Attached files
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| EX-31 - 11DEC 10K/A1 PRIN FIN 302 CERT - NMI Health, Inc. | exhibit31_2dec1110ka.htm |
| EX-32 - 11DEC 10K/A1 PRIN EXEC 906 CERT - NMI Health, Inc. | exhibit32_1dec1110ka.htm |
| EX-31 - 11DEC 10K/A1 PRIN EXEC 302 CERT - NMI Health, Inc. | exhibit31_1dec1110ka.htm |
| EX-32 - 11DEC 10K/A1 PRIN FIN 906 CERT - NMI Health, Inc. | exhibit32_2dec1110ka.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K/A
AMENDMENT 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 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 No. 000-27421
NANO MASK, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
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NEVADA | 87-0561647 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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50 West Liberty Street, Suite 880, Reno, Nevada | 89501 |
(Address of principal executive offices) | (Zip code) |
Issuer's telephone number, including area code: (209) 275-9270
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Title of each class | Name of each exchange on which registered |
None | N/A |
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Check 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 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 [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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 o NO x
At March 27, 2012, there were outstanding 85,625,468 shares of the Registrant's Common Stock, $.001 par value.
State the Registrant's revenues for the December 31, 2011 fiscal year: $97,997.
State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days:
The aggregate market value of shares of Common Stock held by non-affiliates of the Registrant is $1,961,625, based on the average bid and ask price of the Registrant's stock on March 22, 2012 of $0.045 per share and shares held by non-affiliates. The Registrant's common stock is quoted on the Pink Sheets under the symbol "NANM.PK".
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., part I, part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or other information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933:
NONE
THIS AMENDMENT IS BEING FILED TO CLARIFY LANGUAGE IN PART II, ITEM 9A, CONTROLS AND PROCEDURES.
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TABLE OF CONTENTS | PAGE |
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Item 1. Business | 4 |
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Item 1A. Risk Factors | 7 |
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Item 1B. Unresolved Staff Comments | 9 |
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Item 2. Properties | 9 |
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Item 3. Legal Proceedings | 9 |
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Item 4. Reserved | 9 |
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Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities | 9 |
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Item 6. Selected Financial Data | 10 |
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Item 7. Management's Discussion and Analysis or Plan of Operation | 10 |
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 13 |
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Item 8. Financial Statements and Supplementary Data | 13 |
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 13 |
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Item 9A. Controls and Procedures | 13 |
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Item 10. Directors, Executive Officers and Corporate Governance | 14 |
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Item 11. Executive Compensation | 16 |
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 18 |
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Item 13. Certain Relationships and Related Transactions, and Director Independence | 19 |
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Item 14. Principal Accountants’ Fees and Services | 19 |
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Item 15. Exhibits, Financial Statement Schedules | 20 |
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Signatures | 20 |
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ITEM 1. BUSINESS
General
Unless the context requires otherwise, all references to the “Company”, “we”, “us” and “our” refer to Nano Mask, Inc.
The financial and disclosure information contained in this report reflect our efforts to accurately and completely disclose the status of our business operations and financial condition giving full effect to the results of management’s determinations.
We were organized originally under the name "Lead Creek Unlimited". Until February 1996, we conducted no business. We filed a Certificate of Amendment with the State of Nevada changing our name to "Emergency Filtration Products, Inc." in March 1996, and a further Certificate of Amendment with the State of Nevada changing our name to “Nano Mask, Inc.” in April 2009.
We are a healthcare product development and distribution company providing emergency and critical care and infection control products to a variety of market segments within the health care industry. The Company has evolved from a specialty filter products Company that developed a state-of-the-art air filtration technology for removing infectious bacteria and viruses in air flow systems into a Company providing innovative infection prevention products and solutions. Such products now include a proprietary line of enzymatic detergents under the trademark “Nano-Zyme™,” which offer a bacteria free, non-hazardous alternative for safely pre-soaking and cleaning medical instruments during instrument reprocessing. While our other innovative line offers antimicrobial performance based Hospital Fabrics and Textiles designed to inhibit the growth of virus, fungi and bacteria causing HAIs on both healthcare apparel and textiles. These products have been developed by partnering with innovative technology companies. Largely, the evolution to this broader spectrum of products only began in 2010.
Current Products
Product development remains an important part of our business. We are currently devoting most of our resources towards expanding our new line of antimicrobial Hospital Fabric and Textiles along with our Medical Instrument Reprocessing products.
Antimicrobial Hospital Fabrics and Textiles
Hospitals are meant to be places to get well, but many are becoming places where just the opposite occurs. There has been the fear of hospital acquired infections (HAIs), for many years, and based on emerging reports, that fear has not only become a reality but is now an ongoing concern for all health care facilities not just domestically, but globally as well. According to the Centers for Disease Control and Prevention, an estimated two million Americans contract HAIs and more than 100,000 patients die due to complications from infection, causing an estimated $28 to $33 billion in excess health care costs each year. With news of insurers withdrawing compensation for HAIs in the United States, never has it been more important to look at all areas of nosocomial infection control
With HAIs being directly associated with high morbidity and mortality rates, representing a significant burden on healthcare resources, the need for hospitals to effectively address HAIs is of critical importance. Infection control experts agree that cleaner hospitals are safer hospitals. But while standard infection-control procedures of hand washing and disinfecting hard surfaces like countertops, floors, bed rails, instruments and equipment have helped reduce infection rates, their effectiveness in controlling bacterial contamination of soft surfaces has been extremely limited. Multiple studies have shown that soft surfaces in hospitals can harbor deadly bacteria, causing recontamination during frequent contact. However, proper and thorough bacterial management of soft surfaces are often ignored by infection prevention protocols. Moreover, laundering alone isn't effective at addressing this challenge, because fabrics begin to re-contaminate immediately after being put in use.
Effective HAI reduction means incorporating soft surface management into an overall bacteria-reduction strategy. And one of the most effective approaches towards managing soft surface contamination is through a synergistic approach. This approach relies on harnessing an antimicrobial technology platform that can not only be universally applied to soft surfaces in both form and function, but one that can simultaneously provide safe, reliable and continuous antimicrobial performance. This is why Nano Mask, Inc. has recently partnered with Noble Biomaterials, global leaders in antimicrobial yarn and fiber technology, to develop an innovative and exclusive suite of antimicrobial fabrics designed to effectively meet the challenges of antimicrobial management of soft surfaces within the hospital environment. This technology enables Nano Mask Inc. to incorporate Noble Biomaterials X-Static™ silver fiber technology into all their pre-selected fabric mixes, thereby providing extended antimicrobial protection for the life of each product Nano Mask fabricates. Consequently, Nano Mask has developed one of the most comprehensive antimicrobial soft surface product lines available in the health care market today, all made exclusively with X-Static™ Silver yarn. Nano Mask’s suite of antimicrobial performance enhanced apparel and textiles have a natural look and the feel of traditional hospital fabrics and textiles.
With the rising incidence of hospital acquired infections there has been an unparalleled surge in demand for infection prevention products over the last decade. With global sales of HAI related infection control devices and products reaching $10.3 billion with approximately US $4.3 Billion of that revenue in the US, it is expected that by 2016 sales of HAI related infection control products will reach in excess of $18.3
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Billion globally with $8.4 Billion being reached in the US. Moreover, of all the infection control items expected to be sold annually by 2016, infection prevention products will witness the highest rate of growth, in particular medical fabrics and textiles which are expected to draw in
revenues in excess of $2.1 Billion in the US and $4.5 Billion globally. With soft surfaces constituting 90 percent of the patient healthcare environment: privacy curtains, lab coats, scrubs, gowns, bed linens, blankets and additional barrier products, Nano Mask’s suite of antimicrobial apparel and textiles are well positioned to become a vital component in any hospitals; bacteria-reduction strategy both domestically and globally.
Products for which marketing is currently suspended
As stated above, we have marketed and sold the following products in the past, but due to a decline in demand, we have elected to postpone any further significant marketing of these products until adequate resources are available.
