Attached files

file filename
EX-32.1 - CERTIFICATION - NMI Health, Inc.ex_321.htm
EX-31.2 - CERTIFICATION - NMI Health, Inc.ex_312.htm
EX-31.1 - CERTIFICATION - NMI Health, Inc.ex_311.htm
EX-32.2 - CERTIFICATION - NMI Health, Inc.ex_322.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
 
Washington D.C. 20549
 
FORM 10-K
 
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended: December 31, 2013
 
o 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
 
NMI Health, Inc.
(Formerly, Nano Mask, Inc.)
(Exact Name of Small Business Issuer as Specified in its Charter)
 
NEVADA
 
87-0561647
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
50 West Liberty Street, Suite 880,
Reno, Nevada
 
89501
(Address of principal executive offices)
 
(Zip code)
 
Issuer's telephone number, including area code: (914) 760-7857
 
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 þ No o (2) Yes þ No o
 
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 þ NO o
 
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. þ
 
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   þ
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO þ
 
At July 23, 2015, there were outstanding 24,294,118 shares of the Registrant's Common Stock, $.001 par value.
 
State the Registrant's revenues for the December 31, 2013 fiscal year: $235,291.
 
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 $2,431,302 based on the average bid and ask price of the Registrant's stock on June 30, 2013 of $0.26 per share for non-affiliate shares held. The Registrant's common stock is quoted on the OTC Markets Group website under the symbol "NANM".
 
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
 


 
 
 
 
 
TABLE OF CONTENTS
 
     
PAGE
Item 1.
Business
 
3
       
Item 1A.
Risk Factors
 
5
       
Item 1B.
Unresolved Staff Comments
 
10
       
Item 2.
Properties
 
10
       
Item 3.
Legal Proceedings
 
10
       
Item 5.
Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
 
11
       
Item 6.
Selected Financial Data
 
11
       
Item 7.
Management's Discussion and Analysis or Plan of Operation
 
11
       
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
15
       
Item 8.
Financial Statements and Supplementary Data
 
15
       
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
15
       
Item 9A.
Controls and Procedures
 
15
       
Item 10.
Directors, Executive Officers and Corporate Governance
 
18
       
Item 11.
Executive Compensation
 
20
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
23
       
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
23
       
Item 14.
Principal Accountants’ Fees and Services
 
24
       
Item 15.
Exhibits, Financial Statement Schedules
 
25
       
Signatures
26
 
 
 
2

 
 
PART I.
 
ITEM 1. BUSINESS
 
General
 
Unless the context requires otherwise, all references to the “Company”, “we”, “us” and “our” refer to NMI Health, 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 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 antimicrobial performance based Hospital Fabrics and Textiles designed to inhibit the growth of virus, fungi and bacteria causing hospital acquired infections (HAIs) on both healthcare apparel and textiles. These products have been developed by partnering with innovative technology companies.

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.
 
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.
 
 
3

 
 
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 NMI Health, 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 NMI Health, 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 that the Company fabricates. Consequently, NMI Health 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. NMI Health’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 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 within the US and $4.5 Billion globally. With soft surfaces representing 90 percent of the patient healthcare environment: privacy curtains, lab coats, scrubs, gowns, bed linens, blankets and additional barrier products, NMI Health’s suite of antimicrobial apparel and textiles are well positioned to become a vital component in any hospital, bacteria-reduction strategy both domestically and globally.
 
Competition
 
The antimicrobial products industry is highly competitive, diversified and congested, featuring many established companies, multiple technologies targeting similar objectives and numerous brands. And the market is also highly fragmented and dynamic with no clear dominant vendors marketing antimicrobial products aimed at the Company’s target markets. Also, historically vendors have not been offering performance-based textile solutions.

Nevertheless, the Company faces direct competition from vendors in its current and planned markets, many of whom are larger and possess considerably greater resources than NMI Health, Inc. Notable direct competitors include the following three companies:
 
- Infinitude Clothing, LLC
 
- Encompass Group, LLC
 
- Core 61, Inc.

Other larger healthcare competitors with conventional soft goods include the following companies:
 
- Ansell Occupational Healthcare
 
- Medline Industries, Inc.
 
- Johnson & Johnson
 
- Cardinal Health

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
 
 
4

 
 
Our United States patents are as follows:
 
PATENT NO. /APP. NO.
 
DESCRIPTION
 
EXPIRATION OR ABANDONMENT DATE
6276363
 
Portable Emergency Safety Resuscitator
 
8/21/2021
 
Need for any government approval of principal products or services
 
Since we use third-party manufacturers to produce our products, we are not required to register as a manufacturer on an annual basis with the FDA. On the other hand, were we to use a domestic third-party manufacturer, such manufacturers would be subject to FDA inspections.
 
Research and Development
 
Our research and development expenditures are prototype development costs associated with the new products such as materials, supplies, consulting fees, filing fees, etc. and for the last two years were as follows:
 
- 2013 $ 16,268
 
- 2012 $   3,379
 
Costs and effects of compliance with environmental laws
 
We are not aware of any cost or effect of compliance with environmental laws.
 
Employees
 
As of July 20, 2015, we are employing four full-time employees.
 
ITEM 1A   RISK FACTORS
 
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 are dependent on proprietary know-how.
 
Our competitors may develop or market technologies that are more effective or more commercially attractive than ours. Our manufacturing know-how as to mixing, coating and cross-linking may be able to be duplicated, even if it is difficult to do so. There is no assurance that, should we apply for intellectual property protection for our intellectual property, we would be able to obtain such protection.

We also rely on trade secret protection to protect our interests in proprietary know-how and for processes for which patents are difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure and confidentiality agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge. Any disclosure of confidential data into the public domain or to third parties could allow competitors to learn our trade secrets and use the information in competition against us.
 
 
5

 
 
Despite our efforts to protect our proprietary rights, there is no assurance that such protections will preclude our competitors from developing and/or marketing similar products. While we are not aware of any third party intellectual property that would materially affect our business, our failure or inability to obtain patents and protect our proprietary information could result in our business being adversely affected.

