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EX-31.1 - 09SEP PRIN EXEC 302 CERT - NMI Health, Inc.exhibit31_1sep2009.htm
EX-32.1 - 09SEP PRIN EXEC 906 CERT - NMI Health, Inc.exhibit32_1sep2009.htm
EX-31.2 - 09SEP PRIN FIN 302 CERT - NMI Health, Inc.exhibit31_2sep2009.htm
EX-32.2 - 09SEP PRIN FIN 906 CERT - NMI Health, Inc.exhibit32_2sep2009.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, 2009


[ ] 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.  (1) Yes [  ] No [X] (2) Yes [X] 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 September 9, 2011, there were outstanding 74,961,568 shares of the Registrant's Common Stock, $.001 par value.


THIS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009 IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT SEPTEMBER 9, 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 as of September 30, 2009 (Unaudited) and December 31, 2008

 

 

Statements of Operations (Unaudited) for the three and nine months ended September 30, 2009 and 2008

 

 

Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008

 

 

Notes to the Financial Statements (Unaudited)

 

 

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

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   11

 

 

Item 4. Controls and Procedures

11

 

 

Part II  Other Information

 

 

 

Item 1. Legal Proceedings

12

 

 

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

12

 

 

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

13





2




NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.)

Balance Sheets

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2009

 

2008

ASSETS

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

 

 $         319,914 

 

 $                     -

 

Prepaid expenses

 

 

               5,000 

 

                         -

 

 

 

 

 

           324,914 

 

                          

 

 

 

 

 

 

EQUIPMENT HELD FOR SALE

 

 

                        -

 

            28,000 

 

 

 

 

 

 

 

 

 

 

$         324,914 

 

 $         28,000 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

 

$         425,659 

 

    $       456,180

 

Accrued expenses

 

 

          493,525 

 

             490,466

 

Notes payable

 

 

           485,107 

 

             735,107

 

 

 

 

 

        1,404,291 

 

          1,681,753

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, 100,000,000 and 50,000,000 shares authorized of $0.001 par value,   53,451,536 outstanding (53,186,536 issued and 265,000 issuable) and 47,865,535 shares issued and outstanding

 

            53,452 

 

           47,866

 

Additional paid-in capital

 

 

     20,112,361 

 

     19,002,808

 

Stock subscription receivable

 

 

(15,000)

 

-

 

Deferred compensation

 

 

(88,750)

 

-

 

Deficit

 

 

     (21,141,440)

 

     (20,704,427)

 

 

 

 

 

      (1,079,377)

 

      (1,653,753))

 

 

 

 

 

 

 

 

 

 

 

 

 

 $         324,914 

 

 $         28,000 

 

 

 

 

 

 

 

 

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




3





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,

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

  Research and development

 $                -

 

 $               -

 

$        63,158

 

$          1,702

  Selling, general and administrative

125,168

 

153,619

 

332,756

 

640,160

 

125,168

 

153,619

 

395,914

 

641,862

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

(125,168)

 

(153,619)

 

(395,914)

 

(641,862)

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

  Gain on settlement of vendor liabilities and other

3,988

 

-

 

16,424

 

-

  Loss on debt extinguishment

-

 

-

 

(20,000)

 

-

  Interest expense

   (9,741)

 

   (13,097)

 

        (38,524)

 

        (37,628)

 

   (5,753)

 

   (13,097)

 

(42,100)

 

(37,628)

 

 

 

 

 

 

 

 

NET LOSS

$ (130,921)

 

$ (166,716)

 

$   (438,014)

 

$   (679,490)

BASIC LOSS PER SHARE

$       (0.01)

 

 $       (0.01)

 

$         (0.01)

 

$         (0.01)

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


50,679,307

 


47,865,535

 

 50,239,777

 

 46,475,293

 

 

 

 

 

 

 

 

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
























4






NANO MASK INC.

(Formerly, Emergency Filtration Products, Inc.)

