Attached files
file | filename |
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EX-31.1 - 06MAR 10Q/A1 PRIN EXEC 302 CERT - NMI Health, Inc. | f06mqa1x311.htm |
EX-31.2 - 06MAR 10Q/A1 PRIN FIN 302 CERT - NMI Health, Inc. | f06mqa1x312.htm |
EX-32.2 - 06MAR 10Q/A1 PRIN FIN 906 CERT - NMI Health, Inc. | f06mqa1x322.htm |
EX-32.1 - 06MAR 10Q/A1 PRIN EXEC 906 CERT - NMI Health, Inc. | f06mqa1x321.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
AMENDMENT NUMBER 1 TO
FORM 10-QSB /A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to_________
Commission File No. 000-27421
NANO MASK,
INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
(Formerly, Emergency Filtration Products, Inc.)
NEVADA | 87-0561647 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
50 West Liberty Street, Ste 880, Reno, NV
|
89501
|
(Address of principal executive offices) | (Zip code) |
Issuer's telephone number, including area code:
(209) 249-4325
Title of each class | Name of each exchange on which registered |
None | N/A |
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
At
December 31, 2009,
there were outstanding
53,571,536
shares of the Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
This amendment to Form 10-QSB for the period ended March 31, 2006 is to reflect restatements to correct errors in historical financial information. For additional information, please refer to the Companys filed Form 10-KSB for the year ended December 31, 2006, except as noted herein. This amendment filing was delayed due to the Companys limited financial resources and management turnover.
PART I
FINANCIAL INFORMATION
Table of Contents | Page |
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Part I Financial Information |
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Item 1. Financial Statements |
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Balance Sheets March 31, 2006 (Unaudited) (Restated) and December 31, 2005 | 3 |
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Statements of Operations (Unaudited) for the three months ended March 31, 2006 (Restated) and 2005 | 4 |
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Statements of Cash Flows (Unaudited) for the three months ended March 31, 2006 (Restated) and 2005 | 5 |
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Notes to the Restated Financial Statements (Unaudited) | 6 |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
9
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Item 3. Controls and Procedures | 13 |
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Part II Other Information |
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Item 1. Legal Proceedings |
14
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
15
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Item 3. Defaults by the Company on its Senior Securities |
15
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Item 4. Submission of Matter to a Vote of Security Holders |
15
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Item 5. Other Information |
15
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Item 6. Exhibits |
15
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Signatures |
15
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NANO MASK
(Formerly, Emergency Filtration Products, Inc.) Balance Sheets March 31, 2006 and December 31, 2005 | ||||||||||
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| March 31, |
| December 31, | |||
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| 2006 |
| 2005 | |||
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| (Unaudited) |
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ASSETS |
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| (Restated) |
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CURRENT ASSETS |
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| Cash and cash equivalents |
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| $ 150,904 |
| $ 467,512 | ||||
| Accounts receivable, net of an allowance for doubtful accounts of $23,500 and $4,025 |
|
305,977
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| 418,588 | |||||
| Inventory |
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571,908
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| 217,985 | ||||
| Prepaid expenses and other |
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| 141,060 |
| 131,475 | ||||
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1,169,849
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| 1,235,560 | |||
PROPERTY AND EQUIPMENT, net of accumulated depreciation |
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| of $230,164 and $210,677 |
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| 305,193 |
| 302,356 | ||||
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OTHER ASSETS |
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| Patents and acquired technology, net of accumulated amortization of $235,996 and $217,417 | 878,791 |
| 897,370 | ||||||
| Other |
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| 8,308 |
| 3,462 | ||||
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| 887,099 |
| 900,832 | |||
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| $
2,362,141
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| $ 2,438,748 | |||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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| Accounts payable, related parties |
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| $ 41,737 |
| $ 21,737 | ||||
| Accounts payable, other |
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| 300,708 |
| 190,537 | ||||
| Accrued expenses |
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96,791
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| 149,055 | ||||
| Notes payable |
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| 10,452 |
| 20,693 | ||||
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449,688
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| 382,022 | |||
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STOCKHOLDERS' EQUITY |
