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, 2009
[ ] | 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 as Specified in its Charter)
California | 33-0726410 |
(State or Other Jurisdiction of incorporation or organization) | (I.R.S. Employer I.D. No.) |
c/o Warner Tech & Investment Corp., 100 Wall Street, 15th Floor, New York, NY 10005
(Address of Principal Executive Offices)
Issuer's Telephone Number: (212) 232-0120
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 __
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 No_
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 ___ Accelerated filer ____ Non-accelerated filer ___ Smaller reporting company _X_
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
As of February 9, 2010, 26,578,767 shares of common stock, par value $.001 per share, were outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN NANO-SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES | |||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(Expressed in US dollars) | |||||||||||
December 31, 2009 | September 30,2009 | ||||||||||
(Unaudited) | (Audited) | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ 253,108 | $ 164,876 | |||||||||
Accounts receivable | 1,702,484 | 1,050,852 | |||||||||
Inventory | 81,500 | 230,007 | |||||||||
Advance to suppliers | 17,570 | 64,476 | |||||||||
Other receivables | 2,270 | - | |||||||||
Other receivables - related parties | 442,546 | 499,670 | |||||||||
Employee advances | 17,683 | 17,495 | |||||||||
Total Current Assets | 2,517,161 | 2,027,375 | |||||||||
Property, plant and equipment, net | 10,852,993 | 10,944,991 | |||||||||
Other assets: | |||||||||||
Land use right | 1,004,260 | 1,010,409 | |||||||||
Total other assets | 1,004,260 | 1,010,409 | |||||||||
Total Assets | $ 14,374,414 | $ 13,982,775 | |||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ 121,700 | $ 295,173 | |||||||||
Advance from customers | 5,859 | - | |||||||||
Tax payable | 365,466 | 415,664 | |||||||||
Accrued expenses and other payables | 403,379 | 423,392 | |||||||||
Due to related parties | 64,676 | - | |||||||||
Total Current Liabilities | 961,080 | 1,134,229 | |||||||||
Long-term liability | |||||||||||
Construction security deposits | 1,220,770 | 1,227,093 | |||||||||
Long term Loans | 2,650,697 | 2,743,247 | |||||||||
Due to related parties | 429,178 | 483,502 | |||||||||
Total Liabilities | 5,261,725 | 5,588,071 | |||||||||
Stockholders' Equity | |||||||||||
Common stock, $0.0001 par value, 200,000,000 shares authorized; | |||||||||||
and 26,578,767 issued and outstanding at December 31, 2009 and September 30, 2009 | 2,658 | 2,658 | |||||||||
Additional paid-in-capital | 4,506,941 | 4,506,941 | |||||||||
Accumulated other comprehensive income | 801,053 | 801,708 | |||||||||
Retained Earnings | 2,424,517 | 1,752,414 | |||||||||
Total Stockholders' Equity | 7,735,169 | 7,063,721 | |||||||||
Noncontrolling interest | 1,377,520 | 1,330,983 | |||||||||
Total Equity | 9,112,689 | 8,394,704 | |||||||||
Total Liabilities and Stockholders' Equity | $ 14,374,414 | $ 13,982,775 |
The accompanying notes are an integral part of these condensed consolidated financial statements
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AMERICAN NANO-SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
(UNAUDITED) | ||||||||
(Expressed in US dollars) | ||||||||
For the three months ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Revenues | $ | 4,154,011 | $ | 3,734,299 | ||||
Cost of Goods Sold | 3,198,663 | 2,924,065 | ||||||
Gross Profit | 955,348 | 810,234 | ||||||
Operating Expenses | ||||||||
Research and development expense | 4,732 | - | ||||||
Selling, general and administrative | 52,238 | 77,210 | ||||||
Income before other Income and (Expenses) | 898,378 | 733,024 | ||||||
Other Income and (Expense) | ||||||||
Interest income (expense) | (32,692 | ) | (8,159 | ) | ||||
Other income (expense) | - | (68 | ) | |||||
Total other expense | (32,692 | ) | (8,227 | ) | ||||
Income Before Income Taxes | 865,686 | 724,797 | ||||||
Provision for Income Taxes | 146,918 | 170,026 | ||||||
Net income | 718,768 | 554,771 | ||||||
Less: net income attributable to the noncontrolling interest | 46,665 | 52,093 | ||||||
Net Income attributable to American Nano | 672,103 | 502,678 | ||||||
Other comprehensive income (loss) | ||||||||
Foreign Currency translation adjustment | (655 | ) | (21,233 | ) | ||||
Comprehensive Income | $ | 671,448 | $ | 481,445 | ||||
Basic and diluted income per common share | $ | 0.03 | $ | 0.02 | ||||
Weighted average number of common shares | 26,578,767 | 26,558,767 |
The accompanying notes are an integral part of these condensed consolidated financial statements
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AMERICAN NANO-SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(UNAUDITED) | |||||||||
(Expressed in US dollars) | |||||||||
For the three months ended | |||||||||
December 31, | |||||||||
2009 | 2008 | ||||||||