Statements of Cash Flows

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

 

 

 

 

 

 

 

 

2009

 

2008

 

     

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net loss

$         (438,014)

 

$         (679,490)

Adjustments to reconcile net loss to net cash

 

 

 

 used in operating activities:

 

 

 

 

Common stock issued for services

356,160

 

 

 

Common stock issued for company expenses incurred

16,930

 

 

 

Loss on debt extinguishment

20,000

 

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

-

 

                318

 

Prepaid expenses

             (93,750)

 

             57,517

 

Accounts payable

(30,521)

 

            56,698

 

Accrued expenses

              37,119

 

              182,675

 

 

Net Cash Used In Operating Activities

       (104,076)

 

       (382,282)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds on sale of equipment held for sale

                28,000

 

                            -

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Common stock and warrants issued for cash

429,000

 

           270,355

 

Proceeds from the issuance of short-term notes payable

 

 

94,135

 

 

Cash Provided By Financing Activities

           429,000

 

           364,470

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

324,924

 

(17,812)

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

-

 

19,768

 

 

 

 

 

 

CASH AT END OF PERIOD

 $           324,924

 

 $               1,956


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




5



NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited)

For the Years Ended September 30, 2009 and 2008




NOTE 1 - BASIS OF PRESENTATION


The 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 Article 8, Rule 8.03 of Regulation S-K. 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, 2008, 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.


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


NOTE 2 – FAIR VALUE MEASUREMENTS


The carrying values of prepaid expenses, accounts payable, accrued expenses and short term notes payable generally approximate the respective fair values of these instruments due to their current nature. The Company values its warrants and non-cash common stock transactions under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements (ASC 820), which defines fair value and the criteria for its determination.


The three levels of the fair value hierarchy defined by ASC 820 are as follows:


Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.


Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.


Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.


The Company uses Level 3 inputs to value warrants issued, and Level 1 inputs to value its common stock transactions (Note 5).


The results of operations for the nine months ended September 30, 2009, are not necessarily indicative of the results to be expected for the full year.




6



NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited) (Continued)

For the Years Ended September 30, 2009 and 2008



NOTE 3 – LOSS PER SHARE


Following is information relative to the computation of basic loss per share:



 

 

For the Three Months Ended

For the Nine Months Ended

 

 

September 30,

September 30,

 

 

2009

2008

2009

2008

 

 

(Unaudited)

(Unaudited)

 

 

 

 

 

 

Net loss

 

 $     (130,921)

  $(166,716)

$ (438,014)

$(679,490)

 

 

 

 

 

 

Weighted-average shares outstanding

 

    50,679,307

  45,118,911

50,239,777

44,681,990

 

 

 

 

 

 

Basic loss per share

 

 $           (0.01)

 $          (0.01)

$       (0.01)

$      (0.01)


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


NOTE 4 – GOING CONCERN


The Company’s financial statements have been prepared assuming that the Company will continue as 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, 2009, and the Company has a substantial working capital deficiency at September 30, 2009.


Unsecured loans were received by the Company in 2008 totaling approximately $60,000, which have been used to fund the continued operations of the Company. During the three months ended June 30, 2008, an additional $270,335 has been received from the issuance of a total of 2,746,624 shares of common stock to various investors.  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) to raise capital and settle various debt obligations. Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.


Nevertheless, the Company currently does not have sufficient working 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. Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.


Throughout most of 2008, the Company continued to make substantial efforts to secure authority from the FDA to market its NanoMask product as a class II medical device in the United States and to export it from the United States.  On June 13, 2008, the Company filed a 510(k) pre-market notification with the FDA for the NanoMask product. However, the Company subsequently withdrew from this process when Applied Nanoscience, Inc. (Applied), who licensed the nanoparticle formulation to the Company, did not provide the nature of its NanoMask particle composition. Late in 2010, the Company decided to focus 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.



