American Nano Silicon (ANNO) 10-Q 2015 Q1 Quarterly report

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

[   ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________

Commission File No. 0-52940

AMERICAN NANO SILICON TECHNOLOGIES, INC. (Name of Registrant in its Charter)
California	33-0726410
(State of Other Jurisdiction of incorporation or organization)	(I.R.S.) Employer I.D. No.)
Nanchong Shili Industrial Street, Economic and Technology Development Zone, XiaolongChunfei Industrial Park, Sichuan, P.R. China 637005
(Address of Principal Executive Offices)

Issuer's Telephone Number: 86-817-3634888

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

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

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

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. (Check One)

Large accelerated filer o        Accelerated filer o         Non-accelerated filer o        Smaller reporting company x

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

Common Voting Stock: 46,917,445 shares as of February 14, 2015

TABLE OF CONTENTS
		Page No
Part I         Financial Information
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets – December 31, 2014 and September 30, 2014 (Unaudited)	2
	Consolidated Statements of Comprehensive Income (Unaudited) -for the Three months Ended December 31, 2014 and 2013	3
	Consolidated Statements of Cash Flows (Unaudited) – for the Three months Ended  December 31, 2014 and 2013	4
	Notes to Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	15
Part II	Other Information
Item 1.	Legal Proceedings	16
Items 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	17

1

AMERICAN NANO SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
	December 31,			September 30,
	2014			2014
ASSETS
Current assets:
Cash and cash equivalents	$	25,210		$	97,233
Accounts receivable, net		593,796			577,303
Inventory, net of reserve		306,172			397,094
Advance payments		128,869			137,575
Prepaid expense and other receivables		124,275			136,235
Prepaid value-added tax		89,608			70,168
Total Current Assets		1,267,930			1,415,608
Property, plant and equipment, net		20,240,387			20,545,631
Other assets:
Land use rights, net		982,077			986,449
Total other assets		982,077			986,449
Total Assets	$	22,490,394		$	22,947,688
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	393,738		$	234,686
Short term loans		10,900,166			10,096,451
Taxes payable		115,495			114,435
Due to related parties-current portion		3,131,488			3,165,014
Long term loans-current portion		6,237,573			1,508,465
Accrued expenses and other payables		1,121,308			1,136,888
Total Current Liabilities		21,899,768			16,255,939
Long-term liabilities
Long term loans		16,290			4,766,471
Total Long Term Liabilities		16,290			4,766,471
Total Liabilities		21,916,058			21,022,410
Stockholders' Equity
Common stock, $0.0001 par value, 200,000,000 shares authorized; 46,917,445 shares issued and outstanding as of December 31, 2014 and September 30, 2014		4,692			4,692
Additional paid-in-capital		14,703,943			14,640,456
Accumulated other comprehensive income		2,302,948			2,297,685
Accumulated deficit		(16,437,247	)		(15,017,555	)
Total  Stockholders' Equity		574,336			1,925,278
Total Liabilities and Stockholders' Equity	$	22,490,394		$	22,947,688

The accompanying notes are an integral part of these unaudited consolidated financial Statements

2

AMERICAN NANO SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
	For the Three Months Ended
	December 31,
	2014			2013
Revenues	$	790,139		$	345,870
Cost of Goods Sold		1,128,833			749,960
Gross Loss		(338,694	)		(404,090	)
Operating Expenses
Research and development expense		-			16,483
Selling, general and administrative expenses		264,483			244,668
Total operating expenses		264,483			261,151
Loss from operations		(603,177	)		(665,241	)
Other Income( Expense)
Interest expense - related party		(63,416	)		(214,889	)
Interest expense, net		(760,026	)		(365,335	)
Other income		6,927			1,977
Total other income(expense)		(816,515	)		(578,247	)
Loss  Before  Income Taxes		(1,419,692	)		(1,243,488	)
Provision(Credit) for Income Taxes		-			98
Net Loss		(1,419,692	)		(1,243,586	)
Other Comprehensive Income (Loss)
Foreign currency translation adjustment		5,263			47,868
Comprehensive Loss	$	(1,414,429	)	$	(1,195,718	)
Loss per common share
Basic and diluted	$	(0.03	)	$	(0.03	)
Weighted average number of common shares
Basic and diluted		46,917,445			46,917,445