Cash Flows From Operating Activities: | |||||||||
Net Income | $ 718,768 | $ 554,771 | |||||||
Adjustments to reconcile net income to net cash | |||||||||
provided by operating activities: | |||||||||
Depreciation and amortization | 145,352 | 103,042 | |||||||
Changes in operating assets and liabilities: | |||||||||
(Increase) decrease in - | |||||||||
Accounts receivable and other receivable | (653,969) | (256,946) | |||||||
Inventory | 148,477 | 201,085 | |||||||
Employee advances | (190) | (15,367) | |||||||
Advances to suppliers | 46,897 | (114,553) | |||||||
Related party receivables | 57,072 | (225,164) | |||||||
Increase (decrease) in - | |||||||||
Accounts payable | (173,434) | (182,502) | |||||||
Construction security deposits | (6,202) | (2,924) | |||||||
Advance from customers | 5,859 | (10,600) | |||||||
Tax payable | (50,154) | - | |||||||
Accrued expenses and other payables | (19,972) | 322,933 | |||||||
Cash provided by Operating Activities | 218,503 | 373,775 | |||||||
Cash Flows From Investing Activities: | |||||||||
Additions to property and equipment | - | (502) | |||||||
Additions to construction in process | (48,383) | (9,668) | |||||||
Cash used in investing activities | (48,383) | (10,170) | |||||||
Cash Flows From Financing Activities | |||||||||
Proceeds (repayment) from related party loans | 10,399 | 5,410 | |||||||
Proceeds (repayment) from long term loans | (92,275) | (58,484) | |||||||
Cash used in financing activities | (81,874) | (53,074) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (12) | 695 | |||||||
Increase in cash and cash equivalents | 88,232 | 311,226 | |||||||
Cash and Cash Equivalents - Beginning of period | 164,876 | 16,194 | |||||||
Cash and Cash Equivalents - End of period | $ 253,108 | $ 327,420 | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||||
During the period, cash was paid for the following: | |||||||||
Interest expense | $ - | $ - | |||||||
Income taxes | $ 213,106 | $ - |
The accompanying notes are an integral part of these condensed consolidated financial statements
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AMERICAN NANO-SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2009 and 2008 (UNAUDITED)
Note 1 – ORGANIZATION AND BASIS OF PRESENTATION
American Nano-Silicon Technologies, Inc. (the “Company” or “ANNO”) was originally incorporated in the State of California on September 6, 1996 as CorpHQ, Inc. (“CorpHQ”).
The Company, through its operating subsidiaries in the People’s Republic of China (“PRC”), is primarily engaged in the business of manufacturing and distributing refined consumer chemical products and veterinary drugs.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the full year. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
The balance sheet at September 30, 2009 has been derived from the audited financial statements at that date, but does not necessarily include all of the information and footnotes required by GAAP for the complete financial statements.
Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements represent the consolidated accounts of the Company and 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”). All significant intercompany balances and transactions have been eliminated in consolidation.
Minority interests
Minority interests result from the consolidation of 95% directly owned subsidiary, Nanchong Chunfei, 85.5% indirectly owned subsidiary, Chunfei Chemicals, and 78.66% indirectly owned subsidiary, Hedi Medicines.
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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of estimates
In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting quarter. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of inventories. Actual results could differ from those estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on net income or cash flows.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and cash in deposits and all highly liquid debt instruments with an original maturity of three months or less.
Inventory
Inventories consist of the raw materials and packing supplies. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Market value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to complete the sale.
Property, plant & equipment
Property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation and amortization are calculated using the straight-like method over the following useful lives:
Buildings and improvements 39 years
Machinery, equipment and automobiles 5-10 years
Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.
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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advances to suppliers
Advance to suppliers represent the payments made and recorded in advance for goods and services. Advances were also made for the purchase of the materials and equipments of the Company’s construction in progress. The final phase of the construction is not completed. As such, no amortization was made.
