NMI Health, Inc. - FORM 10-Q - November 14, 2012

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - NMI Health, Inc.	Financial_Report.xls
EX-32.1 - NMI Health, Inc.	name_ex321.htm
EX-32.2 - NMI Health, Inc.	name_ex322.htm
EX-31.2 - NMI Health, Inc.	name_ex312.htm
EX-31.1 - CERTIFICATION - NMI Health, Inc.	namn_ex311.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ________ to_________

Commission File No. 000-27421

NANO MASK, INC.

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

NEVADA		87-0561647
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

50 West Liberty Street, Suite 880, Reno, NV		89501
(Address of principal executive offices)		(Zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes o No þ (2) Yes þ No o

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

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ Noþ

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

At November 14, 2012, there were outstanding 95,695,444 shares of the Registrant's Common Stock, $.001 par value.

PART I

FINANCIAL INFORMATION

Table of Contents		Page

Part I Financial Information

Item 1.	Financial Statements

	Balance Sheets (Unaudited) as of September 30, 2012 and December 31, 2011		3

	Statements of Operations (Unaudited) for the three and nine months ended September 30, 2012 and 2011		4

	Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2012 and 2011		5

	Notes to the Financial Statements (Unaudited)		7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		11

Item 4.	Controls and Procedures		11

Part II Other Information

Item 1.	Legal Proceedings		12

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		12

Item 3.	Defaults by the Company on its Senior Securities		13

Item 4.	Submission of Matter to a Vote of Security Holders		13

Item 5.	Other Information		13

Item 6.	Exhibits		13

Signatures			14

ITEM 1. FINANCIAL STATEMENTS

NANO MASK, INC.

Balance Sheets

(Unaudited)

	September 30,			December 31,
	2012			2011
ASSETS
CURRENT ASSETS
Cash	$	9,469		$	61,504
Accounts receivable		-			422
Prepaid expenses and other		-			18,000
Inventory, net		21,296			14,457

Total current assets		30,765			94,383

FIXED ASSETS
Equipment		973			5,673
Accumulated depreciation		(519	)		(490	)
		454			5,183

OTHER ASSETS
Other assets		4,230			-

Total assets	$	35,449		$	99,566

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Customer advances	$	12,545		$	150,517
Accounts payable		454,407			457,452
Accounts payable – related party		190,244			100,203
Accrued expenses		445,785			385,718
Notes payable		497,727			497,727
Note payable – related party		25,000			25,000
Total current liabilities		1,625,708			1,616,617

LONG-TERM DEBT
Note payable		23,430			23,430
Total liabilities		1,649,138			1,640,047

STOCKHOLDERS' DEFICIT
Common stock, $.001 par, 100,000,000 shares authorized; 90,907,650 and 80,249,698 shares
outstanding at September 30, 2012 and December 31, 2011, respectively		90,908			80,250
Additional paid-in capital		21,482,358			21,127,801
Accumulated deficit		(23,186,955	)		(22,748,532	)
Total stockholders’ deficit		(1,613,689	)		(1,540,481	)

Total liabilities and stockholders’ deficit	$	35,449		$	99,566

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

NANO MASK INC.

Statements of Operations

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011

NET SALES	$	154,775		$	1,888		$	454,513		$	27,571

COSTS AND EXPENSES
Cost of sales		122,970			1,795			326,346			18,775
Research and development		-			3,400			115			3,400
Selling, general and administrative		174,156			276,609			541,988			673,400
		297,126			281,804			868,449			695,575

LOSS FROM OPERATIONS		(142,351	)		(279,916	)		(413, 936	)		(668,004	)

OTHER INCOME (EXPENSE)
Gain on settlement of vendor liabilities and other		125			874			7,490			372,949
Interest expense		(10,773	)		(8,634	)		(31,977	)		(25,737	)
		(10,648	)		(7,760	)		(24,487	)		347,212

NET LOSS	$	(152,999	)	$	(287,676	)	$	(438,423	)	$	(320,792	)
BASIC LOSS PER SHARE	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		89,485,404			73,952,578			87,427,607			67,787,590

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

NANO MASK, INC.

