<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION FROM _______ TO ________.
COMMISSION FILE NUMBER 000-27421
EMERGENCY FILTRATION PRODUCTS, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0561647
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4335 South Industrial Road, Suite 440
Las Vegas, Nevada 89103
----------------------------------------- ------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (702) 798-4541
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. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At June 30, 2000, there were outstanding 8,716,754 shares of the
Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item I. Financial Statements
EMERGENCY FILTRATION PRODUCTS, INC.
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 901 $ --
Accounts receivable (Note 1) 9,017 9,605
Prepaid expenses -- 958
Inventory (Note 1) 84,216 90,937
--------- ---------
Total Current Assets 94,134 101,500
--------- ---------
PROPERTY AND EQUIPMENT (Note 1)
Molds 109,650 109,650
Furniture and office equipment 36,884 36,884
Accumulated depreciation (63,403) (48,751)
--------- ---------
Total Property and Equipment 83,131 97,783
--------- ---------
OTHER ASSETS
Deposits 4,141 4,141
Patent, net (Note 2) 51,451 29,144
--------- ---------
Total Other Assets 55,592 33,285
--------- ---------
TOTAL ASSETS $ 232,857 $ 232,568
========= =========
</TABLE>
<PAGE> 3
EMERGENCY FILTRATION PRODUCTS, INC.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 134,587 $ 102,051
Accounts payable - related parties (Note 3) 286,570 146,620
Cash overdraft -- 1,176
Note payable (Note 4) 6,320 18,532
Accrued expenses 21,615 21,615
Note payable - related, current (Note 3) 10,800 135,000
----------- -----------
Total Current Liabilities 459,892 424,994
----------- -----------
LONG-TERM DEBT
Note payable - related (Note 3) 135,700 --
----------- -----------
Total Long-Term Debt 135,700 --
----------- -----------
Total Liabilities 595,592 424,994
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $0.001; authorized
50,000,000 shares; 8,716,754 and 7,823,765 shares
issued and outstanding, respectively 8,717 7,824
Additional paid-in capital 4,475,320 3,920,647
Accumulated deficit (4,846,772) (4,120,897)
----------- -----------
Total Stockholders' Equity (Deficit) (362,735) (192,426)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 232,857 $ 232,568
=========== ===========
</TABLE>
<PAGE> 4
EMERGENCY FILTRATION PRODUCTS, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 13,532 $ 6,097 $ 18,843 $ 11,966
EXPENSES
Cost of sales 5,928 2,149 8,638 4,194
Depreciation and amortization 8,274 8,375 16,154 14,094
Research and development 5,050 139,007 41,050 143,990
General and administrative 324,473 72,301 678,253 392,199
--------- --------- --------- ---------
Total Expenses 343,725 221,832 744,095 554,477
--------- --------- --------- ---------
LOSS FROM OPERATIONS (330,193) (215,735) (725,252) (542,511)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (241) (556) (623) (935)
--------- --------- --------- ---------
Total Other Income (Expense) (241) (556) (623) (935)
--------- --------- --------- ---------
NET LOSS $(330,434) $(216,291) $(725,875) $(543,446)
========= ========= ========= =========
BASIC LOSS PER SHARE $ (0.04) $ (0.03) $ (0.09) $ (0.08)
========= ========= ========= =========
</TABLE>
<PAGE> 5
EMERGENCY FILTRATION PRODUCTS, INC.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In
Accumulated Shares Amount Capital Deficit
----------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 7,078,107 $ 7,078 $ 3,191,923 $(3,137,388)
Common stock issued for
cash at $1.00 per share 601,061 601 600,460 --
Common stock issued on
exercise of stock options
at $0.75 per share 67,000 67 50,183 --
Common stock issued for
services at $1.00 per share 77,597 78 77,519 --
Additional capital contribution -- -- 562 --
Net loss for the year ended
December 31, 1999 -- -- -- (983,509)
----------- ----------- ----------- -----------
Balance, December 31, 1999 7,823,765 7,824 3,920,647 (4,120,897)
Common stock issued for
cash at $0.50 per share
(unaudited) 50,000 50 24,950 --
Common stock issued for