The accompanying notes are an integral part of these unaudited consolidated financial Statements

3

AMERICAN NANO SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended December 31,
	2014			2013
Cash Flows From Operating Activities:
Net Loss	$	(1,419,692	)	$	(1,243,586	)
Adjustments to reconcile net loss to net cash used in operating activities:
Inventory markdown		6,759			-
Depreciation and amortization		388,387			371,452
Imputed interest expense for non interest bearing related party loans		63,487			81,671
Changes in operating assets and liabilities:
Accounts receivable		(15,123	)		25,408
Inventory		85,168			116,876
Advances to suppliers		9,039			6,952
Prepaid expense and other receivables		12,292			(32,313	)
Prepaid value-added tax		(19,284	)		10,570
Accounts payable		158,589			(19,441	)
Taxes payable		786			(4,047	)
Accrued expenses and other payables		(18,220	)		(102,865	)
Cash used in operating activities		(747,812	)		(789,323	)
Cash Flows From Investing Activities:
Additions to property and equipment		(27,112	)		(165,775	)
Cash used in investing activities		(27,112	)		(165,775	)
Cash Flows From Financing Activities
Proceeds (repayment) of related parties loans, net		(41,112	)		466,697
Proceeds from short term loans, net		780,075			1,470,922
Repayment of long term loans, net		(35,846	)		(527,906	)
Cash provided by financing activities		703,117			1,409,713
Effect of exchange rate changes on cash and cash equivalents		(216	)		1,595
Increase(decrease) in cash and cash equivalents		(72,023	)		456,210
Cash and Cash Equivalents - Beginning of the period		97,233			75,901
Cash and Cash Equivalents - End of the period	$	25,210		$	532,111
SUPPLEMENTAL CASH FLOW INFORMATION:
During the period, cash was paid for the following:
Interest expense	$	696,778		$	461,816
Income tax	$	-		$	97

The accompanying notes are an integral part of these unaudited consolidated financial Statements

4

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business

American Nano-Silicon Technologies, Inc. (the “Company” or “ANNO”) was incorporated in the State of California on September 6, 1996. Since 2006, the Company has been primarily engaged in the business of manufacturing and distributing refined consumer chemical products through its subsidiaries, Nanchong Chunfei Nano-Silicon Technologies Co., Ltd. (“Nanchong Chunfei”), Sichuan Chunfei Refined Chemicals Co., Ltd. (“Chunfei Chemicals”), and Sichuan Hedi Veterinary Medicines Co., Ltd. (“Hedi Medicines”).

On May 28, 2013, the Company assigned 10% of the equity in Chunfei Chemicals to each of Mr. Fachun Pu, Mr. Qiwei Zhang and Mr. Jianbo Liu, and assigned 5% of the equity in Hedi Medicines to  Mr. Fachun Pu, and the assignees paid to the Company cash equal to the registered equity amount.  At the same time, Messrs Pu, Zhang and Liu agreed to hold those equity interests solely for the benefit of the Company, to pay over to the Company any distributions or dividends they receive, to vote their interests as directed by the Company, and to resell the interests to the Company at its option for cash equal to the registered equity amount.

Note 2 – Summary of Significant Accounting Policies

Basis Of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2014 and the results of operations and cash flows for the three month periods ended December 31, 2014 and 2013. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended December 31, 2014 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending September 30, 2015. The balance sheet at September 30, 2014 has been derived from the audited financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended September 30, 2014 as included in our Annual Report on Form 10-K.

Reclassifications

Certain amounts of prior period were reclassified for presentation purposes.

Fair Value of Financial Instruments

The Company adopted the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1- Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

5

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (Continued)

Level 2- Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3- Inputs are unobservable inputs which reflect the reporting entity’s own assumptions.