Our products risk exposure to product liability claims.
 
If successful in developing, testing and commercializing our products, we will be exposed to potential product liability risks, which are inherent in the testing, manufacturing and marketing of such products. It is likely we will be contractually obligated, under any distribution agreements that we enter into to indemnify the individuals and/or entities that distribute our products against claims relating to the manufacture and sale of products distributed by such distribution partners. This indemnification liability, as well as direct liability to consumers for any defects in the products sold, could expose us to substantial risks and losses. There can be no assurance that we will be able to maintain such insurance on acceptable terms or that such insurance will provide adequate coverage against potential liabilities. A successful product liability claim or series of claims brought against us could result in judgments, fines, damages and liabilities that could have a material adverse effect on our business, financial condition and results of operations. We may incur significant expense investigating and defending these claims, even if they do not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which could have a material adverse effect on our business, financial condition and results of operations.
 
We depend on key personnel.
 
We believe that our success will depend, in part, upon our ability to attract and retain additional skilled personnel, which will require substantial additional funds. There can be no assurance that we will be able to find and attract additional qualified employees or retain any such personnel. Our inability to hire qualified personnel, the loss of services of our key personnel, or the loss of services of executive officers or key employees that that may be hired in the future may have a material and adverse effect on our business.
 
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.
 
 
6

 
 
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.
 
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.
 
 
7

 
 
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.
 
A recession in the U.S. and general downturn in the global economy may generate an adverse impact on our business, operating results or financial position.
 
The U.S. economy has experienced recessionary periods in the past and currently there is a general downturn in the global economy. A continuation or worsening of economic 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 with the symbol “NANM”. We cannot assure you, however, that this 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.

Risks Related to the Common Stock
 
Our stock price may be volatile, which could result in substantial losses for investors.
 
The market price of our common stock is likely to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
 
 
8

 
 
-  
technological innovations or new products and services by us to our competitors;
   
-  
additions or departures of key personnel;

-  
sales of our common stock, particularly under any registration statement for the purposes of selling any      other securities, including management shares;
   
-  
our ability to execute our business plan;

-  
operating results that fall below expectations;
   
-  
loss of any strategic relationship;

-  
industry developments;
   
-  
economic and other external factors; and

-  
period-to-period fluctuations in our financial results.
 
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also significantly affect the market price of our common stock.
 
We are subject to penny stock rules which will make the shares of our common stock more difficult to sell.
 
We are subject to the Securities and Exchange Commission’s “penny stock” rules since our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a per share price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
 
In addition, the penny stock rules require that prior to a transaction the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
 
There is, at present, only a limited market for our common stock and we cannot ensure investors that an active market for our common stock will ever develop or be sustained.
 
Our shares of common stock are thinly traded. Due to the illiquidity, the market price may not accurately reflect our relative value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Because our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business. In addition, our common stock currently trades on the OTC Markets Group, which generally lacks the liquidity, research coverage and institutional investor following of a national securities exchange like the Amex, the New York Stock Exchange or the Nasdaq Stock Market. While we intend to list our common stock on a national securities exchange once we satisfy the initial listing standards for such an exchange, we currently do not, and may not ever, satisfy such initial listing standards.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
 
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock. As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock.
 
 
9

 
 
In addition, if our shareholders sell substantial amounts of our common stock in the public market, upon the expiration of any statutory holding period under Rule 144, upon the expiration of lock-up periods applicable to outstanding shares, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, could also make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
 
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. As a result, any return on investment may be limited to the value of our common stock.
 
The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock will only occur if our stock price appreciates.

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, plus 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. In August 2013, the complainant was awarded $601,041, including interest and attorney fees. On April 15, 2014 the complainant and the Company agreed to settle the outstanding $601,041 judgment for 500,000 restricted common shares (valued at $0.025 per share on the date of the settlement) and $175,000 payable in three instalments ending on October 15, 2014. The Company has paid $20,000 to date. We are currently negotiating with Applied to determine a settlement amount with realistic payment terms.
 
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.  The Company has already recognized $15,763 as a liability at December 31, 2013.  We are currently in the Discovery process before trial in the late fall.

On or about May 8, 2012, the Company received a complaint from a certain former employee seeking collection of his charges as a distributor and as an employee in the amount of $409,525, plus interest and litigation expenses. The Company believes the likelihood of loss in this case is remote and intends to offset for certain expenditures made by the Company caused by this employee. The Company has already recognized $37,500 as a liability at December 31, 2013. We are currently in the Discovery process before trial in the fall.
 
 
10

 
 
ITEM  5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
As of July 23, 2015, we had approximately 2,000 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.

Our common stock is now quoted on the OTC Markets Group website under the symbol “NANM”. 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 OTC 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.
 
Fiscal Year 2013
 
High Bid
   
Low Bid
 
             
Quarter ended 12/31/13
 
$
0.022
   
$
0.01
 
Quarter ended 9/30/13
 
$
0.026
   
$
0.01
 
Quarter ended 6/30/13
 
$
0.27
   
$
0.022
 
Quarter ended 3/31/13
 
$
0.03
   
$
0.01
 
 
Fiscal Year 2012
 
High Bid
   
Low Bid
 
                 
Quarter ended 12/31/12
 
$
0.065
   
$
0.025
 
Quarter ended 9/30/12
 
$
0.06
   
$
0.021
 
Quarter ended 6/30/12
 
$
0.034
   
$
0.017
 
Quarter ended 3/31/12
 
$
0.06
   
$
0.0255
 

No private placements were made during 2013. During 2012, we sold 360,000 shares, as adjusted for the 1 for 10 reverse split, for $51,000 cash in private placements 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.
 
 
11

 
 
Overview
 
We are a healthcare product development and distribution company providing critical care and infection control products to a variety of market segments within the healthcare industry. 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 SilverCare Plus™ 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 SilverCare Plus™ products.
 
