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EX-31.2 - 09DEC PRIN FIN 302 CERT - NMI Health, Inc.exhibit31_2dec2009.htm
EX-31.1 - 09DEC PRIN EXEC 302 CERT - NMI Health, Inc.exhibit31_1dec2009.htm
EX-32.2 - 09DEC PRIN FIN 906 CERT - NMI Health, Inc.exhibit32_2dec2009.htm
EX-32.1 - 09DEC PRIN EXEC 906 CERT - NMI Health, Inc.exhibit32_1dec2009.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


FORM 10-K


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

THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended: December 31, 2009


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

THE SECURITIES EXCHANGE ACT OF 1934


For the Transition Period From ________ to_________


Commission File No. 000-27421


NANO MASK, INC.

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

(Formerly, Emergency Filtration Products, Inc.)


NEVADA

87-0561647

(State or other jurisdiction of incorporation or organization)

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



50 West Liberty Street, Suite 880,  

Reno, Nevada

89501

(Address of principal executive offices)

(Zip code)


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


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 [  ] No [X] (2) Yes [X] No [  ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [  ]    NO [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨      Accelerated filer ¨         Non-accelerated filer    ¨       Smaller reporting company ý


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o  NO x   






At September 8, 2011, there were outstanding 74,961,568 shares of the Registrant's Common Stock, $.001 par value.


State the Registrant's revenues for the December 31, 2009 fiscal year: None.


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 $2,262,418, based on the average bid and ask price of the Registrant's stock on September 2, 2011 of $0.06 per share and shares held by non-affiliates.  The Registrant's common stock is quoted on the Pink Sheets under the symbol "NANM.PK".


DOCUMENTS INCORPORATED BY REFERENCE


List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., part I, part II, etc.) into which the document is incorporated:  (1) Any annual report to security holders; (2) Any proxy or other information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933:  


NONE



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TABLE OF CONTENTS

PAGE

 

 

Item 1.   Business

4

 

 

Item 1A. Risk Factors

8

 

 

Item 1B. Unresolved Staff Comments

11

 

 

Item 2.   Properties

11

 

 

Item 3.   Legal Proceedings

11

 

 

Item 4.   Reserved

12

 

 

Item 5.   Market for  Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of                 Equity Securities

12

 

 

Item 6.   Selected Financial Data

12

 

 

Item 7.   Management's Discussion and Analysis or Plan of Operation

13

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

16

 

 

Item 8.   Financial Statements and Supplementary Data

16

 

 

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

16

 

 

Item 9A. Controls and Procedures

16

 

 

Item 10.  Directors, Executive Officers and Corporate Governance

17

 

 

Item 11.  Executive Compensation

20

 

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

22

 

 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

23

 

 

Item 14.  Principal Accountants’ Fees and Services

23

 

 

Item 15.  Exhibits, Financial Statement Schedules

24

 

 

Signatures

24





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PART I.

ITEM 1.  BUSINESS


General


THIS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009 IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT SEPTEMBER 9, 2011. SOME OF THE INFORMATION CONTAINED HEREIN REFERS TO HISTORICAL ACTIVITIES OF THE COMPANY FOR FISCAL 2009. SHAREHOLDERS AND INVESTORS ARE ADVISED TO CONSULT THE COMPANY’S MORE RECENT FILINGS OF CURRENT REPORTS ON FORM 8-K AS WELL AS ADDITIONAL PERIODIC REPORTS FOR SUBSEQUENT PERIODS THAT THE COMPANY INTENDS TO FILE AS SOON AS POSSIBLE.


Unless the context requires otherwise, all references to the “Company”, “we”, “us” and “our” refer to Nano Mask, Inc.  


The financial and disclosure information contained in this report reflect our efforts to accurately and completely disclose the status of our business operations and financial condition giving full effect to the results of management’s determinations.


We were organized originally under the name "Lead Creek Unlimited".  Until February 9, 1996, we conducted no business.  We filed a Certificate of Amendment with the Secretary of State of the State of Nevada changing our name to "Emergency Filtration Products, Inc." on March 8, 1996, pursuant to a Plan of Reorganization.  There was no change, however, in our majority ownership related to this Plan of Reorganization.


We are a healthcare product development and distribution company providing emergency and critical care and infection control products to a variety of market segments within the healthcare industry. 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 a proprietary line of antibacterial and antimicrobial products for the hospital, clinic and health industry. Such products now include our Nano Zyme line of products which offer a multi-enzyme hospital pre-soak and cleaning solution, as well as other complementary products in the line. Another line of products surrounds our new Nano Silver Hospital Curtains which, with additional testing, should offer excellent anti microbial efficacies against a wide spectrum of organisms. These products have been developed by partnering with innovative technology companies. The new product lines are in addition to our traditional anti-viral, antibacterial and disposable NanoMask, a protective filtration face mask. Largely, the evolution to this broader spectrum of products only began in 2010.


In July 2007, we announced that we executed a letter of intent to merge with Applied Nanoscience, Inc. (“Applied”), then a publicly-held company (Pink Sheets, APNN.PK), in an all stock exchange transaction.  Applied was deregistered in 2010, so Applied no longer maintains its status as a public company. On July 14, 2008, the Company and Applied entered into a definitive merger agreement under which Applied agreed to acquire the Company by issuing approximately 36,586,287 shares of its common shares and 18,293,143 warrants for the purchase of additional common shares of the Company. However, on February 25, 2009, the merger agreement was terminated.


On January 24, 2007, the Board of Directors appointed Philip Dascher as Chief Executive Officer who served until December 26, 2008. At that time, Douglas Heath assumed this role, inasmuch as he was the only Director or Executive Officer remaining. In June, 2009, Edward Suydam and Marc Kahn were appointed as Chief Operating Officer and Chief Medical Officer, respectively.  Douglas Heath resigned on March 1, 2010, and effective as of that date, Edward Suydam was appointed as Chief Executive Officer. See our Current Report on Form 8-K filed with the Commission March 4, 2010.  


Current Products

Product development remains an important part of our business. We are currently devoting most of our resources to our Nano Silver Technology and Nano Zyme products.


Nano Silver Hospital Products




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Hospitals are meant to be places to get well, but some are becoming places where just the opposite occurs. There has been the fear of “super-bugs” for many years, and based on emerging reports, that fear may be becoming a reality. According to the Centers for Disease Control and Prevention, an estimated two-million Americans contract hospital-acquired infections and more than 90,000 patients die due to complications from infection, costing the health care system up to $6.5 billion each year. In a culture survey, an independent study found that 42% of hospital privacy curtains were contaminated with vancomycin-resistant enterococci, 22% with methicillin-resistant Staphylococcus aureus, and 4% with Clostridium difficile.  With news of insurers withdrawing compensation for hospital acquired infections in the United States, never has it been more important to look at all areas of nosocomial infection control. Nano Mask, Inc. introduced the company’s line of hospital curtains in September 2010, which are unique and help prevent patients that enter a hospital or clinic from contracting diseases that fall under Hospital Acquired Infections (HAI’s). Nano Silver Technology is an antimicrobial colloid composed of silver nanoparticles stabilized by polymer that exhibits excellent antimicrobial efficacy across a wide spectrum of microorganisms. Silver has long been known to inhibit the oxygen exchange in bacteria, killing the bacteria. Nano Silver Technology has been demonstrated to prolong and enhance that effect. This array of products comprises curtains, blankets, gown caps, shoe covers, disposable scrubs and lab coats.


Nano Zyme Products

 

We have also developed our own proprietary line of bacteria free multi-enzyme based medical specialty detergents used for surgical instrument reprocessing. Our bacteria free, enzymatic cleaning solutions are environmentally safe, technician safe and instrument safe; they do not require special handling and can be safely disposed down the drain. The Nano-Zyme product is competitively priced against todays bacteria based medical detergents and can be utilized for manual decontamination, scope washers and ultrasonics.


NanoMask and filters


The NanoMask is a personal environmental mask, enhanced with nanoparticles, designed to address concerns of biological contamination in a workplace or other environment. The product utilizes hydrophilic filters which are able to capture and isolate bacterial and viral microorganisms with very high efficiencies. The mask possesses a disposable filter using our licensed technology and an enhanced matrix of charged nanoparticles designed to protect the user from possible inhalation of biological contaminants. We marketed the NanoMask in fiscal 2005 and the first part of fiscal 2006 as a consumer product that did not require Federal Food and Drug Administration (FDA) clearance. In the third quarter of fiscal 2006, we decided to seek FDA clearance for this product as a Class II medical device. The FDA 510(k) application was submitted during September 2006. Following receipt of our initial premarket notification in 2006, FDA staff provided us with numerous requests for additional information relative to the safety and efficacy of the NanoMask.  We submitted several related testing protocols for advance review and comment by FDA staff.  On March 27, 2007, one day prior to the due date for the entire responses, we submitted an incomplete response to the FDAs request.

  

On April 10, 2007, we received a response from the FDA on this latest submission, that included additional requests for further information and testing (including efficacy, safety, and shelf-life), which we worked on completing.  These additional requests required additional scientific testing. However, on September 28, 2007, the FDA 510(k) application was withdrawn, since the requested information and testing had not yet been completed.  


Effective March 1, 2010, we have re-directed our marketing efforts from the NanoMask product-line to our Nano Silver Hospital and Nano Zyme products.


In October 2010, we began impregnating our Nano Silver technology into three different off the shelf face masks that may enable us to penetrate what we believe is a large potential market. Once we begin sales of this product, we will then seek the proper CE marking process, which will enable us to sell these masks through all of our international distributors.


Products for which marketing is currently suspended


As stated above, we have marketed and sold the following products in the past, but due to a decline in demand, we have elected to postpone any further significant marketing of these products until adequate resources are available.




