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, 2010

[ ] 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)

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

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 December 28, 2011, there were outstanding 80,753,864 shares of the Registrant's Common Stock, $.001 par value.

State the Registrant's revenues for the December 31, 2010 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 $1,124,013, based on the average bid and ask price of the Registrant's stock on December 27, 2011 of $0.027 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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PART I.

ITEM 1.  BUSINESS

General

THIS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2010 IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT DECEMBER 28, 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 face masks. 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 December 26, 2008, Douglas Heath assumed the CEO 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.

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, thereby 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 today’s bacteria based medical detergents and can be utilized for manual decontamination, scope washers and ultrasonics.

Vira Masks and filters

The Vira Mask is a personal environmental mask 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 nano-particles 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 FDA’s request.

  

Effective March 1, 2010, we have re-directed our marketing efforts from the Vira Mask 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.

RespAide™ CPR Isolation Mask

Due to positive pre-market responses and growing product inquiries for our 2H filter technology, NMI has recently decided to re-establish the manufacturing and distribution of its CPR filtration products by first commencing with the pre-production of both RespAide™ and the Vapor Isolation Valve replacement filters. RespAide™ CPR

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Isolation Mask is designed to minimize the potential for transmission of contagious diseases during the administration of CPR. Integral to our RespAide™ CPR Isolation Mask is the highly efficient (99.99% at .027 micron) filtered Vapor Isolation Valve (VIV) designed to protect emergency response personnel against infectious diseases during mouth to mouth resuscitation, and which needs to be replaced after each use. Although once fully commercialized, we will be focusing our marketing efforts on emergency ambulance services, police departments, firefighters, hospitals, doctors and major CPR training organizations, management is currently fulfilling product and information requests from both the US Military and our Middle East Distribution partners. The Company already has FDA approval for RespAide™ CPR Isolation Mask and is in the process of applying for medical device Class II approval in Canada and CE mark approval in Europe.

Disposable Filters for Bag Valve Masks (BVM’s)

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

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 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.

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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:

Our international patents are as follows:

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.  

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,

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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:

- 2010 $70,050

- 2009 $80,558

- 2008 $1,702

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 December 28, 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.

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

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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 in 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 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;

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- 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 $22,168,370 at December 31, 2010.  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 7 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 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

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“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.

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 Nanoscience, Inc., a Nevada corporation, filed in the District Court of Clark County in Nevada (Case NoA-10-631192-C) which seeks 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.

ITEM 4. RESERVED

Not applicable.

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

As of December 28, 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"

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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 2010	High Bid	Low Bid
Quarter ended 12/31/10	$ 0.20	$ 0.05
Quarter ended 9/30/10	$ 0.11	$ 0.02
Quarter ended 6/30/10	$ 0.06	$ 0.03
Quarter ended 3/31/10	$ 0.20	$ 0.05
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

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.

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, 2010, IS BEING FILED SUBSTANTIALLY LATE, ON OR ABOUT DECEMBER 28, 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

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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 2010 and 2009, primarily due to three reasons: 1) the Company’s election late in 2006 to suspend sales of the NanoMask™ and related filters until FDA clearance could be obtained which was anticipated as late as July, 2008; 2) the Company’s efforts thereafter until March 1, 2010 to develop a new anti-viral, antibacterial and disposable mask; and 3) the Company’s marketing efforts after March 1, 2010 to sell its new Nano Zyme and Nano Silver Hospital Products

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

Cost of Sales: Inasmuch as no revenues were generated in 2010 or 2009, cost of sales was not incurred.

Operating Expenses: General and administrative expenditures for 2010 as compared to 2009 increased by approximately $133,000 or 25%, primarily due to increased wages and officer compensation and insurance.

Depreciation and Amortization: No depreciation expense was recognized during 2009. During 2010, $178 was recognized as depreciation expense.

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. Additional expenditures of $70,050 were incurred in 2010 with Intrinsiq Materials, Ltd., Alfred University 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, 2010 and 2009 was funded primarily by the sale of common stock for cash and from the issuance of short term notes payable. 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. In July 2010, 196,078 shares were issued for the $10,000 cash received from an executive officer. Moreover, throughout 2010 management and board members continued to discuss other alternative financing options, but no definitive proposals or agreements were reached.

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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, 2010, 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 2012 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 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 2010 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.

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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.