RespAide™ CPR Isolation Mask
Due to positive pre-market responses and growing product inquiries for our 2H filter technology, NMI has recently decided to re-establish the manufacturing and distribution of its CPR filtration products by first commencing with the pre-production of both RespAide™ and the Vapor Isolation Valve replacement filters. RespAide™ CPR
Isolation Mask is designed to minimize the potential for transmission of contagious diseases during the administration of CPR. Integral to our RespAide™ CPR Isolation Mask is the highly efficient (99.99% at .027 micron) filtered Vapor Isolation Valve (VIV) designed to protect emergency response personnel against infectious diseases during mouth to mouth resuscitation, and which needs to be replaced after each use. Although once fully commercialized, we will be focusing our marketing efforts on emergency ambulance services, police departments, firefighters, hospitals, doctors and major CPR training organizations, management is currently fulfilling product and information requests from both the US Military and our Middle East Distribution partners. The Company already has FDA approval for RespAide™ CPR Isolation Mask and is in the process of applying for medical device Class II approval in Canada and CE mark approval in Europe.
Disposable Filters for Bag Valve Masks (BVMs)
The same filter used in the RespAide™ product described above is ideal for reducing the risk of exposure to viruses and bacteria and equipment contamination during use of bag valve mask (BVM) resuscitation devices. The disposable filter keeps the equipment contaminant-free, thereby reducing risk of exposure to virus and bacteria to emergency response personnel. The filter is placed between the bag valve and the mask and is single use. We have received FDA 510(k) approval for the filter as a Class II medical device. The filter was introduced in 1997 as a component of the RespAide™ device.
Other potential future products
The following product has been in development, production and market entry for future sale and has not produced any revenue for us to date. Further development and production of this product has currently been postponed, as described above, until adequate resources are available.
ELVIS™ BVM
We have designed another configuration of our technology called ELVIS™ (Emergency Life Support Ventilation and Intubation System) for the BVM market. The product is a self-contained device that delivers medicine in aerosol form and a bag with built-in CO(2) monitoring capabilities. Patents have been submitted for this product and we have executed an agreement whereby we acquired the rights for commercial exploitation of the patents.
RespAide™ products and filters
We contracted in December 1997 with Westmed, an FDA manufacturing facility in Tucson, Arizona, for the manufacture and production of our RespAide ™ proprietary filter products. An FDA manufacturing facility is an establishment that has applied for and received acceptance by the FDA and passed its FDA inspections to maintain compliance as an FDA manufacturing facility. We supplied all materials for the manufacturing and packaging. We believe that the agreement with Westmed will remain in effect until terminated by either party. However, marketing and development of this product is currently suspended.
Competition
The medical device industry is a highly competitive sector of the health care industry and there are a large number of established and well financed entities with significantly greater financial resources, technical expertise and in-depth managerial capabilities than we have.
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Competitors include two major manufacturers of CPR devices, Laerdal Medical Corporation and Ecolab, Inc, both internationally-based companies, Johnson & Johnson and MedChem Products, Inc. and three major manufacturers of enzymatic solutions are Metrex Research
Corporation, Ecolab, Inc. and Steris Corporation. A major competitor in the personal protection mask market is 3M Corporation and a major competitor in the breathing circuit filter market is PALL Corporation.
Sources and availability of raw materials and the names of principal suppliers
The raw materials utilized in the production of our proprietary products are proprietary in nature and cannot be released into the public domain.
Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts
Our United States patents are as follows:
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PATENT NO. /APP. NO. | DESCRIPTION | EXPIRATION OR ABANDONMENT DATE |
6375854 | Combined Hydrophobic-hydrophilic Filter for Fluids (Smaller to Larger) | 4/23/2023 |
6689278 | Combined Hydrophobic-hydrophilic Filter for Fluids (Larger to Smaller) | 4/23/2022 |
6276363 | Portable Emergency Safety Resuscitator | 8/21/2021 |
Our international patents are as follows:
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PATENT NO. /APP. NO. | COUNTRY | DESCRIPTION | EXPIRATION OR ABANDONMENT DATE |
2246770 | Canada | Dual-filtered Rotary Iso. Valve | 12/31/2009 |
69610644 | Germany | Dual-filtered Rotary Iso. Valve | 6/16/2009 |
Need for any government approval of principal products or services
We have received FDA clearance for our RespAide ™ CPR isolation mask and vapor isolation valve (disposable filter for BVM's) and the breathing circuit filters as Class II medical devices. Compliance with the clearance of the devices requires that they be manufactured in a FDA-approved manufacturing facility. We have used Westmed, an approved facility, for the manufacture of the above products. If adequate financial resources are available in the future, we expect to file an FDA 510(k) application for acceptance as a Class II medical device for the new ELVIS product. At this time, we do not intend to file a premarket notification or premarket approval process, but rather the 510(k) application. If an FDA 510(k) application is filed, there is an evaluation process that may or may not result in clearance to market the device in the United States. The FDA 510(k) application evaluation process requires the submission and review of detailed information, including but not limited to, product drawings, prototypes, claims and functions, laboratory testing, manufacturing processes, labeling, quality control and compliance with inspections, post-mark obligations, and import/export requirements. At this time, we believe that no clinical trials will be required. However, additional information, including clinical trials, may be requested by the FDA once the FDA 510(k) application is submitted and reviewed. The Company does not intend to submit a new FDA 510(k) application in the immediate future.
Since we use third-party manufacturers to produce our products, we are not required to register on an annual basis with the FDA to be listed as a manufacturer. In addition, since certain manufacturing processes have been performed by Westmed and Superstat, at their facilities in Tucson, Arizona and Rancho Dominquez, California, respectively,
both Westmed and Superstat are also subject to FDA inspections.
Research and Development
Our research and development expenditures for the last three years were as follows:
- 2011 $ 3,500
- 2010 $70,050
- 2009 $80,558
These costs are prototype development costs associated with the new products such as materials, supplies, consulting fees, filing fees, etc.
Costs and effects of compliance with environmental laws
We are not aware of any cost or effect of compliance with environmental laws.
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Employees
As of March 27, 2012, we are employing three full-time and two part-time employees.
ITEM 1A. RISK FACTORS
Future government regulation may affect our ability to sell our products.
Nano-particle products incorporate certain nanomaterials in their composition. The United States Environmental Protection Agency (EPA) has previously announced its intention to regulate some nanomaterials pursuant to the federal Toxic Substances Control Act. No specific regulations have been issued as yet. If such regulations are implemented, we might be required to perform additional testing or demonstrations to meet them. This potential additional regulation could delay our ability to market our products or achieve our revenue objectives.
Because we have a limited operating history, one cannot evaluate our future potential based on our past performance.
We have had limited operations since our organization. While the company has experienced a series of product failures during its relatively short history of operations, there is no extensive operating history to demonstrate our ability to conduct business. Therefore, the investment risk in our company is greater than with an established company. Accordingly, one should not invest in our company if one cannot afford the loss of the entire investment.
We do not know if we will become profitable in the near future.
Since the date of inception we have incurred substantial losses. To address these losses, we have re-directed all sales efforts to our new Class 1 medical products that are “green,” and anti-microbial in nature to address specifically the hospital and clinic markets. To succeed as a company, we must continue to develop
commercially viable products and sell adequate quantities at a high enough price to generate a profit. We may not accomplish these objectives. Even if we are successful in increasing our revenue base, a number of factors may affect future sales of our product. These factors include:
- Whether there is a perceived need for and acceptance of our products in the marketplace
- Whether competitors produce superior products
- Whether the cost of our product continues to be competitive in the marketplace.
We believe that by assuring low cost and profitable margins with high quality standards that we can generate a viable, growing company, but if we cannot generate adequate, profitable sales of our products, we will not be successful.
Because we have limited experience, we may be unable to ascertain or reliably assess risks relating to the industry and therefore, we may not be able to successfully market and distribute our products.
We have limited experience in the marketing of medical products and may not be aware of all the customs, practices and competitors in that industry. We do not know if we have properly ascertained or assessed any and all risks inherent in this industry. In addition, our success depends, in part, on our ability to continue marketing and distributing our products effectively. We have limited experience in the sale or marketing of medical products. We have limited marketing or distribution capabilities and we will need to retain consultants that have contacts in and understand the medical products marketplace. We may not be successful in entering into new marketing arrangements, whether engaging independent distributors or recruiting, training and retaining a larger internal marketing staff and sales force.
We face intense competition, and many of our competitors have substantially greater resources than we do.
We operate in a highly competitive environment. In addition, the competition in the market for hospital and clinical products may intensify in the future as greater efficiencies are demanded by and legislated for these hospitals and clinics. Further, there are numerous well-established companies and smaller entrepreneurial companies with significant resources who are developing and marketing products that will compete with our products. In short, many of our current and potential competitors have greater financial, operational and marketing resources. These resources may make it difficult for us to compete with them and therefore harm our business.