services at prices ranging
from $0.50 to $0.85 per
share (unaudited) 460,236 460 243,041 --
Common stock issued for cash
at $0.75 per share (unaudited) 72,333 72 54,178 --
Common stock issued on exercise
of options at $0.75 per share
(unaudited) 86,333 87 64,663 --
Common stock issued for services
at $0.75 per share (unaudited) 204,087 204 152,861 --
Common stock issued for patent
costs (unaudited) 20,000 20 14,980 --
Net loss for the six months ended
June 30, 2000 (unaudited) -- -- -- (725,875)
----------- ----------- ----------- -----------
Balance, June 30, 2000
(unaudited) 8,716,754 $ 8,717 $ 4,475,320 $(4,846,772)
=========== =========== =========== ===========
</TABLE>
<PAGE> 6
EMERGENCY FILTRATION PRODUCTS, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(330,434) $(216,291) $(725,875) $(543,446)
Adjustments to reconcile net loss to
net cash (used by) operating activities:
Depreciation and amortization 8,274 8,375 16,154 14,094
Common stock issued for services 153,065 25,000 396,566 50,000
Changes in operating assets and liabilities:
(Increase) decrease in inventory 5,096 (30,398) 6,721 (38,604)
(Increase) decrease in prepaid expenses -- 2,894 958 5,788
(Increase) decrease in accounts receivable
and accounts receivable related (4,224) (3,969) 588 5,012
Increase (decrease) in cash overdraft -- -- (1,176) --
Increase (decrease) in accrued expenses -- (3,491) -- (2,264)
Increase (decrease) in accounts payable
and accounts payable - related parties 62,363 11,232 183,986 (18,019)
--------- --------- --------- ---------
Net Cash (Used by) Operating Activities (105,860) (206,648) (122,078) (527,439)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs (8,809) (800) (8,809) (800)
Acquisition of equipment -- -- -- (7,225)
--------- --------- --------- ---------
Net Cash (Used by) Investing Activities (8,809) (800) (8,809) (8,025)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 119,000 66,400 144,000 601,061
Payment on notes and leases payable (6,176) (8,151) (12,212) (16,419)
--------- --------- --------- ---------
Net Cash Provided by Financing Activities 112,824 58,249 131,788 584,642
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,845) (149,199) 901 49,178
CASH AT BEGINNING OF PERIOD 2,746 259,561 -- 61,184
--------- --------- --------- ---------
CASH AT END OF PERIOD $ 901 $ 110,362 $ 901 $ 110,362
========= ========= ========= =========
</TABLE>
<PAGE> 7
EMERGENCY FILTRATION PRODUCTS, INC.
Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 241 $ 556 $ 623 $ 935
Income taxes $ -- $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $153,065 $ 25,000 $396,566 $ 50,000
Common stock issued for patent costs $ 15,000 $ -- $ 15,000 $ --
</TABLE>
<PAGE> 8
EMERGENCY FILTRATION PRODUCTS, INC.
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Emergency Filtration Products, Inc. (the Company) was incorporated in the
State of Nevada on November 1, 1991 as Lead Creek Unlimited. In March
1996, pursuant to a Plan of Reorganization, the Company changed its name
to Emergency Filtration Products, Inc.
Between November 1, 1991 and February 9, 1996, the Company had no line of
business. As of the latter date, the Company entered into an agreement to
acquire title to a technology in the emergency respiration equipment
field. The Company is currently engaged in the development, production
and sale of this equipment.
b. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting. The Company has elected a December 31, year end.
c. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
d. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts
of $1,092 and $1,092 at June 30, 2000 and December 31, 1999,
respectively.
e. Provision for Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $4,100,000 that may be offset against future taxable income
through 2019. No tax benefit has been reported in the financial
statements, because the potential tax benefits of the loss carryforwards
are offset by a valuation allowance of the same amount
f. Property and Equipment
Property and equipment are stated at cost. Expenditures for small tools,
ordinary maintenance and repairs are charged to operations as incurred.