The carrying amounts reported in the balance sheets for cash, accounts receivable, inventory, taxes payable, due to related parties, prepaid expenses, other receivables, advance to suppliers, short-term loan, accounts payable,  other payables and accrued expenses approximate their fair market value based on the short-term nature of these instruments. The carrying value of the long-term debt approximates fair value based on market rates and terms currently available to the Company. The Company did not identify any assets or liabilities that are required to be presented on the consolidated balance sheet at fair value in accordance with ASC 820.

Taxation

Income Taxes

The Company accounts for income tax under the provisions of ASC 740-10-25, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances will also be established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Uncertain Tax Positions

During the course of business, there are certain transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or changes in the tax law. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

Value Added Tax

Value added tax is imposed on goods sold in or imported in the PRC. Value added tax payable in the People’s Republic of China is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year. The value added tax refundable for the Company as of December 31, 2014 and September 30, 2014 was $89,608 and $70,168, respectively.

Earnings (Loss) Per Share

Earnings per share are calculated in accordance with the FASB ASC 260, “Earnings per share.” Basic earnings per share are based upon the weighted average number of common shares outstanding, but excluding shares issued as compensation that have not yet vested. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options were converted or exercised, and that all unvested shares have vested. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were

6

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (Continued)

used to purchase common stock at the average market price during the period. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of  accounts receivable, advances to suppliers and other receivables arising from its normal business activities. The Company does not require collateral or other security to support these receivables. The company routinely assesses the financial strength of its debtors and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts.

Foreign Currency Translation

The Company’s principal country of operations is the PRC. The financial position and results of operations of the Company are determined using the local currency, Renminbi (“RMB”), as the functional currency. Foreign currency transactions are translated at the applicable rates of exchange in effect at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. Revenues and expenses are translated at the average exchange rates in effect during the reporting period. Equity accounts are translated in the historical exchange rate when the transactions took place.

Asset and liability accounts at December 31, 2014 and September 30, 2014 were translated at 6.1385 RMB to $1.00 and at 6.1534 RMB to $1.00, respectively, which were the exchange rates on the balance sheet dates. Equity accounts were stated at their historical rate. The average translation rates applied to the statements of income and cash flows for the three months ended December 31, 2014 and 2013 were 6.1356 RMB and 6.1275 RMB to $1.00, respectively.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand.

Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated Other Comprehensive Income". Gain or loss from translation adjustments is included in the statement of operations.

Note 3 – Going Concern

As shown in the accompanying financial statements, the Company’s current liabilities exceed its current assets by $20.6 million as of December 31, 2014. The current cash and inventory level will not be sufficient to support the Company’s  operations and repayments of the loans. In addition, the Company has suffered negative gross profit and negative cash flows from its operations for the past two years. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company will need additional funds to meet its operating and financing obligations until sufficient cash flows are generated from anticipated production to sustain operations and to fund future development and financing obligations. We expect, but provide no assurance, that affiliate companies owned by the Company’s largest shareholder and president, Mr. Pu Fachun, will continue to provide necessary funding for the Company’s normal operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

7

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 4 – Inventory

The inventory as of December 31, 2014 and September 30, 2014 consisted of the following:

	December 31, 2014		September 30, 2014
Raw materials	$	86,508	$	125,338
Packing supplies		60,509		70,126
Work in process		52,218		75,199
Finished goods		106,937		126,431
Total	$	306,172	$	397,094

Note 5 – Related Party Transactions

The Company periodically borrows money from its shareholders to finance the operations.  These loans are all due on demand. The details of loans from related parties are as follows:

	December 31, 2014		September 30, 2014
Short term:
Sichuan Chunfei Real Estate	$	1,135,787	$	1,212,670
Sichuan Chunfei Daily Chemical		812,102		755,759
Sichuan Shubei Feed Co.Ltd.		63,042		62,891
Zhang, Qiwei, a shareholder		34,209		-
Pu Fachun, Chief Executive Officer		1,086,348		1,133,694
Total	$	3,131,488	$	3,165,014

Sichuan Chunfei Daily Chemicals Co. Ltd (“Daily Chemical”) and Sichuan Chunfei Real Estate (“Chunfei Real Estate”) are owned by Mr. Pu Fachun. Sichuan Shubei Feed Co.Ltd. is owned by Mr. Pu Xidi, son of Mr. Pu Fachun.