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RespAide(TM) CPR Isolation Mask


An internationally patented (within the United States, Australia, Germany, France, United Kingdom and applied for in Canada) dual-filtered vapor isolation valve (VIV) technology marketed in CPR isolation masks to protect emergency response personnel against infectious diseases during mouth to mouth resuscitation.  We have received FDA approval for our RespAide CPR isolation mask incorporating a proprietary filter, and have established manufacturing and distribution of complete units and replacement filters. In tests performed pursuant to the requirements of the FDA testing procedures, these masks were found to be greater than 99.9% effective against bacterial and viral transmission - the highest rating testing labs will issue for medical devices.  These masks were introduced in 1997.  Although the demand for this product has decreased over the past year, previous year sales have accounted for a significant amount of our revenues.


Disposable Filters for BVMs


The same filter used in the RespAide product described above is ideal for reducing the risk of exposure to viruses and bacteria and equipment contamination during use of bag valve mask (BVM) resuscitation devices.  The disposable filter keeps the equipment contaminant-free, thereby reducing risk of exposure to virus and bacteria to emergency response personnel.  The filter is placed between the bag valve and the mask and is single use.  We have received FDA 510(k) approval for the filter as a Class II medical device.  The filter was introduced in 1997 as a component of the RespAide device.   


Other potential future products


The following product has been in development, production and market entry for future sale and has not produced any revenue for us to date.  Further development and production of this product has currently been postponed, as described above, until adequate resources are available.


ELVIS BVM


We have designed another configuration of our technology called ELVIS (Emergency Life Support Ventilation and Intubation System) for the BVM market. The product is a self-contained device that delivers medicine in aerosol form and a bag with built-in CO(2) monitoring capabilities. Patents have been submitted for this product and we have executed an agreement whereby we acquired the rights for commercial exploitation of the patents.


Manufacturing, Distribution and Supplier Agreements


NanoMask and NanoMask Filters


In February 2006, we opened a manufacturing facility in Nogales, Mexico. This facility was used for the production of the NanoMask filters and assembly.  In order to consolidate and minimize our operating and production costs, the Nogales facility was closed during October 2008.


RespAide products and filters


We contracted in December 1997 with Westmed, an FDA manufacturing facility in Tucson, Arizona, for the manufacture and production of our RespAide proprietary filter products. An FDA manufacturing facility is an establishment that has applied for and received acceptance by the FDA and passed its FDA inspections to maintain compliance as an FDA manufacturing facility.  We supplied all materials for the manufacturing and packaging.  We believe that the agreement with Westmed will remain in effect until terminated by either party.   However, marketing and development of this product is currently suspended.


Competition


The medical device industry is a highly competitive sector of the health care industry and there are a large number of established and well financed entities with significantly greater financial resources, technical expertise and in-depth managerial capabilities than we have.  Competitors include two major manufacturers of CPR devices, Laerdal Medical Corporation and Ecolab, Inc, both internationally-based companies, and two major manufacturers



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of hemostatic collagens, Johnson & Johnson and MedChem Products, Inc.  A major competitor in the personal protection mask market is 3M Corporation and a major competitor in the breathing circuit filter market is PALL Corporation.  


Sources and availability of raw materials and the names of principal suppliers


The raw materials utilized in the production of our proprietary products are readily available from a variety of manufacturers including Weise Labs, Inc., 3M Corporation, Superior Felt and Filtration and Versal.


Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts


In 1996, on receipt of notification that the patent would be issued, we entered into an Agreement with Douglas K. Beplate (who was our founder and President until his resignation on February 16, 2007) whereby Mr. Beplate  assigned to us all rights, including patent rights, to the commercial exploitation of a dual filtered rotary isolation valve.  A new agreement, effective April 1, 2003, reflects the technologies of hydrophobic and hydrophilic filtration used in a BVM setting, the rescission of the 5% royalty included in the 1996 agreement on the Respaide technology, and the license of nano coatings on any filter configuration for environmental masks and any other application for US military use only.  Mr. Beplate was to receive a 1% royalty on the gross sales of any and all products utilizing this licensed technology.  During June 2004, Mr. Beplate assigned this 1% royalty to Applied, which was a separate company in which Mr. Beplate was a founding shareholder and former director (see also Item 12). During October 2005, pursuant to a revised agreement, our Board of Directors increased this royalty to 2.5% in anticipation of possible revenue leads to be generated by Applied. However, in June 2009, this agreement was terminated because the necessary conditions were not mutually established.


Our United States patents are as follows:


PATENT NO. /APP. NO.

DESCRIPTION

EXPIRATION OR ABANDONMENT

DATE

5,575,279

Dual-filtered Rotary Iso. Valve for Resuscitation

12/15/2008

6,375,854

Combined Hydrophobic-hydrophilic Filter for Fluids (Smaller to Larger)

4/23/2023

6,689,278

Combined Hydrophobic-hydrophilic Filter for Fluids (Larger to Smaller)

4/23/2022

6,062,217

Portable Emergency Safety Resuscitator

6/16/2008

6,276,363

Portable Emergency Safety Resuscitator

8/21/2021

09/934,016

Medical Port for Emergency Safety Resuscitator

9/28/07


Our international patents are as follows:


PATENT NO. /APP. NO.

COUNTRY

DESCRIPTION

EXPIRATION OR ABANDONMENT DATE

2,246,770

Canada

Dual-filtered Rotary Iso. Valve

12/31/2009

723311

Australia

Dual-filtered Rotary Iso. Valve

11/19/2008

69610644

Germany

Dual-filtered Rotary Iso. Valve

6/16/2009

0873151

U.K.

Dual-filtered Rotary Iso. Valve

12/31/2008


Need for any government approval of principal products or services


We have received FDA clearance for our RespAide CPR isolation mask and vapor isolation valve (disposable filter for BVM's) and the breathing circuit filters as Class II medical devices.  Compliance with the clearance of the devices requires that they be manufactured in a FDA-approved manufacturing facility.  We have used Westmed, an approved facility, for the manufacture of the above products.  



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If adequate financial resources are available in the future, we expect to file an FDA 510 (k) application for acceptance as a Class II medical device for the new ELVIS product.  At this time, we do not intend to file a premarket notification or premarket approval process, but rather the 510(k) application.  If an FDA 510(k) application is filed, there is an evaluation process that may or may not result in clearance to market the device in the United States.  The FDA 510(k) application evaluation process requires the submission and review of detailed information, including but not limited to, product drawings, prototypes, claims and functions, laboratory testing, manufacturing processes, labeling, quality control and compliance with inspections, post-mark obligations, and import/export requirements.  At this time, we believe that no clinical trials will be required. However, additional information, including clinical trials, may be requested by the FDA once the FDA 510(k) application is submitted and reviewed. The Company does not intend to submit a new FDA 510(k) application in the immediate future.


Since we use third-party manufacturers to produce our products, we are not required to register on an annual basis with the FDA to be listed as a manufacturer. In addition, since certain manufacturing processes have been performed by Westmed and Superstat, at their facilities in Tucson, Arizona and Rancho Dominquez, California, respectively, both Westmed and Superstat are also subject to FDA inspections.  The warehouse facility in Nogales, Mexico, which has been closed, was also registered with the FDA and, while open, was subject to FDA inspections.


Research and Development


Our research and development expenditures for the last three years were as follows:


- 2009 $80,558

- 2008 $1,702

- 2007 $3,061  


These costs are prototype development costs associated with the new products such as materials, supplies, consulting fees, filing fees, etc.


Costs and effects of compliance with environmental laws


We are not aware of any cost or effect of compliance with environmental laws.


Employees


As of September 6, 2011, we are employing three full-time and two part-time employees.  


ITEM 1A.   RISK FACTORS


Future government regulation may affect our ability to sell our products.


Nano-particle products incorporate certain nanomaterials in their composition. The United States Environmental Protection Agency (EPA) recently announced its intention to regulate some nanomaterials pursuant to the federal Toxic Substances Control Act.  During the years 2008 through February 2010, we were in discussions with EPA officials to determine whether our products might be subject to such regulation, and if so, what kind of regulations would apply and what standards, tests or procedures we would be required to perform.  Therefore, we might have been required to perform additional testing or demonstrations to meet such EPA guidelines.  This potential additional regulation would have further delayed our ability to market our products or achieve our revenue objectives.


Because we have a limited operating history, one cannot evaluate our future potential based on our past performance.

       

We have had limited operations since our organization.  While the company has experienced a series of product failures during its relatively short history of operations, there is no extensive operating history to demonstrate our ability to conduct business. Therefore, the investment risk in our company is greater than with an established company.  Accordingly, one should not invest in our company if one cannot afford the loss of the entire investment.



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We do not know if we will become profitable in the near future.

        


Since the date of inception we have incurred substantial losses.  Although we have indications of increased interest in our products from a number of domestic government sources, medical products distributors and other potential purchasers, this interest was primarily dependent on our having successfully completed our FDA application. In all events, while we pursue international sales, continued losses are invariably occurring until such time as we were to receive FDA approval. Therefore, we have re-directed all sales efforts to our new Class 1 medical products that are “green,” anti-microbial in nature to address specifically the hospital and clinic markets. We believe that by assuring low cost and profitable margins with high quality standards that we can generate a viable, growing company, but we do not know if our plans will succeed.


If we cannot generate adequate, profitable sales of our products, we will not be successful.

      

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.


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.  The consultants that we retain may not have had sufficient experience to enable us to completely understand the characteristics of the industry.  We do not know if we have properly ascertained or assessed any and all risks inherent in this industry.


In addition, our success depends, in part, on our ability to continue marketing and distributing our products effectively.  We have limited experience in the sale or marketing of medical products.  We have limited marketing or distribution capabilities and we will need to retain consultants that have contacts in and understand the medical products marketplace.  We may not be successful in entering into new marketing arrangements, whether engaging independent distributors or recruiting, training and retaining a larger internal marketing staff and sales force.


We face intense competition, and many of our competitors have substantially greater resources than we do.


We operate in a highly competitive environment. In addition, the competition tn 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



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protect our intellectual property rights may be inadequate.  There are events that are outside of our control that pose a threat to our intellectual property rights as well as to our products and services.  For example, effective intellectual property protection may not be available in every country in which we license our technology or our products are distributed.  Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective.  Any impairment of our intellectual property rights could harm our business and our ability to compete.  Also, protecting our intellectual property rights is costly and time consuming.  Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.  In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us.