Major additions and improvements are capitalized. Depreciation is
computed using the straight-line and accelerated methods over estimated
useful lives as follows:
Molds 7 years
Furniture and office equipment 5 to 7 years
<PAGE> 9
EMERGENCY FILTRATION PRODUCTS, INC.
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Inventory
Inventory is stated at the lower of cost (computed on a first-in,
first-out basis) or market. The inventory consists of raw materials used
in the assembly and production of the emergency respiration equipment.
h. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
i. Basic 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. Common stock equivalents, consisting of stock
options, have not been included in the calculation as their effect is
antidilutive for the periods presented.
j. Change in Accounting Principle
The Financial Accounting Standards Board has issued certain new
standards, including standards on earnings per share (SFAS 128), capital
structure (SFAS 129), comprehensive income (SFAS 130), operating segments
(SFAS 131) and postretirement benefits (SFAS 132). The adoption of these
standards did not have a material impact on the Company's financial
statements.
k. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
l. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
m. Equity Securities
Equity securities issued for services rendered have been accounted for at
the fair market value of the securities on the date of issuance.
<PAGE> 10
EMERGENCY FILTRATION PRODUCTS, INC.
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - PATENT
The Company entered into an agreement to acquire the rights to certain
intellectual property, which property includes title to the patent on a
component of an emergency CPR assistance device, called a dual filtered
rotary isolation valve. Rights pertaining thereto include the right to
maintain, sell and improve the device, and to license those rights. The
Company has agreed to pay a 5% royalty on any sales related to the
patented intellectual property. Additional costs related to the patent
were capitalized during the years ended December 31, 1999 and 1998 which
consist of legal and filing fees incurred to maintain the patent
throughout the world. Amortization is computed over an estimated life of
15 years. Impairment of the patent is analyzed annually. The patent was
published by the U.S. Patent Office on November 15, 1996, the U.S. Patent
number is 5,575,279.
NOTE 3 - RELATED PARTY TRANSACTIONS
At December 31, 1999, $135,000 was recorded by the Company which
represented an amount claimed to be owed to a shareholder and former
officer of the Company for unpaid wages and reimbursements. The
shareholder also claimed that he had legal rights to certain trademarks
of the Company until he was paid in full. On June 2, 2000, the Company
entered into a Settlement Agreement and Mutual Release with the
shareholder, settling on an amount of $146,500. The amount accrues
interest at 10% per annum. Principal and interest are to be paid in
monthly installments of $1,800 beginning on July 1, 2000 until paid.
Current portion of the debt at June 30, 2000 is $10,800, leaving a
long-term balance of $135,700 at June 30, 2000.
Certain employees, officers and shareholders are also owed amounts in
past due wages and expense reimbursements as of June 30, 2000 and
December 31, 1999. In addition, certain shareholders of the Company have
advanced funds to the Company in order to cover operating costs. The
total amount owed to these related parties as of June 30, 2000 and
December 31, 1999 was $286,570 and $146,620, respectively. The amounts
are non-interest bearing, unsecured, and due on demand.
NOTE 4 - NOTE PAYABLE
A note was signed by the Company to an insurance company for product
liability insurance for a one year period from October 1999 to October
2000. The remaining amount due at June 30, 2000 and December 31, 1999 was
$6,320 and $18,532, respectively.
<PAGE> 11
EMERGENCY FILTRATION PRODUCTS, INC.
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred significant losses which
have resulted in an accumulated deficit of $4,120,897 at December 31,
1999 which raises substantial doubt about the Company's ability to
continue as a going concern. 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. It is the intent
of management to create additional revenues through the development and
sales of its emergency respiration equipment and to rely upon additional
equity financing if required to sustain operations until revenues are
adequate to cover the costs.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is leasing office space in Las Vegas, Nevada for three years
beginning October 15, 1998. The monthly rental payment is currently
$3,810.