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| Common stock, 50,000,000 shares authorized of $0.001 par value, 39,656,988 and 39,241,988 shares issued and outstanding |
| 39,657 |
| 39,242 | |||||
| Additional paid-in capital |
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13,574,279
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| 13,450,194 | ||||
| Deferred compensation |
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| (36,000) |
| (42,000) | ||||
| Deficit |
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(11,665,483)
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1,912,453
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| 2,056,726 | |||
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| $
2,362,141
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| $ 2,438,748 | |||
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The accompanying notes are an integral part of these financial statements. | ||||||||||
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NANO MASK
(Formerly, Emergency Filtration Products, Inc.) Statements of Operations For the Three Months Ended March 31, 2006 and 2005 (Unaudited) | ||||||||
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| 2006 |
| 2005 | ||||
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| (Restated) |
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NET SALES | $
493,835
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| $ 19,969 | |||||
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COSTS AND EXPENSES |
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Cost of sales |
259,970
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| 12,414 | |||||
Research and development | 10,800 |
| - | |||||
Selling, general and administrative |
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| 210,730 | |||||
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767,973
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| 223,144 | ||||
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(274,138)
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| (203,175) | |||||
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Interest expense | (635) |
| (986) | |||||
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NET
| $
(274,773)
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| $ (204,161) | |||||
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BASIC
| $
(
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| $ (0.01) | |||||
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 39,378,044 |
| 34,104,565 | |||||
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The accompanying notes are an integral part of these financial statements. | ||||||||
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NANO MASK
(Formerly, Emergency Filtration Products, Inc.) Statements of Cash Flows For the Three Months Ended March 31, 2006 and 2005 (Unaudited) | |||||
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| 2006 |
| 2005 |
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| (Restated) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net
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$ (274,773)
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| $ (204,161) | ||
Adjustments to reconcile net
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| Depreciation | 19,487 |
| 8,231 | |
| Amortization of patent costs | 18,579 |
| 18,580 | |
| Common stock issued for services | 9,917 |
| 8,000 | |
Changes in operating assets and liabilities: |
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| Accounts receivable |
112,611
|
| 49 | |
| Prepaid expenses and other | (9,585) |
| 14,360 | |
| Inventory |
(353,923)
|
| (5,568) | |
| Deposits | (4,846) |
| - | |
| Accounts payable, including to related parties | 130,171 |
| 18,329 | |
| Accrued expenses |
(9,181)
|
| 506 | |
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| Net Cash Used In Operating Activities | (361,543) |
| (141,674) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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| Purchases of property and equipment | (22,324) |
| (39,540) | |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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| Common stock issued through exercise |
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| of warrants | 77,500 |
| 213,625 |
| Repayments of notes payable | (10,241) |
| (16,074) | |
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| Net Cash Provided By Financing Activities | 67,259 |
| 197,551 |
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EFFECT OF CURRENCY EXCHANGE RATE CHANGES |
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| ON CASH AND CASH EQUIVALENTS | - |
| 7,333 | |
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NET INCREASE (DECREASE) IN CASH |
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AND CASH EQUIVALENTS | (316,608) |
| 23,670 | ||
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 467,512 |
| 438,151 | ||
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CASH AND CASH EQUIVALENTS AT END OF YEAR | $ 150,904 |
| $ 461,821 | ||
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The accompanying notes are an integral part of these financial statements. |
NANO MASK
INC.
( Formerly, Emergency Filtration Products, Inc .)
Notes to the Restated Financial Statements (Unaudited)
March 31, 2006
NOTE 1 - BASIS OF PRESENTATION
The restated (Note 2) interim financial information included herein is unaudited and has been prepared consistent with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, these financial statements do not include all information required by generally accepted accounting principles for annual financial statements. These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2005, from which the balance sheet information as of that date is derived. These restated interim financial statements contain all adjustments necessary in the opinion of management for a fair statement of results for the interim periods presented.