Since there may be competing products in the future, we may experience price declines.
Some of our competitors are larger and better financed with more resources to devote to development and technological innovation. If such competitors develop products that can be produced less expensively than our products, we could suffer the adverse effects of a price decline which may affect our profitability.
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Our business will depend on the protection of our patents and other intellectual property and may suffer if we are unable to adequately protect such intellectual property.
Our success and ability to compete are substantially dependent upon our intellectual property. We rely on patent, trademark and copyright laws, trade secret protection and confidentiality or license agreements with our employees, customers, strategic partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services. For example, effective intellectual property protection may not be available in every country in which we license our technology or our products are distributed. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any impairment of our intellectual property rights could harm our business and our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results. In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us.
Third parties may invalidate our patents.
Third parties may seek to challenge, invalidate, circumvent or render unenforceable any patents or proprietary rights owned by or licensed to us based on, among other things:
- Subsequently discovered prior technology;
- Lack of entitlement to the priority of an earlier, related application; or
- Failure to comply with the written description, best mode, enablement or other applicable requirements.
If a third party is successful in challenging the validity of our patents, our inability to enforce our intellectual property rights could seriously harm our business.
We may be liable for infringing the intellectual property rights of others.
Our products and technologies may be the subject of claims of intellectual property infringement in the future. Our technologies may not be able to withstand any third-party claims or rights against their use. Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle, could divert resources and attention and could require us to obtain a license to use the intellectual property of third parties. We may be unable to obtain licenses from these third parties on favorable terms, if at all. Even if a license is available, we may have to pay substantial royalties to obtain it. If we cannot defend such claims or obtain necessary licenses on reasonable terms, we may be precluded from offering most or all of our products or services and our business and results of operations will be adversely affected.
Because of our reliance on trade secrets, we may be at risk for potential claims or litigation related to our technology.
In certain cases, where the disclosure of information required to obtain a patent would divulge proprietary data, we may choose not to patent parts of the proprietary technology and processes which we have developed or may develop in the future and rely on trade secrets to protect the proprietary technology and processes. The protection of proprietary technology through claims of trade secret status has been the subject of increasing claims and litigation by various companies both in order to protect proprietary rights as well as for competitive reasons even where proprietary claims are unsubstantiated. The prosecution of proprietary claims or the defense of such claims is costly and uncertain given the uncertainty and rapid development of the principles of law pertaining to this area. We may also be subject to claims by other parties with regard to the use of technology information and data which may be deemed proprietary to others.
Because there is significant uncertainty as to our ability to continue as a going concern, our ability to obtain additional financing could be adversely affected.
Nano Mask, Inc. has incurred significant losses, which have resulted in an accumulated deficit of $22,748,532 at December 31, 2011. In addition, current economic factors may have an adverse effect for the foreseeable future on the Company’s ability to raise additional capital and conduct its operations profitably. Because of these continued losses and our accumulated deficit under current economic conditions, we have included disclosure about uncertainty as to our ability to continue as a going concern in Note 2 to our financial statements included in this report. This going concern uncertainty could adversely affect our ability to obtain favorable financing terms in the future or to obtain any additional financing if needed. Management cannot be certain of its ability to create additional revenues, obtain additional equity financing, or execute its long-term business plan.
A continuing recession in the U.S. and general downturn in the global economy may continue to have an adverse impact on our business, operating results or financial position.
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The U.S. economy has been in recession and there has been a general downturn in the global economy. A continuation or worsening of these conditions, including credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial position in a number of ways. We may experience difficulties in generating revenues and cash flows as a result of reduced orders, payment delays or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and customers. We may incur increased costs or experience difficulty with the ability to borrow in the future or otherwise with financing our operating, investing or financing activities. Any of these potential problems could hinder our efforts to increase our sales and might, if severe and extensive enough, jeopardize our ability to operate.
There is a limited public trading market for our common stock.
Our common stock presently trades Over-The-Counter Bulletin Board with the symbol “NANM.PK”. We cannot assure you, however, that such market will continue or that you will be able to liquidate your shares acquired at the price you paid or otherwise. We cannot assure you that any other market will be established in the future. The price of our common stock may be highly volatile and your liquidity may be adversely affected in the future.
We have a substantial number of shares authorized but not yet issued.
Our Articles of Incorporation authorize the issuance of up to 100,000,000 shares of common stock. Our Board of Directors has the authority to issue additional shares of common stock and to issue options and warrants to purchase shares of common stock without shareholder approval. Future issuance of common stock could be at values substantially below current market prices and therefore could represent substantial dilution to our stockholders. In addition, the Board could issue large blocks of voting stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.
We have historically not paid dividends and do not intend to pay dividends.
We have historically not paid dividends to our stockholders and management does not anticipate paying any cash dividends to our stockholders for the foreseeable future. The Company intends to retain future earnings, if any, for use in the operation and expansion of our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We do not expect to enter into a corporate office lease until such time as we start to generate sales sufficient to cover a significant portion of our selling, general and administrative expenses. The Company currently maintains mailbox services through a Reno, Nevada location. Business is conducted largely with emails, telephone calls and web services.
ITEM 3. LEGAL PROCEEDINGS
On December 29, 2010, the Company received a complaint from Applied Nanoscience, Inc., a Nevada corporation, filed in the District Court of Clark County in Nevada (Case NoA-10-631192-C) which seeks 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.
On March 5 2012, the Company received a complaint from a certain attorney seeking collection of his invoices, plus interest and litigation expenses of $167,167.25. The Company does not believe the claim has any merit and will respond to the complaint within the appointed time. The claim, Case No. 110907934 DC, was filed in the Second District Court of Weber County in the State of Utah.
ITEM 4. RESERVED
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of March 27, 2012, we had approximately 2,300 shareholders. We have not paid cash dividends on our common stock. We anticipate that for the foreseeable future, any earnings will be retained for use in our business, and no cash dividends will be paid on the common stock. Declaration of common stock dividends will remain within the discretion of our Board of Directors and will depend upon our growth, profitability, financial condition and other relevant factors.
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Our common stock is now quoted on the Over the Counter under the symbol “NANM.PK”. The following table sets forth, for the respective periods indicated, the prices of our common stock in the over the counter market as reported by the OTCQB for the periods for which this report is being filed. Such over the counter market quotations are based on inter-dealer bid prices, without markup, markdown or commission, and may not necessarily represent actual transactions.
During fiscal 2011, we sold 1,400,000 shares for $35,000 cash in a private placement to four individual investors. The shares were sold pursuant to subscription documents between the Company and each investor. We believe the offer and sale of the securities described above were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), for the private placement of these securities pursuant to Section 4(2) of the Act because the securities were sold to accredited investors in a transaction not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
We are a “Smaller Reporting Company,” as defined under §229.10(f) (1) of Regulation S-K, and are not required to provide the information required by this Item.
ITEM 7. 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 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. Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” below as well as those discussed elsewhere in this report.
Overview
We are a healthcare product development and distribution company providing emergency and critical care and infection control products to a variety of market segments within the healthcare industry. We also have been a distributor of a blood clotting device for surgery, trauma and burn wound management. However, due to our decision in late 2006 to seek FDA clearance for the NanoMask ™ and filters as a Class II medical device (as discussed in Item 1), we suspended all sales of this product. In addition, since we have limited financial resources, we have elected to postpone any further development or significant marketing of our products, except for the Nano Silver Technology and Nano Zyme™ products until adequate resources are available.
Since inception, we have been involved primarily in the development of our technologies, and most recently, the marketing of the various technologies to a limited extent. During this time, revenues have not been adequate to cover operating expenses. Accordingly, we have reported a loss in each of our years of existence. To date, we have funded our operations primarily by way of a series of private equity placements and through loan proceeds granted to the Company. We have begun sales of our Nano Zyme™ and Nano Silver products. These efforts are being realized by virtue of sales in January, 2012 exceeding those in all of 2011.
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Results of Operations for the year ended December 31, 2011 compared to December 31, 2010
Revenues: We generated total revenues of $97,997 during fiscal 2011 compared with no revenues in 2010. Sales were largely comprised of anti-MRSA sheet shipments to a company in Saudi Arabia.(65%), Vira Masks (5%), Lab Coats and Jackets (16%) and Nano Zymes™ (4%). The Company was a product development company until 2011, when sales of new products were begun. We anticipate a significant increase in sales during fiscal 2012 based on contracts and commitments to date.