7



NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited) (Continued)

For the Years Ended September 30, 2009 and 2008




NOTE 5 – SHARE-BASED TRANSACTIONS


Restricted shares.  During the third quarter of 2009, 1,314,813 restricted common shares were granted to certain officers and directors of the Company, which were valued at $355,000 based on the closing stock price ($0.27/share) at the date the award was approved by the Board of Directors on August 31, 2009.  The shares were issued to pay accrued and future compensation, and the entire amount was expensed as of December 31, 2009.


During the second quarter of 2009, an unrelated party agreed to accept 41,431 restricted common shares, valued at the date granted at $0.13 per share, in full settlement of a note payable of $5,386, including $386 of accrued interest.


Warrants.  On various occasions through September 30, 2009, the Company sold a total of 1,930,000 “units” for $386,000 in cash, including $195,000 to certain directors and officers.  Each unit was priced at $0.20 and consisted of a share of common stock and a warrant to purchase a share of common stock.  Additionally, in June 2009, two unrelated note holders agreed to accept 1,826,237 such units in connection with the settlement of notes payable of $250,000, plus accrued interest of $34,048.  Lastly, through September 2009, the Company issued a total of 84,654 similar units to certain officers in connection with reimbursements for costs incurred on behalf of the Company totaling approximately $17,000.


The aforementioned warrants issued each had a two-year term with an exercise price of $0.50 per share, and were immediately exercisable.  The terms of the warrants did not obligate the Company to register shares of common stock, nor did they obligate the Company to settle in cash or other assets.  Accordingly, no liability has been recorded in connection with the outstanding warrants.  As of the latest balance sheet date presented, 3,955,834 warrants remained outstanding until various expiration dates in 2011.


The warrants issued in connection with the settlement of notes payable and employee reimbursements were valued at approximately $20,000, using a Black Scholes-Merton (BSM) option pricing model.  The assumption input into the BSM model included the Company’s closing stock price on the grant date, an implied expected volatility of 54%, a risk free interest rate of 1.5% and an expected dividend rate of $0. The resultant estimated fair value of the warrants issued in connection with the settlement of debt ($19,000) and reimbursement of employee costs ($1,000) was recorded as loss on debt extinguishment during the second quarter of 2009.


NOTE 6 OTHER SIGNIFICANT TRANSACTIONS AND EVENTS


On April 28, 2009, the Company announced that a majority of its shareholders had voted to change the Companys 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. 

 

Unsecured loans were received by the Company in 2008 totaling approximately $60,000 which has been used to fund the continued operations of the Company. In April and June 2008, two private placement offerings totaling 2,746,624 common shares were completed and generated net proceeds of $270,335.


Gain on settlement of vendor accounts payable largely represents $12,256 from reductions by vendors of their receivables from the Company.


See also Note 6.


NOTE 6 - SUBSEQUENT EVENTS


During 2010 and 2011, the Company received cash advances from two executive officers of $87,500 and $68,500, respectively. In July 2010, an executive officer accepted 196,078 common shares as repayment of the Company’s note payable to him of $10,000. In addition, a significant shareholder loaned the Company $25,000 with interest at prime, plus 2%, payable in six months from February 22, 2011. Moreover, during 2011 the Board of Directors has authorized the repayment of $93,500 in loans from one of its executives with 2,866,477 common shares at an average price of $.033 per share. In July 2011, 400,000 shares of common stock were issued in a private placement



8



NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.).

Notes to the Financial Statements (Unaudited) (Continued)

For the Years Ended September 30, 2009 and 2008



to an individual investor.


In 2009 through 2011, the Company negotiated settlements with vendors, including the $12,256 noted under Note 4, which resulted in reductions of approximately $403,000 in trade payables and accrued expenses.