Statements of Cash Flows

For the Nine Months Ended September 30, 2012 and September 30, 2011

(Unaudited)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(438,423	)	$	(320,792	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		498			146
Provision for inventory obsolescence		7,609			-
Common stock issued for company expenses incurred		-			12,170
Common stock issued for services		161,650			176,200
Gain on settlement of vendor liabilities		(7,490	)		(372,949	)
Changes in operating assets and liabilities:
Accounts receivable		422			(650	)
Refund receivable		-			2,500
Prepaid expenses and other		14,543			571
Inventory		(14,448	)		(59,983	)
Customer advances		(137,972	)		70,130
Accounts payable		29,194			185,716
Accrued expenses		224,195			152,166
Net cash used in operating activities		(160,222	)		(154,775	)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of equipment		-			(4,700	)
Cash used in investing activities		-			(4,700	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the issuance of common shares		25,000			30,000
Advances from related party		104,460			108,500
Repayment of advances from related party		(24,730	)		(2,000	)
Proceeds from issuance of related party short-term note payable		-			25,000
Proceeds from the issuance of short-term note payable		5,149			-
Repayments of short-term note payable		(1,692	)		-
Net cash provided by financing activities		108,187			161,500

NET INCREASE (DECREASE) IN CASH		(52,035	)		2,025

CASH AT BEGINNING OF PERIOD		61,504			2,810

CASH AT END OF PERIOD	$	9,469		$	4,835


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

NANO MASK, INC.

Statements of Cash Flows (Continued)

For the Nine Months Ended September 30, 2012 and September 30, 2011

(Unaudited)

NON-CASH INVESTING AND FINANCING ACTIVITIES

Reduction of note payable due to a reduction in prepaid insurance	$	3,457	$	-
Reclassification of accounts payable to accounts payable – related party	$	19,014	$	-
Reclassification of property to other asset	$	4,230	$	-
Common stock issued for settlement of related party advances	$	8,703	$	129,300
Common stock issued for settlement of payables and accrued liabilities	$	169,863	$	178,700

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

NANO MASK, INC.

Notes to the Financial Statements (Unaudited)

For the Nine Months Ended September 30, 2012

NOTE 1 - BASIS OF PRESENTATION

The financial information included herein is unaudited and has been prepared consistent with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8, Rule 8.03 of Regulation S-K. Accordingly, these financial statements do not include all information required by generally accepted accounting principles for annual financial statements. These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2011, from which the balance sheet information as of that date is derived. These interim financial statements contain all adjustments necessary in the opinion of management for a fair statement of results for the interim periods presented.

The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year.

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

NOTE 2 – GOING CONCERN

The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, in addition to a working capital deficiency at September 30, 2012, the Company has incurred negative cash flow from operations and significant losses, which have substantially increased its operating deficit at September 30, 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

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

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

NOTE 3 –SIGNIFICANT TRANSACTIONS

During the nine months ended September 30, 2012, the Company received cash advances from two executive officers of $91,200 and $13,260, respectively, with no specific repayment terms and two officers paid expenses on behalf of the Company for an amount of $12,569 and $6,445, respectively. In addition, the Company repaid $8,703 to one officer by issuing common stock of 290,099 shares and repaid $24,730 to another officer in cash. Furthermore, the Company received $25,000 from issuance of 1,000,000 shares of common stock during February, 2012.

Due to the fair value of the common shares being less than the carrying value of the related payables, the Company recognized a gain on settlement of payables of $2,365 during the nine months ended September 30, 2012. An additional gain of $5,125 was generated by writing off payables due to the expiration of the statute of limitations.

NANO MASK, INC.