Revenue recognition
The Company utilizes the accrual method of accounting. In accordance with the provisions of Staff Accounting Bulletin (“SAB”) 104, sales revenue is recognized when products are shipped and payments of the customers and collection are reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied and recorded as advance from customers.
Taxation
Enterprise income tax
The Company accounts for income tax under the provisions of ASC 740 "Accounting for Income Taxes", 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 have been 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.
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 quarter.
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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per share
Basic earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. 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. There are no such additional common shares available for dilution purposes for the three months ended December 31, 2009 and 2008.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of 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.
Risks and uncertainties
The operations of the Company are located in the PRC. Accordingly, the Company's business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Fair value of financial instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, advance to suppliers, other receivables, accounts payable, accrued expenses and construction security deposits approximate fair value due to the short-term nature of these items as of December 31, 2009 because of the relatively short-term maturity of these instruments.
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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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". Gains and losses resulting from foreign currency translations are included in Accumulated Other Comprehensive Income.
Recent accounting pronouncements
In May 2009, the FASB issued guidance related to subsequent events under ASC 855-10, Subsequent Events. This guidance sets forth the period after the balance sheet date during which management or a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009. We have included the required disclosures in our consolidated condensed financial statements.
In June 2009, the FASB issued an amendment to ASC 810-10, Consolidation. This guidance amends ASC 810-10-15 to replace the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with a primarily qualitative approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE and requires additional disclosures about an enterprise’s involvement in VIEs. This guidance is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 and earlier adoption is not permitted. We are currently evaluating the potential impact, if any, of the adoption of this guidance will have on our consolidated condensed financial statements.
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Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC 105, Generally Accepted Accounting Principles. This guidance states that the ASC will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once effective, the Codification’s content will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to include only two levels of U.S. GAAP: authoritative and non-authoritative. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted ASC 105 as of December 31, 2009 and thus have incorporated the new Codification citations in place of the corresponding references to legacy accounting pronouncements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure the fair value using one or more of the following techniques: a valuation technique that uses the quoted price of the identical liability or similar liabilities when traded as an asset, which would be considered a Level 1 input, or another valuation technique that is consistent with ASC 820. This update is effective for the first reporting period (including interim periods) beginning after issuance. Thus, we adopted this guidance as of December 31, 2009, which did not have a material impact on our consolidated condensed financial statements.
In September 2009, the Financial Accounting Standards Board (FASB) amended existing authoritative guidance to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The amended guidance is effective for fiscal annual reporting periods beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is currently assessing the impact, if any, adoption may have on its financial statements or disclosures.
In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605) “Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.
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Note 3 – INVENTORY
The inventory consists of the following:
As of December 31, 2009 | As of September 30, 2009 | |||||||
Raw materials | 43,236 | 86,565 | ||||||
Packing supplies | 13,223 | 30,084 | ||||||
Work-in-process | - | 35,601 | ||||||
Finished goods | 25,041 | 77,757 | ||||||
Total | $ | 81,500 | $ | 230,007 |
No allowance for inventories was made for the three months ended December 31, 2009 and 2008.
Note 4 – PROPERTY, PLANT AND EQUIPMENT
The detail of property, plant and equipment is as follows:
As of December 31, 2009 | As of September 30, 2009 | |||||||
Machinery & equipment | $ | 4,355,482 | $ | 4,355,908 | ||||
Plant & Buildings | 4,936,726 | 4,937,211 | ||||||
Sub total | 9,292,208 | 9,293,119 | ||||||
Less: accumulated depreciation | (836,432 | ) | (697,190 | ) | ||||
Add: construction in process | 2,397,217 | 2,349,062 | ||||||
Property, plant and equipment | $ | 10,852,993 | $ | 10,944,991 |
Depreciation expense for the three months ended December 31, 2009 and 2008 was $139,302 and $96,733, respectively.
Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s new plant and equipment. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for its intended use.
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NOTE 5 - RELATED PARTY TRANSACTIONS
The Company periodically has receivables from its affiliates, owned by Mr. Fachun Pu, the majority shareholder and the president of the Company. The Company expects all outstanding amounts due from its affiliate will be repaid and no allowance is considered necessary. The Company also periodically borrows money from its shareholders to finance the operations.