The
restated
results of operations for the three months ended March 31, 2006, are not necessarily indicative of the results
for the full year.
Certain minor reclassifications in prior period amounts have been made to conform
to
the current period presentation.
NOTE 2 - RESTATEMENTS FOR ERROR CORRECTIONS
In November and December of 2008, the Company received and accepted the resignations of its Chief Financial Officer and Chief Executive Officer, respectively (Prior Management). In April and December of 2009, the Company named Douglas Heath and Michael Marx to be the new Chief Executive Officer and Chief Financial Officer, respectively (New Management).
Subsequent to the original issuance of the Companys financial statements as of and for the interim period ended March 31, 2006, and the filing of its related quarterly report on Form 10-QSB, Prior Management of the Company discovered certain errors primarily regarding the recognition of revenue and certain other matters. The first transaction was a bill-and-hold transaction of $754,550 recorded based upon Prior Managements belief that the criteria set forth in Staff Accounting Bulletin 104 (SAB 104) had been met. The Company had originally recorded this sale pursuant to Prior Managements erroneous belief that the customer, a distributor, had requested the Company to hold the inventory, waiting for certain European markings required for importation under the European standards.
During January 2007, Prior Management learned that the distributor whom it believed had entered into the bill-and-hold transaction during March 2006 would not confirm that such transaction had ever occurred and denied providing the Company with a confirmation of the purchase received upon which Prior Management had previously relied. In addition, although a portion of the product was shipped to the distributor during May 2006, the Company also learned that a portion of the product was not shipped to the distributor, as the Company had originally believed.
Also during January 2007, the Company decided to re-acquire a significant portion of its inventory previously sold to various distributors in fiscal 2006 due to delays and problems associated with the resale of the products that were being experienced by the distributors pending FDA clearance of the Companys products that had been voluntarily sought by Prior Management.
As a result of re-acquiring this inventory, $305,833 of revenues originally recorded during the three months ended March 31, 2006, have now been determined to be consignment sales, with the right of return if the product was not sold by the distributor, and thus did not meet revenue recognition criteria as of March 31, 2006. In addition to the reversal of the aforementioned revenues, related accrued royalties in the amount of $24,484 were reversed as of March 31, 2006.
Accordingly, the Company has restated the accompanying financial statements as of and for the three months ended March 31, 2006, for the effects of correcting these errors as shown in the chart below.
NANO MASK INC.
(Formerly, Emergency Filtration Products, Inc.)
Notes to the Restated Financial Statements (Unaudited)
March 31, 2006
NOTE 2 - RESTATEMENTS FOR ERROR CORRECTIONS (Continued)
Balance Sheet as of March 31, 2006 |
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| As Previously |
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| As Restated |
| Recorded |
| Net Change |
Accounts receivable, net | $ | 305,977 | $ | 1,366,360 | $ | (1,060,383) |
Inventory |
| 571,908 |
| 287,704 |
| 284,204 |
Total current assets |
| 2,362,141 |
| 3,138,320 |
| (776,179) |
Total assets |
| 2,362,141 |
| 3,138,320 |
| (776,179) |
Accrued expenses |
| 96,791 |
| 121,275 |
| (24,484) |
Total liabilities |
| 449,688 |
| 474,172 |
| (24,484) |
Deficit |
| (11,665,483) |
| (10,913,788) |
| (751,695) |
Total stockholders equity | $ | 1,912,453 | $ | 2,664,148 | $ | (751,695) |
Statement of Operations for the Three Months Ended March 31, 2006 |
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| As Previously |
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| As Restated |
| Recorded |
| Net Change |
Net sales | $ | 493,835 | $ | 1,554,218 | $ | (1,060,383) |
Cost of sales |
| 259,970 |
| 568,658 |
| (308,688) |
Net income (loss) | $ | (274,773) | $ | 476,922 | $ | (751,695) |
Basic income (loss) per share | $ | (0.01) | $ | 0.01 | $ | (0.02) |
All information in the accompanying notes relative to the interim period ended March 31, 2006, has also been restated as necessary for the foregoing matters.