Minimum future lease payments on the lease as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -----------
<S> <C>
2000 $ 48,535
2001 28,989
2002 -
2003 -
2004 and thereafter -
----------
Total $ 77,524
==========
</TABLE>
NOTE 7 - STOCK OPTIONS
During 1998, the Company granted stock options to various individuals for
a total of 3,120,000 restricted common shares of the Company at exercise
prices ranging from $0.60 to $1.40 per share. During the year ended
December 31, 1999, additional stock options were granted for a total of
785,000 restricted common shares of the Company at exercise prices
ranging from $1.00 to $5.00 per share and 67,000 options were exercised
at $0.75 per share for total proceeds of $50,250. During the six months
ended June 30, 2000, additional options were granted for a total of
1,800,000 restricted common shares of the Company at an exercise price of
$0.75 per share. 86,333 options were exercised at $0.75 per share during
the six months ended June 30, 2000 for total proceeds of $64,750. The
total amount of outstanding stock options at June 30, 2000 is summarized
as follows:
<PAGE> 12
EMERGENCY FILTRATION PRODUCTS, INC.
Notes to the Financial Statements
June 30, 2000 and December 31, 1999
NOTE 7 - STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
Shares Exercise Price Exercised By
------ -------------- ------------
<S> <C> <C>
300,000 $0.60 December 2000
2,466,667 $0.75 January 2001
100,000 $0.60 December 2001
100,000 $1.40 December 2001
100,000 $1.00 March 2002
150,000 $1.00 February 2002
50,000 $2.50 February 2002
50,000 $4.00 February 2002
150,000 $1.00 January 2002
100,000 $2.50 January 2002
75,000 $4.00 January 2002
75,000 $5.00 January 2002
35,000 $1.00 March 2003
1,800,000 $0.75 January 2003
</TABLE>
<PAGE> 13
Item II. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Since the Company's inception, the Company has been involved in the
development of its technology. During this time revenues have been minimal and
expenditures primarily attributed to research and development. Without adequate
revenues to offset expenditures, the Company has report a loss in each of its
years of existence. To date, the Company has funded itself by way of a series of
private equity sales. As of the quarter ended 6/30/2000, the Company had offset
its accumulated deficit in this manner and has therefore not found it necessary
to incur any long-term debt. The most valuable asset of the Company is its
intellectual property and technology. The Company has acquired the rights to
certain intellectual property, which property includes title to the patent on a
component of an emergency CPR assistance device, called a dual-filtered rotary
isolation valve. Rights pertaining thereto include the right to maintain, sell
and improve the device, and to license those rights. Although the Company
believes its technology to be very valuable in the real sense, this value is not
quantified as such on the Company's Balance Sheet.
Operational Results
During the quarter ended 6/30/2000, the Company reported revenues of
$13,532. Revenues have been primarily from the sale of the emergency CPR
assistance device and the company is now focusing on securing licensing
agreements and on a marketing-driven sales effort in order to increase revenues
that will ultimately cover total expenditures.
The cost of goods sold increased both in the amount and as a percentage of
sales in the second quarter of 2000 versus the second quarter of 1999. This
increase is due primarily to the increased volume of business and the highly
competitive sector of the health care industry in which the Company operates.
Total expenditures increased in the second quarter of 2000 as compared to
the second quarter of 1999. The primary reason for this occurrence is general
and administrative costs increased from $72,301 to $324,473 during the quarters
ended June 30, 1999 and 2000, respectively, as a result of increased
<PAGE> 14
expenditures for professional and consulting services.
Capital Funding
The Company currently is unable to generate sufficient cash from operations
to sustain its business efforts as well as to accommodate its growth plans.
Until it is able to generate sufficient cash flow, the Company will seek capital
funding from outside resources. The company presently has no commitment for such
funding and has not concluded what form, whether debt or equity, such funding
will be derived through.
The Company's cost-efficient business model emphasizes: (1) in-house
research and development; (2) accumulation of intellectual property assets; (3)
ownership of key production equipment; and (4) outsourcing of all manufacturing,
distribution, warehousing, and order fulfillment. Accordingly, the Company
benefits from low overhead, as well as the pricing advantages inherent in
proprietary specialty products.
