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EMFP News Emergency Filtration Reports Third Quarter Results

HENDERSON, Nev.--(BUSINESS WIRE)--Emergency Filtration Products, Inc. (EFP) (OTCBB: EMFP) today reported net loss of $ (629,970) on net sales of $ 78,562 for the third quarter ended September 30, 2006 ($0.01 per share). For the comparable year-ago period, the company reported a loss of $ (206,622) ($0.01 per share) on net sales of $ 54,149.

For the nine months ended September 30, 2006, the company reported net income of $ 1,634,666 on net sales of $ 4,131,475 as compared to a net loss of $ (605,085) ($0.02 per share) on net sales of $ 119,960 for the comparable year-ago period.

The Company filed a 510k application with the FDA during September 2006 in an effort to have the environmental mask and filter registered as a surgical mask. The Company has met with the FDA, has received comments back from the FDA regarding the 510k application, and is working diligently to address the FDA’s comments. Although no assurance can be given as to when or even if it will be able to obtain regulatory approval of the products with the FDA as a surgical mask, the Company believes that obtaining the FDA approval will increase the demand for the products nationally and internationally. Because the 510k application of the environmental mask and filters with the FDA is currently under review and comments, the Company has suspended all sales to its domestic distributors, pending the outcome of the approval process. Because of this suspension, the Company experienced a significant decrease in revenues for the three-month period ended September 30, 2006.

In addition, because of the pending approval of the products with the FDA, the Company’s distributors who have purchased product during 2006 have also suspended their sale of the products, and thus the Company has not collected on the outstanding receivables from these distributors. The Company is aggressively pursuing collection of these receivables, however, and expects to receive payment in the near future. The Company has recorded an estimated allowance for bad debts against these receivables totaling $310,000 to cover any potential losses to be incurred for non-collections.

To date, the Company has sold approximately 300,000 masks and approximately 4,500,000 filters to various domestic and international distributors. Due to numerous delays that the international distributors are experiencing with customs and international product markings, the Company has extended payment terms for these international distributors (totaling approximately $750,000).

At the election of a domestic distributor, the large sale of masks and filters to this distributor during June 2006 has not been re-sold by the distributor at the present time, pending the outcome of the 510k approval with the FDA. The Company has also extended payment terms for this distributor as well (approximately $2,125,000). This domestic distributor is currently working on possible international customers to buy the products. The distributor had originally planned to sell the product to a government agency, which agency was to distribute the product internationally in a region that recognizes the FDA approval as valid for a medical device. As a result of the delay in the FDA approval as previously discussed, the distributor has been unable to effectuate the sale of the purchased environmental masks and filters and has asked the Company for an extension of payment terms until such time that the FDA approval process has been resolved satisfactorily, or such time that the distributor is able to distribute the product to an international customer not requiring FDA approval.

As a result of the described delays, the Company has reported a substantial increase in accounts receivable at September 30, 2006. The Company has recorded an allowance for bad debts totaling $310,000 at September 30, 2006, to cover any potential losses to be incurred for non-collection of these accounts receivable in the future. Beyond this allowance for bad debts, the Company believes that all such remaining accounts are fully collectible and will be paid in full.

During August 2006, the Company announced that its environmental mask and filters had been registered with the Therapeutics Goods Administration (TGA) (the Australian counterpart to the United States FDA) as a Class I medical device. As a result of this registration, the Company’s exclusive Australian distributor planned to launch an extensive marketing campaign in Australia. However, during October 2006, the TGA commenced an audit of the registration, which led to the suspension of all planned marketing activities in Australia by the Australian distributor, pending the outcome of the audit. The Australian distributor, however, continues to market the product in the Pacific Rim. The Company is working diligently with its Australian distributor to answer all questions that have been posed by the TGA, has submitted the documentation and the answers requested by the TGA, and is currently waiting for the TGA’s response. The Company cannot currently predict when the TGA audit will be finalized.

“The decision to seek FDA approval led us to suspend sales to domestic distributors, a factor which had a significant negative impact on revenues,” said Douglas K. Beplate, the Company’s President. “The suspension of our Australian distributor’s marketing campaign, which resulted from an audit after our NanoMask had been registered with the TGA, was another contributing factor to the decline in revenues.”

Mr. Beplate went on to add: “While these factors have contributed to unsatisfactory third quarter results, we believe that obtaining all of the necessary regulatory approvals is the only way that we will be able to freely market the NanoMask and NanoMask filters. As painful as the short-term consequences of these decisions are, management believes that they are necessary for the long term, and will enable the company to generate significant revenues and strong profitability.”

About Emergency Filtration Products, Inc.

EFP is an air filtration products manufacturer whose patented 2H Technology™ filter system has produced filtration efficiencies of "greater than 99.99%" at a particulate size of 0.027 microns. EFP's initial products were developed for the medical market: the Vapor Isolation Valve™ and RespAide®CPR Isolation Mask used for resuscitation of respiratory/cardiac arrest cases; and 2H Breathing Circuit Filter for ventilators, respirators and anesthesia circuitry. Each has received FDA approval. The Company also markets an Automated External Defibrillator Prep Kit featuring RespAide; and the NanoMask®, a nanotechnology enhanced environmental mask. In addition to filtration products, the company supplies Superstat®, a modified hemostatic collagen, to the U.S. Military for surgery and extreme wound care.

Safe Harbor Statement

This release may contain statements that are forward looking. Such statements are made based upon current expectations that are subject to risk and uncertainty. EFP does not undertake to update forward-looking statements in this news release to reflect actual results of and changes in assumptions or changes in other factors affecting such forward-looking information. The actual future results of the company could differ significantly from such forward-looking statements. Specifically, the timing for obtaining regulatory approval cannot be predicted, and such approval of the NanoMask products, if obtained, may not translate into significant sales. Future sales may also be dependent on the success of marketing campaigns, the signing of definitive agreements with additional distributors, and both the perceived need for EFP's products and the competitive performance of such products in the marketplace.