered by this report.  Based on that evaluation, our principal executive and financial officers believe that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) were not effective as of the end of the period covered by the report.    


Pursuant to a letter from our independent auditors, dated June 30, 2011, that identified certain deficiencies in internal control over financial reporting as significant  deficiencies identified as material weaknesses, we are in the process of making changes to our internal controls and procedures.  A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.  A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.  A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.


To overcome the material weaknesses, our principal executive and financial officers have provided additional substantive accounting information and data to our outside auditors in connection with their audit of the financial statements for the year ended December 31, 2007.  Therefore, despite the weaknesses identified, our principal executive and financial officers believe that there are no material inaccuracies or omissions of material facts necessary to make the statements included in this report not misleading in light of the circumstances under which they are made.


We believe that all changes, when implemented, will likely provide reasonable assurance of the accuracy and completeness of our financial reporting. These changes in internal controls are believed reasonably likely to materially affect, our internal controls over financial reporting in future periods.


PART II

OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS

None.


ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


During the three months ended March 31, 2007, the Company issued 2,434,275 shares of its common stock





in a private placement to two individuals for total proceeds of $1,250,000.  These shares were issued in reliance on the exemption from registration and prospectus delivery requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and the regulations promulgated hereunder.


ITEM 3 - DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES


None.


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


ITEM 5 - OTHER INFORMATION

None.


ITEM 6 - EXHIBITS


Exhibit 31.1 - Certification of principal executive officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002


Exhibit 31.2 - Certification of principal financial officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002


Exhibit 32.1 - Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibit 32.2 - Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


SIGNATURES


In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


NANO MASK, INC.


June 30, 2011

By /S/Edward Suydam

Edward Suydam, Chief Executive Officer


June 30, 2011

              By /S/Michael J. Marx

Michael J. Marx, Chief Financial Officer


In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates stated.


Signature

Title

Date

/S/ Edward Suydam

Director

June 30, 2011

/S/ Michael J. Marx

Director

June 30. 2011

/S/ Marc Kahn

Chief Medical Officer, Director

June 30, 2011

/S/ Mark Cox

Director

June 30, 2011