NOTE 3
LOSS
PER SHARE
Following is information relative to the computation of basic
loss
per share for the three months ended March 31, 2006 and 2005:
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| For the Three Months Ended | ||
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| March 31, | ||
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| 2006 |
| 2005 |
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(Restated)
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Net loss
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$ (274,773)
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$ (204,161)
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Weighted average shares |
| 39,378,044 |
| 34,105,565 |
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Basic loss per share |
| $ (0.01) |
| $ (0.01) |
|
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|
Weighted average shares issuable upon the exercise of
outstanding
stock warrants were not included in the foregoing calculation
s
at March 31,
2006 and
2005, because in loss periods, to do so would be anti-dilutive.
NANO MASK
INC.
( Formerly, Emergency Filtration Products, Inc .)
Notes to the Restated Financial Statements (Unaudited) (Continued)
March 31, 2006
NOTE 4 - STOCK WARRANTS OUTSTANDING
In prior periods, the Company granted warrants to purchase its common stock in conjunction with certain stock sales for cash. A summary of the status of the Company's stock warrants as of March 31, 2006, and changes during the three months then ended, are presented below:
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| Weighted |
| Weighted |
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| average |
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Average
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| exercise |
| grant date |
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| Warrants |
| price |
| fair value |
Outstanding, December 31, 2005 |
| 341,250 |
| $ 0.42 |
| $ - |
Exercised |
| (315,000) |
| 0.25 |
| - |
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Outstanding, March 31, 2006 |
| 26,250 |
| $ 0.50 |
| $ - |
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The outstanding warrants at March 31, 2006, are as follows: |
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| Number of |
| Exercise |
| Expiration |
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| warrants |
| price |
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Date
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| 26,250 |
| $ 0.50 |
| May 27, 2006 |
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NOTE 5 SIGNIFICANT TRANSACTIONS
As discussed in Note
4,
during the three months ended March 31, 2006, the Company issued a total of 315,000 shares of common stock through the exercise of outstanding warrants for total proceeds of
$77,500.
The Company also issued 100,000 shares of common stock to a consultant for unpaid consulting fees totaling $47,000.
NOTE 6 - SUBSEQUENT EVENT
S
Subsequent to March 31, 2006, the Company issued 1,834,863 shares of its common stock in a private placement at $1.09 per share in cash for a total of $2,000,000.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
This report may contain "forward-looking" statements. Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of our future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions.
Recent Developments
This amended report for the quarter ended March 31, 2006, is being filed concurrently with amended reports on Forms 10-Q/A for subsequent quarterly periods ended June 30, and September 30, 2006, containing restated interim financial statements as of and for interim periods then ended. Such amended reports and the Companys annual report on Form 10-K for the year ended December 31, 2006, contain information about events and circumstances occurring subsequently to those reported herein. Accordingly, this report should be read in conjunction with those of such subsequent periods.
Overview
The historical information presented below in Results of Operations and Liquidity and Capital Resources may no longer be relevant to the Companys operations.
The Company is in the business of producing environmental masks and filters for medical devices that are designed to reduce the possibility of transmission of contagious diseases. The Company is also a distributor of a blood clotting device for surgery, trauma and burn wound management.
Since its inception, the Company has been involved in the development of its technology.
Through
March 31, 2006, revenues have not been adequate to cover operating expenses and thus, the Company has reported a loss in each of its years of existence.
Through December 31, 2005, the Company has funded itself by way of a series of private equity placements and had offset its accumulated deficit in this manner.