Results of Operations for the year ended December 31, 2013 compared to December 31, 2012
 
Revenues: We generated total revenues of $235,291 during 2013 compared with $454,513 in 2012. Sales were largely comprised of Nano Masks (53.1%) and anti-bacterial and anti-viral SilverCare Plus™ products (46.9%). The Company was a product development company until 2012, when sales of new products were begun. Sales were limited in 2013 since the Company was making a concerted effort to shift production from international to USA production facilities which will be allowing for significant cost reductions in 2015 and 2016.
 
Cost of Sales: Our cost of sales in fiscal 2013 was $179,112 to yield a gross profit margin of approximately 24%. Our cost of sales in 2012 was $328,032 to yield a gross profit margin of 28%. Recent successful cost reductions in our purchasing raw material and in the production process were not yet demonstrated in improved gross margins for 2013 compared to 2012.
 
Selling, General and Administrative (SG&A) Expenses: SG&A expenses for 2013 as compared to 2012 decreased by approximately $302,000 or 33%, primarily due to lower payroll expenses ($313,000) and lower auditing expenses ($29,000) which were, in part, offset by higher website development expenses ($30,000) and higher travel expenses ($10,000).
 
Other Income:  For 2013, we reported other income of $193,729 consisting of a $219,450 gain on settlement of vendor liabilities and a $26,973 gain from sale of an investment, offset marginally by interest expense of $42,090. For fiscal 2012, we reported other expense of $26,314 consisting primarily of interest expense exceeding gains from settlement of outstanding liabilities.

Depreciation and Amortization: During 2013, $191 was recognized as depreciation expense, compared with $498 recorded in 2012.
 
Research and Development (R&D) Costs: R & D expenditures for the years ended December 31, 2013 and 2012 were very similar, $16,268 and $3,379, respectively. 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 $425,930 for fiscal 2013 compared to a net loss of $831,119 in the prior year. The decrease in net loss in fiscal 2013 was primarily from expiry under applicable statutes of limitation and significant reductions in payroll expenses.

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, 2013 and 2012 was funded primarily by the sale of common stock for cash, issuance of notes payable or advances from related parties. 360,000 shares were issued in 2012 for $51,000 cash received in a private placement offering from four individual investors.
 
 
12

 
 
Cash Flows from Operating Activities: The cash outflow totaled $250,816 in 2013 compared to a cash outflow of $226,252 in 2012, primarily due to significantly lower selling, general and administrative expenses offset, in part, by higher gains from settlement and expiry of vendor liabilities and notes payable during 2012.

Cash Flows from Investing Activities: $933 was used for the purchase of equipment during 2013, but no cash was used in investing activities during the prior year.
 
Cash Flows from Financing Activities: Cash flows from financing activities in fiscal 2013 totaled $243,000 compared to $174,157 in 2012. The Company obtained advances from executive officers amounting to $213,000 in 2013 compared to $119,700 in 2012.
 
Beginning in 2008, the United States experienced a severe and widespread recession accompanied by, among other things, instability in the financial markets and reduced credit availability which could 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, the Company adopted a stock option and award plan (the "Plan") under which options to acquire the Company’s common stock or bonus stock could be granted to employees, including officers and directors, or to other individuals who contributed to the Company’s success but who were not employees. As of December 31, 2013 and 2012, 147,900 shares of common stock had been issued pursuant to the Plan. All related compensation expense was recognized in years prior to 2012. The Board of Directors approved the dissolution of the Plan as of December 27, 2012.

We need to raise additional capital during 2015 and 2016 to sustain operations. These funds will be required to sustain our development and marketing efforts to sell our SilverCare Plus™ 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.
 
We are 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.

Effect of Inflation, Deflation and Interest Rates

At this time, we do not expect that either inflation, deflation 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.
 
 
13

 
 
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. Effective January 1, 2014 the Board of Directors authorized issuance of its common stock at the higher of $0.15 per share or of the trailing thirty-day average of its closing price. 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.

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.
 
 
14

 
 
 
Recent accounting pronouncements

In August 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures.
 
The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's financial statements.
 
In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20),” which eliminates the concept of extraordinary items. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. The new guidance is to be applied prospectively but may also be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We expect to adopt the provisions of this new guidance on January 1, 2015. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
 
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, 2013, 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.
 
 
15

 
 
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
 
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. Also, based upon that evaluation, our principal executive and financial officers have concluded that our company’s controls and procedures over financial reporting are inadequate at the end of the period covered by this report.

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.
 
There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
 
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.

 
16

 
 
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, 2013 that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B   OTHER INFORMATION

None
 
 
17

 
 
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:

Name
 
Age
 
Position
 
Periods Held From and To
Edward Suydam
 
58
 
Chief Executive Officer: Director
 
March, 2010 – Present
Michael J. Marx
 
70
 
Chief Financial Officer; Director
 
December, 2009 – August 19, 2013 and re-appointed on November 1, 2013 – Present
Marc Kahn
 
59
 
Chief Medical Officer; Director
 
June, 2009 – August 19, 2013 and re-appointed as a Director December 1, 2013
David J. Willoughby
 
52
 
Vice President, Marketing & Sales; Director
 
July, 2011 – August 9, 2013
Vicki L. Aksland
 
48
 
Director
 
July, 2011 – August 19, 2013
Mark Cox
 
50
 
Director
 
February, 2010 – September 30, 2012
Hassan Bennani
 
49
 
Director
 
January 1, 2013 – May 31, 2013
 
The principal occupation and business experience for each of the current and past directors and executive officers  follows below:
 
Edward J. Suydam was appointed as Chief Executive Officer (“CEO”) and president, effective March 1, 2010. Mr. Suydam previously 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.
 
 
18

 

Michael J. Marx was appointed as the Company’s Chief Financial Officer (“CFO”) in December 2009. Mr. Marx served as 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 until February 2014 when he sold the practice. 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). Mr. Kahn resigned on August 8, 2013 as the Chief Medical Officer and as a Director. On December 1, 2013 he was re-appointed as Director.

David J. Willoughby, Vice President - Marketing & Sales, was appointed on July 1, 2011. He had 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. Mr. Willoughby resigned on August 9, 2013.

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. Mark resigned effective September 30, 2012.

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.
 
