U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
NMI HEALTH, INC.
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.
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
At December 10, 2014, there were outstanding 20,007,170 shares of the Registrant's Common Stock, $.001 par value.
The accompanying notes are an integral part of these unaudited financial statements.
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-Kfor the year ended December 31, 2012, 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, 2013 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, 2013, the Company has incurred negative cash flow from operations and losses which have substantially increased its operating deficit at September 30, 2013. 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 may seek additional capital to sustain its operations, either through equity 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
In April 2013 the Company authorized a name change from Nano Mask, Inc. to NMI Health, Inc. to better reflect the nature of its products. On June 5, 2013 the Company completed a 1 for 10 reverse split of its common shares. Following the reverse split, the Company maintained 9,869,710 common shares outstanding.
In July, 2013 the Company issued 465,909 common shares to a key officer for his $123,000 in accrued payroll.
As of August 1, 2013, a Company affiliate converted a note of $25,000, plus interest of $3,396, into 130,000 common shares. The shares were issued at a fair value of $39,000 resulting in a loss on settlement of debt of $10,604. On September 22, 2013 the same shareholder loaned the Company $30,000, plus interest, at an annual rate of 10%, convertible at $0.05 per share. The note is unsecured and is due on September 22, 2015.
Repayments of advances from a related party were made in the amount of $10,380 for the nine months ended September 30, 2013.
In August, 2013 a judgment was awarded to Applied Nanoscience, Inc. against the Company in the amount of $601,041, including interest at prime rate, plus 2%, and attorney fees. The Company had already reflected a balance owed in excess of this. In September 2013, a note payable for $13,832, plus related interest, expired under applicable statutes of limitation. These two events both generated gains of $97,957 for the Company.
During the nine months ended September 30, 2013, the Company received cash advances of $210,000 from one executive officer with no specific repayment terms and another officer paid expenses on behalf of the Company in the amount of $6,049. The total balance outstanding at September 30, 2013 is $423,249.
A gain of $145,251 was generated from expiry of certain accounts payable under applicable statutes of limitations during the nine months ended September 30, 2013. Also, during the nine months ended September 30, 2013 the Company realized a gain of $26,973 from disposition of common shares in Medmarc Insurance Company which was a mutual insurance company that was bought by another company. Since the Company had maintained its insurance through Medmarc, the Company was designated a percentage of the final sales proceeds from the sale of Medmarc. $7,553 was withheld as Federal income taxes and is reflected as other receivable.
NOTE 4 – SUBSEQUENT EVENTS
Subsequent to September 30, 2013, the Company received cash advances from one executive officer of $27,200 and another officer incurred expenses of $1,658 on behalf of the Company.
On April 15, 2014 a note for $30,000 including interest of $1,696 was converted into 633,921 common shares. Further, on May 15, 2014 the same shareholder provided $20,000 at no interest as an unsecured loan.
Also on April 15, 2014, Applied Nanoscience, Inc. and the Company agreed to settle the outstanding $601,041 judgment for 500,000 restricted common shares (valued at $0.025 per share on the date of the settlement) and $175,000 payable in three instalments ending on October 15, 2014. The Company has paid $20,000 to date.
Finally, on April 15, 2014 the Company authorized the issuance of 4,610,810 common shares to Company officers and employees at a value of $0.15 per share in satisfaction of accrued payroll and director fees. And on the same date, 500,000 common shares valued at $12,500 were awarded to two individuals for services performed.
During the two months ended June 30, 2014, 75,000 shares of common stock were issued in a private placement to two individual investors for $15,000 in cash. Also, in November 2014, an additional 125,000 common shares were issued in a private placement to an individual for $25,000 in cash.
On October 9, 2014 the Company issued 2,222,000 common shares to an affiliate shareholder in settlement of his unsecured loan of $444,400. Also, on the same date officers and employees agreed to receive 874,820 common shares to settle $131,223 in accrued payroll.
Subsequent to September 30, 2013 the Company generated $38,663 in gains from expiry of certain accounts payable under applicable statutes of limitations. Also, the Company generated gains of $473,385 from settlement of various notes payable and from the expiry of certain notes under applicable statutes of limitations.
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 has been awaiting the claimant’s amendment to his claim. Recently, the Company decided to pursue further efforts to seek dismissal of the complaint.
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, 2013.