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

See Note 4, Warrants, in the Notes to the Financial Statements, 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

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ITEM 9A. 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.

For the period ended December 31, 2010, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. In the course of this evaluation, our management considered the material weakness in our internal control over financial reporting as discussed in our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2010. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report on Form 10-K, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the registrant’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

We have identified the following material weaknesses in our internal control over financial reporting:

Lack of Independent Board of Directors and Audit Committee

Management is aware that an audit committee composed of the requisite number of independent members along with a qualified financial expert has not yet been established. Considering the costs associated with procuring and providing the infrastructure to support an independent audit committee and the limited number of transactions, management has concluded that the risks associated with the lack of an independent audit committee are not sufficient to justify the creation of such a committee at this time. Management will periodically reevaluate this situation.

Lack of Segregation of Duties

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management will periodically reevaluate this situation.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the SEC rule that permit us to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financing reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2010 that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

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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	53	Chief Executive Officer: Director	March, 2010 – Present
Michael J. Marx	67	Chief Financial Officer; Director	December, 2009 –- Present
Marc Kahn	56	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	46	Director	February, 2010 – Present
Douglas Heath	58	Former Chief Executive Officer Former Director	January, 2009 – March, 2010 July, 2008 – March, 2010

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

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

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 Nano Mask’s first NanoMask™.

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

(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

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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.

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 seven times via telephone during 2010.

Committees of the Board of Directors

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 two independent board members. The Committee was inactivated when its Committee members 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

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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

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes the material elements of compensation for the executive officers identified in the Summary Compensation Table set forth below (the “Named Executive Officers”).  The information below provides the description of compensation policies applicable to executive officers and other highly compensated individuals under employment and/or consulting arrangements.

Objectives of Our Compensation Program

We are in the early stages of completing an overall compensation program. As proposed, the primary objective of our compensation program, including our executive compensation program, is to maintain a compensation program that will fairly compensate our executives and employees, attract and retain qualified executives and employees who are able to contribute to our long-term success, encourage performance consistent with clearly defined corporate goals and align our executives’ long-term interests with those of our stockholders. To that end, our compensation practices are intended to:

1.

Tie total compensation to the Company’s performance and individual performance in achieving financial and non-financial objectives;

2.

Align senior management’s interests with stockholders’ interests through long-term equity incentive compensation.

Role of the Compensation Committee

The Compensation Committee determines the compensation of our Chief Executive Officer and, in consultation with the Chief Executive Officer, our other executive officers. In addition, the Compensation Committee is responsible for adopting, reviewing and administering our compensation policies and programs. Our Compensation Committee intends to adhere to a compensation philosophy that (i) seeks to attract and retain qualified executives who will add to the long-term success of the Company, (ii) promotes the achievement of operational and strategic objectives, and (iii) compensates executives commensurate with each executive’s level of performance, level of responsibility and overall contribution to the success of the Company.

In determining the compensation of our Chief Executive Officer and our other executive officers, the Compensation Committee considers the financial condition and operational performance of the Company during the prior year. In determining the compensation for executive officers other than the Chief Executive Officer, the Compensation Committee considers the recommendations of the Chief Executive Officer and comparable market rates. The Compensation Committee may review the compensation practices of other companies, based in part on market survey data and other statistical data relating to executive compensation obtained through industry publications and other sources.

Components of Executive Compensation for 2010 and 2009

Our executive employment agreements for 2010 and 2009 provided that employees would be compensated by salary, with potential bonuses that could include cash and equity components.  Salaries were determined by negotiation between the Company and the particular executive based on each individual’s qualifications and relevant experience and the Compensation Committee’s and board’s best business judgment.  While each of the agreements had a general description of the employee’s responsibilities associated with his/her title and/or position, the agreements did not include specific written performance objectives for the individual or the Company.

  

The elements of the Company’s planned compensation program may include base salary and long-term equity incentives. Our compensation program will be designed to provide our executives with incentives to achieve our short- and long-term performance goals and to pay competitive base salaries. Each Named Executive Officer’s current and prior compensation will be considered in setting future compensation.

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Long Term Equity Incentives

The Company intends to adopt a plan for executive and employee equity compensation but there is no such plan in place at this filing date.

Perquisites and Other Benefits

The Company does not provide significant perquisites or personal benefits to executive officers.  