The Company's management is now completing transformation from a
technology-driven research and development business to a marketing-driven
proprietary products company. Product development efforts remain an important
priority, but are now balanced by an increasing focus on elements of production
and sales.
The Company's current product line includes:
[X] RespAide(TM) CPR Isolation Mask. The company has received Federal Drug
Administration ("FDA") approval for its RespAide(TM) CPR isolation
mask incorporating the VIV filter, and recently commenced volume
manufacturing and distribution of complete units and replacement
filters (the RespAide(TM) filter needs to be replaced after each use).
In test by Nelson Laboratories, RespAide(TM) was found to be greater
than 99.9% effective against bacterial and viral transmission - the
highest rating testing labs will issue for medical devices, and
believed by management of the Company to be superior to any competing
product on the market.
[X] Disposable Filters for BVMs. The same filter used in the RespAide(TM)
product is ideal for preventing contamination of "bag valve masks"
which are single-use ventilators. The disposable filter keeps the
equipment contaminant-free, thereby allowing a BVM to be safely reused
with a new filter - a considerable economic benefit due to the lower
replacement and disposal costs of the filter versus discarding the
entire BVM unit. The Company has applied for FDA approval.
[X] Ventilator Circuits. To extend its market reach from emergency
response sites to the vast number of
<PAGE> 15
respiratory procedures conducted within medical facilities, the
Company has introduced two new configurations of its VIV technology:
(1) a one-way ventilator circuit that eliminates the exhalation ports
of patient's breath in favor of permitting a T-valve attachment of
monitoring CO(2) levels - suitable for any inline ventilator
connection; and (2) a two-way ventilator circuit for applications
where ambient air flow must pass evenly in both directions while still
protecting equipment and hoses. This is suitable for use in anesthesia
and general respiratory procedures. The company has applied for FDA
approval.
In addition, the Company has designed another configuration of the
technology for the BVM market that incorporates a self-contained nebulizer, a
filter, and a bag with built-in CO(2) monitoring capabilities. A patent has been
granted for this product. The Company is currently conducting prototype
development.
The market for air purification filters for protection against communicable
diseases has grown rapidly since the mid-1980's - from practically nil, to an
estimated 1,460,000,000 in 1997. Demand has been driven largely by such factors
as the spread of AIDS and Hepatitis C, the resurgence of Tuberculosis in many
urban settings, and growing concerns in the medical community about new
drug-resistant strains of bacteria. Such concerns are clearly evident in the
results of recent independent surveys indicating that approximately 45% of
doctors, 57% of EMTs, 80% of nurses, and substantially all paramedics surveyed
would refuse to perform mouth-to-mouth resuscitation on an adult stranger
without barrier protection. Indeed, many of the respondents indicated that they
had already walked away from situations in the community requiring
mouth-to-mouth resuscitation.
In addition to emergency ambulance services, police departments,
firefighters, hospitals, doctors, the military, and major CPR training
organizations such as the American Heart Association, management believes that
the market also includes government and private sector entities that will
choose, or may be required by law to keep CPR isolation masks on hand.
The Company currently holds military national stocking numbers for the
RespAide(TM) CPR isolation mask and replacement filters. These stocking numbers
make both products acceptable for inventory in all four branches of the military
and the U.S. Coast Guard.
To reach the market, the Company has entered into contractual arrangements
with a number of U.S. and international medical product distributors.
Additionally, the Company is actively pursuing licensing agreements with other
companies that have market penetration.
<PAGE> 16
The Company intends to firmly establish its reputation for supplying the
best medical air filters available, and then begin aggressively commercializing
the technology in the enormous HVAC category. The Company estimates that the
addition of HVAC applications will increase the total addressable market for
dual-filtered vapor isolation valve technology.
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 the Company. Although the Company has
achieved patent protection for the RespAide(TM), there is no assurance that
other entities may not compete in or enter the medical and commercial market in
competition with the Company.
This discussion may contain certain forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those forward-looking statements. The factors that
may cause actual results to differ materially is that the Company has no
arrangement, agreement or understanding with respect to engaging in a merger
with, joint venture with or acquisition of, a private or public company and that
there can be no assurance that the Company will be successful in identifying and
evaluating suitable business opportunities or including a business combination.