Third parties may invalidate our patents.


Third parties may seek to challenge, invalidate, circumvent or render unenforceable any patents or proprietary rights owned by or licensed to us based on, among other things:

- Subsequently discovered prior technology;

- Lack of entitlement to the priority of an earlier, related application; or

- Failure to comply with the written description, best mode, enablement or other applicable requirements.

If a third party is successful in challenging the validity of our patents, our inability to enforce our intellectual property rights could seriously harm our business.


We may be liable for infringing the intellectual property rights of others.


Our products and technologies may be the subject of claims of intellectual property infringement in the future.  Our technologies may not be able to withstand any third-party claims or rights against their use.  Any intellectual property claims, with or without merit, could be time-consuming, expensive to litigate or settle, could divert resources and attention and could require us to obtain a license to use the intellectual property of third parties.  We may be unable to obtain licenses from these third parties on favorable terms, if at all.  Even if a license is available, we may have to pay substantial royalties to obtain it.  If we cannot defend such claims or obtain necessary licenses on reasonable terms, we may be precluded from offering most or all of our products or services and our business and results of operations will be adversely affected.


Because of our reliance on trade secrets, we may be at risk for potential claims or litigation related to our technology.


In certain cases, where the disclosure of information required to obtain a patent would divulge proprietary data, we may choose not to patent parts of the proprietary technology and processes which we have developed or may develop in the future and rely on trade secrets to protect the proprietary technology and processes.  The protection of proprietary technology through claims of trade secret status has been the subject of increasing claims and litigation by various companies both in order to protect proprietary rights as well as for competitive reasons even where proprietary claims are unsubstantiated.  The prosecution of proprietary claims or the defense of such claims is costly and uncertain given the uncertainty and rapid development of the principles of law pertaining to this area.  We may also be subject to claims by other parties with regard to the use of technology information and data which may be deemed proprietary to others.

 

Because there is significant uncertainty as to our ability to continue as a going concern, our ability to obtain additional financing could be adversely affected.


Nano Mask, Inc. has incurred significant losses, which have resulted in an accumulated deficit of $21,338,050 at December 31, 2009.  In addition, current economic factors may have an adverse effect for the foreseeable future on the Company’s ability to raise additional capital and conduct its operations profitably. Because of these continued losses and our accumulated deficit under current economic conditions, we have included disclosure about uncertainty as to our ability to continue as a going concern in Note 9 to our financial statements included in this report.  This going concern uncertainty could adversely affect our ability to obtain favorable financing terms in the future or to obtain any additional financing if needed.  Management cannot be certain of its ability to create additional revenues, obtain additional equity financing, or execute its long-term business plan.


A continuing recession in the U.S. and general downturn in the global economy may continue to have an



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adverse impact on our business, operating results or financial position.

 

The U.S. economy has been in recession and there has been a general downturn in the global economy. A continuation or worsening of these conditions, including credit and capital markets disruptions, could have an adverse impact on our business, operating results or financial position in a number of ways. We may experience difficulties in generating revenues and cash flows as a result of reduced orders, payment delays or other factors caused by the economic problems of our customers and prospective customers. We may experience supply chain delays, disruptions or other problems associated with financial constraints faced by our suppliers and customers. We may incur increased costs or experience difficulty with the ability to borrow in the future or otherwise with financing our operating, investing or financing activities. Any of these potential problems could hinder our efforts to increase our sales and might, if severe and extensive enough, jeopardize our ability to operate.


There is a limited public trading market for our common stock.


Our common stock presently trades Over The Counter Bulletin Board under pinksheets with the symbol “NANM.PK”. We cannot assure you, however, that such market will continue or that you will be able to liquidate your shares acquired at the price you paid or otherwise. We cannot assure you that any other market will be established in the future. The price of our common stock may be highly volatile and your liquidity may be adversely affected in the future.


We have a substantial number of shares authorized but not yet issued.


Our Articles of Incorporation authorize the issuance of up to 100,000,000 shares of common stock. Our Board of Directors has the authority to issue additional shares of common stock and to issue options and warrants to purchase shares of common stock without shareholder approval. Future issuance of common stock could be at values substantially below current market prices and therefore could represent substantial dilution to our stockholders. In addition, the Board could issue large blocks of voting stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval.


We have historically not paid dividends and do not intend to pay dividends.


We have historically not paid dividends to our stockholders and management does not anticipate paying any cash dividends to our stockholders for the foreseeable future. The Company intends to retain future earnings, if any, for use in the operation and expansion of our business.


  ITEM 1B. UNRESOLVED STAFF COMMENTS


Smaller reporting companies are not required to provide the information required by this item. Nevertheless, no such comments have occurred for the two preceding years of filings.

 

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.


We occupied a manufacturing/warehousing facility in Nogales, Mexico located at Calle Los Gavilanes, #28, Nogales, Sonora, Mexico, under a three year lease agreement. The lease agreement was terminated on December 14, 2008.  


The Company currently maintains mailbox services through a Reno, Nevada location. Business is conducted largely with emails, telephone calls and web services. One meeting was conducted in person amongst its three employees during 2010. One formal meeting amongst two employees has occurred so far in 2011.


ITEM 3.  LEGAL PROCEEDINGS


On December 29, 2010, the Company received a complaint from Applied, filed in the District Court of Clark County in Nevada (Case No. A-10-631192-C), seeking collection of notes payable to Applied in the amount of $453,500,



11




including accrued interest. On February 1, 2011, we countersued for breach of contract and claims related thereto. Our management believes that the value of its counterclaim will exceed the value of the claims asserted against the Company but cannot fully assess the outcome of the action at this time. Accordingly, management believes that no provision is required in excess of the recorded liability to Applied in the accompanying financial statements related to this complaint.


ITEM 4. RESERVED


Not applicable.


ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


As of September 8, 2011, we had approximately 2,300 shareholders.  We have not paid cash dividends on our common stock.  We anticipate that for the foreseeable future, any earnings will be retained for use in our business, and no cash dividends will be paid on the common stock.  Declaration of common stock dividends will remain within the discretion of our Board of Directors and will depend upon our growth, profitability, financial condition and other relevant factors.


Our common stock has been quoted on the NASD'S OTC Bulletin Board (the "OTCBB") under the symbol "EMFP" until May 18, 2007, at which time, due to our failure to timely file our Annual Report on Form 10-KSB for the year ended December 31, 2006, we received a delisting notice from the NASD.  Our common stock is now quoted on the Pink Sheets under the symbol “NANM.PK” (formerly, “EMFP.PK”).  The following table sets forth, for the respective periods indicated, the prices of our common stock in the over the counter market as reported by the OTCBB/Pinksheets 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 2009

High Bid

Low Bid

 

 

 

Quarter ended 12/31/09

$ 0.49

$ 0.11

Quarter ended 9/30/09

$ 0.48

$ 0.10

Quarter ended 6/30/09

$ 0.23

$ 0.06

Quarter ended 3/31/09

$ 0.09

$ 0.03  

 

 

 

Fiscal Year 2008

High Bid

Low Bid

 

 

 

Quarter ended 12/31/08

$ 0.06

$ 0.01

Quarter ended 9/30/08

$ 0.25

$ 0.03

Quarter ended 6/30/08

$ 0.29

$ 0.10

Quarter ended 3/31/08

$ 0.28

$ 0.10  

 

 

 

Fiscal Year 2007

High Bid

Low Bid

 

 

 

Quarter ended 12/31/07

$ 0.29

$ 0.12

Quarter ended 9/30/07

$ 0.52

$ 0.22

Quarter ended 6/30/07

$ 0.54

$ 0.21

Quarter ended 3/31/07

$ 0.92

$ 0.48  


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.



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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


THIS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009, IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT SEPTEMBER 9, 2011. SOME OF THE INFORMATION CONTAINED HEREIN REFERS TO HISTORICAL ACTIVITIES OF THE COMPANY FOR FISCAL 2009. SHAREHOLDER AND INVESTORS ARE ADVISED TO CONSULT THE COMPANY’S MORE RECENT FILINGS OF CURRENT REPORTS ON FORM 8-K AS WELL AS ADDITIONAL PERIODIC REPORTS FOR SUBSEQUENT PERIODS THAT THE COMPANY INTENDS TO FILE AS SOON AS POSSIBLE.


Cautionary Statement Regarding Forward-looking Statements


This report may contain "forward-looking" statements.  Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions. Such statements are only predictions and the actual events or results may differ materially from the results discussed in or implied by the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” below as well as those discussed elsewhere in this report.


Overview


We are a healthcare product development and distribution company providing emergency and critical care and infection control products to a variety of market segments within the healthcare industry. We also have been a distributor of a blood clotting device for surgery, trauma and burn wound management.  However, due to our decision in late 2006 to seek FDA clearance for the NanoMask and filters as a Class II medical device (as discussed in Item 1), we suspended all sales of this product.  In addition, since we have limited financial resources, we have elected to postpone any further development or significant marketing of our products, except for the Nano Silver Technology and Nano Zyme products until adequate resources are available.


Since inception, we have been involved primarily in the development of our technologies, and most recently, the marketing of the various technologies to a limited extent.  During this time, revenues have not been adequate to cover operating expenses. Accordingly, we have reported a loss in each of our years of existence.  To date, we have funded our operations primarily by way of a series of private equity placements. We acquired the rights to a substantial portion of our intellectual property from our former president and chief executive officer (See Critical Accounting Policies and Estimates, below), 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 licensing 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.


Results of Operations


Revenues:  There have been no revenues generated during 2009 and 2008, primarily due to our decision in late 2006 to forego production of NanoMask and NanoMask replacement filter sales until such time as we received FDA clearance.


The Company has remained a product development company until 2011 when sales of new products were begun.


Cost of Sales: During the third quarter of 2006, production was moved to Nogales, Mexico. This facility was maintained until its closure in October 2008.  Inasmuch as no revenues were generated in 2009 or 2008 and the Company had closed its production facilities in October 2008, no cost of sales were incurred.