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




Settlement of

Loans Payable

 


Common Shares


Amount


Common Shares


Amount


Common Shares


Amount

Year ended December 31, 2010

-

$            -

4,041,315

$264,618

196,078

$  10,000

 

 

 

 

 

 

 

Through September 9, 2011

400,000

$10,000

13,786,162

$338,570

2,866,477

$ 93,500


NOTE 7 – CONTINGENCIES


On December 29, 2010, the Company received a complaint from Applied seeking collection of the as yet unpaid notes payable to Applied in the amount of $453,500, plus interest and litigation expenses. On February 1, 2011, the Company countersued for breach of contract and related claims. The Company believes that the value of its counterclaim will exceed the value of the claims asserted against it.



9





ITEM 2

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


THIS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009 IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT SEPTEMBER 9, 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.


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, 2008, 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, 2009, 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, 2009 compared with 2008


Revenues:  During the three months ended September 30, 2009 and 2008, there were no revenues, due to the Companys election late in 2006 to suspend sales of the NanoMask and related filters until FDA clearance could be obtained.  In addition, the Company 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.


Cost of Sales:  Since there were no sales during the three months ended September 30, 2009 and 2008, there was no cost of sales.


Operating Expenses: During the three months ended September 30, 2009, the Company experienced a substantial decrease in general and administrative expenses of approximately $108,000 or approximately 19% compared to the three months ended September 30, 2008, primarily due to reductions in professional and legal fees incurred, consulting fees, product testing, travel costs, and insurance.


Research and development: Research and development relates to a new nano-particle mask, and includes related FDA testing. However, no costs were incurred in the three months ended September 30, 2009, due to



10





working capital deficiencies. 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 Company’s research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.


Results of Operations for the Nine Months Ended September 30, 2009 compared with 2008


Revenues: During the nine months ended September 30, 2009 and 2008, no revenues were generated, due to the Company’s election late in 2006 to suspend sales of the NanoMask and related filters until FDA clearance could be 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.


Cost of Sales:  Since there were no sales during the nine months ended September 30, 2009, there was no cost of sales.


Operating Expenses: During the nine months ended September 30, 2009, the Company experienced a substantial decrease in general and administrative expenses of approximately $307,000 or approximately 48% compared to the nine months ended September 30, 2008, primarily attributable to decreases in wages and officer compensation.


Research and development: Research and development relates to a new nano-particle mask, and includes related FDA testing. 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 Company’s 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 to generate sufficient net cash inflows from operations to sustain its business efforts and accommodate its growth plans. In April and June 2008, two private placement offerings of 2,746,624 common shares were completed and generated net proceeds of $270,335. During 2008, funds were raised totaling approximately $60,000 through the issuance of unsecured promissory notes from various individuals. In June 2009, the Company authorized issuance of 2,395,000 units of common shares and warrants (to purchase common shares at $.50 per share, exercisable for two years) for total proceeds of $479,000.

 

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


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.


             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 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 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.



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              Accordingly, for these and other reasons, there is significant uncertainty regarding the Company’s future, and the Company’s auditors expressed substantial doubt as to the Company’s ability to continue as a going concern in their report on the Company’s 2008 audited financial statements.


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 declines in estimated fair value 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.


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.



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Pursuant to a letter from our independent auditors, dated August 1, 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, 2008.  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


On December 29, 2010, the Company received a complaint from Applied, filed in the District Court of Clark County in Nevada (Case No. A-10-631192-C), seeking collection of notes payable to Applied in the amount of $453,500, including accrued interest. On February 1, 2011, we countersued for breach of contract and claims related thereto. Our management believes that the value of its counterclaim will exceed the value of the claims asserted against the Company but cannot fully assess the outcome of the action at this time. Accordingly, management believes adequate provision has been made in the accompanying financial statements related to this complaint.


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


Two private placement offerings of 2,746,624 common shares were made during the three months ended June 30, 2008 for total proceeds of $270,335. 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 $479,000, settlement of $16,930 in expenses incurred by three key officers and conversion of a $22,989 loan made by a key officer, including interest of $2,989.


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



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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.


September 9, 2011

By /S/Edward Suydam

Edward Suydam, Chief Executive Officer


September 9, 2011

              By /S/Michael J. Marx

Michael J. Marx, Chief Financial Officer





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