The details of loans to/from related parties are as follows:
As of December 31, 2009 | As of September 30, 2009 | |||||||
Receivable from Chunfei Daily Chemical | $ | 111,508 | $ | 168,599 | ||||
Receivable from Chunfei Real Estate | 331,038 | 331,071 | ||||||
Total Other Receivable- Related Parties | 442,546 | 499,670 | ||||||
Loan From Chunfei Real Estate | $ | 57,352 | $ | 46,956 | ||||
Loan From Pu, Fachun (shareholder) | 429,178 | 429,220 | ||||||
Loan From other officer and employee | 7,324 | 7,326 | ||||||
Total Due to Related Parties | 493,854 | 483,502 |
Sichuan Chunfei Daily chemicals Co. Ltd (“Daily chemical”) and Sichuan Chunfei Real Estate are owned by Mr. Pu Fachun, the majority shareholder and the president of the company. The loans bear no interest and are due in the year 2010 and 2011.
NOTE 6 - LAND USE RIGHT
All land in the People’s Republic of China is government owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” (the Right) to use the land. The land use right was originally acquired by one of the Company’s shareholders in September 2000 for the amount of $833,686 and later was transferred to the Company as a capital investment. In the fiscal year 2008, the Company paid the stamp tax amounted to $69,539 to get the certificate of the land use right, which was capitalized as part of the asset. The Company has the right to use the land for 50 years and amortized the Right on a straight-line basis over the period of 50 years.
The amortization expense from the three months ended December 31, 2009 and 2008 was $6,050 and $6,309, respectively.
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NOTE 7 – TAX PAYABLE
The tax payable includes the following:
As of December 31, 2009 | As of September 30, 2009 | |||||||
Corporate income tax payable | $ | 271,273 | $ | 337,498 | ||||
Value-added tax payable | 92,863 | 76,921 | ||||||
Others | 1,330 | 1,245 | ||||||
Total tax payable | $ | 365,466 | $ | 415,664 |
NOTE 8 - LONG-TERM LOANS
The long-term loans include the following:
As of December 31, 2009 | As of September 30, 2009 | ||||||||
a) Loan payable to Nanchong City Bureau of Finance | |||||||||
due on September 30, 2011, at fixed interest rate of 0.465% | |||||||||
per month | $ | 585,909 | $ | 585,958 | |||||
b) Individual loans from unrelated parties | |||||||||
bear no interest, maturing in 2011 and 2012 | 2,064,788 | 2,157,289 | |||||||
Total | $ | 2,650,697 | $ | 2,743,247 |
The Company accrued interest expenses of $8,173 and $8,159 for the three months ended December 31, 2009 and 2008 respectively.
NOTE 9 – CONSTRUCTION SECURITY DEPOSITS
The Company requires security deposits from its plant and building contractors prior to start of the constructions. The deposits are to be refunded upon officially certified completion of the works within the specified time. The purpose of the security deposits is to protect the Company from unexpected delay and poor construction quality. The Company expected to return it in year 2011 when the construction is expected to be completed.
The Company offers no interest to the security deposits. As of December 31, 2009 and September 30, 2009, the balance of the construction security deposits was $1,220,770 and $1,227,093, respectively.
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NOTE 10 – INCOME TAXES
The Company is a California corporation and conducts all of its business through its Chinese subsidiaries. All business is conducted in PRC. As the U.S. holding company has not recorded any income and expense for the three months ended December 31, 2009 and 2008, there was no provision or benefit for U.S. income tax purpose.
The Company is governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are generally subject to tax at a new statutory rate of 25% and were, until January 2008, subject to tax at a statutory rate of 33% (30% state income tax plus 3% local income tax) on income reported in the statutory financial statements after appropriate tax adjustments.
On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the New CIT Law), which is effective from January 1, 2008. Under the new law, the corporate income tax rate applicable to all Companies, including both domestic and foreign-invested companies, is 25%, replacing the previous applicable tax rate of 33%. For the three months ended December 31, 2009 and 2008, the income tax provision for the Company was $146,918 and $170,026, respectively.
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended December 31, 2009 and 2008:
For the three ended December 31, | ||||||||
2009 | 2008 | |||||||
US Statutory income tax rate | 35 | % | 35 | % | ||||
Foreign income not recognized in US | -35 | % | -35 | % | ||||
China Staturoty income tax rate | 25 | % | 25 | % | ||||
Non-deductible expenses | - | 2 | % | |||||
China income tax exemption | -13 | % | -6 | % | ||||
Other item (1) | 5 | % | 2 | % | ||||
Effective tax rate | 17.0 | % | 23 | % |
Other item represents the net income that could not be offset by loss incurred by other subsidiaries.