Notes to the Financial Statements (Unaudited)

For the Nine Months Ended September 30, 2012

The following table summarizes the common stock issued during the nine months ended September 30, 2012:

Summary of Stock Issuances during the Nine Months ended September 30, 2012
Settlement of Liabilities				Settlement of Advances-Related Party				Compensation				Cash Proceeds
Common Shares		Fair Value		Common Shares		Fair Value		Common Shares		Fair Value		Common Shares		Fair Value
	5,085,671	$	169,863		290,099	$	8,703		4,282,182	$	161,650		1,000,000	$	25,000

NOTE 4 – SUBSEQUENT EVENTS

Subsequent to September 30, 2012, the Company received cash advances from one executive officer for $25,000.

The following table summarizes the common stock issued subsequent to September 30, 2012:

Summary of Stock Issuances Subsequent to September 30, 2012
Settlement of Liabilities				Settlement of Advances-Related Party				Compensation				Cash Proceeds
Common Shares		Fair Value		Common Shares		Fair Value		Common Shares		Fair Value		Common Shares		Fair Value
	-	$	-		257,794	$	6,445		4,530,000	$	113,250		-	$	-

NOTE 5 – CONTINGENCIES

On March 5 2012, the Company received a complaint from a certain attorney seeking collection of his invoices in the amount of $167,167, plus interest and litigation expenses. The Company does not believe the claim has any merit and has submitted a motion for dismissal. At this point, the Company is awaiting the claimant’s amendment to his claim.

On or about May 8, 2012, the Company received a complaint from a certain former employee seeking collection of his charges as a distributor and as an employee in the amount of $409,525, plus interest and litigation expenses. The Company believes the likelihood of loss in this case is remote and intends to offset for certain expenditures made by the Company caused by employee. The Company has already recognized $37,500 as a liability at September 30, 2012.

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-looking Statements

This report may contain "forward-looking" statements. Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of our future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words "anticipate," "expect," "may," "project," "intend" or similar expressions.

Overview

The Company is in the business of selling infection-control products to the medical industry that are designed to reduce the possibility of contagious-disease transmission.

Since its inception, the Company has been involved in the development of its technology. Through September 30, 2012, revenues have not been adequate to cover operating expenses and thus, the Company has reported a loss in each of its years of existence. Through September 30, 2012, the Company has funded itself by way of a series of private equity placements and had offset its accumulated deficit in this manner.

Results of Operations for the Three Months Ended September 30, 2012 compared with 2011

Revenues: During the three months ended September 30, 2012, there were revenues of approximately $155,000 derived from sale of Infection-Control Products. During the three months ended September 30, 2011, there were revenues of approximately $2,000 derived from sales of Lab Coats (85%) and Nano Zymes (15%).

Cost of Sales: Cost of sales as a percentage of sales approximated 79% for the three months ended September 30, 2012 compared with 95% in the similar period of 2011. This lower percentage in the three months ended September 30, 2012 is attributable to higher margins for our product sales in this period.

Operating Expenses: During the three months ended September 30, 2012 the Company’s general and administrative expenses declined by approximately $102,000 or 37%, compared to the three months ended September 30, 2011, primarily due to a significant reduction in auditing fees ($131,000) offset by increases in legal expenses ($9,000), travel ($10,000), interest expenses ($2,000) and a provision for inventory obsolescence ($8,000). The significant components of our operating expenses include salaries and wages, consulting and other professional services, accounting, audit and legal fees, product and liability insurance and travel.

Research and development: Research and development (R&D) expenditures have become inconsequential in both 2012 and 2011 as management devotes its limited resources to the products that it has recently developed through third-party sources. If resources are available in the future, the Company intends to bring additional products to market, assuming those products are still viable at the time the resources are available. The significant components of the Company’s research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.

Results of Operations for the Nine Months Ended September 30, 2012 compared with 2011

Revenues: During the nine months ended September 30, 2012, revenues of approximately $455,000 reflect the following products: Infection-Control Products (97%) and Nano Zyme products (3%). Revenues of approximately $27,600 in 2011 for the same period reflect the following products: Lab Coats (62%), Vira Masks (20%), Nano Zymes (16%) and other (3%).

Cost of Sales: During the nine months ended September 30, 2012, the cost of sales percentage to sales of 72% is largely similar to the 68% for the nine months ended September 30, 2011.