Operating Expenses: General and administrative expenditures for 2009 as compared to 2008 decreased by $211,131 or approximately 29%, primarily due to reduced wages and officer compensation, travel, professional fees, and insurance, resulting from the decrease in expected demand for our products.



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After production and sale of our products were suspended during late 2006, we have aggressively attempted to reduce operating expenses, and have continued to search for other means of reducing operating costs during 2007 and 2008.


Depreciation and Amortization: As of December 31, 2007, all property and equipment was written down to an estimated net realizable value of $28,000, and the remaining assets were classified as held for sale. Accordingly, no depreciation expense was recognized during 2008 or 2009.


Research and Development (R&D) Costs: Early in 2009, management made a concerted effort to fund basic research and development on a new nano-particle mask including related FDA testing. Expenditures of $80,558 were incurred in 2009 with Intrinsiq Materials, Ltd. and AlvaMed, LLC. If resources are available in the future, the Company intends to bring additional products to market, assuming those products are still viable at the time the resources are available. The significant components of the Company’s research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.


Liquidity and Capital Resources


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 by our operating activities for the years ended December 31, 2009 and 2008 was funded primarily by the sale of common stock for cash and from the issuance of short term notes payable. A private placement for 2,746,624 common shares was completed in June 2008, amounting to $270,335. Short term notes issued amounted to $60,000 during 2008. In addition, during 2009 the Company issued 2,594,597 units of common shares and warrants to purchase common shares at $.50 per share, exercisable for two years, for total proceeds of $479,000, settlement of $16,930 in expenses incurred by three key officers and the repayment of a $22,989 loan made by a key officer, including $2,989 accrued interest. Also during 2009, the Company issued 1,846,237 common shares and warrants to settle $250,000 of notes payable, plus accrued interest thereon of approximately $35,000.  Moreover, throughout 2009 management and board members continued to discuss other alternative financing options, but no definitive proposals or agreements were reached.


Beginning in the third quarter of 2008, the United States has been experiencing a severe and widespread recession accompanied by, among other things, instability in the financial markets and reduced credit availability, and is also engaged in war, all of which are likely to continue to have far reaching effects on economic activity in the country for an indeterminate period. The effects and probable duration of these conditions and related risks and uncertainties on the Company's ability to obtain financing, success in its marketing efforts and ultimately, profitable operations and positive cash flows, cannot be estimated at this time. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.


In 2004, we adopted a stock option and award plan (the "Plan") under which options to acquire our common stock or bonus stock may be granted from time to time to employees, including officers and directors and/or subsidiaries.  As of December 31, 2009, 1,479,000 shares of our common stock were issued pursuant to the Plan for the services of various individuals. A balance of 1,021,000 shares remains to be issued under the Plan subject to approval of the Board of Directors or of a Plan administrator.


At the filing date of this report, we do not believe that we currently have sufficient capital to sustain our business efforts for the next twelve months.  Accordingly, we will need to raise additional capital during the remainder of 2011 to sustain operations.  These funds will be required to sustain our development and marketing efforts to sell our Nano Silver Technology and Nano Zyme products. We will then need working capital to maintain our operations once the product sales are initiated. We are also working on minimizing operating expenses, to the extent possible, by reducing overhead costs, salaries, and other consulting and professional fees, in order to conserve our available cash pending sales of the new products mentioned above.


Consequently, our ability to continue as a going concern may be dependent upon the success of our new business plan which, as explained above, includes a) generating sales of the new products noted above, b) continuing efforts to increase our product sales internationally through our broad network of distributors, and c) obtaining additional equity or debt financing.  We do not know if such additional capital will be available or available on terms



14




acceptable to us.  We do not know if we will sustain operations long enough to generate revenues, to obtain additional equity or debt financing or otherwise execute our long-term business plans. Accordingly, for these and other reasons, in their report on our 2009 financial statements, our auditors expressed substantial doubt as to our ability to continue as a going concern.


Effect of Inflation and Interest Rates


At this time, we do not expect that either inflation or interest rate variations will be among the economic factors likely to have a material effect on our future operations. However, as discussed elsewhere in this report, general economic factors may likely have a significant effect on the demand for the Company’s products and its ability to raise funds to conduct it operations.


Critical Accounting Policies and Estimates


Except as follows, we do not employ any critical accounting policies or estimates that are either selected from among available alternatives or require the exercise of significant management judgment to apply or that if changed are likely to materially affect future periods.


Impairment of long-lived assets.  Management reviews the carrying value of the Company’s inventories, property and equipment and technology assets annually based on its current marketing activities, plans and expectations, and the perceived effects of competitive and other market factors (i.e., lower of cost or market adjustments), such as declines in replacement value and obsolescence and impairment, to determine whether any write-downs should be taken or whether the estimated useful lives should be shortened.  


Share-based compensation.  Effective January 1, 2009, all compensation to key officers has been awarded in common stock of the Company. Shares issued in 2009 were priced at the closing price on the day that the Board of Directors authorized it. However, effective January 1, 2010, the Board of Directors authorized issuance of its common stock to key officers and directors based on a trailing thirty-day average of its closing prices. The Board of Directors reserves the right to either pay in cash or in restricted common stock at its option.


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


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


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


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


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.



15





The Company uses Level 3 inputs to value warrants issued, and Level 1 inputs to value its non-cash common stock transactions.


See Note 4, Warrants, for additional information regarding fair value measurements.


Off Balance Sheet Arrangements


Not applicable.


Recent Accounting Pronouncements


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


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Smaller reporting companies are not required to provide the information required by this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Our financial statements for the reporting period are set forth immediately following the signature page to this Form 10-K.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE


None


ITEM 9A. CONTROLS AND PROCEDURES


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


Pursuant to a letter from our independent auditors, dated September 9, 2011, that identified certain deficiencies in internal control over financial reporting as significant deficiencies identified as material weaknesses, we are in the process of making changes to our internal controls and procedures.  A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.  A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.  A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.


To overcome the material weaknesses, our principal executive and financial officers have provided additional substantive accounting information and data to our outside auditors in connection with their audit of the financial statements for the year ended December 31, 2009.  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.  



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


PART 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

52

Chief Executive Officer: Director

March, 2010 – Present

Michael J. Marx

66

Chief Financial Officer; Director

December, 2009 –- Present

Marc Kahn

55

Chief Medical Officer; Director

June, 2009 – Present

David J. Willoughby

49

Vice President, Marketing & Sales; Director

July, 2011 – Present

Vicki L. Aksland

45

Director

July, 2011 – Present

Mark Cox

44

Director

February, 2010 – Present

Douglas Heath

 

Former Chief Executive Officer

Former Director

January, 2009 – March, 2010

July, 2008 – March, 2010

Philip Dascher

72

Former Chief Executive Officer

January, 2007 – December, 2008

Steve M. Hanni

42

Former Chief Financial Officer

Former Secretary and Former Treasurer

November, 2002 – November, 2008

November, 2005 – November, 2008

John Masenheimer

66

Former Chief Operating Officer

July, 2006 – December, 2008

Thomas Glenndahl

63

Former Director

May, 2002 – April, 2008

Dr. Raymond C.L. Yuan

66

Former Director

December, 1997 – December, 2008

William Rueckert

57

Former Director

November, 2006 – October, 2008

David Bloom

60

Former Director

May, 2004 – October, 2008


The principal occupation and business experience for each of the current and past directors and executive officers are as follows:


Current


Edward J. Suydam was appointed as Chief Executive Officer (“CEO”) and president, effective March 1, 2010.  Mr. Suydam has been serving as the Company’s Chief Operations Officer (“COO”) since June 2009. Mr. Suydam has 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.


Michael J. Marx was appointed as the Company’s Chief Financial Officer (“CFO”) in December 2009. Mr. Marx is the Chief Executive Officer of CPA Services Unlimited, P.C., a private accounting firm located in Peekskill, New York, a position he has held since 1985. Mr. Marx began his professional career at Peat, Marwick, Mitchell & Co., CPAs (now KPMG, LLC) from 1967 to 1972.  From 1972 to 1974, he was Supervisor of the Audit Department for AMAX, Inc. (NYSE).  From 1974 to 1975, he was Assistant Corporate Controller for Esterline Corp. (NYSE), He then joined EDO Corporation (NYSE), now a unit of ITT Corporation, as Director of Auditing (1976 to 1981) and Director of Financial Management (1981 to 1984).  Mr. Marx received his B.S. from Lehigh University (1966) and his New York State CPA in 1972.


Dr. Marc L. Kahn has been a radiologist with the Clarkson Medical Group in Michigan since May 2007.  Prior to that time, from September 1994 to May 2007, he was a radiologist with Diagnostic Radiology Associates in Michigan.  Mr. Kahn earned a BA from Albion College (1977) and an MD from Wayne State Medical School (1981).  He did his residency in radiology at Sinai Hospital (1989) and a fellowship at Columbia Presbyterian



17




(1995).


David J. Willoughby, Vice President - Marketing & Sales, was appointed on July 1, 2011. He has served in numerous marketing, sales, and product development capacities within the health care industry for the last 20 years. Since 2000 until joining the Company, Mr. Willoughby was Vice President of Granvid Technologies Inc., a health care marketing and intellectual property development company where he was responsible for marketing with a strategic focus on new product development and applications within the areas of infection control, wound care and biomaterial coatings. Prior to that position, from 1995 to 1999, he was instrumental in establishing Ultravena Industries USA Ltd., a medical device manufacturer which developed the first ever patented alternative donning technology for the medical latex and synthetic glove markets. At Ultravena, Mr. Willoughby was assigned responsibilities as senior marketing manager for Ultravena (Canada) before eventually overseeing the majority of the company’s North American dental and industrial market segment activities. From 1992 to 1995 Mr. Willoughby worked for DFS GmbH (Germany), holding the position of North American marketing manager responsible for building the company’s private label programs with internationally recognized health care manufacturers in the US, Canada and Japan. During his years in the health care industry, he has demonstrated strong skills in product development, channel marketing and sales management along with a thorough understanding of the processes behind effective international business development and management. His participation as an officer and director will add support and guidance in expanding both our domestic and international business strategies and activities.