 
19

 
 
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. Ms. Aksland resigned effective August 8, 2013. Vicki was re-appointed in January 2014 as the Executive Assistant for the Company until September, 2014. She now serves the Company, as needed, for projects.
 
Hassan Bennani, MD, was appointed as a Director effective January 1, 2013. Dr. Bennani, MD, is the co-founder and CEO of KellBenx, Incorporated, a closely held Long Island, NY based biotechnology company focused on women's healthcare, concentrating on the development of a patented breakthrough non-invasive prenatal diagnostic (NIPD) for analyzing genetic disorders and a patent pending breakthrough test to determine a woman's risk of preterm delivery. Dr. Bennani was previously the head of business development at Lenetix, a women's health focused lab acquired by Bio-Reference Laboratories. Prior to that, Dr. Bennani was a Vice President of Sales and Marketing for Adeza Biomedical Corporation, which was acquired by Hologic. Dr. Bennani resigned effective May 31, 2013.
 
Our current directors, Edward Suydam and Michael Marx, serve the Company in various capacities and, therefore, are not deemed to be independent. Director Marc Kahn having been an officer during the last three years is not currently deemed independent.

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 four times via telephone during 2013.
 
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 maintains an Audit and Compensation Committee. Michael J. Marx and Marc Kahn, one of whom is independent of management, comprise this 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:

 
20

 
 
 
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.

Components of Executive Compensation for 2013 and 2012
 
Our executive employment agreements for 2013 and 2012 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.

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. Effective January 1, 2014 the Board of Directors authorized issuance of its common stock at the higher of $0.15 per share or of the trailing thirty-day average of its closing price. The Board of Directors reserves the right to either pay in cash or in restricted common stock at its option.
 
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.

 
21

 
 
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, 2013 and 2012.

Summary Compensation Table
 
 
Name and Principal Position
 
 
Year
 
 
Salary ($)
   
 
Bonus ($)
   
All Other Compensation ($) (3)
   
 
Total ($)
 
                             
Edward Suydam, Chief Executive Officer
 
2013
 
$
150,000
   
$
-
   
$
5,769
   
$
155,769
 
   
2012
 
$
150,000
   
$
15,000
   
$
5,769
   
$
181,186
 
                                     
Michael J. Marx, Chief Financial Officer (1)
 
2013
 
$
66,667
   
$
-
   
$
2,564
   
$
69,231
 
   
2012
 
$
80,000
   
$
40,000
   
$
3,077
   
$
92,821
 
                                     
Marc Kahn, Chief Medical Officer (1)
 
2013
 
$
53,333
   
$
-
   
$
2,051
   
$
55,384
 
   
2012
 
$
80,000
   
$
40,000
   
$
3,077
   
$
95,898
 
                                     
David Willoughby, VP Marketing & Sales (2)
 
2013
 
$
60,753
   
$
-
   
$
2,337
   
$
63,090
 
   
2012
 
$
100,000
   
$
50,000
   
$
3,846
   
$
63,056
 

(1) Resigned on August 19, 2013. Mr. Marx was re-appointed on November 1, 2013.
(2) Resigned on August 9, 2013.
(2) Represents accrued vacation pay at December 31, 2013 and 2012
 
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, 2013:
 
Name
 
Fees Earned or Paid in Cash
(In $)
   
Stock
Awards
(In $)
   
Option
Awards
(In $)
   
Non-Equity Incentive Plan Compensation
(In $)
   
Non-
Qualified Deferred
Compensation Earnings
(In $)
   
All Other Compensation
(In $)
   
Total
(In $)
 
Edward Suydam
 
 $
    1,200
     
-
     
-
     
-
     
-
     
-
   
1,200
 
Michael J. Marx
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Marc Kahn
 
$
1,250
     
-
     
-
     
-
     
-
     
-
   
$
1,250
 
Vicki Aksland
 
$
8,750
     
-
     
-
     
-
     
-
     
-
   
$
8,750
 
Hassan Bennani
 
$
6,250
     
-
     
-
     
-
     
-
     
-
   
$
6,250
 

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. Each director receives $15,000 per year as a fee for their service as directors.

 
22

 

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 July 23, 2015, 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 24,269,118 shares of our common stock issued and outstanding:
 
Securities Ownership of Officers and Directors
 
Title of Class
 
Name and Title
 
Number of Shares
   
% of Class
 
                 
Common
 
Edward Suydam
   
5,726,422
     
23.57
%
    President and Chief Executive Officer                
                     
Common
 
Michael J. Marx
   
3,645,073
     
15.00
%
    Chief Financial Officer                
                     
Common
 
Marc Kahn
   
5,571,463
     
22.93
%
    Director                
                     
   
Total (3 persons)
   
14,942,958
     
61.51
%
 
Disclosure Regarding the Company's Equity Compensation Plans

In 2004, the Company adopted a stock option and award plan (the "Plan") under which options to acquire the Company’s common stock or bonus stock could be granted to employees, including officers and directors, or to other individuals who contributed to the Company’s success but who were not employees. As of December 31, 2013 and 2012, 147,900 shares of common stock had been issued pursuant to the Plan. All related compensation expense was recognized in years prior to 2012. The Board of Directors approved the dissolution of the Plan as of December 27, 2012.

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following related party transactions occurred during the years ended December 31, 2013 and 2012 which are required to be disclosed pursuant to Item 404 of Regulation S-K.