Cost of Sales: Our cost of sales in fiscal 2012 was $80,330 to yield a gross profit margin of approximately 18%. Inasmuch as we had no revenues in 2010, no cost of sales was incurred.
Selling, General and Administrative (SG&A) Expenses: SG&A expenses for fiscal 2011 as compared to 2010 increased by approximately $269,000 or 41%, primarily due to an unusually high $300,000 in auditing fees to bring the Company current in its SEC filings which reflects four years of filings. These auditing fees and salaries and wages comprise approximately 84% of SG&A expenses.
Other Income: For fiscal 2011, we reported other income of $335,448 consisting primarily of a gain on settlement outstanding liabilities offset by interest expense. For 2010, we reported an expense of $19,617 consisting of interest expense offset by a gain on settlement of liabilities.
Depreciation and Amortization: During 2011, $312 was recognized as depreciation expense, compared with $178 recorded in 2010.
Research and Development (R&D) Costs: Early in 2010, management made a concerted effort to fund basic research and development on a new nano-particle mask including related FDA testing. Expenditures of $70,050 were incurred in 2010 with Intrinsiq Materials, Ltd., Alfred University and AlvaMed, LLC. Only $3,500 was incurred during 2011. 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.
Net Loss: We experienced a net loss of $580,162 for fiscal 2011 compared to a net loss of $830,320 in the prior year. The decrease in net loss in fiscal 2011 was primarily due to the recognition of gain on the settlement of outstanding liabilities described above.
Liquidity and Capital Resources
We have not been able to generate sufficient net cash inflows from operations to sustain our business efforts as well as to accommodate our growth plans. Cash used in our operating activities for the years ended December 31, 2011 and 2010 was funded primarily by the sale of common stock for cash and from the issuance of short term notes payable. During 2011, 1,400,000 shares were issued for the $35,000 cash received in a private placement offering from four individual investors.
Cash Flows from Operating Activities: The cash outflow totaled $122,809 in 2011 compared to a cash outflow of $210,625 in 2010, primarily due to settlements of accounts payable that generated gains of $372,949 which was largely offset by increased auditing fees due to the Company’s concerted effort to become current in its various filings.
Cash Flows from Investing Activities: Cash used in investing activities in fiscal 2011 totaled $4,700 compared to $973 for the prior year period, in each year for the purchase of equipment.
Cash Flows from Financing Activities: Cash flows from financing activities in fiscal 2011 totaled $186,203. The company was able to obtain $25,000 in proceeds from the issuance of a short term note and $35,000 from common stock issued for cash. At the same time, the company obtained advances from two executive officers amounting to $126,203. This compared with the proceeds generated during 2010 from the advance from one officer amounting to $77,500.
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 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 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.
In 2004, we adopted a stock option and award plan (the "Plan") under which options to acquire our common stock or bonus stock may be granted from time to time to employees, including officers and directors and/or subsidiaries. As of December 31, 2011, 1,479,000 shares of our
11
common stock were issued pursuant to the Plan for the services of various individuals. A balance of 1,021,000 shares remains to be issued under the Plan subject to approval of the Board of Directors or of a Plan administrator.
At the filing date of this report, we do not believe that we currently have sufficient capital to sustain our business efforts for the next twelve months. Accordingly, we will need to raise additional capital during 2012 to sustain operations. These funds will be required to sustain our development and marketing efforts to sell our Nano Silver Technology and Nano Zyme™ products. We will then need working capital to maintain our operations once the product sales are initiated. We are also working on operating expenses, to the extent possible, by reducing overhead costs, in order to conserve our available cash pending sales of the new products mentioned above. We are particularly concentrating our efforts in reducing third-party manufacturing costs. Our management and board members continue to discuss other alternative financing options, but no definitive proposals or agreements have been reached.
Consequently, our ability to continue as a going concern may be dependent upon the success of our new business plan which, as explained above, includes a) generating sales of the new products noted above, b) continuing efforts to increase our product sales internationally through our broad network of distributors, and c) obtaining additional equity or debt financing. We do not know if such additional capital will be available or available on terms acceptable to us. We do not know if we will sustain operations long enough to generate revenues, to obtain additional equity or debt financing or otherwise execute our long-term business plans. Accordingly, for these and other reasons, in their report on our 2011 financial statements, our auditors expressed substantial doubt as to our ability to continue as a going concern.
Effect of Inflation and Interest Rates
At this time, we do not expect that either inflation or interest rate variations will be among the economic factors likely to have a material effect on our future operations. However, as discussed elsewhere in this report, general economic factors may likely have a significant effect on the demand for the Company’s products and its ability to raise funds to conduct it operations.
Critical Accounting Policies and Estimates
Except as follows, we do 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.
Impairment of long-lived assets. Management reviews the carrying value of the Company’s inventories, property and equipment and technology assets annually based on its current marketing activities, plans and expectations, and the perceived effects of competitive and other market factors ( i.e., lower of cost or market adjustments), such as declines in replacement value and obsolescence and impairment, to determine whether any write-downs should be taken or whether the estimated useful lives should be shortened.
Share-based compensation. Effective January 1, 2010, the Board of Directors authorized issuance of its common stock to key officers and directors based on a trailing thirty-day average of its closing prices. The Board of Directors reserves the right to either pay in cash or in restricted common stock at its option.
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.
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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.
Off Balance Sheet Arrangements
Not applicable.
Recent Accounting Pronouncements
While there have been 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements for the reporting period are set forth immediately following the signature page to this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosures.
For the period ended December 31, 2011, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness in the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report on Form 10-K, our disclosure controls and procedures were not effective
.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for the preparation and integrity of our published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include amounts based on judgments and estimates made by our management. We also prepared the other information included in the annual report and are responsible for its accuracy and consistency with the financial statements.
We are responsible for establishing and maintaining a system of internal control over financial reporting, which is intended to provide reasonable assurance to our management and Board of Directors regarding the reliability of our financial statements. We have assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based upon these criteria, we have identified the following material weaknesses in our internal control over financial reporting:
Lack of Independent Board of Directors and Audit Committee
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Management is aware that an audit committee composed of the requisite number of independent members along with a qualified financial expert has not yet been established. Considering the costs associated with procuring and providing the infrastructure to support an independent audit committee and the limited number of transactions, management has concluded that the risks associated with the lack of an independent audit committee are not sufficient to justify the creation of such a committee at this time. Management will periodically reevaluate this situation.
Lack of Segregation of Duties
Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management will periodically reevaluate this situation.
Based on the identification of the weaknesses, our management has concluded that, as of the end of the period covered by this report on Form 10-K, our disclosure controls and procedures were not effective. To overcome these weaknesses, our principal executive and financial officers have reviewed and provided additional substantive accounting information and data to our independent auditors in connection with the preparation of this annual report. 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 will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financing reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the SEC rule that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2011 that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The members of our Board of Directors serve until the next annual meeting of the stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors. Information as to our current and past directors and executive officers is presented below:
The principal occupation and business experience for each of the current and past directors and executive officers are as follows:
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Edward J. Suydam was appointed as Chief Executive Officer (“CEO”) and president, effective March 1, 2010. Mr. Suydam had been serving as the Company’s Chief Operations Officer (“COO”) since June 2009. Mr. Suydam had been a managing member of Buildex, LLC in New York since November 2007. Prior to that time, from May 1992 to November 2007, he was president of S & S Builders Corporation of New York. Mr. Suydam’s professional career has been in construction and construction management.
Mr. Douglas Heath, Former CEO, is the founder and President of Manteca, California-based Nushake Roofing Inc., one of Northern California's largest re-roofing companies, which has been in continuous operation since 1976. Mr. Heath has also founded and operated a number of other business concerns, including the Gutter Guy Inc.; Hula in Motion, which operates a Hawaiian souvenir distribution company; and 2H Distributors Inc., a company which sold Nano Mask ’s first NanoMask ™ .
Michael J. Marx was appointed as the Company’s Chief Financial Officer (“CFO” ) in December 2009. Mr. Marx is the Chief Executive Officer of CPA Services Unlimited, P.C., a private accounting firm located in Peekskill, New York, a position he has held since 1985. Mr. Marx began his professional career at Peat, Marwick, Mitchell & Co., CPAs (now KPMG, LLC) from 1967 to 1972. From 1972 to 1974, he was Supervisor of the Audit Department for AMAX, Inc. (NYSE). From 1974 to 1975, he was Assistant Corporate Controller for Esterline Corp. (NYSE). He then joined EDO Corporation (NYSE), now a unit of ITT Corporation, as Director of Auditing (1976 to 1981) and Director of Financial Management (1981 to 1984). Mr. Marx received his B.S. from Lehigh University (1966) and his New York State CPA in 1972.