The most valuable asset of the Company is its intellectual property and technology. The Company has acquired the rights to certain intellectual property, which property includes title to the patent on a component of an emergency CPR assistance device, called a dual-filtered vapor isolation valve and the rights to certain other technologies related to environmental masks. Rights pertaining thereto include the right to maintain, sell and improve the devices, and to license those rights. Although the Company believes its technology to be very valuable in the economic sense, this value is not quantified as such on the Company's balance sheet.
Reference is made to Note 2 to the accompanying restated financial statements for the interim period ended March 31, 2006. The following discussion of results of operations and liquidity and capital resources are based on the restated financial statements after giving effect to all error corrections.
Results of Operations for the Three Months Ended March 31, 2006 compared with 2005
Revenues: During the three months ended March 31, 2006, the Company experienced a substantial increase in revenues compared to the three months ended March 31, 2005 of approximately
$473,000
primarily due to the substantial increase in sales of the environmental masks and related filters. The Company commenced production of the filters at the Companys manufacturing facility during November 2005 and
experienced dramatic increases in the demand for the environmental mask and filter products during early 2006. The Company
expects the demand for the environmental masks and filters to continue to increase in the near future due to continuing and expected virus outbreaks such as SARS and Avian Influenza (Bird Flu).
Along with the manufacturing facility opened in Henderson, Nevada during 2005, in February 2006, the Company opened a manufacturing facility in Nogales, Mexico, and commenced production of the Companys NanoMask filters at that location. Through the combined production facilities, the Company expects to be able to produce approximately 2 million NanoMask filters per week, enabling it to fulfill its anticipated supply commitments
to its international and domestic distributors, as well as to pursue large retail and medical products customers with whom the Company has already held discussions, although no agreements have yet been executed.
Revenues have also been generated in 2006 and 2005 in part from the sale of the emergency CPR assistance device, and Superstat, a modified collagen hemostat, for which the Company has exclusive distribution rights to the U.S. and foreign governments and militaries. Sales for these products have remained relatively constant over the past year or two, and the Company expects that revenues for these products will remain relatively constant in the near future. In addition to competition from other companies that may offer alternative products, governmental orders from the military are dependent on current foreign affairs and international conflicts and the need for emergency products in the US military.
Cost of Sales: During the three months ended March 31, 2006, the Company experienced a substantial increase in cost of sales of approximately
$247,000
compared to the three months ended March 31, 2005, commensurate with the increase in revenues for the same period. Costs as a percentage of sales were
53%
for the three months ended March 31, 2006 compared to 62% for the three months ended March 31, 2005. Costs as a percentage of sales decreased
for 2006 due to the reduction in manufacturing costs for the environmental filters in Mexico. Costs as a percentage of sales on the environmental filters and masks are substantially less than those of the emergency CPR assistance device and Superstat, products which accounted for a significantly smaller percentage of the Companys revenues during the three months ended March 31, 2006, as compared to the three months ended March 31, 2005. Future costs as a percentage of sales on the environmental filters and masks is expected to be between
48%
and
52%
for the filters, and between 44% and 48% for the masks. Future costs as a percentage of sales on the emergency CPR assistance device and Superstat
are
expected to be between 58% and 62%. The significant components of the Company's cost of sales include actual product cost, overhead allocations including depreciation, salaries and wages, rent and utilities, freight and shipping, and royalties paid on revenues generated.
Operating Expenses: During the three months ended March 31, 2006, the Company experienced an increase in general and administrative expenses of approximately $286,000 or approximately 136% compared to the three months ended March 31, 2005, primarily due to needs to increase administrative costs, advertising, travel, professional fees, and insurance as a result of the increase in revenues, some of which are further discussed in the following paragraph.
The Company hired a Director of Manufacturing and a Director of Business Development during late 2005 and expects, in the near future, to incur additional operating costs related to the hiring of marketing and production personnel for the increased business that is expected during 2006 related to the increased demand for the environmental mask and filters. The significant components of our operating expenses include salaries and wages, consulting and other professional services, product and liability insurance, travel and office rent.