 
23

 

Stock Issuances to Related Parties
 
Name and Principal Position
 
Year
 
Compensation in Common Shares
   
Loan Conversions, Expense Reimbursements and Cash Proceeds (2)
   
Total Common Shares Issued
 
                       
Edward Suydam,
 
2013
    -       -       -  
Chief Executive Officer
 
2012
    391,487       -       391,487  
                             
Michael J. Marx,
 
2013
    -       -       -  
Chief Financial Officer (1)
 
2012
    287,688       114,789       402,477  
                             
Marc Kahn,
 
2013
    -       -       -  
Chief Medical Officer (1)
 
2012
    294,377       240,000       534,377  
                             
David Willoughby,
 
2013
    465,909       -       465,909  
Vice President, Marketing & Sales (1)
 
2012
    309,026       -       309,026  
                             
Mark Cox,
 
2013
    -       -       -  
Director (2)
 
2012
    20,430       -       20,430  
                             
Vicki Aksland,
 
2013
    -       -       -  
Director (1)
 
2012
    56,277       -       56,277  
 
 (1) Ms. Aksland, Mr. Kahn and Mr. Marx, all resigned effective August 19, 2013. Mr. Willoughby resigned effective August 9, 2013. Mr. Marx was re-appointed on November 1, 2013 as an officer and a Director. Mr. Kahn was re-appointed on December 1, 2013 as a Director. Ms. Aksland was re-appointed Executive Assistant effective January 15, 2014 and effective October 1, 2014 she serves as contracted.

(2) Mr. Cox resigned effective September 30, 2012.
 
Director Mark Cox was deemed to be independent. Director Hassan Bennani was appointed January 1, 2013 and was deemed to be independent. Director Vicki Aksland performs consulting services as requested and may not be deemed independent. Director Marc Kahn after his appointment on December 1, 2013 is not 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

(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 2013 was approximately $30,000 and $30,000 for fiscal year 2012.
(2)
Audit-Related Fees – The aggregate fees billed for professional audit-related services rendered by MB during fiscal year 2013 and 2012 were both $0.
(3)
Tax Fees – None
(4)
All Other Fees -- None
 
 
24

 
 
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
 
27
Balance sheets as of December 31, 2013 and 2012
 
28
Statements of operations for the years ended December 31, 2013 and 2012
 
29
Statements of stockholders' equity deficiency for the years ended December 31, 2013 and 2012
 
30
Statements of cash flows for the years ended December 31, 2013 and 2012
 
31
Notes to the financial statements
 
33

(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:

Exhibit No.
 
Description
     
3.1*
 
Articles of Incorporation
3.2*
 
Bylaws
4.1*
 
Specimen stock certificate
10.1*
 
Form of Executive Compensation Agreement
31.01
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02
 
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
 
XBRL INSTANCE DOCUMENT
101.SCH
 
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL
 
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF
 
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB
 
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE
 
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
 
*Filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, 
 
 
25

 
 
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.
 
 
NMI HEALTH, INC.
 
       
July 23, 2015
By:
/s/ Edward Suydam
 
   
Edward Suydam,
 
   
Chief Executive Officer (Principal Executive Officer) and Director
 
       
July 23, 2015
     
 
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 23, 2015
         
/s/ Michael J. Marx
 
Chief Financial Officer and Director
 
July 23, 2015
         
/s/ Marc Kahn
 
Director
 
July 23, 2015
 
 
 
26

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors
NMI Health, Inc.
Reno, Nevada
 
We have audited the accompanying balance sheets of NMI Health, Inc. (the “Company”) as of December 31, 2013 and December 31, 2012, 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, 2013 and December 31, 2012, 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.
 

 
/s/ MaloneBailey, LLP
MaloneBailey, LLP
Houston, Texas
 
July 23, 2015

 
27

 
 
NMI HEALTH, INC.
Balance Sheets
December 31, 2013 and December 31, 2012
 
ASSETS
     
   
2013
   
2012
 
CURRENT ASSETS
           
Cash
 
$
660
   
$
9,409
 
Other receivable
   
7,553
     
-
 
Prepaid expenses and other
   
30,000
     
-
 
Inventory, net
   
-
     
42,165
 
                 
Total current assets
   
38,213
     
51,574
 
                 
FIXED ASSETS
               
Equipment
   
933
     
973
 
Accumulated depreciation
   
(78
)
   
(519
)
     
855
     
454
 
OTHER ASSETS
               
Non-performing assets
   
4,230
     
4,230
 
                 
Total assets
 
$
43,298
   
$
56,258
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Customer advances
 
$
15,047
   
$
12,545
 
Accounts payable
   
205,517
     
449,331
 
Accounts payable – related party
   
7,707
     
10,380
 
Advances from related party
   
420,200
     
207,200
 
Accrued expenses
   
775,390
     
687,336
 
Notes payable
   
710,058
     
521,157
 
Note payable - related party
   
-
     
25,000
 
                 
Total current liabilities
   
2,133,919
     
1,912,949
 
                 
LONG TERM LIABILITIES
 
 
 
 
 
 
 
 
Note payable - related party
   
30,000
     
-
 
Total long term liabilities
   
30,000
     
-
 
                 
Total liabilities
   
2,163,919
     
1,912,949
 
                 
STOCKHOLDERS' DEFICIT
               
Common stock, $.001 par, 100,000,000 shares authorized;
               
10,465,619 outstanding in 2013 and 9,869,544 outstanding in 2012
   
10,466
     
9,870
 
Additional paid-in capital
   
21,874,494
     
21,713,090
 
Accumulated deficit
   
(24,005,581
)
   
(23,579,651
)
                 
Total stockholders’ deficit
   
(2,120,621
)
   
(1,856,691
)
                 
Total liabilities and stockholders’ deficit
 
$
43,298
   
$
56,258
 
 
The accompanying notes are an integral part of these financial statements
 
 
28

 
 
NMI HEALTH, INC.
Statements of Operations
For the years ended December 31, 2013 and 2012
 
   
2013
   
2012
 
             
NET SALES
 
$
235,291
   
$
454,513
 
                 
COSTS AND EXPENSES
               
Cost of Sales
   
179,112
     
328,032
 
Research and development
   
16,268
     
3,379
 
Selling, general and administrative
   
618,016
     
920,298
 
Provision for inventory obsolescence
   
41,554
     
7,609
 
                 
LOSS FROM OPERATIONS
   
(619,659
)
   
(804,805
)
                 
OTHER INCOME (EXPENSE)
               
Interest expense
   
(42,090
)
   
(43,598
)
Gain from sale of investment
   
26,973
     
-
 
Gain on settlement of vendor liabilities and other
   
208,846
     
17,284
 
                 
Total other income (expense)
   