Operating Expenses: During the nine months ended September 30, 2012, the Company realized reduced general and administrative expenses of approximately $131,000 or approximately 20% compared to the nine months ended September 30, 2011, primarily attributable to reduced auditing fees ($237,000), offset largely by increased salaries and director fees ($58,000), legal fees ($14,000) and travel ($29,000).

Liquidity and Capital Resources

The Company has not been able to generate sufficient net cash inflows from operations to sustain its business efforts and accommodate its growth plans. During the nine months ended September 30, 2012, the Company received cash advances from two executive officers of $91,200 and $13,260, respectively with no specific repayment terms. And two officers paid expenses on behalf of the Company for an amount of $12,569 and $6,445, respectively. In addition, the Company repaid $8,703 to one officer by issuing common stock of 290,099 shares and repaid $24,730 to another officer in cash. During the nine months in 2011, the company received cash advances from two officers for the amount of $106,500 and $2,000. Another $25,000 in cash was provided by a key officer subsequent to September 30, 2012. The company repaid $2,000 to one officer. Also, during 2012, the Company received $25,000 in cash from issuance of 1,000,000 shares of common stock. Management and board members are continuing to discuss other alternative financing options, but no definitive proposals or agreements have been reached.

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

The Company does not believe, however, that it currently has sufficient capital to sustain its business efforts for the next twelve months. Accordingly, the Company will need to raise additional capital in the near future to sustain operations.

Accordingly, for these and other reasons, there is significant uncertainty regarding the Company’s future, and the Company’s auditors expressed substantial doubt as to the Company’s ability to continue as a going concern in their report on the Company’s 2011 audited financial statements.

Impact of Inflation

At this time, the Company does not anticipate that inflation will have a material impact on its current or future operations.

Critical Accounting Policies and Estimates

Except with regard to the estimated useful lives of patents and acquired technology, the net realizable value of the Company’s inventory due to shelf-life issues and design, the allowance for bad debts on accounts receivable, and the effective provision of a 100% deferred income tax asset valuation allowance, the Company does not employ any critical accounting policies or estimates that are either selected from among available alternatives or require the exercise of significant management judgment to apply or that if changed are likely to materially affect future periods.

Management reviews the carrying value of the technology assets annually based on its current marketing activities, plans and expectations, and the perceived effects of competitive factors and possible obsolescence, whether any write-downs should be taken or whether the estimated useful lives should be shortened.

Management also reviews the carrying value of its inventory periodically for evidence of declines in estimated fair value and considers, based on its current marketing activities, plans and expectations, and the perceived effects of competitive factors and possible obsolescence due to shelf-life issues on the environmental filters, whether any write-downs should be taken.

Management also reviews the collectability of outstanding receivables based upon historical collection history from each customer, the age of the receivables, and the customers wherewithal to pay the outstanding balance, and records an estimated allowance for bad debts sufficient to cover any potential losses to be incurred for non-collections.

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.

Recent Accounting Pronouncements

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

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report, being September 30, 2012, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our company’s Chief Executive Officer and Chief Financial Officer concluded that our company’s disclosure controls and procedures are ineffective at the end of the period covered by this report.

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

PART II

OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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

During the month ended February 2012, 1,000,000 shares of common stock were issued in a private placement to two individual investors for $25,000 in cash.

These shares were issued in reliance on the exemption from registration and prospectus delivery requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the Securities Act and the regulations promulgated hereunder.

ITEM 3 - DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES

None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

EXHIBIT NO.		DESCRIPTION

31.1		CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
31.2		CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1		CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
32.2		CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
101.INS		XBRL INSTANCE DOCUMENT
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

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.

Date: November 14, 2012	By:	/s/ Edward Suydam
		Edward Suydam, Chief Executive Officer

	By:	/s/ Michael J. Marx
		Michael J. Marx, Chief Financial Officer

NMI Health, Inc. - FORM 10-Q - November 14, 2012

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NMI Health, Inc. Reports