Research and development: Although not significant for the periods presented, the Company expects research and development costs to increase somewhat in the future because management intends to bring additional
products to market during the next year. Future research and development costs for testing, validation and FDA filings for these potential new products are estimated to range from $50,000 to $60,000 during the next twelve months. The Company spent approximately $52,000 during 2005 for additional molds required for one of its new products, ELVIS (Emergency Life-Support Ventilation and Intubation System). An additional $30,000 to $40,000 may also be required for the production of molds for other potential new products. The significant components of the Company's research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.
Liquidity and Capital Resources
The Company has accumulated a deficit of
$11,665,483
as of March 31, 2006, resulting from development stage and continued losses
since inception. Consequently,
the
Company's ability to continue
as
a
going concern
may be dependent upon the success of management's ongoing business plans which, as explained below, include a) continued product development efforts, b) continuing efforts to increase its product sales in the U.S. and internationally, and c)
issuance of additional debt or equity financing to sustain its growth and provide the capital to produce inventory.
The
Company
is
pursuing additional domestic and international distributor agreements. Because of a significant increase in demand, as previously discussed, the Company opened its NanoMask filter manufacturing facility in Henderson, NV during late 2005, and in February 2006, the Company opened a manufacturing facility in Nogales, Mexico and has commenced production of the Companys NanoMask filters at that location. Through the combined production facilities, the Company expects to be able to produce approximately 2 million NanoMask filters per week, enabling it to fulfill its expected supply commitments to its international and domestic distributors, as well as pursue large retail and medical products customers with whom the Company has already held discussions.
The Company issued 315,000 shares of common stock through the exercise of common stock warrants during the first three months of 2006, for total proceeds of
$77,500.
In addition, the Company issued an additional 1,834,863 shares of common stock subsequent to March 31, 2006 to a private investor, for total cash proceeds of $2,000,000. This was done in order for the Company to have sufficient cash to produce the necessary inventory that is expected to be needed to fulfill the
sharp
increase in orders throughout 2006.
The Company also intends to bring additional products to market during the next twelve months, including the breathing circuit filters, the ELVIS BVM bag, and the continued marketing and development of the NanoMask and NanoMask filters as previously described. The research and development costs associated with the ELVIS BVM device will be the most significant. The estimated costs for testing, validation and FDA filings for these potential new products are estimated to range from $50,000 to $60,000 during the next twelve months. The Company spent approximately $52,000 during the year ended December 31, 2005, for additional molds required for the ELVIS BVM bag, and approximately $21,000 for molds required for the childrens version of the NanoMask. An additional $30,000 to $40,000 may also be required for the production of molds for other potential new products.
Cash used by our operating activities for the three months ended March 31, 2006 and 2005 was provided primarily by the exercise of common stock warrants.
During 2004, the Company announced that it had been awarded a Prototype Development/Testing/ Evaluation Grant (PDT&E) to develop a testing protocol for filter media on behalf of the U.S. Military. As part of this project, the Company tested its licensed nano-enhanced filter media at Edgewood Chemical Biological Center in Edgewood, Maryland. The original study funded by the grant comprised protocols or tests to evaluate the Companys filter media efficacy against four different contaminants. As a result of the successful completion of this testing phase, the Company was requested by the United States military to test its filter media against a number of additional contaminants. This final phase of testing was completed during May 2005. As a result of these successful tests, the U.S. military
plans on
introducing the Companys technology to companies that manufacture filters for various military applications with the aim of having them incorporate the technology in their filter applications. The Company would also expect to sub-license its nano-enhanced filter media to a number of Department of Defense approved manufacturers to develop and/or enhance existing filtration products that are currently used by the U.S. Air Force, Army and Navy, as well as to commence development of new product applications that will serve to better protect U.S. Military personnel. These results are expected to have a significant effect on future revenues and cash flows in the relatively short-term.