The Company recorded imputed interest at 6% per annum and recorded $63,487 and $81,671 for non-interest bearing related party loans for the three months ended December 31, 2014 and 2013, respectively.

Interest accrued for interest-bearing related party loans was $34,556 for the three months ended December 31, 2014.

Interest expense for interest-bearing related party loans was $133,218 for the three months ended December 31, 2013.

8

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarized related party loans with interest and non interest as of December 31, 2014:

	Non interest bearing		Bearing interest from 1%-3.5% per month
Short term loan	$	2,512,468	$	619,020
Long term loan		-		-
	$	2,512,468	$	619,020

Note 6 – Short Term Loans and Long Term Loans

The short term loans as of December 31, 2014 and September 30, 2014 consisted of the following:

	December 31, 2014		September 30, 2014
a) Loan payable to Nanchong City Bureau of Finance due on demand, fixed interest rate of 0.465% per month	$	651,600	$	650,047
b)Loan payable to Nanchong Commercial Bank, due on March 7, 2015 and  July 23, 2015, at a fixed interest rate of 6.9%, guaranteed by a third party		1,629,000		1,625,118
c)Loan payable to Bank of Communications due on July 23, 2015, at an interest rate of 7.8% per annum and  guaranteed by a third party  and Mr. Pu, Chairman and CEO of the Company		814,500		812,559
d) Individual loans from unrelated parties, which are due on demand and bearing a weighted average interest rate of 2.78% per month		7,805,066		7,008,727
Total Short Term Loans	$	10,900,166	$	10,096,451
a) Individual loans from unrelated parties bearing a weighted average interest rate of 2.74% per month		1,429,763*		1,462,094
b) Individual loans from various investors, bearing interest of 12% per annum and due on July 1, 2015, as extended		100,000	100,000
c)Loan payable to Jialing Rural Credit Cooperative Union due on December 19, 2015 at a interest rate of 10.764% per annum, secured by Chunfei Chemical’s real property and Chunfei Real Estate’s real property		4,724,100		4,712,842
Less: current portion of long term loans		(6,237,573)		(1,508,465)
Total Long Term Loans	$	16,290	$	4,766,471

*Loans in the amount of $83,394 will be due from March 19, 2015 to April 13, 2016. Loans in the amount of $1,346,369 are due on demand.

The Company pledged its land use right and its building and equipment to a third party to secure the bank loans. The Company recorded interest expense of $760,026 and 365,335 for the three months ended December 31, 2014 and 2013, respectively.

Note 7 – Income Taxes

The Company’s subsidiaries are governed by the Income Tax Law of the People’s Republic of China.  Their income is taxed at the 25% statutory rate. Hedi Medicine has been taxed at a flat rate of 260 RMB per quarter since calendar 2012.

9

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 7 – Income Taxes (Continued)

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended December 31, 2014 and 2013:

	Three month Ended December 31
	2014			2013
US statutory income tax rate		35	%		35%
Non-taxable item in US		0	%		0%
Change in valuation allowance - US		-35	%		-35%
China income tax statutory statutory rate		25	%		25%
Change in valuation allowance - China		-25	%		-25%
Effective rate		-			-

As of December 31, 2014, net operating loss carry forwards for United States and China income tax purposes amounted to $2.5 million and $18 million, which may be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2034 for U.S tax purpose and 2019 to 2020 for China income tax purposes. Management believes that the realization of the benefits arising from the losses recognized in the US is uncertain due to the Company's business operations being primarily conducted in China and foreign income not being recognized in the United States for federal income tax purposes. It is also uncertain that the China business operations will generate taxable income in the future. Accordingly, the Company has provided a 100% valuation allowance as of the balance sheet dates, for the temporary differences related to the loss carry-forwards.