193,729
     
(26,314
)
                 
NET LOSS
 
$
(425,930
)
 
$
(831,119
)
                 
BASIC AND DILUTED LOSS PER SHARE
 
$
(0.04
)
 
$
(0.09
)
                 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
   
10,178,453
     
8,912,950
 

The accompanying notes are an integral part of these financial statements
 
 
29

 
 
NMI HEALTH, INC.
Statements of Stockholders' Deficit
For the Years Ended December 31, 2013 and 2012
 
                     
Total
 
   
Common Stock
   
Additional
   
Accumulated
   
Stockholders'
 
   
Shares
   
Dollars
   
paid in capital
   
deficit
   
Deficit
 
Balances, December 31, 2011
   
8,024,970
   
 $
8,025
   
$
21,200,026
   
$
(22,748,532
)
 
$
(1,540,481
)
Common stock issued for cash
   
360,000
     
360
     
50,640
             
51,000
 
Common stock issued for settlement of accounts payable and accrued liabilities
   
508,567
     
509
     
169,354
             
169,863
 
Common stock issued for settlement of related party accounts payable
   
29,010
     
29
     
8,674
             
8,703
 
Common stock issued for advances from related parties
   
40,000
     
40
     
3,960
             
4,000
 
Common stock issued for services
   
881,218
     
881
     
274,017
             
274,898
 
Common stock issued for reimbursed expenses
   
25,779
     
26
     
6,419
             
6,445
 
Net loss
   
-
     
-
     
-
     
(831,119
)
   
(831,119
)
Balances, December 31, 2012
   
9,869,544
   
$
9,870
   
$
21,713,090
   
$
(23,579,651
)
 
$
(1,856,691
)
Additional shares required to permit reverse split
   
166
     
-
     
-
                 
Common stock issued for settlement of related party note payable
   
130,000
     
130
     
38,870
             
39,000
 
Common stock issued for prior services
   
465,909
     
466
     
122,534
             
123,000
 
Net loss
   
-
     
-
     
-
     
(425,930
)
   
(425,930
)
Balances, December 31, 2013
   
10,465,619
   
$
10,466
   
$
21,874,494
   
$
(24,005,581
)
 
$
(2,120,621
)
 
The accompanying notes are an integral part of these financial statements.
 
 
30

 
 
NMI HEALTH, INC.
Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
 
   
2013
   
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
             
Net loss
 
$
(425,930
)
 
$
(831,119
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
191
     
498
 
Provision for bad debt
   
1,514
     
-
 
Provision for inventory obsolescence
   
41,554
     
7,609
 
Loss on disposition of equipment
   
341
     
-
 
Loss on debt settlement
   
10,604
         
Common stock issued for services rendered
   
-
     
274,898
 
Common stock issued for company expenses incurred
   
-
     
6,445
 
Gain on settlement of vendor liabilities
   
(219,450
)
   
(17,284
)
Changes in operating assets and liabilities:
               
Accounts receivable, net
   
(1,514
   
422
 
Other receivable
   
(7,553
   
-
 
Prepaid expenses and other
   
(30,000
)
   
14,543
 
Inventory
   
611
     
(35,317
)
Customer advances
   
2,502
     
(137,972
)
Accounts payable
   
164,536
     
25,279
 
Accounts payable - related parties
    (2,673     -  
Accrued expenses
   
214,451
     
465,746
 
                 
Net cash (used in) operating activities
   
(250,816
)
   
(226,252
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equipment
   
(933
   
-
 
Cash used in investing activities
   
(933
)
   
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from advances of related parties
   
213,000
     
119,700
 
Proceeds from issuance of related party short-term note payable
   
30,000
     
-
 
Proceeds from issuance of short-term note payable
   
-
     
5,149
 
Repayments of short-term note payable
   
-
     
(1,692
Proceeds from the issuance of common shares
   
-
     
51,000
 
                 
Net cash provided by financing activities
   
243,000
     
174,157
 
                 
NET INCREASE (DECREASE) IN CASH
   
(8,749
)
   
(52,095
)
                 
CASH, BEGINNING OF YEAR
   
9,409
     
61,504
 
                 
CASH, END OF YEAR
 
$
660
   
$
9,409
 

The accompanying notes are an integral part of these financial statements.
 
 
31

 
 
NMI HEALTH, INC.
Statements of Cash Flows (Continued)
For the Years Ended December 31, 2013 and 2012
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           
Cash paid for interest
 
$
-
   
$
311
 
Cash paid for income taxes
   
-
     
-
 
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
               
Reduction of note payable due to a reduction in prepaid insurance
 
$
-
   
$
3,457
 
Increase in notes payable due to reduction in accounts payable and accrued liabilities
   
264,600
     
-
 
Common stock issued for prior year services rendered
   
123,000
     
-
 
Common stock issued for settlement of accounts payable and accrued liabilities
   
-
     
169,863
 
Common stock issued for note payable and accrued liabilities
   
28,396
     
-
 
Common stock issued for settlement of related party advances
   
-
     
4,000
 
Property reclassified to other assets
   
-
     
4,230
 
Common stock issued for settlement of related party accounts payable
   
-
     
8,703
 
Note payable reclassified from long-term note to short-term note
   
-
     
23,430
 
 
The accompanying notes are an integral part of these financial statements.
 
 
32

 
 
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
 
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of business
 
NMI Health, 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 health and hospitality industries.
 
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   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.  During 2013 and 2012, respectively, the Company provided $41,544 and $7,609 in inventory obsolescence for items no longer saleable.
 
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.
 
 
33

 
 
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.
 
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, 2013 and 2012.
 
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.
 
 
34

 
 
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 2: NOTES PAYABLE

In August, 2013 a judgment was awarded to Applied Nanoscience, Inc. against the Company in the amount of $601,041, including interest and attorney fees. The Company transferred $188,901 from this vendor’s payable and related accrued interest to accommodate the increase in the judgement amount and, in addition, recognized $75,699 in gains from reversing excess prior year amounts for accrued interest and vendor payables.
 