In late 2004, the Company entered into an exclusive, long-term agreement with Itochu Techno Chemical, Inc. (Itochu), a Japanese corporation, whereby Itochu will distribute the Companys Respaide, Vapor Isolation Valve and Series One Breathing Circuit Filter products in Japan, once their final assessment of the overall market for the Companys products is completed.
The Company has shipped a number of sample orders, and has modified its products at the request of Itochu, to conform to Japanese medical product standards. These modifications necessitated minor but time consuming alternations to existing molds. As a result, this process has caused delays in the commencement of
shipping commercial orders to Itochu and its distribution partners. The Company has now completed all of the modifications requested by its Japanese partners and is now awaiting final validation and confirmation of the last round of modifications to the products, following which the Company expects to initiate commercial shipments to Japan. The Company cannot currently predict, however, as to when this will commence.
During our
fiscal year 2006, the Company expects that it will be able to continue measures that will (i) reduce unnecessary cash outflows, and (ii) increase revenues through our improved marketing efforts.
As of the filing date of this Amendment,
The Company's future business model
reflects:
(1) continued development of
its
NanoMask and NanoMask filters, including the introduction of a childs
mask; (2)
continued pursuit of additional domestic and international distributor agreements
to sell Company-owned and third party products; (3)
establishing
efficiencies in its manufacturing
or vendor
facilities in order to cut costs and improve quality control; (3)
minimizing
in-house research and development
through use of third-party sources;
(4)
and
accumulation of intellectual property
assets.
.
Management has analyzed its cash needs for fiscal 2010
and
has concluded that available cash should be sufficient to meet its anticipated working capital, capital expenditure and other cash requirements for fiscal 2010, unless sales revenues do not meet its expectations. The Company may also issue common shares in lieu of cash as compensation for certain employment, development and other professional services. If the Company does need additional capital, our ability to obtain further financing through loans or the offer and sale of its securities is subject to market conditions and other factors beyond managements control.
Impact of Inflation
At this time, we do not anticipate that inflation will have a material impact on our current or future operations.
Critical Accounting Policies and Estimates
Except with regard to the estimated useful lives of patents and acquired technology
and
the effective provision of a 100% deferred income tax asset valuation allowance,
(
discussed below), the Company does not employ any critical accounting policies or estimates that are either selected from among available alternatives or require the exercise of significant management judgment to apply or that if changed are likely to materially affect future periods.
Management reviews the carrying value of the technology assets annually for evidence of impairment and considers, based on its current marketing activities, plans and expectations, and the perceived effects of competitive factors and possible obsolescence, whether any write-downs should be taken or whether the estimated useful lives should be shortened.
Based on the Companys operating history to date, management does not believe realization of its deferred tax asset, principally the tax benefit of a net operating loss
carry-forward,
can yet be considered more likely than not and, accordingly, has effectively provided a 100% valuation allowance.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company's future results of operations or financial position.
In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless the new standard being adopted requires otherwise or it is impracticable to do so. SFAS 154 is effective for fiscal years beginning after December 15, 2005. Management has no present expectation of adopting any accounting changes to be affected by SFAS 154 in the foreseeable future.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilitiesa replacement of FASB Statement No. 125. SFAS 155 will be effective for all financial instruments issued or acquired after the beginning of
.the
fiscal year
2007. The Company
has no
t yet evaluated or determined the likely effect
of
SFAS
No.
155
on its
future
financial statements.
In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of Statement of Financial Accounting Standard No. 109 , which deals with the accounting for uncertainty in income taxes. FIN 48 will be effective for the quarter ended March 31, 2007. With the Companys history of operating losses, the effect of FIN48 relates solely to disclosure on income taxes and, therefore, the Company does not believe that it will have a material impact on its financial position, results of operations or cash flows for the foreseeable future.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of SFAS No. 115 , which will permit the option of choosing to measure certain eligible items at fair value on specified election dates and report unrealized gains and losses in earnings. SFAS Nos. 157 and 159 will be effective for fiscal year 2008, but SFAS No. 159 may be delayed. The Company is currently evaluating the effects, if any, that these changes will have on its financial statements.