Stock Ownership Requirements

The Board of Directors has historically encouraged its members and members of senior management to acquire and maintain stock in the Company to link the interests of such persons to the stockholders. However, neither the Board of Directors nor the Compensation Committee has established stock ownership guidelines for members of the Board of Directors or the executive officers of the Company.

The following Summary Compensation Table sets forth the aggregate compensation paid or accrued by the Company to the executive officers, (the “Named Executive Officers”) as of December 31, 2010 and 2009.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Bonus ($)	Total ($)
Edward Suydam, CEO (1)	2010	$145,833	$100,000	$245,833
	2009	$125,000	$  25,000	$150,000
Michael J. Marx, CFO (2)	2010	$80,000	$ 0	$80,000
	2009	$  2,168	$ 0	$  2,168
Douglas Heath, CEO (3)	2010	$  37,500	$ 0	$  37,500
	2009	$150,000	$ 0	$150,000

(1) Since March 1, 2010

(2) Since December 21, 2009

(3) Until March 1, 2010

$75,000 of the 2010 bonus was paid in common stock on the award date using the 30 day trailing average of the common stock.

DIRECTOR COMPENSATION

 

The following table sets forth the aggregate compensation paid or accrued by the Company to the Directors for the fiscal year ended December 30, 2010.

Name	Fees Earned or Paid in Cash (In $)	Stock Awards (In $)	Option Awards (In $)	Non-Equity Incentive Plan Compensation (In $)	Non- Qualified Deferred Compensation Earnings (In $)	All Other Compensation (1) (2) (In $)	Total (In $)
Edward Suydam	-	-	-	-	-	-	-
Michael J. Marx	-	-	-	-	-	-	-
Marc Kahn	-	-	-	-	-	-	-
Mark Cox	$ 13,750	$5,900	-	-	-	-	$ 19,650

All directors are reimbursed for all travel related expenses incurred in connection with their activities as directors.

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Compensation of Directors

Effective September 1, 2007, all Directors orally agreed to forgo annual compensation. Accordingly, during 2009 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. However, 100,000 shares were issued to the non-officers at $.059 per share during 2010.

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

*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 provide information, as of December 28, 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 80,753,864 shares of our common stock issued and outstanding:

Securities Ownership of Officers and Directors

*   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 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, 2010, 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, 2010 and 2009, 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, 2010 and 2009 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 Nanoscience, Inc. (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, 2010 and 2009, 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

22

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 NoA-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, MaloneBailey, LLP, (“MB”) for the audit of our annual financial statements and review of our quarterly financial statements for fiscal year 2010 was approximately $18,000. 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 audit of our annual financial statements and review of our quarterly financial statements for fiscal year 2009 was approximately $59,000.

 2) Audit-Related Fees – The aggregate fees billed for professional audit-related services rendered by MB during fiscal year 2010 was $0. The aggregate fees billed for professional audit-related services rendered by PBTK during fiscal years 2009 was approximately $25,000.  

 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:

 (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:

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.

December 28, 2011

By /s/ Edward Suydam

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

December 28, 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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Nano Mask, Inc.

Reno, Nevada

We have audited the accompanying balance sheet of Nano Mask, Inc. (the “Company”) as of December 31, 2010, and the related statements of operations, stockholders' deficit, and cash flows for the year 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit 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, an audit of its internal control over financial reporting.  Our audit includes 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 audit provides 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, 2010, and the results of its operations and its cash flows for the year 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 2, the Company has incurred a series of net losses resulting in negative working capital as of December 31, 2010.  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 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP

MaloneBailey, LLP

Houston, Texas

December 28, 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 sheet of Nano Mask, Inc. (formerly, Emergency Filtration Products, Inc.) (the Company) as of December 31, 2009, and the related statements of operations, stockholders' equity deficiency, and cash flows for the year 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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, an audit of its internal control over financial reporting. Our audit 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 audit provides 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 the results of its operations and cash flows for the year 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 2, 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 2. 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

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

27

NANO MASK, INC.
Statements of Operations For the years ended December 31, 2010 and 2009
		2010		2009
COSTS AND EXPENSES
	Research and development	$              70,050		$              80,558
	Selling, general and administrative	660,667		527,183
	Provision for inventory obsolescence	79,986		-
LOSS FROM OPERATIONS		(810,703)		(607,741)
OTHER INCOME (EXPENSE)
	Interest expense	(34,371)		(48,376)
	Loss on debt extinguishment	-		(20,000)
	Gain on settlement of vendor liabilities and other	14,754		42,494
		(19,617)		(25,882)
NET LOSS		$           (830,320)		$          (633,623)
BASIC LOSS PER SHARE		$                 (0.01)		$                (0.01)
WEIGHTED-AVERAGE NUMBER OF                   COMMON SHARES OUTSTANDING		55,720,324		51,093,371