Mark R. Cox was appointed as a Director in February, 2010. Mr. Cox is president and co-founder of AlvaMed LLC, a medical device consulting company, since November 2002. Prior to that, from November 2001 until November 2002, he was founder and president of Fast Product, a consulting company assisting with the development of new products and businesses. From January 1992 until November 2001, Mr. Cox served in several capacities at Arthur D. Little, Inc., including Senior Manager of Product Technology Practice (January 1992 – January 1998), Director of Business Development for Epyx Corporation (now Nuvera) (January 1998 – January 1999), and Project Manager of the Arthur D. Little Technology Investment Board as well as Director of Arthur D. Little Enterprises from January 1999 – November 2001. Mr. Cox’s experience with new technology and technology companies includes technical evaluation, general business development and networking, selection of investment opportunities, market assessment, product development, intellectual property review and sales presentations. Mr. Cox earned a Bachelor of Engineering degree in Materials Science, Imperial College of Science and Technology, London 1987 and a Masters in Materials Engineering, Massachusetts Institute of Technology 1990.


Vicki L. Aksland was appointed as Director, effective July 1, 2011. Since April 2009 she has served as an Executive Assistant for the Company. Prior to that, from February 2006 to June 2010, she was employed as a licensed real estate salesperson with Coldwell Banker, Manteca, CA. From July 1996 to December 1998 she was employed with Re/Max Almond Valley as a licensed real estate salesperson with offices in Manteca and Ripon, CA and from March 1994 to June 1996 she was with Century 21 Yeoman's Real Estate in Tracy, CA as a licensed salesperson. From July 1987 to March 2005, she was co-owner and bookkeeper for Bennett's Backhoe Service. From February 1986 to February 1988, Ms. Aksland was a bookkeeper responsible keeping accounts for 5 Exxon stations. Her in-depth knowledge of the Company and her previous business experience make her particularly suited to understand what is necessary for the Company to succeed.


Former


Philip Dascher, Former CEO, was appointed as such on January 29, 2007.  Mr. Dascher has extensive experience managing and building companies. From 1996 to the present, Mr. Dascher has been managing his personal investment portfolio and working on consulting assignments for various companies.  From 1985 to 1996, Mr. Dascher founded two apparel companies, Pelle Leather, Ltd. and General Clothing Co., Ltd., with offices in New York, Dallas and Milan.  During his tenure, sales volumes reached $48 million, with sales to national retailers, department stores and specialty store chains in the United States and Italy.  Prior to that period, Mr. Dascher founded and sold three other apparel companies from 1972 to 1979.


Mr. Douglas Heath, Former CEO, is the founder and President of Manteca, California-based Nushake Roofing Inc., one of Northern California's largest re-roofing companies, which has been in continuous operation since 1976. Mr. Heath has also founded and operated a number of other business concerns, including the Gutter Guy Inc.; Hula in Motion, which operates a Hawaiian souvenir distribution company; and 2H Distributors Inc., a company which sold EFP's first NanoMask(TM).



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Steve M. Hanni, Former CFO, was appointed as such and served on a part-time basis during November 2002 and was appointed Secretary/Treasurer in November 2005.  He has worked extensively with us over the past ten years as an outside auditor or financial consultant and had been devoting approximately 30-40% of his time with the Company. He is also currently a partner in the accounting firm of Stayner, Bates & Jensen, P.C. in Salt Lake City, Utah. He was formerly an audit partner with HJ & Associates, LLC from 1997 to 2001 where he served as the Company’s outside auditor.  He received his BA from Weber State University in 1993 and an MA in Accounting from Weber State University in 1994.  He has worked extensively with small public companies in numerous industries. Mr. Hanni is a founding shareholder of Applied Nanoscience, Inc., a technology company (deregistered in 2010) with which we have a license agreement. Mr. Hanni is also on the board of directors and serves as the Chair of the Audit Committee for Amerityre Corporation (NASDAQ: AMTY).  He is also acting CFO of Medizone International, Inc. (Bulletin Board: MZEI), a medical research company with limited activity at the present time.


John Masenheimer, Former Chief Operating Officer, was appointed as the COO during July 2006.  He joined us as a consultant in February, 2004.  Prior to joining us as a consultant, he worked for eight years as COO of Westmed, Inc., a manufacturer of respiratory disposable delivery devices.  In that capacity, he was able to improve productivity a minimum of 4% annually.  Prior to his tenure at Westmed, he worked for United Technologies from 1990-1995, and for General Electric from 1968-1990, where he held various management positions.


Thomas Glenndahl, Former Director, was appointed as a director in May 2002.  He was born in Sweden in 1946 and educated in the United States and Europe and resides in Waterloo, Belgium and Tiburon, California.  He graduated with a Masters degree of Business Administration in international marketing from Gothenburg School of Economics in 1970.  His professional experience includes:  Commercial Attaché with the Swedish Chamber of Commerce in Paris, France (1970-1971); Investment Banker with Barkley Securities, London and England (1972-1974), US Director of Interstudy, San Francisco (1974-1977), CEO of Sitzmat, Inc., San Francisco (1977-1981), and; Founder of the ASPECT International Language Schools in San Francisco, CA (1982) which was sold to Sylvan Learning Systems in 1998.  Since 1998, Mr. Glenndahl has acted as an independent investor and consultant.  He currently serves as a Director of Harling Properties in Sweden, Aksu Pharmaceuticals in Turkey, Transnico International Group SA and Transnico Technologies Group SA in Belgium.  He is also a partner in the MVI Group in Scandinavia and Switzerland.  Mr. Glenndahl is a founding shareholder and director of Applied Nanoscience, Inc. (Pink Sheets, APNN.PK), a technology company with which we have a license agreement.


Dr. Raymond C.L. Yuan, Former Director, was elected to the Board in December, 1997.  Since 1993, Dr. Yuan has served as Managing Director of AsiaWorld Medical Technology Limited, an exclusive master distributor of advanced medical and healthcare products in South East Asia, including the People's Republic of China.  In addition, Dr. Yuan currently serves in the following positions:  President of the MedNet Group located in Hong Kong, a group of healthcare education and communications companies; Managing Director of Bio-health Consultancy Limited (Hong Kong), a consulting firm specializing in bio-health and biotechnology consulting to medical institutions; and Executive Director of Financial Resource International, Limited located in Hong Kong, an international investment banking firm.  Dr. Yuan graduated form the University of California, Berkeley in 1967 with a Bachelor of Science degree in Chemistry.  He subsequently received a Masters degree in Physical Chemistry from Columbia University in 1968 and a Ph.D. in Chemical Physics from Columbia University in 1972.  Dr. Yuan was also a National Health Institute Postdoctoral Fellow at Yale University in 1972 and a Rudolph J. Anderson Fellow at Yale University in 1974.  Dr. Yuan also received a Master of Business Administration degree from Stern School of Business Administration, New York University in 1983.


William Rueckert, Former Director, has been the managing member of Oyster Financial Partners, L.P., a hedge fund investing exclusively in domestic community banks. Since 1990, he is also the President of Rosow & Company, Inc. and International Golf Group, Inc., private companies with interests in resort, real estate development and project management. From 1988 to 1990, Mr. Rueckert served as Treasurer of Moore & Munger, Inc., a private holding company with interests in oil and gas, resort and real estate development. From 1981-1988, he was President, CEO and Chairman of the Board of Directors of United States Oil Company, Inc., a NASDAQ listed oil and gas exploration company. From 1978-1981, Mr. Rueckert served as Assistant to the Senior Credit Officer of Brown Brothers Harriman & Co. Since 2005, Mr. Rueckert has served as a director for Glycotex, Inc., a closely-held bio-pharmaceutical company based in Washington, D.C. He previously held director positions with Westport Bancorp, Inc., a public community bank located in Westport, Connecticut (1992-1996) and Hudson United Bancorp, Inc., a public regional bank located in Mahwah, New Jersey (1996-1999). He also has extensive experience as an officer



19




and director of numerous non-profit and charitable organizations, including the Cleveland H. Dodge Foundation, Teachers College, Columbia University, and International House, a residence in New York City for 750 graduate students from over 100 countries.


David Bloom, Former Director, was elected to the Board in May 2004.  He is currently an independent business consultant.  From 2001-2006, Mr. Bloom was CEO and President of Le Gourmet Chef, a house-wares products company.  From 1999 to 2001, he was CEO and founder of Princeton Photo Network, an entity consolidating photography studios to reduce costs.  From 1994 to 1999, he was CEO and founder of Sneaker Stadium, a start up venture that expanded to 50 store locations.  From 1991 to 1994, Mr. Bloom was CEO and President of Record World, and successfully turned around the 80 store retailer of music products.  From October 1990 to March 1991, Mr. Bloom served as COO of Barnes & Noble bookstores, responsible for the small store division.  From 1974 to 1990, Mr. Bloom was employed by Herman’s World of Sporting Goods, as President and CEO from 1987 to 1990.  Mr. Bloom received a B.S.E. degree from the University of Michigan in 1971 and an M.B.A. from Harvard Business School in 1974.


Our current directors, Edward Suydam, Michael Marx, Marc Kahn, David Willoughby and Vicki Aksland , all serve the Company in various capacities and, therefore, are not deemed to be independent. Director Mark Cox is not an officer or employee and, therefore, may be deemed independent.


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 twice in person and two other times via telephone during 2008 and six times via telephone during 2009.


Committees of the Board of Directors


Our Board of Directors formed an Executive Committee on January 29, 2007, consisting of Mr. Philip Dascher, and two board members, William Rueckert and David Bloom.  The Executive Committee has been appointed to bring more direct board involvement and better communication throughout the Company.  The functions ordinarily performed by a Compensation Committee were among those assigned to the Executive Committee. The Executive Committee, along with its functioning as a Compensation Committee, was dissolved on December 26, 2008, concurrent with the resignation of our CEO, Philip Dascher.