The following table reconciles the changes in deferred tax asset for the three months ended December 31, 2014 and 2013:

	December 31, 2014			December 31, 2013
United States:
Deferred tax asset-beginning	$	872,859		$	855,293
Addition: loss carry-forward		2,351			2,514
Valuation allowance-beginning		(872,859	)		(855,293)
Addition: valuation allowance		(2,351	)		(2,514)
Deferred tax asset net	$	-		$	-

	December 31, 2014			December 31, 2013
China:
Deferred tax asset-beginning	$	3,663,881		$	2,084,623
Addition: loss carry-forward		353,244			309,077
Valuation allowance-beginning		(3,663,881	)		(2,084,623	)
Addition: valuation allowance		(353,244	)		(309,077	)
Deferred tax asset- net	$	-		$	-

The Company’s open tax years for its federal and state income tax returns are for the tax years after 2010. These tax returns are subject to examination by the tax authorities.

10

AMERICAN NANO SILICON TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 8 – Concentration

For the three months ended December 31, 2014, two customers accounted for 52% and 40% of total sales, respectively.  For the three months ended December 31, 2013, three customers accounted for 67.7%, 12.8% % and 11.3% of total sales, respectively.

Note 9 – Commitment and Contingencies

LITIGATION

During the 2013 fiscal year, Jian Zhou, a shareholder, commenced a legal action against American Nano Silicon Technologies, Inc.  in the PRC. Mr. Zhou alleges that he is entitled to 857,142 shares of American Nano common stock in connection with the acquisition of Nanchong Chunfei by American Nano in 2007.  In response to the allegation, American Nano has asserted that all of the shares to which Mr. Zhou was entitled were issued to him. The trial court has dismissed Mr. Zhou’s claim, and he has appealed the dismissal to the court of appeals.

NOTE 10–SUBSEQUENT EVENTS

The Company has evaluated subsequent events for purposes of recognition or disclosure through the date these financial statements were issued, and has determined that there was no material event that occurred subsequent to December 31, 2014.

11

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

Forward Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain information relating to the Company that is based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors. Factors that might cause such forward-looking statements to prove inaccurate include, but are not limited to, those discussed in Item 1A entitled “Risk Factors”of our Annual Report on Form 10-K for the year ended September 30, 2014. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company assumes no obligation to update these forward-looking statements.

Restructuring of our Operations

In May 2011, the Company began moving to its new factory site located at Nanchong Shili Industrial Street, Economic and Technology Development Zone, Xiaolong Chunfei Industrial Park, which is approximately 12.4 miles from the Company's previous factory site. We expect the new site to provide us an annual manufacturing capacity of approximately 10 million tons. The Company temporarily suspended production to facilitate the move, resulting in a significant decrease in sales beginning in the third quarter of fiscal year 2011. On December 8, 2011, the Company announced that it had successfully relocated to its new facility in Nanchong, Sichuan, China. In addition to housing existing equipment and machinery from its previous facility, ANNO’s latest facility also contains new equipment that enables the Company to increase its product diversification capabilities as well as manufacture its new flame retardant additive product.

Flame retardant additive is a new refined chemical product for the Company, which has very strict standards. We began trial production of the product on January 2, 2012 and during calendar year 2012  conducted several rounds of testing of the quality of the product by asking potential customers for trial use. Through calendar year 2012 we were recalibrating our production process according to feedback received from potential customers. By December 2012 we had satisfied ourselves regarding the quality of our new manufacturing systems, so during 2013 we initiated efforts to market a relatively low-cost flame retardant to the electric cable industry.  We discovered, however, that demand by the cable industry for our product disappeared at our price point, and so we were forced to sell at unprofitable prices. During fiscal year 2014, therefore, we terminated sales of the flame retardant. We are now conducting research and development aimed at production of a high-end flame retardant additive that has a unit price ranging from 65% to 106% higher than the product we offered to the cable industry.

During 2014, the Company resumed full operation of Micro Nano Silicon™.  During the three months ended December 31, 2014, the Company recorded $755,673 of revenue from Micro Nano Silicon™ and $19,978 of revenue from flame retardant additive. The remainder of our revenue was related to our detergent.

Critical Accounting Policies

Our consolidated financial information has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Some of our accounting policies require a higher degree of judgment than others in their application.