Dr. Marc L. Kahn has been a radiologist with the Clarkson Medical Group in Michigan since May 2007. Prior to that time, from September 1994 to May 2007, he was a radiologist with Diagnostic Radiology Associates in Michigan. Mr. Kahn earned a BA from Albion College (1977) and an MD from Wayne State Medical School (1981). He did his residency in radiology at Sinai Hospital (1989) and a fellowship at Columbia Presbyterian (1995).
David J. Willoughby, Vice President - Marketing & Sales, was appointed on July 1, 2011. He has served in numerous marketing, sales, and product development capacities within the health care industry for the last 20 years. Since 2000 until joining the Company, Mr. Willoughby was Vice President of Granvid Technologies Inc., a health care marketing and intellectual property development company where he was responsible for marketing with a strategic focus on new product development and applications within the areas of infection control, wound care and biomaterial coatings. Prior to that position, from 1995 to 1999, he was instrumental in establishing Ultravena Industries USA Ltd., a medical device manufacturer which developed the first ever patented alternative donning technology for the medical latex and synthetic glove markets. At Ultravena, Mr. Willoughby was assigned responsibilities as senior marketing manager for Ultravena (Canada). He eventually oversaw the majority of its North American dental and industrial marketing activities. From 1992 to 1995 Mr. Willoughby worked for DFS GmbH (Germany), holding the position of North American marketing manager responsible for building the company’s private label programs with internationally recognized health care manufacturers in the US, Canada and Japan. During his years in the health care industry, he has demonstrated strong skills in product development, channel marketing and sales management along with a thorough understanding of the processes behind effective international business development and management. His participation as an officer and director will add support and guidance in expanding both our domestic and international business strategies and activities.
Mark R. Cox was appointed as a Director in February, 2010. Mr. Cox is president and co-founder of AlvaMed LLC, a medical device consulting company, since November 2002. Prior to that, from November 2001 until November 2002, he was founder and president of Fast Product, a consulting company assisting with the development of new products and businesses. From January 1992 until November 2001, Mr. Cox served in several capacities at Arthur D. Little, Inc., including Senior Manager of Product Technology Practice (January 1992 – January 1998), Director of Business Development for Epyx Corporation (now Nuvera) (January 1998 – January 1999), and Project Manager of the Arthur D. Little Technology Investment Board as well as Director of Arthur D. Little Enterprises from January 1999 – November 2001. Mr. Cox’s experience with new technology and technology companies includes technical evaluation, general business development and networking, selection of investment opportunities, market assessment, product development, intellectual property review and sales presentations. Mr. Cox earned a Bachelor of Engineering degree in Materials Science, Imperial College of Science and Technology, London 1987 and a Masters in Materials Engineering, Massachusetts Institute of Technology 1990.
Vicki L. Aksland was appointed as Director, effective July 1, 2011. Since April 2009 she has served as an Executive Assistant for the Company. Prior to that, from February 2006 to June 2010, she was employed as a licensed real estate salesperson with Coldwell Banker, Manteca, CA. From July 1996 to December 1998 she was employed with Re/Max Almond Valley as a licensed real estate salesperson with offices in Manteca and Ripon, CA and from March 1994 to June 1996 she was with Century 21 Yeoman's Real Estate in Tracy, CA as a licensed salesperson. From July 1987 to March 2005, she was co-owner and bookkeeper for Bennett's Backhoe Service. From February 1986 to February 1988, Ms. Aksland was a bookkeeper responsible keeping accounts for 5 Exxon stations. Her in-depth knowledge of the Company and her previous business experience make her particularly suited to understand what is necessary for the Company to succeed.
Our current directors, Edward Suydam, Michael Marx, Marc Kahn, David Willoughby and Vicki Aksland , all serve the Company in various capacities and, therefore, are not deemed to be independent. Director Mark Cox is not an officer or employee and, therefore, may be deemed independent.
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All directors hold office until the next annual stockholders’ meeting or until death, resignations, retirement, removal, disqualification, or until their successors have been elected and qualified. Officers serve at the will of the Board of Directors.
There are no agreements or understandings for any of our officers or directors to resign at the request of another person and none of the officers or directors are acting on behalf of or will act at the direction of any person.
The board of directors met five times via telephone during 2011.
Committees of the Board of Directors
We are not obligated to have an audit committee nor to comply with any requirements for its composition should we have one. Our Board of Directors established an Audit Committee on March 2, 2007, consisting of two independent board members. The Committee was inactivated when its Committee members resigned in late 2008 until it was re-activated and increased in scope to include compensation policy during early 2010. Michael J. Marx and Marc Kahn, neither of whom is independent of management, comprise the Audit and Compensation Committee. Michael J. Marx serves as Chairman. The Board of Directors decides on the recommendations made by the Audit and Compensation Committee.
Code of Ethics
We have a Code of Ethics for our executive officers and key employees. The Code of Ethics is posted on our website at www.nmihealth.com.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes the material elements of compensation for the executive officers identified in the Summary Compensation Table set forth below (the “Named Executive Officers”). The information below provides the description of compensation policies applicable to executive officers and other highly compensated individuals under employment and/or consulting arrangements.
Objectives of Our Compensation Program
We are in the early stages of completing an overall compensation program. As proposed, the primary objective of our compensation program, including our executive compensation program, is to maintain a compensation program that will fairly compensate our executives and employees, attract and retain qualified executives and employees who are able to contribute to our long-term success, encourage performance consistent with clearly defined corporate goals and align our executives’ long-term interests with those of our stockholders. To that end, our compensation practices are intended to:
1.
Tie total compensation to the Company’s performance and individual performance in achieving financial and non-financial objectives;
2.
Align senior management’s interests with stockholders’ interests through long-term equity incentive compensation.
Role of the Compensation Committee
The Compensation Committee determines the compensation of our Chief Executive Officer and, in consultation with the Chief Executive Officer, our other executive officers. In addition, the Compensation Committee is responsible for adopting, reviewing and administering our compensation policies and programs. Our Compensation Committee intends to adhere to a compensation philosophy that (i) seeks to attract and retain qualified executives who will add to the long-term success of the Company, (ii) promotes the achievement of operational and strategic objectives, and (iii) compensates executives commensurate with each executive’s level of performance, level of responsibility and overall contribution to the success of the Company.
In determining the compensation of our Chief Executive Officer and our other executive officers, the Compensation Committee considers the financial condition and operational performance of the Company during the prior year. In determining the compensation for executive officers other than the Chief Executive Officer, the Compensation Committee considers the recommendations of the Chief Executive Officer and comparable market rates. The Compensation Committee may review the compensation practices of other companies, based in part on market survey data and other statistical data relating to executive compensation obtained through industry publications and other sources.
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Components of Executive Compensation for 2011 and 2010
Our executive employment agreements for 2011 and 2010 provided that employees would be compensated by salary, with potential bonuses that could include cash and equity components. Salaries were determined by negotiation between the Company and the particular executive based on each individual’s qualifications and relevant experience and the Compensation Committee’s and board’s best business judgment. While each of the agreements had a general description of the employee’s responsibilities associated with his/her title and/or position, the agreements did not include specific written performance objectives for the individual or the Company.
The elements of the Company’s planned compensation program may include base salary and long-term equity incentives. Our compensation program will be designed to provide our executives with incentives to achieve our short- and long-term performance goals and to pay competitive base salaries. Each Named Executive Officer’s current and prior compensation will be considered in setting future compensation.
Long Term Equity Incentives
The Company intends to adopt a plan for executive and employee equity compensation but there is no such plan in place at this filing date.
Perquisites and Other Benefits
The Company does not provide significant perquisites or personal benefits to executive officers.
Stock Ownership Requirements
The Board of Directors has historically encouraged its members and members of senior management to acquire and maintain stock in the Company to link the interests of such persons to the stockholders. However, neither the Board of Directors nor the Compensation Committee has established stock ownership guidelines for members of the Board of Directors or the executive officers of the Company.
The following Summary Compensation Table sets forth the aggregate compensation paid or accrued by the Company to the executive officers, (the “Named Executive Officers”) as of December 31, 2011 and 2010.