We are not obligated to have an audit committee nor to comply with any requirements for its composition should it have one. Our Board of Directors established an Audit Committee on March 2, 2007, consisting of the two independent board members, William Rueckert and David Bloom.  Mr. Rueckert was appointed Chair of the Audit Committee and would qualify as a financial expert in accordance with SEC guidelines, if they were applicable to us. However, the Audit Committee had been totally inactive since all of its members had resigned in late 2008 until it was re-activated and increased in scope to include compensation policy during early 2010. Michael J. Marx and Marc Kahn, neither of whom is independent of management, comprise the Audit and Compensation Committee. Michael J. Marx serves as Chairman.  The Board of Directors decides on the recommendations made by the Audit and Compensation Committee.


Code of Ethics


We have a Code of Ethics for our executive officers and key employees.  The Code of Ethics is posted on our website at www.nmihealth.com.


ITEM 11. EXECUTIVE COMPENSATION


The following table sets forth certain summary information concerning the compensation paid or accrued to our chief executive officer and each of its other executive officers that received compensation in excess of $100,000



20




during such periods (as determined at December 31, 2009, the end of our last completed fiscal year for which this report is being filed):


Summary Compensation Table

 

 

 

 

 

Name and

Principal Position



Year



Salary ($)



Bonus ($)



Total ($)

 

 

 

 

 

Douglas Heath,

2009

$150,000

$0

$150,000

Chief

2008

N/A

N/A

N/A

Executive

 

 

 

 

Officer

 

 

 

 

 

 

 

 

 

Edward Suydam,

2009

$125,000

$25,000

$150,000

Chief

2008

N/A

N/A

N/A

Operating

 

 

 

 

Officer

 

 

 

 

 

 

 

 

 

Steve

2009

$0

$0

$0

Hanni,

 

 

 

 

Chief

2008

$80,000 (1)

$0

$80,000

Financial

 

 

 

 

Officer

 

 

 

 


(1) In 2007, Mr. Hanni received $95,000, leaving unpaid salary of $28,333 at December 31, 2007. In 2008, Mr. Hanni received $6,667 and accrued salary for 2008 of $66,667 leaving a balance due of $88,333 at December 31, 2008. This balance was subsequently extinguished on March 3, 2011, when Mr. Hanni accepted 200,000 common shares at a valuation of $5,600.


Any accrued amounts are non-interest bearing and subject to change only upon approval by the Board of Directors.  


Effective January 29, 2007, we hired Philip Dascher as our Chief Executive Officer. Mr. Dascher will not receive any salary or benefits. As compensation for his services as CEO, Mr. Dascher has agreed to accept options to purchase up to 850,000 shares of our common stock at an exercise price of $0.76 per share, the closing price of our stock on the date Mr. Dascher accepted this appointment, exercisable for seven years from the date of grant.  100,000 options vested immediately, and an additional 150,000 options will vest after 90 days, subject to the approval by our Board of Directors of the completion of certain organizational and administrative tasks. Additional vesting would occur subject to the achievement of various strategic objectives, including the receipt of FDA approval for our NanoMask product and budget planning for fiscal 2008 and 2009. If Mr. Dascher resigned, all unvested shares would be cancelled.  Mr. Dascher resigned on December 26, 2008, resulting in the cancellation of 600,000 unvested shares. The excess estimated fair value of his services, if any, over the value of his share-based compensation was recorded as contributed capital and additional compensation expense during 2007.


Compensation of Directors


Effective September 1, 2007, all Directors orally agreed to forgo annual compensation. Accordingly, during 2009 and 2008 the Company issued no shares to its directors as compensation. Effective March 1 2010, all officers of the Company serving as Directors have agreed to forego annual director compensation.


Current Officer and Director Compensation


As of the filing date of this Report, the Company has annual compensation agreements with the its current management team that run through December 31, 2011, all subject to renewal by mutual agreement, as follows:


Edward Suydam

Chief Executive Officer and President

$150,000

Michael J. Marx

Chief Financial Officer

$80,000

Marc Kahn

Chief Medical Officer

$80,000

David J. Willoughby*

Vice President, Marketing & Sales

$50,000




21




*Mr. Willoughby was appointed July 1, 2011. His compensation agreement is for six months. He was also awarded a signing bonus of 100,000 shares of the Company’s restricted common stock.


All of the above officers also serve as directors. Directors Mark Cox and Vicki Aksland each receive $15,000 per year as a fee for their service as directors.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; ALSO, 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 present information, as of August 19, 2011, about the beneficial ownership of its common stock by those known to own more than 5% of the Company’s common stock, including its directors and executive officers. The percentage of beneficial ownership for the following table is based on 74,961,568 shares of our common stock issued and outstanding:


Title of Class

Name and Address

Number of Shares

% of Class

 

 

 

 

Common

Josiah T. Austin

12626 Turkey Creek Road

Pearce, AZ 85625


11,426,839


15.24%


Securities Ownership of Officers and Directors


Title of Class

Name and Title

Number of Shares

% of Class

 

 

 

 

Common

Edward Suydam

Chief Executive Officer


                           7,974,486


10.64%

Common

Michael J. Marx

Chief Financial Officer


5,734,044


7.31%

Common

Marc Kahn

Chief Medical Officer


10,481,578


13.15%

Common

David Willoughby

Vice President, Marketing & Sales

600,000


*

Common

Vicki Aksland

Director

356,133


*

Common

Mark Cox

Director


1,656,521


2.21%

 

 

 

 

 

Total (6 persons)

26,802,762

34.45%

 

 

 

 

*   Less than 1%.


Disclosure Regarding the Company's Equity Compensation Plans


On September 15, 2004, we adopted a 2004 Stock Option and Award Plan (the "Plan") under which options to acquire our common stock or bonus stock may be granted from time to time to employees, including officers and directors and/or subsidiaries.  In addition, at the discretion of the board of directors or other administrator of the Plan, options to acquire common stock or bonus stock may from time to time be granted under the Plan to other individuals who contribute to our success but who are not employees.  A total of 2,500,000 shares of common stock may be subject to, or issued pursuant to, options or stock awards granted under the terms of the Plan.  The shares



22




underlying the Plan were registered by us on a Registration Statement, Form S-8, filed with the Commission on September 29, 2004.


As of December 31, 2009, 1,479,000 shares of our common stock have been issued pursuant to the Plan for the services of various individuals.  The 1,479,000 shares (issued during 2004) were recorded at the fair market value of the shares on the date of issuance, which was $0.45 per share for a total of $665,550. As of December 31, 2009 and 2008, there was no deferred compensation and all capitalized patent and acquired technology costs had been written off. While there are 1,021,000 common shares available for future issuance, the Board of Directors has not approved any further equity compensation awards under the Plan.


Our Board of Directors has the sole authority to determine the terms of awards and other terms, conditions and restrictions of non-plan options.  Any shares issued pursuant to these options shall be subject to resale restrictions as shall be in force at the time of issuance of the shares, including sales volume and timing of the sale.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


The following related party transactions occurred during the years ended December 31, 2009 and 2008 which are required to be disclosed pursuant to Item 404 of Regulation S-K.


Stock Issuances to Related Parties


None.


Applied Nanoscience Inc.


During June 2004, we entered into a licensing agreement with Applied, a related company due to some common ownership, directors and employees, which includes a 2.5% royalty on the gross sales of any and all products utilizing the nano-coatings technology on any filter configuration for environmental masks and any other application for US military use only.  No royalties were paid and/or accrued pursuant to this agreement for the years ended December 31, 2009 and 2008, respectively.


We announced in July 2007 that we executed a letter of intent to merge with Applied, which was a publicly-held company (Pink Sheets, APNN.PK), in an all stock exchange transaction.  On July 14, 2008, the Company and Applied entered into a definitive merger agreement under which Applied agreed to acquire the Company by issuing approximately 36,586,287 shares of its common shares and 18,293,143 warrants for the purchase of additional common shares of the Company. The number of common shares and warrants differ from the original letter of intent due to the Company’s additional shares issued after the letter of intent was signed. A final merger agreement was to be subject to approval by shareholders of both companies.  On February 25, 2009, the merger agreement was terminated. During 2010, Applied was deregistered as a public company.


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


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, Piercy Bowler Taylor & Kern, Certified Public Accountants (“PBTK”), for the audits of our annual financial statements and review of our quarterly financial statements for fiscal years 2009 and 2008 were approximately $64,000 and $80,000, respectively.  



23




 2) Audit-Related Fees – The aggregate fees billed for professional audit-related services rendered during fiscal years 2009 and 2008 by PBTK were approximately $0 and $0, respectively.  

 3) Tax Fees - None

 4) All Other Fees - None


PART IV.


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a)(1) FINANCIAL STATEMENTS.  The following financial statements are included in this report:


Title of Document

Page

 

 

Report of independent registered public accounting firm

26

Balance sheets as of December 31, 2009 and 2008

27

Statements of operations for the years ended December 31, 2009 and 2008

28

Statements of stockholders' equity deficiency for the years ended December 31, 2009 and 2008

29

Statements of cash flows for the years ended December 31, 2009 and 2008

30

Notes to the financial statements

31


 (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

 

 

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



SIGNATURES


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


NANO MASK, INC.


September 9, 2011

By /s/ Edward Suydam

Edward Suydam, Chief Executive Officer (Principal Executive Officer) and Director


September 9, 2011

              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.




24







Signature

Title

Date

/s/ Edward Suydam

Chief Executive Officer and Director

September 9, 2011

/s/ Michael J. Marx

Chief Financial Officer and Director

September 9, 2011

/s/ Marc Kahn

Chief Medical Officer and Director

September 9, 2011

/s/ David J. Willoughby

Vice President, Marketing & Sales and Director

September 9, 2011

/s/ Vicki L. Aksland

Director

September 9, 2011

/s/ Mark Cox

Director

September 9, 2011




25




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors

Nano Mask, Inc.