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When reviewing our condensed consolidated financial statements, the following should also be considered: (1) our selection of critical accounting policies, (2) the judgment and other uncertainties affecting the application of those policies, and (3) the sensitivity of reported results to changes in conditions and assumptions. In our preparation of the accompanying condensed consolidated financial statements for the three months ended December 31, 2014, there was one estimate made which was (a) subject to a high degree of uncertainty and (b) material to our results.  This was:

· our determination, described in Note 7 to the financial statements, to record a 100% allowance for our deferred tax assets.  The determination to record the allowance with respect to our U.S. deferred tax assets was based on the uncertainty that we would realize income taxable in the U.S. in future years.  The determination with respect to our China deferred tax assets was based on the uncertainty that we would realize sufficient income within the requisite time period to utilize the deferred asset.

Results of Operations

Revenues and Gross Profit/Loss

We generated revenue of $790,139 during the three months ended December 31, 2014, compared to $345,870 in the three months ended December 30, 2013, a increase of 128% for the three month period. Revenue significantly increased in the three months ended December 31, 2014 because the Company had only started partial operations in 2013 and gradually to resume commercial-scale production of Micro SiliconTM during 2014. The Company expects to have significant revenue during the next three quarters of fiscal year 2015.

During the three months ended December 31, 2014 and 2013, the Company recorded $755,673 and $259,625 of revenue from Micro Nano Silicon™, and $19,978 and $86,245 of revenue from flame retardant additive, respectively.

Our factory has a production capacity of 10 million tons.  During fiscal 2014 we only resumed full operation in the production of Micro Nano Silicon™. As a result of this failure to utilize the capacity of our facilities, our operations are very inefficient.  Our gross loss for the three months ended December 31, 2014 and 2013, therefore, were $338,694 and $404,090, respectively.  We will continue to operate at an unprofitable level until we secure sufficient working capital to enable us to approach full production.

 Selling, General and Administrative Expenses

Our selling, general and administrative, or SG&A, expenses include expenses associated with salaries and other expenses related to marketing and administrative activities. In addition, we have incurred expenses through the use of consultants and other outsourced service providers to take advantage of specialized knowledge and capabilities that we require for short periods of time to avoid unnecessary hiring of full-time staff.

Our SG&A expenses for the three months ended December 31, 2014 were $264,483, compared to $244,668 for the three months ended December 31, 2013, an increase of 8% for the three month periods. The increase in SG&A expenses for the three months ended December 31, 2014 was attributed to the increase in shipping expense that accompanied the increase in our sales volume.

Research and Development Expenses

Our business model is based upon developing additional uses for Micro Nano Silicon. Our research and development activities are focused on developing such uses as well as developing nano filtering technology and the production processes for our product. 

Since 2011, the focus of our operations has been the move to a new facility. This has distracted us from our research and development activities.  For the three ended December 31, 2014 and 2013, we expended $0 and $16,483, respectively, on research and development.  Research and development expenses have been particularly low in these periods as we focused entirely on initiating the manufacturing of our new product, flame retardant additive.

We believe that the future success of our business depends upon our ability to improve our production processes and develop other uses for Micro Nano Silicon.  To avoid product obsolescence, we will continue to monitor technological changes in our industry as well as users' demands for new products. Failure to keep pace with future technological changes could adversely affect our revenues and operating results in the future.  Although we believe that Micro Nano Silicon can be utilized in a number of industries, there can be no assurance that we will gain market acceptance of our products in such industries.

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Other Income and Expense

As a result of the factors discussed above, we recorded a loss from operations of $603,177 for the three months ended December 31, 2014, compared to $665,241 for the three months ended December 31, 2013.  In all periods, however, non-operating income and expense had a significant effect on our net income.

The primary element of Other Income and Expense during three months ended December 31, 2014 was interest expense relating to loans from bank, unrelated parties and related parties.  Interest expense was $823,442 for the three months ended December 31, 2014; an increase of 42% compared to the same periods ended December 31, 2013, as we secured additional institutional loans during the year.

Net Loss

Due, primarily, to our gross loss and interest expense, we incurred a net loss of $1,419,692 for the three months ended December 31, 2014, compared to net loss of $1,243,586 for the three months ended December 31, 2013.   Once we start to market our high-end flame retardant additive, we believe that the top line benefits will more than compensate for the increased expenses, and we will realize income from operations in future periods.  