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

28

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

29

NANO MASK, INC.
Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
			2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$        (830,320)		$        (633,623)
Adjustments to reconcile net loss to net cash
used in operating activities:
	Depreciation		178		-
	Provision for inventory obsolescence		79,986
	Common stock issued for services rendered		236,882		360,160
	Common stock issued for company expenses incurred		27,736		16,930
	Loss on debt extinguishment		-		20,000
	Gain on settlement of vendor liabilities		-		(37,506)
Changes in operating assets and liabilities:
	Refund receivable		(2,500)		-
	Prepaid expenses and other		2,410		(2,981)
	Inventory		633		(95,040)
	Accounts payable		99,022		(46,659)
	Accrued expenses		252,847		48,627
		Net cash used in operating activities	(133,125)		(370,092)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Sale (purchase) of equipment		(973)		28,000
		Cash provided by (used in) investing activities	(973)		28,000
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from issuance of short-term notes payable		6,855		-
	Repayments of short-term notes payable		(6,855)		-
	Common stock issued for cash		-		479,000
		Net cash provided by financing activities	-		479,000
NET INCREASE (DECREASE) IN CASH			(134,098)		136,908
CASH, BEGINNING OF YEAR			136,908		-
CASH, END OF YEAR			$                2,810		$           136,908
Interest paid for period ended December 31			$               4,795		$                       -
Income taxes paid for period ended December 31			-		-
Noncash Financing and Investing Activities
Common stock issued for settlement of advances			$            10,000		$                      -
Accrued interest added to note payable balance			12,620		-

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

30

NANO MASK, INC.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

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

Nature of business

Nano Mask, Inc.(“we”, “our” or 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.

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.

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 has provided an allowance of $79,986 for slow moving and obsolete inventory at December 31, 2010.

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 (Notes 3 and 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 persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.  In general, these conditions are satisfied 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.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

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.

Income taxes. 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, 2010 and 2009.

Management has conducted an evaluation of the Company's tax positions taken on returns that remain subject to examination 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. The Company accounts for stock-based compensation to employees in accordance with FASB ASC 718 which requires companies to measure the cost of employee services received in exchange for an award of an equity instrument based upon the grant-date fair value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period (Note 4).  Stock-based compensation awards to non-employees are accounted for in accordance with ASC 505-50.  

Reclassifications. Certain minor reclassifications to prior year amounts have been made to conform to the current year’s 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, the Company has incurred negative cash flow from operations and significant losses, which have substantially increased its operating deficit at December 31, 2010.  In addition, at December 31, 2010, the Company has a working capital deficiency.   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

32

NANO MASK, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

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: 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 12%, or the prime rate plus 2%. During 2009, $250,000 of notes (plus the related accrued interest thereon of approximately $35,000) was settled through the issuance of 1,846,237 units, each consisting of one share of the Company’s stock and one common stock warrant (Note 4, Warrants).  At December 31, 2010, the remaining notes payable are in default and continue to bear interest according to their original terms.  Of the remaining liability at December 31, 2010, $412,140 represents loans payable to Applied Nanoscience, Inc. (Note 6, Litigation), net of the Company’s right of offset in the amount of $41,360 against the $453,500 face amount of the notes payable for monies the Company expended on behalf of Applied Nanoscience, Inc. Interest expense for 2009 totaled $48,376, of which no cash interest payments were paid during 2009. However, $34,048 of accrued interest was converted into common stock during 2009, along with the related notes amounting to $250,000. $24,013 of this converted accrued interest is considered a non-cash financing activity.

In 2010, the Company issued a short-term note payable of $6,855 with an annual interest rate of 7.5%. The note was fully paid as of December 31, 2010. In addition, a Nevada judgment caused the face amount of a note payable to increase by $12,620, but the interest rate declined from 12% per annum to prime rate, plus 2%..

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. Also during the second quarter of 2009, another unrelated party accepted 8,923 restricted common shares, valued also at $0.13 per share as settlement for his services rendered. Finally, during the fourth quarter, an employee accepted 20,000 restricted common shares for his services rendered in the amount of $4,000.