In December 2007, the FASB issued SFAS 141(R), Business Combinations , an Amendment of SFAS No. 141, which provides additional guidance on business combinations including defining the acquirer, recognizing and measuring the identifiable assets acquired and the liabilities assumed, and any non-controlling interest in the acquired entity. Also in December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements , which amended ARB No. 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the de-consolidation of a subsidiary. Both SFAS Nos. 141(R) and 160 may affect the Companys financial statements in fiscal year 2009.
Subsequent to the issuance of these financial statements in December, 2007, there have been other FASB Pronouncements but none that would have required restatement of the financial statements presented herein.
ITEM 3
CONTROLS AND PROCEDURES
Our principal executive and principal financial officers have participated with management in the evaluation of effectiveness of the controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officers believe that our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act)
were not
effective as of the end of the period covered by the report.
Pursuant to a letter from our independent registered accounting firm dated February 19, 2007, that identified certain internal control deficiencies as significant and other deficiencies identified as material weaknesses, we
have
already made and are in the process of making
changes
to
our internal controls
and procedures. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entitys ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entitys financial statements that is more than inconsequential will not be prevented or detected by the entitys internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entitys internal control.
As a result of the foregoing, the following changes were made or were in the process of being implemented
1.
We are establishing inventory counting procedures to assure that inventory counts and recounts are performed by different individuals. We are also establishing account tags to assure that no inventory is double counted.
2.
Due to limited staff, our CFO has previously handled a significant portion of the financial responsibilities. Although it is currently difficult to separate the accounting duties, we have implemented procedures whereby our current CEO approves all invoices before they are entered into the accounting system for payment, and approves all payments, in writing, before checks are issued. If operations increase in the future, we will take additional steps to separate recording of financial transactions from check writing, signing and mailing functions. We will also implement procedures to separate the preparation of bank reconciliations from the initiation and entering of journal entries.
3.
We are establishing credit policies that will be managed and enforced by our COO, independent of sales and cash receipt functions. We are establishing documented procedures that will require the CFO and CEO to pre-authorize significant sales transactions. We have limited the authority of sales personnel to set or alter sales prices or credit terms without written authorization from the CEO.
4.
We have implemented a procedure for sending monthly statements to customers with a requirement that unpaid balances be investigated and resolved timely.
5.
Although our CFO is not currently employed full time, we have determined that his services are sufficient to effectively evaluate revenue recognition practices and assess and monitor our internal controls until such time as our operations ramp up to full production. Once we begin the ramp up, we intend to hire a full-time CFO.
6.
On February 19, 2007, we established an audit committee that will assist in our efforts to reasonably assure that our internal controls are effectively implemented and observed.
The foregoing changes are intended to reasonably assure the accuracy and completeness of the Companys current and future financial reporting. However, many of these changes are no longer applicable, inasmuch as the Company is currently purchasing its product for resale.
The foregoing changes in our internal controls
have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the period covered by this report.
To overcome the material weaknesses, our principal executive and financial officers have provided additional substantive accounting information and data to our independent registered accounting firm in connection with its audit of the Companys financial statements for the year ended December 31, 2006. Therefore, despite the material weaknesses identified by our independent registered accounting firm, 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.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2006, the Company issued 100,000 shares of its common stock to an outside consultant in lieu of unpaid consulting fees totaling $47,000. These shares were issued in reliance on the exemption from registration and prospectus delivery requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and the regulations as promulgated there under.
ITEM 3 - DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
Exhibit 31.1 - Certification of principal executive officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
Exhibit 31.2 - Certification of principal financial officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
Exhibit 32.1 - Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 - Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Nano Mask,
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Date:
February
10
, 2010
| By: /s/Douglas
Heath,
|
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Chief Executive Officer
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Date:
February
10
, 2010
| By:
/s/Michael J. Marx,
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