Reno, Nevada


We have audited the accompanying balance sheets of Nano Mask, Inc. (formerly, Emergency Filtration Products, Inc.) (the Company) as of December 31, 2009 and 2008, and the related statements of operations, stockholders' equity deficiency, 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, audits of its internal control over financial reporting.  Our audits included 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, 2009 and 2008, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 7, the Company has incurred a series of net losses resulting in negative working capital and a stockholders’ equity deficiency of $1,127,237 as of December 31, 2009.  The Company’s ability to pay its obligations when due and to continue operations is dependent upon its ability to develop and sell its products or obtain additional financing with acceptable terms.  These conditions raise substantial doubt as to the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 7.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ Piercy Bowler Taylor & Kern

Piercy Bowler Taylor & Kern, Certified Public Accountants

Las Vegas, Nevada


September 9, 2011















26





NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

Balance Sheets

December 31, 2009 and 2008

 

 

 

 

ASSETS

 

 

 

 

2009

2008

CURRENT ASSETS

 

 

 

Cash

 $                 136,908

 $                           -

 

Prepaid expenses

2,981

 -

 

Inventory

                    95,040

                            -

 

 

 

 

 

 

 

 

                  234,929

                            -

 

 

 

 

 

EQUIPMENT HELD FOR SALE

                             -

                  28,000

 

 

 

 

 

 

 

 

$                 234,929

$                   28,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

Accounts payable

 $                372,015

 $                456,180

 

Accrued expenses

                505,044

                490,466

 

Notes payable

                485,107

                735,107

 

 

 

 

 

 

 

 

             1,362,166

             1,681,753

 

 

 

 

 

STOCKHOLDERS' EQUITY DEFICIENCY

 

 

 

Common stock, $.001 par, 100,000,000 shares authorized;

 

 

 

 

53,671,536 outstanding (53,571,536 issued and 100,000 issuable) in 2009 and 47,865,535 shares issued and outstanding in 2008

                  53,672

                  47,866

 

Additional paid-in capital

           20,157,141

           19,002,808

 

Deficit

         (21,338,050)

         (20, 704,427)

 

 

 

 

 

 

 

 

           (1,127,237)

           (1,653,753)

 

 

 

 

 

 

 

 

$                234,929

 $                   28,000


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














27







NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

Statements of Operations

For the years ended December 31, 2009 and 2008

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

Research and development

$              80,558

 

$                 1,702

 

Selling, general and administrative

              527,183

 

              738,314

 

 

 

 

 

 

 

              607,741

 

              740,016

 

 

 

 

 

LOSS FROM OPERATIONS

            (607,741)

 

            (740,016)

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

Interest expense

                 (48,376)

 

              (50,194)

 

Loss on debt extinguishment

(20,000)

 

-

 

Gain on settlement of vendor liabilities and other

                 42,494

 

                          -

 

 

 

 

 

 

 

               (25,882)

 

              (50,194)

 

 

 

 

 

NET LOSS

$           (633,623)

 

$          (790,210)

 

 

 

 

 

BASIC LOSS PER SHARE

$                 (0.01)

 

$                (0.02)

 

 

 

 

 

WEIGHTED-AVERAGE NUMBER OF                   COMMON SHARES OUTSTANDING

          51,093,371

 

          46,824,753

 

 

 

 


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


















28







NANO MASK, INC.

(Formerly, Emergency Filtration Products, Inc.)

Statements of Stockholders' Equity Deficiency

For the Years Ended December 31, 2009 and 2008


 

 

 

 

 

 

 

 

Total

 

Common Stock

 

Additional

 

 

 

Stockholders'

 

Shares

 

Dollars

 

paid in capital

 

Deficit

 

Equity Deficiency

Balances, January 1, 2008

 45,118,911

 

        45,119

 

 18,735,220

 

(19,914,217)

 

   (1,133,878)

Common stock issued for cash at an average $0.10 per share

2,746,624

 

2,747

 

267,588

 

                        -

 

270,335

Net loss

                -

 

                   -

 

                   -

 

 (790,210)

 

 (790,210)

Balances, December 31, 2008


 47,865,535

 


$        47,866

 


$ 19,002,808

 


$(20,704,427)

 


$ (1,653,753)

 

 

 

 

 

 

 

 

 

 

Common stock issued for cash at an average $0.20 per share

2,395,000

 

2,395

 

476,605

 

 

 

479,000

Common stock issued

to settle debt, valued at an average of $0.14 per share

1,982,611

 

1,983

 

282,065

 

 

 

284,048

Estimated fair value of warrants issued for debt settlement

 

 

 

 

20,000

 

 

 

20,000

Common stock issued

for services rendered at an average $0.26 per share

1,428,390

 

1,428

 

375,663

 

 

 

377,091

Net loss

                 -

 

                   -

 

                    -

 

          (633,623)

 

      (633,623)

Balances, December 31, 2009


53,671,536

 


$        53,672

 


$ 20,157,141

 


$(21,338,050)

 


$ (1,127,237)



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













29





NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

Statements of Cash Flows

For the Years Ended December 31, 2009 and 2008

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net loss

$        (633,623)

 

$        (790,210)

Adjustments to reconcile net loss to net cash

 

 

 

 used in operating activities:

 

 

 

 

Common stock issued for services rendered

360,160

 

-

 

Common stock issued for company expenses incurred

16,930

 

-

 

Loss on debt extinguishment

20,000

 

-

 

Gain on settlement of vendor liabilities

(37,506)

 

-

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

318

 

Prepaid expenses and other

(2,981)

 

62,304

 

Inventory

(95,040)

 

 

 

Accounts payable

          (46,659)

 

          154,228

 

Accrued expenses

              48,627

 

           228,717

 

 

 

 

 

 

 

 

Net cash used in operating activities

          (370,092)

 

         (344,643)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Proceeds on sale of equipment held for sale

              28,000

 

-

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Common stock issued for cash

479,000

 

      270,335

 

Issuance of short-term notes payable

-

 

         60,000

 

Payments on short-term notes payable

                         -

 

             (5,460)

 

 

 

 

 

 

 

 

Net cash provided by financing activities

             479,000

 

            324,875

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 136,908

 

 (19,768)

 

 

 

 

 

 

CASH, BEGINNING OF YEAR

                        -

 

              19,768

 

 

 

 

 

 

CASH, END OF YEAR

$           136,908

 

$                      -






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



30


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE 1:  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of business


Nano Mask, Inc. (formerly, Emergency Filtration Products, Inc.) (the “Company”) is a materials-technology development company focused on health and wellness-related markets. The Company is evolving from a specialty filter products Company that developed a state-of-the-art air filtration technology for removing infectious bacteria and viruses in air flow systems into a Company that plans to provide a proprietary line of antibacterial and antimicrobial products for the hospital, clinic and health industry (Note 7, Going Concern).


Significant accounting policies


Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts.  Actual results could differ from those estimates.


Inventory. In November 2009, the Company purchased inventory consisting of Vira Masks intended for sale both domestically and internationally.  The inventory is carried at the lower of cost (determined on a first-in, first-out basis) or market. Obsolete or abandoned inventories (if any) are charged to operations in the period that it is determined that the items are no longer viable sales products. The Company did not deem an allowance for slow moving and obsolete inventory to be necessary at December 31, 2009.


Equipment held for sale. When equipment is no longer in use and is intended to be sold, depreciation is discontinued and the carrying value is adjusted to not more than fair value (Note 2).  


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.  As the Company has incurred net losses since its inception, the warrants issued during 2009 (Note 4) were not included in the computation of loss per share, since their inclusion would be anti-dilutive.


Revenue recognition and sales returns. The Company recognizes revenue for its products generally when the product is shipped and title passes to the buyer. The Company provides an allowance for sales returns based upon estimated and known returns.


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


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


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


Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard



31


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



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 used Level 3 inputs to value warrants issued (Note 4), and Level 1 inputs to value its common stock transactions.


Legal defense costs. The Company does not include estimated future legal and related defense costs in accruable loss contingencies but rather records such costs as expense of the period when the related services are provided (Note 9).


Income Taxes (Note 6). 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, 2009 and 2008.


Management has conducted an evaluation of the Company's tax positions taken on federal income tax returns that remain subject to examination (i.e., tax years 2008 to 2011), 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. Restricted stock units are valued at the Company’s stock price on the date of grant and amortized through expense over the requisite service period on a straight-line basis (Note 4).  


Reclassifications. Certain minor reclassifications to prior year amounts have been made to conform to the current year’s presentation.


NOTE 2:  EQUIPMENT HELD FOR SALE


At September 30, 2007, the value of all property and equipment was determined to be impaired, due to the FDA 510(k) application withdrawal. Accordingly, as of that date, all equipment was determined to have an estimated fair value of $28,000.  Such equipment was sold during April 2009, resulting in no gain or loss.


NOTE 3: NOTES PAYABLE


During 2008 and 2007, the Company issued various notes payable totaling $109,136 and $667,332, respectively, each of which were payable in one year and bear annual interest at rates between 6% and 10%, or the prime rate plus



32


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



2%.  During 2009, $250,000 of notes (plus the related accrued interest thereon of approximately $35,000) were settled by the issuance of 1,846,237 units, each consisting of one share of the Company’s stock and one common stock warrant (Note 5).  As of December 31, 2009, the remaining notes payable are in default and continue to bear interest according to their original terms.  Of the remaining liability at December 31, 2009, $412,140 represents loans payable to Applied (Note 9, Litigation). Interest expense for 2009 totaled $48,376, of which no cash interest payments were paid during 2009. However, $34,048 of accrued interest was settled via the issuance of common stock during 2009, along with the related notes amounting to $250,000. $24,013 of this accrued interest is considered a non-cash financing activity.