The Company maintains various unsecured short-term loans and notes payable totaling $710,058 at December 31, 2013 ($521,157 at December 31, 2012), including a $601,041 judgment from Applied Nanoscience, Inc. (Note 6, Litigation). $656,628 of the $710,058 is in default and bears annual interest of 6% to 10%, or the prime rate plus 2%, currently 5.25%.
 
A significant shareholder loaned the Company $25,000 with interest at prime, plus 2%, payable in six months from February 22, 2012. On August 1, 2013, the shareholder converted this note of $25,000, plus interest of $3,396, into 130,000 common shares. A $10,604 loss on settlement of debt was generated, inasmuch as the fair value exceeded the carrying value of such debt. On September 24, 2013 the same shareholder provided an unsecured two year note of $30,000, plus interest at an annual rate of 10%.
 
At December 31, 2013, all notes payable continue to bear interest according to their original terms.

Interest expense for 2013 totaled $42,090 for which no interest payments were paid during the year. This compares with $43,598 interest expense incurred during 2012 of which $311 in cash payments were made during the year.

NOTE 3: SHARE-BASED TRANSACTIONS
 
Restricted shares 

On March 26, 2013 a majority of shareholders approved a 1 for 10 reverse split of its outstanding shares. The number of authorized shares remains at 100,000,000 common shares. In addition, the Company name was changed to NMI Health, Inc.

The following table summarizes the restricted share issuances during the years ended December 31, 2013 and 2012:
 
Summary of Stock Issuances during the Years ended December 31, 2013 and 2012
 
   
Settlement of Accounts Payable and Accrued Liabilities
   
Settlement of Advances and Note Payables
-Related Party
    Compensation and Expenses     Cash from Offerings  
Year Ended Dec. 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  
2013
    -       -       -       130,000     $ 39,000     $ 28,396       465,909     $ 123,000       -       -         -  
                                                                                         
2012
    508,567     $ 169,863     $ 172,228       690,099     $ 12,703     $ 12,703       906,998     $ 281,343       360,000     $ 51,000     $ 51,000  
 
During 2013, a significant shareholder converted his note of $25,000, plus interest of $3,396, into 130,000 common shares. A $10,604 loss on settlement of debt was generated, inasmuch as the fair value exceeded the carrying value of such debt.
 
 
35

 
 
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 3: SHARE-BASED TRANSACTIONS (CONTINUED)

During 2013, 465,909 shares were issued to an executive officer with a fair value of $123,000 for services incurred during the prior year. During 2012, a total of 906,998 shares were issued with a fair value of $281,343 for services and operating expenses reimbursed during the year.

For 2012, the Company issued 508,567 shares with a fair value of $169,863 to settle unrelated party accounts payable and prior period accrued payroll liabilities. An additional gain of $14,919 was generated from the expiration of applicable statutes of limitations. Further, the Company issued 690,099 shares with a fair value of $12,703 to settle advances and payables to related party with the same amount of carrying value.
 
While there were no cash proceeds generated from private placements during 2013, the Company in 2012 issued 360,000 shares of common stock for the $51,000 in cash proceeds received from four individual investors in private placements.
 
Warrants   442,083 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 2012. 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, 2013. No further warrants have been issued in 2013 or 2012.
 
Stock options  In 2004, the Company adopted a stock option and award plan (the "Plan") under which options to acquire the Company’s common stock or bonus stock could be granted to employees, including officers and directors, or to other individuals who contributed to the Company’s success but who were not employees. As of December 31, 2013 and 2012, 147,900 shares of common stock had been issued pursuant to the Plan. All related compensation expense was recognized in years prior to 2012. The Board of Directors approved the dissolution of the Plan as of December 27, 2012.

A summary of the status of our outstanding stock options at December 31, 2013 and December 31, 2012 and the related changes during the periods then ended is presented below:
 
   
December 31, 2013
               
December 31, 2012
             
   
 
Shares
   
Weighted-Average Exercise Price
   
Weighted – Average Remaining Life (Years)
   
Aggregate Intrinsic Value
   
 
Shares
   
Weighted-Average Exercise Price
   
Weighted – Average Remaining Life (Years)
   
Aggregate Intrinsic Value
 
Outstanding beginning of period
   
25,000
    $
0.76
     
1.07
     
-
     
25,000
    $
0.76
     
2.07
     
-
 
Granted
   
-
     
-
             
-
     
-
                     
-
 
Expired/Cancelled
   
-
     
-
             
-
     
-
                     
-
 
Exercised
   
-
     
-
             
-
     
-
                     
-
 
Outstanding end of period
   
25,000
    $
0.76
     
.07
     
-
     
25,000
    $
0.76
     
1.07
     
-
 
Exercisable
   
25,000
    $
0.76
     
.07
     
-
     
25,000
    $
0.76
     
1.07
     
-
 
 
 
36

 

NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 4: INCOME TAX
 
At December 31, 2013, the Company had net operating loss carry-forwards of approximately $13,954,435 that may be used to offset future taxable income. These operating loss carry-forwards expire in the years 2014 through 2033.

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. Section 382 limits the use of net operating losses where a change of control has occurred.

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 $4,744,508 is effectively offset by a 100% valuation allowance primarily because there is no certainty that the Company will generate profits to permit use of these  net operating loss carry-forwards.