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NOTE 10 – INCOME TAXES (Continued)
The parent company was incorporated in Delaware. During the reverse merger event in 2008, it assumed a spin-off loss of US$508,590 resulting from the discontinued operating loss from the shell company incorporated in California. For US income tax purpose, this net discontinued operating loss can be carried forward and be available to reduce future years' taxable income. These carry forwards will expire, if not utilized, beginning in 2028 through 2029. Management believes that the realization of the benefits arising from these losses appear to be uncertain due to the Company's business operations being primarily conducted in China and foreign income not recognized in US for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at December 31, 2009 and 2008, respectively for the temporary difference related to the loss carry-forwards. The valuation allowances for the three months ended December 31, 2009 and 2008 were $178,007, respectively.
NOTE 11 – CONCENTRATION OF RISKS
Two major customers accounted for approximately 85% of the net revenue for the three months ended December 31, 2009, with each customer individually accounting for 52% and 33%, respectively.
Three major customers accounted for approximately 70% of the net revenue for the three months ended December 31, 2008, with each customer individually accounting for 33.44%, 18.48%, and 18.12%, respectively.
One major vendor provided approximately 95% of the Company’s purchases of raw materials for the three months ended December 31, 2009.
One major vendor provided approximately 84.67% of the Company’s purchases of raw materials for the three months ended December 31, 2008.
NOTE 13 – MINORITY INTEREST
Minority interest represents the minority stockholders’ proportionate share of 5% of the equity of Nanchong Chunfei, 14.5% of the equity of Chunfei Chemical and 21.34% of equity of Hedi Medicine.
The Company’s controlling interest requires that Nanchong Chunfei, Chunfei Chemical and Hedi Medicine’s operations be included in the Company’s Consolidated Financial Statements.
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NOTE 13 – MINORITY INTEREST (Continued)
A reconciliation of minority interest as of December 31, 2009 is as follows:
Balance as of September 30, 2009 | $ | 1,330,983 | ||
Proportionate share of Net Income from Chunfei Chemical | 25,027 | |||
Proportionate share of Net Loss from Hedi Medicine | (7,406 | ) | ||
Proportionate share of Net Income from Nanchong Chunfei | 29,044 | |||
Add: proportionate share of other comprehensive income | (128 | ) | ||
Balance as of December 31, 2009 | $ | 1,377,520 |
NOTE 14 – STOCKHOLDERS’ EQUITY
A. Stock issued for reverse merger
Prior to the closing of the Exchange Agreement, the Company has 1,065,753,214 shares of common stock issued and outstanding. On August 9, 2007, the Company affected a 1,302 for 1 reverse split on its outstanding common stock, which left the Company with 818,767 shares of common stock outstanding.
As part of the Exchange Agreement, the Company issued 25,740,000 shares of its common stock to the shareholders of the Company.
B. Stock issued for consulting services
On April 6, 2009, 20,000 shares of restricted common stock were issued as partial compensation to one director for certain consulting services provided to the Company. An amount of $19,200, which represents the aggregate fair value of the shares issued in excess of par value, was included in additional paid-in capital. The full amount was expensed and included in the Statements of Income as a part of general and administrative expenses.
As of December 31, 2009, there were 26,578,767 shares of common stock issued and outstanding.
NOTE 15-SUBSEQUENT EVENTS
We have evaluated events after the date of these financial statements through the date that these financial statements were issued. There were no material subsequent events as of that date.
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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 described herein and in other filings made by the company with the Securities and Exchange Commission. 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 does not intend to update these forward-looking statements.
Overview
American Nano Silicon Technologies, Inc. (“ANNO"or “the Company”) was incorporated on September 6, 1996 under the laws of the State of California. On August 26, 2006, ANNO acquired a 95% interest in Nanchong Chunfei Nano-Silicon Technologies Co., Ltd. (“Nanchong Chunfei”), a company incorporated in the People’s Republic of China (the “PRC” or “China”). Nanchong Chunfei directly owns 90% of Sichuan Chunfei Refined Chemicals Co., Ltd. (“Chunfei Chemicals”), a Chinese corporation established under the laws of PRC on January 6, 2006. Chunfei Chemicals itself owns 92% of Sichuan Hedi Veterinary Medicines Co., Ltd. (“Hedi Medicines”), also a Chinese company incorporated under the laws of PRC on June 27, 2002.