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
NMI Health is a healthcare product development and distribution company providing innovative and cost effective emergency and critical care and infection control products to a variety of market segments within the healthcare industry. Our customers range from hospitals, emergency services, surgery centers, long-term care facilities, nursing homes and other clinical settings throughout the healthcare continuum.
Since its inception, we have been involved in the development of its technology. Through September 30, 2013, 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, 2013, we have funded ourselves by way of a series of private equity placements and this has offset its accumulated deficit in this manner.
Results of Operations for the Three Months Ended September 30, 2013 compared with 2012
Revenues: During the three months ended September 30, 2013, revenues of approximately $60,000 were generated from Textiles (100%). During the three months ended September 30, 2012, there were revenues of approximately $155,000 derived from sale of Textiles (100%).
Cost of Sales: Cost of sales as a percentage of sales approximated 31% for the three months ended September 30, 2013 compared with 79% in the similar period of 2012. This lower percentage in the last three months is attributable to higher margins from our product mix in this period.
Operating Expenses: During the three months ended September 30, 2013 the Company’s general and administrative expenses decreased by approximately $83,000 or 48%, compared to the three months ended September 30, 2012, primarily due to a significant decrease in salaries and director fees ($71,000), as well as marketing and related expenses ($12,000). 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 less meaningful in both 2013 and 2012 as management devotes its limited resources to the products that it has recently developed through third-party sources. However, the Company attempted to satisfy a customer request for airline seat covers that proved unsatisfactory to the customer specifications for which we expended $16,000 in R & D costs. If resources are available in the future, the Company intends to bring additional products to market, assuming those products are considered viable at the time the resources are available. The typical 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, 2013 compared with 2012
Revenues: During the nine months ended September 30, 2013, revenues of approximately $232,000 were derived from Nano Masks (54%) and Textiles (46%). During the nine months ended September 30, 2012, revenues of approximately $455,000 reflect the following products: Textiles (97%) and NanoZyme products (3%).
Cost of Sales: The cost of sales percentage to sales of 68% during the nine months ended September 30, 2013 declined from the 72% for the nine months ended September 30, 2012, largely due to higher margin products sold in the period.
Operating Expenses: During the nine months ended September 30, 2013, the Company reduced general and administrative expenses by approximately $4,000 or approximately 1% compared to the nine months ended September 30, 2012, primarily attributable to reduced salaries and director fees ($74,000), lower marketing related expenses ($11,000) and lower audit fees ($26,000) offset by higher website development costs ($31,000), higher travel expenses ($27,000), higher health insurance ($14,000) and higher direct selling expenses ($35,000).
Research and development:
Research and development (R&D) expenditures have become less meaningful in both 2013 and 2012 as management devotes its limited resources to the products that it has recently developed through third-party sources. However, the Company attempted to satisfy a customer request for airline seat covers that proved unsatisfactory to the customer specifications for which we expended $16,000 in R & D costs. If resources are available in the future, the Company intends to bring additional products to market, assuming those products are considered viable at the time the resources are available. The typical components of the Company’s research and development costs ordinarily include prototype development and materials, governmental filings and laboratory testing.
Liquidity and Capital Resources
The Company has 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, 2013, the Company received cash advances from one executive officer of $210,000 with no specific repayment terms. And one other officer paid expenses on behalf of the Company in the amount of $6,049.
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 2012 audited financial statements. The Company may seek capital through equity or loans 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.
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, 2013, 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 as 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.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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. Recently, the Company decided to pursue further efforts to seek dismissal of the complaint.
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, 2013.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During two months ended June 30, 2014, 75,000 shares of common stock were issued in a private placement to two individual investors for $15,000 in cash. In November 2014, an additional 125,000 common shares were issued in a private placement from an individual 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 - MINE SAFETY DISCLOSURES
N/A
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
| EXHIBIT NO. | | DESCRIPTION |
| | | |
| 31 | | CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. |
| 31 | | CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. |
| 32 | | CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. |
| 32 | | 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.
| | NMI HEALTH, INC. | |
| | (Formerly, Nano Mask, Inc.) | |
| | | | |
| By: | /s/Edward Suydam | |
| | | Edward Suydam, Chief Executive Officer | |
| | | | |
| | | | |
December 10, 2014 | | /s/Michael J. Marx | |
| | | Michael J. Marx, Chief Financial Officer | |
| | | | |