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Compensation ($) (4) | Total ($) |
|
|
|
|
|
|
Edward Suydam, CEO (1) | 2011 | $150,000 | $ 15,000 | $ 16,186 | $181,186 |
| 2010 | $145,833 | $100,000 | $ 0 | $245,833 |
|
|
|
|
|
|
Michael J. Marx, Chief Financial Officer | 2011 | $ 80,000 | $ 6,667 | $ 6,154 | $ 92,821 |
| 2010 | $ 80,000 | $ 0 | $ 0 | $ 80,000 |
|
|
|
|
|
|
Marc Kahn, Chief Medical Officer | 2011 | $ 80,000 | $ 6,667 | $ 9,231 | $ 95,898 |
| 2010 | $ 80,000 | $ 0 | $ 0 | $ 0 |
|
|
|
|
|
|
David Willoughby, VP Marketing & Sales (2) | 2011 | $ 50,000 | $ 11,133 | $ 1,923 | $ 63,056 |
| 2010 | $ 0 | $ 0 | $ 0 | $ 0 |
|
|
|
|
|
|
Douglas Heath, Former Chief Financial Officer (3) | 2011 | $ 0 | $ 0 | $ 0 | $ 0 |
| 2010 | $ 37,500 | $ 0 | $ 0 | $ 37,500 |
(1) Since March 1, 2010
(2) Mr. Willoughby was appointed July 1, 2011. He was also awarded a signing bonus of 100,000 shares of the Company’s restricted common stock.
(3) Until March 1, 2010
(4) Represents accrued vacation pay at December 31, 2011
DIRECTOR COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by the Company to the Directors for the fiscal year ended December 31, 2011.
17
|
|
|
|
|
|
|
|
Name | Fees Earned or Paid in Cash (In $) | Stock (In $) | Option (In $) | Non-Equity Incentive Plan Compensation (In $) | Non- (In $) | All Other Compensation (In $) | Total (In $) |
Edward Suydam | - | - | - | - | - | - | - |
Michael J. Marx | - | - | - | - | - | - | - |
Marc Kahn | - | - | - | - | - | - | - |
Vicki Aksland | $ 7,500 | - | - | - | - | - | $ 7,500 |
Mark Cox | $ 15,000 | - | - | - | - | - | $ 15,000 |
All directors are reimbursed for all travel related expenses incurred in connection with their activities as directors. Those directors also serving as officers have agreed to forego annual director compensation. Directors Mark Cox and Vicki Aksland each receive $15,000 per year as a fee for their service as directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND RELATED STOCKHOLDER MATTERS.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of stock that the stockholder has a right to acquire within 60 days through the exercise of any option, warrant or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
The following tables provide information, as of March 23, 2012, about the beneficial ownership of our common stock by those known to own more than 5% of the Company’s common stock as well as the beneficial ownership of our directors and executive officers. The percentage of beneficial ownership for the following table is based on 85,625,468 shares of our common stock issued and outstanding:
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|
|
Title of Class | Name and Address | Number of Shares | % of Class |
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Common | Josiah T. Austin 12626 Turkey Creek Road Pearce, AZ 85625 | 11,426,839 | 13.31% |
Securities Ownership of Officers and Directors
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|
|
Title of Class | Name and Title | Number of Shares | % of Class |
Common | Edward Suydam Chief Executive Officer | 9,424,756 | 10.97% |
Common | Michael J. Marx Chief Financial Officer | 5,312,801 | 6.19% |
Common | Marc Kahn Chief Medical Officer | 10,963,672 | 12.77% |
Common | David Willoughby Vice President, Marketing & Sales | 1,845,036 | 2.15% |
Common | Vicki Aksland Director | 701,809 | * |
Common | Mark Cox Director | 2,358,883 | 2.75% |
|
|
|
|
| Total (6 persons) | 30,606,957 | 35.64% |
·
Less than 1%.
Disclosure Regarding the Company's Equity Compensation Plans
On September 15, 2004, we adopted a 2004 Stock Option and Award Plan (the "Plan") under which options to acquire our common stock or bonus stock may be granted from time to time to employees, including officers and directors and/or subsidiaries.
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In addition, at the discretion of the board of directors or other administrator of the Plan, options to acquire common stock or bonus stock may from time to time be granted under the Plan to other individuals who contribute to our success but who are not employees. A total of 2,500,000 shares of common stock may be subject to, or issued pursuant to, options or stock awards granted under the terms of the Plan. The shares underlying the Plan were registered by us on a Registration Statement, Form S-8, filed with the Commission on September 29, 2004.
As of December 31, 2011, 1,479,000 shares of our common stock have been issued pursuant to the Plan for the services of various individuals. The 1,479,000 shares (issued during 2004) were recorded at the fair market value of the shares on the date of issuance, which was $0.45 per share for a total of $665,550. As of December 31, 2011 and 2010, there was no deferred compensation and all capitalized patent and acquired technology costs had been written off. While there are 1,021,000 common shares available for future issuance, the Board of Directors has not approved any further equity compensation awards under the Plan.
Our Board of Directors has the sole authority to determine the terms of awards and other terms, conditions and restrictions of non-plan options. Any shares issued pursuant to these options shall be subject to resale restrictions as shall be in force at the time of issuance of the shares, including sales volume and timing of the sale.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following related party transactions occurred during the years ended December 31, 2011 and 2010 which are required to be disclosed pursuant to Item 404 of Regulation S-K.
Stock Issuances to Related Parties
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Name and Principal Position | Year | Compensation in Common Shares | Loan Conversions, Expense Reimbursements and Cash Proceeds (4) |
| Total Common Shares Issued |
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Edward Suydam, | 2011 | 5,807,537 | - |
| 5,807,537 |
Chief Executive Officer (1) | 2010 | 2,060,920 | 204,477 |
| 2,265,397 |
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|
|
|
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Michael J. Marx, | 2011 | 3,097,629 | 377,412 |
| 3,475,041 |
Chief Financial Officer | 2010 | 743,104 | 47,031 |
| 790,135 |
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Marc Kahn, | 2011 | 3,079,629 | 3,266,477 |
| 6,346,106 |
Chief Medical Officer | 2010 | 710,783 | 196,078 |
| 906,861 |
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|
|
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David Willoughby, | 2011 | 681,395 | - |
| 681,395 |
Vice President, Marketing & Sales (2) | 2010 | - | - |
| - |
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|
|
Douglas Heath, | 2011 | - | - |
| - |
Former Chief Executive Officer (3) | 2010 | - | - |
| - |
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|
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Mark Cox, | 2011 | 581,395 | 1,556,521 |
| 2,137,916 |
Director | 2010 | 100,000 | - |
| 100,000 |
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Vicki Aksland, | 2011 | 87,209 | - |
| 87,209 |
Director | 2010 | - | - |
| - |
(1) Since March 1, 2010
(2) Mr. Willoughby was appointed July 1, 2011.
(3) Until March 1, 2010
(4) Includes 400,000 shares issued to M Kahn in 2011 for his $10,000 in cash proceeds.
Director Mark Cox is deemed to be independent. Director Vicki Aksland performs consulting services as requested and may not be deemed independent. All of the other directors serve as officers and are not considered independent.
ITEM 14. PRINCIPAL ACCOUNTANTS’ FEES AND SERVICES
Information required by Item 9(c) of Schedule 14A
19
1)
Audit Fees - The aggregate fees billed or estimated and expected to be billed for professional services rendered by our registered public accounting firm, MaloneBailey, LLP, (“MB”) for the audit of our annual financial statements and review of our quarterly financial statements for fiscal year 2011 was approximately $30,000.and $21,000 for fiscal year 2010.
2)
Audit-Related Fees – The aggregate fees billed for professional audit-related services rendered by MB during fiscal year 2011 and 2010 were both $0.
3)
Tax Fees – None
4)
All Other Fees -- None
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) FINANCIAL STATEMENTS. The following financial statements are included in this report:
|
|
Title of Document | Page |
Reports of independent registered public accounting firms | 22 |
Balance sheets as of December 31, 2011 and 2010 | 23 |
Statements of operations for the years ended December 31, 2011 and 2010 | 24 |
Statements of stockholders' equity deficiency for the years ended December 31, 2011 and 2010 | 25 |
Statements of cash flows for the years ended December 31, 2011 and 2010 | 26 |
Notes to the financial statements | 27 |
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules are included as part of this report:
None.
(a)(3) EXHIBITS. The following exhibits are included as part of this report:
*previously filed with the Company’s Annual Report on Form 10-K filed on March 27, 2012.