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:

   
2013
   
2012
 
Income tax benefit at statutory rate
 
$
144,816
   
$
282,580
 
Timing differences between book and tax depreciation
   
135
     
(154
)
Timing differences in inventory obsolescence recognition
   
(14,128
)
   
(2,587
)
Reversal of prior year inventory obsolescence recognition
   
29,782
     
-
 
Loss on disposition of equipment
   
(61
)
   
-
 
Loss on debt settlement
   
(3,605
)
      -  
Expiration of net operating loss carry-backs
   
(75,554
)
   
(271,209
)
Non-deductible expenses from common stock issued for services rendered
   
(41,820
)
   
(93,466
)
     
39,565
     
(84,836
)
Change in valuation allowance
   
(39,565
   
84,836
 
   
$
-
   
$
-
 
 
Deferred tax assets are comprised of the following at December 31, 2013 and 2012:
 
   
2013
   
2012
 
Operating loss carry forwards
 
$
4,744,508
   
$
4,704,943
 
Less valuation allowance
   
(4,744,508
)
   
(4,704,943
)
Net deferred tax assets
 
$
-
   
$
-
 

Such deferred tax assets expire as follows:
 
2014 - 2018     $ 200,186  
2019 - 2023     $ 991,459  
2024 - 2028     $ 2,778,343  
2029 - 2033     $ 774,520  
Total deferred tax assets     $ 4,744,508  
 
 
37

 
                                          
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

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, 2012, the Company countersued for breach of contract and related claims. The Company has maintained 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 2, Notes Payable). In August 2013, the complainant was awarded $601,041, including interest and attorney fees. On April 15, 2014, the complainant and the Company agreed to settle the outstanding $601,041 judgment for 500,000 restricted common shares (valued at $0.025 per share on the date of the settlement) and $175,000 payable in three instalments ending on October 15, 2014. The Company has paid $20,000 to date. We are currently negotiating with Applied to determine a settlement amount with realistic payment terms.

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 is actively pursuing dismissal of the complaint at this time. The Company has already recognized $15,763 as a liability at December 31, 2013. We are currently in the Discovery process before trial in the late fall.

On or about May 8, 2012, the Company received a complaint from a certain former employee seeking collection of his charges as a distributor and as an employee in the amount of $409,525, plus interest and litigation expenses. The Company believes the likelihood of loss in this case is remote and intends to offset for certain expenditures made by the Company caused by this employee. The Company has already recognized $37,500 as a liability at this time. We are currently in the Discovery process before trial in the fall.
 
Employment agreements   At December 31, 2013, the Company has current employment agreements with certain officers with a remaining commitment of approximately $652,603, of which $595,103 has been paid during 2014.
 
NOTE 6: OTHER TRANSACTIONS

Related parties
 
Advances from related parties are summarized as follows:
 
Balance, January 1, 2012
 
$
91,500
 
2012 advances
   
119,700
 
Non-cash repayments
   
     (4,000
)
Balance, December 31, 2012
   
207,200
 
2013 advances
   
213,000
 
Repayments
   
-
 
Balance, December 31, 2013
 
$
420,200
 

 
38

 
                                          
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 6: OTHER TRANSACTIONS (CONTINUED)

Related parties (Continued)

As of December 31, 2013, the Company has a balance of $7,707 owed to one officer for the expenses he incurred on behalf of the Company, which was recorded as related party accounts payable. During 2012, one officer paid $6,445 expense for the Company and was reimbursed with 25,779 shares of common stock at a fair value of the same amount. As of December 31, 2012, the Company has a related party accounts payable balance of $10,380 to two officers for the expenses paid on behalf of the Company. During 2012, the Company issued 290,099 shares with a fair value of $8,703 to pay off the related party accounts payable balance.
 
During 2012, the Company issued 260,000 shares to two officers for cash proceeds of $26,000.

Other

The Company sold an interest in a mutual insurance company that generated a gain of $26,973. The Company also settled vendor liabilities for a gain of $219,450.  These gains were offset, in part, by a loss of $10,604 on a debt settlement.
 
NOTE 7: SUBSEQUENT EVENTS
 
Subsequent to December 31, 2013, the Company received cash advances from an affiliate shareholder of $56,400.
 
On April 15, 2014 a note from a significant shareholder for $30,000 including interest of $1,696 was converted into 633,921 common shares. Also, on May 15, 2014 the same shareholder provided $20,000 cash for an unsecured note payable from the Company with an annual interest rate of 10% maturing in twenty-four months.
 
Also on April 15, 2014, Applied Nanoscience, Inc. and the Company agreed to settle the outstanding $601,041 judgment for 500,000 restricted common shares (valued at $0.025 per share on the date of the settlement) and $175,000 payable in three instalments ending on October 15, 2014. The Company has paid $20,000 to date.
 
Finally on April 15, 2014 the Company authorized the issuance of 4,602,810 common shares to Company officers and employees at a value of $0.15 per share in satisfaction of accrued payroll and director fees. And on the same date, 500,000 common shares valued at $12,500 were awarded to two individuals for services performed.
 
During the two months ended June 30, 2014, 75,000 shares of common stock were issued in a private placement to two individual investors for $15,000 in cash. Also, during the three months ended December 31, 2014, an additional 150,000 common shares were issued in a private placement to two individuals for $30,000 in cash.  In the six months ended June 30, 2015, another 105,000 common shares were issued in private placements with four individuals for $21,000 in cash.
 
On October 9, 2014 the Company issued 2,222,000 common shares to an affiliate shareholder in settlement of his unsecured loan of $444,400. Also, on the same date officers and employees agreed to receive 874,820 common shares to settle $131,223 in accrued payroll.
 
 
39

 
 
NMI HEALTH, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

NOTE 7: SUBSEQUENT EVENTS (CONTINUED)
 
In the six months ended December 31 2014, 400,000 restricted shares were issued to three individuals for services performed in the amount of $68,000.
In January 2015, 2,395,160 common shares were issued to satisfy payroll and director fees through December 2014. On the same date, $18,000 in unsecured loans made by an affiliate shareholder was converted into 90,000 common shares. Also, a consultant was paid $9,314 for website development costs. This was settled with 54,788 common shares. In addition, two executive officers received 625,000 common shares as an integral part of their employment agreements in January 2015.
 
In April 2015, a consultant received 500,000 shares as consideration for his services performed in the amount of $75,000.
 
In June 2015 a shareholder extended a two year note payable of $5,000, plus interest at an annual rate of 10%, convertible into shares of common stock at a conversion rate of $0.10 per share. Also, in June a consultant received 100,000 common shares as an integral part of his employment agreement.
 
Subsequent to December 31, 2013 the Company generated $40,460 in gains from expiry of certain accounts payable under applicable statutes of limitations. Also, the Company generated gains of $435, 688 from settlement of a note payable.
 
40