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
(a) In September, 1998, Bruce N. Knudsen, a former employee of the Company,
filed an action in the Fifth Judicial Court in and for Washington County, State
of Utah, against the Company and Douglas K. Beplate for alleged breach of
contract, which arose out of an employment relationship, claiming 20,000 shares
of stock in the Company, unpaid wages and unreimbursed expenses in the
approximate sum of $40,000. The Company has entered into a Stipulation and
Settlement Agreement for dismissal with prejudice of the lawsuit by agreeing to
pay 15,000 shares of common stock of the Company, in accordance with said
Stipulation.
(b) Bruce E. Batchelor, a shareholder and former officer of the Company has
made certain claims for alleged breaches of agreements as they relate to unpaid
wages, reimbursement for expenses, and claims certain rights in the trademark of
the Company as security for the alleged obligations.
<PAGE> 17
The Company has recorded the sum of $135,000 as of December 31, 1998 and
December 31, 1999 which represents the amount claimed to be owed to Bruce E.
Batchelor. The Company has entered into a payment plan resolving all differences
and has agreed to pay the principal sum of $146,500 in monthly installments of
$1,800 or more, commencing on the later of July 1, 2000 or 30 days after the
documents have been signed by Bruce E. Batchelor.
Other than described above, there are no legal proceedings threatened or
pending, except such ordinary routine matters which may be incidental to the
business currently being conducted by the Company.
Item 2 - Changes in the Rights of the Company's
Security Holders. . . . . . . . . . . . . . . . . . . . . None
Item 3 - Defaults by the Company on its
Senior Securities. . . . . . . . . . . . . . . . . . . . . None
Item 4 - Submission of Matter to Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . None
Item 5 - Other Information
The board held one meeting during the current quarter, including both
regularly scheduled and special meetings and actions by unanimous written
consent.
The board of directors has not established any audit committee. In
addition, the Company does not have any other compensation or executive or
similar committees. The Board of Directors acts as the audit committee. The
Company recognizes that an audit committee, when formally established, will play
a critical role in the financial reporting system of the Company by overseeing
and monitoring management's and the independent auditors' participation in the
financial reporting process.
Until such time as an audit committee has been established, the full board
of directors undertakes those tasks normally associated with an audit committee
to include, but not by way of limitation, the (i) review and discussion of the
audited financial statements with management, (ii) discussions with the
independent auditors the matters required to be discussed by the Statement On
Auditing Standards No. 61, as may be modified or supplemented, and (iii)
received from the auditors disclosures regarding the auditors' Independents
Standards Board Standard No. 1, as may be modified or supplemented.
On July 12, 2000, Douglas K. Beplate was selected to fill a vacancy on the
board of directors and was elected by the board of directors as president.
Michael J. Crnkovich continues to hold the position of chief executive officer
of the Company. Michael J. Crnkovich is also the chairman of the board. On
August 15,
<PAGE> 18
2000, Douglas K. Beplate transferred 668,670 shares of his common stock, in
cancellation of indebtedness, to a third party pledgee. See the Form 10KSB filed
with the Securities and Exchange Commission on April 14, 2000 and Form 10SB12G/A
filed with the Securities and Exchange Commission on February 24, 2000.
Item 6 - Exhibits and Reports on Forms 10KSB and 10SB12G/A
The following reports on Forms 10KSB and 10SB12G/A are incorporated herein
by reference:
(1) Form 10KSB filed April 14, 2000
(2) Form 10SB12G/A filed February 24, 2000
The following documents are filed as part of this report:
1) Unaudited Financial Statements filed as part of this report with the
related consolidated statements of operations and accumulated deficit,
and cash flow for the quarter then ended.
2) Financial Data Schedule 27.1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 18, 2000 Emergency Filtration Products, Inc.
-----------------------------------
(Registrant)
By: /s/ Michael J. Crnkovich
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Michael J. Crnkovich
Chief Executive Officer