NOTE 4: SHARE-BASED TRANSACTIONS


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


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


Stock options. In 2004, the Company adopted a formal stock option and award plan (the "Plan") under which options to acquire the Company’s common stock or bonus stock may be granted from time to time to employees, including officers and directors.  In addition, at the discretion of the board of directors or other administrator of the Plan, options to acquire common stock or bonus stock may from time to time be granted under the Plan to other individuals who may contribute to the Company’s success but who are not employees.  A total of 2,500,000 shares of common stock may be subject to, or issued pursuant to, options or stock awards granted under the terms of the Plan.


The Company issued 1,479,000 shares pursuant to the Plan prior to 2005, which were recorded at the quoted market value of the shares on the date of issuance ($0.45 per share or a total of $665,550).  No options were awarded under the Plan subsequent to 2004. As of December 31, 2007, all shares under the Plan had been fully expensed. 1,021,000 additional shares may still be awarded subject to approval by the Board of Directors or Plan administrator.


Effective January 29, 2007, the Company hired Philip Dascher as its Chief Executive Officer.  As compensation for his services as CEO, Mr. Dascher agreed to accept options to purchase up to 850,000 shares of the Company’s common stock at an exercise price of $0.76 per share, the closing price of the Company’s stock on the date Mr. Dascher accepted his appointment, exercisable for seven years from the date of grant.  100,000 options vested immediately, and an additional 150,000 options vested on May 1, 2007, at the completion of certain organizational and administrative tasks, including the presentation to the Board of one year and three year budget plans.  Mr. Dascher resigned on December 26, 2008, at which time all his remaining options expired. No compensation expense was recorded for the years ended December 31, 2009 and 2008.


In April 2007, the Company granted 400,000 common stock options to certain officers and directors, with an exercise price of $0.48 per option, exercisable until April 5, 2010.

 

During July 2007, the Company also granted an additional 50,000 common stock options to consultants for services rendered related to the FDA 510(k) application process. These options are exercisable at $0.31 per share for three years from the grant date. However, vesting of these options was contingent upon receipt by the Company of FDA clearance of its NanoMask products. Since the condition of FDA approval did not occur during the three year exercise period, such options lapsed in July 2010 and no expense was recognized during 2009 or 2008 related to these options.


As of the date these financial statements were available for issuance, all of the above options have expired except the 250,000 shares granted to Mr. Philip Dascher which expire in 2014.



33


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



A summary of the status of our outstanding stock options at December 31, 2009 and December 31, 2008 and the related changes during the periods then ended is presented below:


 

December 31, 2009

December 31, 2008

 


Shares

Weighted-Average Exercise Price


Shares

Weighted-Average Exercise Price

Outstanding beginning of period

700,000

$0.57

1,300,000

$0.66

Granted

-

-

-

-

Expired/Cancelled

-

-

600,000

$0.76

Exercised

-

-

-

-

Outstanding end of period

700,000

$0.57

700,000

$0.57

Exercisable

700,000

$0.57

700,000

$0.57














The following table summarizes the range of outstanding and exercisable options as of December 31, 2009:



 

Outstanding

Exercisable


Range of

Exercise Prices

Number

Outstanding at

December 31, 2009



Expiration Date


Weighted Average

Exercise Price

Number

Exercisable at

December 31, 2009


Weighted Average Exercise Price

$0.76

250,000

1/24/14

$0.76

250,000

$0.76

$0.31

50,000

7/24/10

$0.31

50,000

$0.31

$0.48

400,000

4/5/10

$0.48

400,000

$0.48


Warrants.  On various occasions during 2009, the Company sold a total of 2,395,000 “units” for $479,000 in cash, including $195,000 to certain officers and directors.  Each unit was priced at $0.20 and consisted of a share of common stock and a warrant to purchase a share of common stock.  Additionally, in June 2009, two unrelated note holders agreed to accept 1,826,237 such units in connection with the settlement of notes payable of $250,000, plus accrued interest of $34,048.  Lastly, during 2009, the Company issued a total of 84,654 similar units to certain officers in connection with reimbursements for costs incurred on behalf of the Company totaling approximately $17,000.


The aforementioned warrants issued each had a two-year term with an exercise price of $0.50 per share, and were immediately exercisable.  The terms of the warrants did not obligate the Company to register shares of common stock, nor did they obligate the Company to settle in cash or other assets.  Accordingly, no liability has been recorded in connection with the outstanding warrants.  As of the latest balance sheet date presented, 4,420,834 warrants remained outstanding until various expiration dates in 2011.


The warrants issued in connection with the settlement of notes payable and officer reimbursements were valued at approximately $20,000, using a Black Scholes-Merton (BSM) option pricing model.  The assumptions (most significantly based on level 3 fair value inputs) used in the BSM model included the Company’s closing stock price on the grant date, a volatility factor of 54% based on historical closing prices over a limited period, judgmentally determined by management to be most predictive of a reasonably expected future volatility based on relevant facts and circumstances, a risk-free interest rate of 1.5% and expected dividends of $0.  The resultant estimated fair value of the warrants issued in connection with the settlement of debt ($19,000) and reimbursement of employee costs ($1,000) was recorded as loss on debt extinguishment during the second quarter of 2009.


The warrants had no intrinsic value as of and for the year ended December 31, 2009.




34


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



NOTE 5:  OTHER TRANSACTIONS AND EVENTS


In April and June 2008, the Company issued 2,746,624 common shares in two private placements amounting to $270,335.


On April 28, 2009, the Company announced that a majority of its shareholders had voted to change the Company’s name from Emergency Filtration Products, Inc. to Nano Mask, Inc. to better reflect the nature of its products.


See also Note 9.


NOTE 6:   INCOME TAX


At December 31, 2009, the Company had net operating loss carry-forwards of $13,368,842 that may be used to offset future taxable income.  These operating loss carry-forwards expire in the years 2012 through 2027. However, the Company may be limited in its ability to fully utilize its net operating loss carry-forwards and realize any benefits in the event of certain ownership changes described in Internal Revenue Code Section 382.


No tax benefit has been reported in the financial statements because the potential tax benefit of the net operating loss carry-forwards that would result in a deferred tax asset of $4,686,345 is effectively offset by a 100% valuation allowance primarily because of significant uncertainty as to the Company’s ability to continue as a going concern

(Note 9). 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:


 

2009

2008

Income tax benefit at statutory rate

$    215,432

$ 268,671

Non-deductible expenses from common

  stock issued or options granted for services rendered


     (129,254)


                    -

 

         86,178

268,671

Change in valuation allowance

      (86,178)

      (268,671)

 

$                  -

$                   -


Deferred tax assets are comprised of the following at December 31, 2009:


Operating loss carry forwards

$    4,686,345

Less valuation allowance

   ( 4,686,345)

 

 

Net deferred tax assets

$                    -


NOTE 7: COMMITMENTS AND CONTINGENCIES

Going concern.  The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has incurred negative cash flow from operations and significant losses, which have substantially increased its operating deficit at December 31, 2009.  In addition, at December 31, 2009, the Company has a working capital deficiency of $1,127,237.

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

Consequently, the Company’s ability to continue as a going concern will be dependent upon economic



35


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



developments and the success of management's plans as set forth below, which cannot be assured.  The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.  Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.


The foregoing notwithstanding, management does not believe the Company currently has sufficient capital to sustain its planned business activities for the next twelve months following the issuance of these financial statements. Accordingly, while management has historically been successful generating sufficient funds to sustain operations, there is no assurance that they will continue to do so. Nevertheless, the Company will seek additional capital to sustain its operations, either through additional private placements of common stock or loans, possibly unsecured, until such time as its operations are self-sustaining.  These funds will be required to continue the Company’s efforts to generate sales of its products and to provide sufficient working capital to meet the expected sales demand.


Litigation.  On December 29, 2010, the Company received a complaint from Applied seeking collection of the as yet unpaid notes payable to Applied in the amount of $453,500, plus interest and litigation expenses. On February 1, 2011, the Company countersued for breach of contract and related claims. The Company believes that the value of its counterclaim will exceed the value of the claims asserted against it, and accordingly, no loss provision has been recorded in connection with this matter.

                                                        

Lease commitments.  Rent expense for all operating leases was $0 and $58,628 for 2009 and 2008, respectively. Since December 14, 2008, the Company has no longer established non-cancellable operating leases.


Employment agreements.  At December 31, 2009, the Company has employment agreements with certain officers and directors with a remaining commitment of approximately $40,000, which was paid during the first quarter of 2010.


NOTE 8:   OTHER RELATED PARTY TRANSACTIONS


Accrued expenses at December 31, 2009 include accrued wages ($285,973) and advances ($118,000) due to various officers and employees. Amounts are non-interest bearing, unsecured and due on demand.


Amounts payable to related parties are summarized as follows:


Balance, January 1, 2008

$       218,205

2008 gross wages earned

180,237

Payments (including unpaid wages)

(6,667)

Advances

         10,000

Balance, December 31, 2008

401,775

2009 gross wages earned

357,198

Payments (including unpaid wages)

(355,000)

2009 advances

                    -

Balance, December 31, 2009

$       403,973


No royalty expense was required to be accrued or paid to Applied for the years ended December 31, 2009 and 2008, pursuant to the royalty agreement described in Note 2.  


NOTE 9:  SUBSEQUENT EVENTS


Subsequent to December 31, 2009, the Company either paid vendors or vendors accepted common stock as payment of the amount owed, whereby the consideration accepted amounted to less than the debt outstanding prior to settlement. These settlements generated gains on settlement of liabilities totaling approximately $366,000 in subsequent years.



36


NANO MASK, INC.

(FORMERLY, EMERGENCY FILTRATION PRODUCTS, INC.)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008




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


The following table summarizes the issuance of common shares subsequent to December 31, 2009, and their related amounts for cash proceeds from private placements, compensation and expense reimbursements and settlements of notes payable:


 


Cash Proceeds

Compensation and Expense Reimbursements


Settlement of Loans Payable

 

Common Shares

Amount

Common Shares

Amount

Common Shares

Amount

Year ended December 31,2010

-

$         -

4,041,315

$264,618

196,078

$ 10,000

Through September 9, 2011

400,000

$10,000

13,786,162

$338,570

2,866,477

$ 93,500











37