20
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.
July 27, 2012
By /s/ Edward Suydam
Edward Suydam, Chief Executive Officer (Principal Executive Officer) and Director
July 27, 2012
By /s/ Michael J. Marx
Michael J. Marx, Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer) and Director
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 | Chief Executive Officer and Director | July 27, 2012 |
/s/ Michael J. Marx | Chief Financial Officer and Director | July 27, 2012 |
/s/ Marc Kahn | Chief Medical Officer and Director | July 27, 2012 |
/s/ David J. Willoughby | Vice President, Marketing & Sales and Director | July 27, 2012 |
/s/ Vicki L. Aksland | Director | July 27, 2012 |
/s/ Mark Cox | Director | July 27, 2012 |
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Nano Mask, Inc.
Reno, Nevada
We have audited the accompanying balance sheets of Nano Mask, Inc. (the “Company”) as of December 31, 2011 and 2010, and the related statements of operations, stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements of the Company present fairly, in all material respects, its financial position as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred a series of net losses resulting in negative working capital as of December 31, 2011. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
MaloneBailey, LLP
Houston, Texas
March 27, 2012
22
The accompanying notes are an integral part of these financial statements.
23
|
|
|
|
| |||
NANO MASK, INC. | |||||||
Statements of Operations For the years ended December 31, 2011 and 2010 | |||||||
|
|
| |||||
|
|
| |||||
|
| 2011 |
| 2010 | |||
|
|
|
|
| |||
NET SALES | $ 97,997 |
| $ - | ||||
|
|
|
|
| |||
COSTS AND EXPENSES |
|
|
| ||||
| Cost of Sales | 80,330 |
| - | |||
| Research and development | 3,500 |
| 70,050 | |||
| Selling, general and administrative | 929,777 |
| 660,667 | |||
| Provision for inventory obsolescence | - |
| 79,986 | |||
|
|
|
|
| |||
LOSS FROM OPERATIONS | (915,610) |
| (810,703) | ||||
|
|
|
|
| |||
OTHER INCOME (EXPENSE) |
|
|
| ||||
| Interest expense | (37,501) |
| (34,371) | |||
| Gain on settlement of vendor liabilities and other | 372,949 |
| 14,754 | |||
|
|
|
|
| |||
| Total other income (expense) | 335,448 |
| (19,617) | |||
|
|
|
|
| |||
NET LOSS | $ (580,162) |
| $ (830,320) | ||||
|
|
|
|
| |||
BASIC LOSS PER SHARE | $ (0.01) |
| $ (0.01) | ||||
|
|
|
|
| |||
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 70,600,549 |
| 55,720,324 | ||||
|
|
|
| ||||
The accompanying notes are an integral part of these financial statements.
24
|
|
|
|
|
|
|
|
|
| |||||||
NANO MASK, INC. | ||||||||||||||||
Statements of Stockholders' Deficit | ||||||||||||||||
For the Years Ended December 31, 2011 and 2010 | ||||||||||||||||
|
|
|
|
|
|
|
|
| Total | |||||||
| Common Stock |
| Additional |
| Accumulated |
| Stockholders' | |||||||||
| Shares |
| Dollars |
| paid in capital |
| deficit |
| Deficit | |||||||
Balances, December 31, 2009 | 53,671,536 |
| $ 53,672 |
| $ 20,157,141 |
| $ (21,338,050) |
| $ (1,127,237) | |||||||
Common stock issued for settlement of advances | 196,078 |
| 196 |
| 9,804 |
|
|
| 10,000 | |||||||
Common stock issued for services | 3,735,229 |
| 3,735 |
| 233,147 |
|
|
| 236,882 | |||||||
Common stock issued for reimbursed expenses | 376,508 |
| 376 |
| 27,360 |
|
|
| 27,736 | |||||||
Net loss | - |
| - |
| - |
| (830,320) |
| (830,320) | |||||||
Balances, December 31, 2010 | 57,979,351 |
| 57,979 |
| 20,427,452 |
| (22,168,370) |
| (1,682,939) | |||||||
Common stock issued for cash | 1,400,000 |
| 1,400 |
| 33,600 |
|
|
| 35,000 | |||||||
Common stock issued for settlement of accounts payable | 1,900,000 |
| 1,900 |
| 82,400 |
|
|
| 84,300 | |||||||
Common stock issued for advances to related parties | 4,422,998 |
| 4,423 |
| 124,877 |
|
|
| 129,300 | |||||||
Common stock issued for services | 14,018,198 |
| 14,019 |
| 447,831 |
|
|
| 461,850 | |||||||
Common stock issued for reimbursed expenses | 529,151 |
| 529 |
| 11,641 |
|
|
| 12,170 | |||||||
Net loss | - |
| - |
| - |
| (580,162) |
| (580,162) | |||||||
Balances, December 31, 2011 | 80,249,698 |
| $ 80,250 |
| $ 21,127,801 |
| $ (22,748,532) |
| $ (1,540,481) | |||||||
The accompanying notes are an integral part of these financial statements.
25
The accompanying notes are an integral part of these financial statements.
26
NANO MASK, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Nano Mask, Inc. (“we”, “our” or the “Company”) is a materials-technology development company focused on health and wellness-related markets. The Company is evolving from a specialty filter products company that developed a state-of-the-art air filtration technology for removing infectious bacteria and viruses in air flow systems into a company that plans to provide a proprietary line of antibacterial and antimicrobial products for the hospital, clinic and health industry.
Significant accounting policies
Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts. Actual results could differ from those estimates.
Inventory. In November 2009, the Company purchased inventory consisting of Vira Masks intended for sale both domestically and internationally. The inventory is carried at the lower of cost (determined on a first-in, first-out basis) or market. Obsolete or abandoned inventories (if any) are charged to operations in the period that it is determined that the items are no longer viable sales products. The Company has provided an allowance of $79,986 for slow moving and obsolete inventory at December 31, 2010.
Loss per share. The computation of basic loss per share of common stock is based on the weighted-average number of shares outstanding during the period of the financial statements.
Revenue recognition and sales returns. The Company recognizes revenue for its products generally when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. In general, these conditions are satisfied when the product is shipped and title passes to the buyer. The Company provides an allowance for sales returns based upon estimated and known returns.
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 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurement (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.
27
NANO MASK, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Income taxes. We provide for income taxes in accordance with ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities. The recording of a net deferred tax asset assumes the realization of such asset in the future; otherwise a valuation allowance must be recorded to reduce this asset to its realizable value. The Company considers future pretax income and, if necessary, ongoing prudent and feasible tax planning strategies in assessing the need for such a valuation allowance. In the event that the Company determines that it may not be able to realize all or part of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is charged against income during the period such determination is made. The Company has recorded full valuation allowances as of December 31, 2011 and 2010.
Management has conducted an evaluation of the Company's tax positions taken on returns that remain subject to examination and has concluded that there are no uncertain tax positions, as defined in ASC 740, that require recognition or disclosure in the financial statements.
Interest and penalties incurred by the Company, if any, related to income tax matters are classified as part of the income tax provision/benefit.
Stock-based compensation. The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based upon the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period (Note 4). Stock-based compensation awards to non-employees are accounted for in accordance with ASC 505-50.
Reclassifications. Certain minor reclassifications to prior year amounts have been made to conform to the current year’s presentation.
NOTE 2: GOING CONCERN
The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has historically incurred negative cash flow from operations and significant losses, which have substantially increased its operating deficit at December 31, 2011. In addition, at December 31, 2011, the Company has a working capital deficiency of $1,522,234. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern will be dependent upon economic developments and the success of management's plans as set forth below, 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. Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.
The foregoing notwithstanding, management does not believe the Company currently has sufficient capital to sustain its planned business activities for the next twelve months following the issuance of these financial statements. Accordingly, while management has historically been successful generating sufficient funds to sustain operations, there is no assurance that they will continue to do so. Nevertheless, the Company will seek additional capital to sustain its operations, either through additional private placements of common stock or loans, possibly unsecured, until such time as its operations are self-sustaining. These funds will be required to continue the Company’s efforts to generate sales of its products and to provide sufficient working capital to meet the expected sales demand.
NOTE 3: NOTES PAYABLE
The Company maintains various unsecured short term notes payable totaling $522,727 at December 31, 2011 ($497,727 at December 31, 2010), each of which are in default and bear annual interest at 6% to 8%, or the prime rate plus 2%. In addition, the Company is maintaining an unsecured five year long-term note payable of $23,430, due November 28, 2013, bearing an annual interest rate of 8%.