During 2010, 4,307,815 restricted common shares were issued or issuable: 251,508 common shares were issued for $12,736 in officer reimbursed expenses; 196,078 common shares were issued for conversion of $10,000 in officer advances; 125,000 common shares were issued for $15,000 in unrelated party expenses; and 3,735,229 common shares were issued for $236,882 in officer or director compensation.

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.

33

NANO MASK, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

As of December 31, 2010 and 2009, 1,479,000 shares of common stock have been issued pursuant to the Plan for the services of various individuals. All related compensation expense has been recognized in years prior to 2009. 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.

A summary of the status of our outstanding stock options at December 31, 2010 and December 31, 2009 and the related changes during the periods then ended is presented below:

	December 31, 2010		December 31, 2009
	Shares	Weighted-Average Exercise Price	Shares	Weighted-Average Exercise Price
Outstanding beginning of period	700,000	$0.57	700,000	$0.57
Granted	-	-	-	-
Expired/Cancelled	450,000	$0.46	-	-
Exercised	-	-	-	-
Outstanding end of period	250,000	$0.76	700,000	$0.57
Exercisable	250,000	$0.76	700,000	$0.57

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 $225,000, plus accrued interest of $30,673.  Also, 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. Lastly, an officer settled his note payable of $20,000, plus accrued interest of $2,989, with 114,943 similar units.

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 December 31, 2010 and 2009, 4,420,834 warrants remained outstanding until various expiration dates in 2011. No warrants were issued in 2010.

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 a loss on debt extinguishment during the second quarter of 2009.

The warrants had no intrinsic value as of December 31, 2010.

NOTE 5:   INCOME TAX

At December 31, 2010, the Company had net operating loss carry-forwards of approximately $13,900,000 that may be used to offset future taxable income.  These operating loss carry-forwards expire in the years 2012 through 2030. 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.

34

NANO MASK, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

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 approximately $4,700,000 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 2, Going Concern). 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:

	2010	2009
Income tax benefit at statutory rate	$       282,309	$      215,432
Timing differences between book and tax depreciation	138
Timing differences in inventory obsolescence recognition	(27,195)
Non-deductible expenses from common   stock issued or options granted for services rendered	(79,793)	(129,254)
	175,459	86,178
Change in valuation allowance	(175,459)	(86,178)
	$                   -	$                   -

Deferred tax assets are comprised of the following at December 31, 2010:

Operating loss carry forwards	$    4,700,000
Less valuation allowance	(4,700,000)
Net deferred tax assets	$                    -

NOTE 6: COMMITMENTS AND CONTINGENCIES

Litigation.  On December 29, 2010, the Company received a complaint from Applied Nanoscience, Inc. 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 maintains a right of offset in the amount of $41,360 against Applied’s notes and is reflected on the balance sheet in the net amount of $412,140 (Note 3, Notes Payable)

Employment agreements.  At December 31, 2010, the Company has employment agreements with certain officers and directors with a remaining commitment of approximately $192,500, which was paid during the first quarter of 2011.

NOTE 7:   OTHER RELATED PARTY TRANSACTIONS

Amounts payable to related parties are summarized as follows:

Balance, January 1, 2009	401,775
2008 gross wages earned	357,198
Payments (including unpaid wages)	(355,000)
2009 advances	-
Balance, December 31, 2009	403,973
2010 gross wages earned	516,863
Payments (including unpaid wages)	(329,961)
Transfer to accounts payable	(600,875)
2010 advances	77,500
Balance, December 31, 2010	$       67,500

During fiscal 2010, various parties that were previously affiliates of the Company became unaffiliated, resulting in the transfer of $600,875 of related party payables to third party accounts payable.  

35

NANO MASK, INC.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

NOTE 8:  SUBSEQUENT EVENTS

Subsequent to December 31, 2010, 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 $383,000 during 2011 in return for 2,091,666 shares of common stock. Also, vendor debt-extinguishment gains of approximately $22,000 were derived from expiration of the statute of limitations.

Furthermore, the Company received $117,500 in cash advances from one executive officer during 2011. 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 2011, 1,400,000 shares of common stock were issued in a private placement to four individual investors.

The following table summarizes the issuance of common shares subsequent to December 31, 2010, and their related amounts for cash proceeds from private placements, compensation and expense reimbursements and settlements of notes payable:

36