Liquidity and Capital Resources

	December 31, 2014		September 30, 2014
Total current assets	$	1,267,930	$	1,415,608
Total current liabilities		21,899,768		16,255,939
Working capital (deficiency)	$	(20,631,838)	$	(14,840,331)

At December 31, 2014 we had a working capital deficiency of $20,631,838, representing an increase of $5,643,829 in the deficit during the three month ended December 31, 2014.  In addition to our net loss for the quarter, the primary cause of the increase in working capital deficit was the reclassification of approximately $4.7 million in bank loans from long-term to current liabilities.

Our current assets on December 31, 2014 were only $1,267,930, of which only $925,178 were liquid.   Our current liabilities are primarily composed of short term loans totaling $10,900,166, short term related parties payables totaling $3,131,488 due to Mr. Pu Fachun and entities owned by Mr. Pu Fachun, the single largest shareholder and president of the Company, and $6,237,573 being the current portion of our long term loans. Due to our negative cash flow and working capital deficit, our auditors expressed substantial doubt about the Company’s ability to continue as a going concern in the audit report on our financial statements for the year ended September 30, 2014.

The following tables summarize our contractual obligations as of December 31, 2014, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments due by period
	Total		Less than 1 year		1-3 Years		3-5 Years		5+ Years
Related parties indebtedness	$	3,131,488	$	3,131,488	$	-	$	-	$	-
Loan payable to unrelated parties		17,154,029		17,137,739		16,290		-		-
Total contractual obligations	$	20,285,517	$	20,269,227	$	16,290	$	-	$	-

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Our operations used $747,812 in cash during the three months ended December 31, 2014. Our use of cash fell short of our net loss of $1,419,692, as the net loss included depreciation and amortization expense of $388,387 and imputed interest of $63,487.

Our operations used $789,323 in cash during the three months ended December 31, 2013. Our use of cash fell short of our net loss of $1,243,586, as the net loss included depreciation and amortization expense of $371,452 and imputed interest of $81,671.

For the three months ended December 31, 2014 and 2013, we used $27,112 and $165,775 in investing activities consisting of additions to property and equipment. 

As discussed above, our financing activities in the three months ended December 30, 2014 included proceeds of $780,075 from short-term loans, and repayment of long term loans of $35,846.

Our financing activities in the three months ended December 31, 2013 included proceeds of $466,697 from related party loans and proceeds from short term loans of $1,470,922.

As of the date of this report, we do not have sufficient cash to operate for the next 12 months. However, we have a commitment from our president, Mr. Pu Fachun to secure financing through third party loans or personal loans to provide us with sufficient liquidity for the next 12 months.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are not effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period, due to the lack of expertise in U.S. GAAP accounting among the personnel in our accounting department.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II   -   OTHER INFORMATION

Item 1.	Legal Proceedings
	None.
Item 1A	Risk Factors
	There have been no material changes from the risk factors included in the Annual Report on Form 10-K for the year ended September 30, 2014.
Item 2	Unregistered Sale of Securities and Use of Proceeds
	(a) Unregistered sales of equity securities
	The Company did not effect any unregistered sale of equity securities during the first quarter of fiscal 2015.
	(c) Purchases of equity securities
	The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Exchange Act during the first quarter of fiscal 2015.
Item 3.	Defaults Upon Senior Securities.
	None.
Item 4.	Mine Safety Disclosures.
	Not Applicable.
Item 5.	Other Information.
	None.

Item 6.     Exhibits

31	Rule 13a-14(a) Certification
32	Rule 13a-14(b) Certification
101.INS	XBRL Instance
101.SCH	XBRL Schema
101.CAL	XBRL Calculation
101.DEF	XBRL Definition
101.LAB	XBRL Label
101.PRE	XBRL Presentation

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SIGNATURES

Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the undersigned thereunto duly authorized.

	American Nano Silicon Technologies, Inc.
Date : Feburary 14, 2015	/s/Pu Fachun
	Pu Fachun, Chief Executive Officer
	and Chief Financial and Accounting Officer

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