A significant shareholder loaned the Company $25,000 with interest at prime, plus 2%, payable in six months from February 22, 2011.
At December 31, 2011, all notes payable continue to bear interest according to their original terms.
$412,140 of the above short term notes payable represent various loans payable to Applied Nanoscience, Inc. (Note 6, Litigation), net of the Company’s right of offset in the amount of $41,360 against the $453,500 face amount of the notes payable for monies the Company expended on behalf of Applied Nanoscience, Inc.
28
NANO MASK, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Interest expense for 2011 totaled $37,501 for which no cash interest payments have been paid during the year. This compares with $34,371 interest expense incurred during 2010.for which $4,795 was paid in cash during the year.
NOTE 4: SHARE-BASED TRANSACTIONS
Restricted shares. The following table summarizes the restricted share issuances during the years ended December 31, 2011 and 2010:
Summary of Stock Issuances during the Years ended December 31, 2011 and 2010 | ||||||||||||||||||||
| Settlement of Accounts Payable |
| Settlement of Advances and Payables -Related Party |
| Compensation and Expenses |
| Cash from Offerings | |||||||||||||
Year Ended December 31, | Common Shares |
| Fair Value |
| Carrying Value of Payables |
| Common Shares |
| Fair Value |
| Carrying Value of Related Advances |
| Common Shares |
| Fair Value |
| Common Shares | Fair Value |
| Cash Proceeds |
2011 | 1,900,000 |
| $84,300 |
| $436,375 |
| 4,422,998 |
| $129,300 |
| $129,300 |
| 14,547,349 |
| $474,020 |
| 1,400,000 | $ 35,000 |
| $35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 | - |
| $ - |
| $ - |
| 196,078 |
| $10,000 |
| $10,000 |
| 4,111,737 |
| $264,618 |
| - | - |
| $ - |
During the year ended December 31, 2011, the Company issued 1,900,000 shares with a fair value of $ 84,300 to settle $ 436,375 unrelated party accounts payable. Due to the fair value of the common shares being less than the carrying value of the related payables, the Company recognized a gain of $352,075 on settlement of payables during 2011. A further gain of $20,874 was generated by writing off payables due to the expiration of the statute of limitations. In addition, the Company issued 4,422,998 shares with a fair value of $129,300 to settle advances and payables to related party with the same amount of carrying value.
Finally, a total of 14,547,349 shares were issued with a fair value of $474,020 for services and operating expenses reimbursed during the year.
During 2011, the Company received $35,000 in cash proceeds from four individual investors in a private placement and issued 1,400,000 shares of common stock.
Stock options. In 2004, the Company adopted a formal stock option and award plan (the "Plan") under which options to acquire the Company’s common stock or bonus stock may be granted from time to time to employees, including officers and directors. In addition, at the discretion of the board of directors or other administrator of the Plan, options to acquire common stock or bonus stock may from time to time be granted under the Plan to other individuals who may contribute to the Company’s success but who are not employees. A total of 2,500,000 shares of common stock may be subject to, or issued pursuant to, options or stock awards granted under the terms of the Plan.
As of December 31, 2011 and 2010, 1,479,000 shares of common stock have been issued pursuant to the Plan for the services of various individuals. All related compensation expense has been recognized in years prior to 2010. While there are 1,021,000 common shares available for future issuance, the Board of Directors has not approved any further equity compensation awards under the Plan.
A summary of the status of our outstanding stock options at December 31, 2011 and December 31, 2010 and the related changes during the periods then ended is presented below:
| December 31, 2011 |
|
| December 31, 2010 |
|
| ||
| Shares | Weighted-Average Exercise Price | Weighted – Average Remaining Life | Aggregate Intrinsic Value | Shares | Weighted-Average Exercise Price | Weighted – Average Remaining Life | Aggregate Intrinsic Value |
Outstanding beginning of period | 250,000 | $0.76 | 2.33 | - | 700,000 | $0.57 | 1.19 | - |
Granted | - | - |
| - | - | - |
| - |
Expired/Cancelled | - | - |
| - | (450,000) | $0.46 |
| - |
Exercised | - | - |
| - | - | - |
| - |
Outstanding end of period | 250,000 | $0.76 | 1.57 | - | 250,000 | $0.76 | 2.33 | - |
Exercisable | 250,000 | $0.76 | 1.57 | - | 250,000 | $0.76 | 2.33 | - |
29
NANO MASK, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
Warrants. 4,420,834 warrants were issued during 2009, each having a two-year term with an exercise price of $0.50 per share, until various expiration dates in 2011. 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 was recorded for the outstanding warrants. No warrants were exercised subsequent to their issuance and there are no warrants outstanding at December 31, 2011. No further warrants were issued in 2011 or 2010.
NOTE 5: INCOME TAX
At December 31, 2011, the Company had net operating loss carry-forwards of approximately $14,006,603 that may be used to offset future taxable income. These operating loss carry-forwards expire in the years 2012 through 2030. However, the Company may be limited in its ability to fully utilize its net operating loss carry-forwards and realize any benefits in the event of certain ownership changes described in Internal Revenue Code Section 382.
No tax benefit has been reported in the financial statements because the potential tax benefit of the net operating loss carry-forwards that would result in a deferred tax asset of approximately $4,789,779 is effectively offset by a 100% valuation allowance primarily because of significant uncertainty as to the Company’s ability to continue as a going concern (Note 2, Going Concern). Details of the reason there is no income tax benefit such as would ordinarily be computed at federal statutory rates of approximately 34% are as follows:
|
|
|
| 2011 | 2010 |
Income tax benefit at statutory rate | $ 197,255 | $ 282,309 |
Timing differences between book and tax depreciation | 1,492 | 138 |
Timing differences in inventory obsolescence recognition | - | (27,195) |
Non-deductible expenses from common stock issued or options granted for services rendered | (157,029) | (79,793) |
| 41,718 | 175,459 |
Change in valuation allowance | (41,718) | (175,459) |
| $ - | $ - |
Deferred tax assets are comprised of the following at December 31, 2011:
|
|
Operating loss carry forwards | $ 4,789,779 |
Less valuation allowance | (4,789,779) |
|
|
Net deferred tax assets | $ - |
NOTE 6: COMMITMENTS AND CONTINGENCIES
Litigation. On December 29, 2010, the Company received a complaint from Applied Nanoscience, Inc. 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 maintains a right of offset in the amount of $41,360 against Applied’s notes and is reflected on the balance sheet in the net amount of $412,140 (Note 3, Notes Payable).
On March 5 2012, the Company received a complaint from a certain attorney seeking collection of his invoices in the amount of $167,167, plus interest and litigation expenses. The Company does not believe the claim has any merit and will respond to the complaint within the appointed time.
Employment agreements. At December 31, 2011, the Company has current employment agreements with certain officers and directors with a remaining commitment of approximately $149,328, which was paid during the first quarter of 2012.
NOTE 7: OTHER TRANSACTIONS
Related party transactions.
Amounts payable to related parties are summarized as follows:
30
NANO MASK, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
|
|
Balance, January 1, 2010 | $ - |
2010 advances | 77,500 |
Payment of advances | (10,000) |
Accounts payable reclassified to accounts payable to related party | 35,800 |
Balance, December 31, 2010 | 103,300 |
2011 advances | 126,203 |
Payments | (129,300) |
Balance, December 31, 2011 | $ 100,203 |
The Company received $117,500 in cash advances from a key executive officer during 2011 and repaid $26,000 of this with 928,570 shares of common stock. $67,500 in advances from the same key officer during 2010 was repaid during 2011 with 1,937,907 shares of common stock.
NOTE 8: SUBSEQUENT EVENTS
The following table summarizes the issuance of common shares subsequent to December 31, 2011, and their related amounts for cash proceeds from private placements, compensation and expense reimbursements and settlements of notes payable:
|
|
|
|
|
|
| |
| Cash Proceeds | Compensation and Expense Reimbursements | Settlement of Loans Payable | ||||
| Common Shares | Amount | Common Shares | Amount | Common Shares | Amount | |
Through March 27, 2012 | - | $ - | 5,220,770 | $ 172,830 | 155,000 | $ 5,735 | |
Due to the fair value of the common shares being less than the carrying value of the related payables, the Company recognized a gain of $2,365 on settlement of payables during 2012.
31