The Company is primarily engaged in the business of manufacturing and distributing refined consumer chemical products through its subsidiary, Chunfei Chemicals, and veterinary drugs through another subsidiary, Hedi Medicines. Nanchong Chunfei’s business scope is production and sale of Micro Nano Silicon products.
Our core product, Micro Nano Silicon, is an ultra fine crystal structured chemical that is used in the chemical industry as a substitute for phosphorus additives, as a reinforcing agent for the rubber industry, and for paint and cover agents for coatings in the paper-making industry. Presently, we focus only on the chemical industry. We believe Micro Nano Silicon is an effective non-phosphorus auxiliary cleaning agent and can compete with the most commonly used phosphorus-free auxiliary agent in synthetic detergents, 4A zeolite.
We believe 4A zeolite is inferior to Micro Nano Silicon at ion-exchange, and slow-acting at lower energy-saving wash temperatures. 4A zeolite is insoluble in water, liable to re-deposit dirt, and tends to dull the color of clothes after washing. We believe Micro Nano Silicon addresses all these deficiencies, because Micro Nano Silicon can effectively combine calcium and magnesium ions in water, softening the water in order to improve the washing effect and to prevent damage to clothes. As a result, Micro Nano Silicon actually reduces the amount of detergent required for washing a load of laundry. We base our statements regarding the efficacy of our products on the positive response we’ve received from domestic washing products companies, such as Chengdu Lanfeng Group, White Cat Group, and Libai Group, who have used our products.
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RESULTS OF OPERATIONS
The three months ended December 31, 2009 compared to the three months ended December 31, 2008
Prior to June 2008, the Company was engaged in the business of manufacturing and distributing refined consumer chemical products and veterinary drugs through its subsidiaries. However, our research indicated that the market for non-phosphorus detergent additives offered a significant opportunity. Our research indicated that in China 4A zeolite is the industry standard for non-phosphorus detergent agents and the feedback from our customers indicated that our product could challenge 4A zeolite for the leadership in the industry. For that reason, we developed a new Nano-Silicon production line, which was launched in July 2008. In October 2009, the construction of our Micro-Nano Silicon product line was officially complete. And as of right now, we are looking to further expand our current capacity from 30,000 tons to 50,000 tons per year.
Revenues
Our revenues increased from $3,734,299 for the three months ended December 31, 2008 to $4,154,011 for the three months ended December 31, 2009. This represented an increase of $419,712 or 11% over revenue realized for the three months ended December 31, 2008. The year-to-year increase in revenue was within our expected range for revenue increasing.
In June 2008 we started to use a new distribution method. Our products are now distributed primarily by sales agents within our marketing region. The positive feedback and awareness of our products generated by these agents has resulted in higher sales compared to the results from our previous distribution channels. Going forward, if we are able to raise additional capital, we expect to add more sales force to market our products beyond our regional base of customers.
Cost of Goods Sold
Cost of goods sold, which consists of labor, overhead and product cost, was $3,198,663 for the quarter ended December 31, 2009, representing an increase of $274,598 or 9% as compared to $2,924,065 for the quarter ended December 31, 2008. This increase in cost of goods sold was close to the increase in revenue. However, since we commenced full scale production of Micro-Nano Silicon in October, 2009, our per unit cost of goods sold began to decline. We are looking to manage our cost of goods sold more efficiently in fiscal 2010.
Gross Profit
We had a gross profit of $955,348 with a gross margin of 23% for the quarter ended December 31, 2009, which was slightly improved as compared to gross profit of $810,234 with a gross margin of 22% for the same period of 2008.
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Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses include expenses associated with salaries and other expenses related to research 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 required for short durations of time to avoid unnecessary hiring of full-time staff.
Our overall SG&A expenses were $52,238 or 1% of net sales for the quarter ended December 31, 2009 as compared to $77,210 or 2% of net sales for the quarter ended December 31, 2008. The SG&A expense ratio mainly stays unchanged. However, during the quarter ended December 31, 2009, we have had R&D expenses of $ 4,732, having spent nothing on R&D in the quarter ending in December 2008. The R&D expense was primarily for research into additional applications for our major product, Micro-Nano Silicon. As we intend to further diversify our product portfolio in the future, we have started to put more capital into the research area.
Net Income
In line with our increased revenue, our net income increased to $672,103 for the quarter ended December 31, 2009 as compared to $502,678 for the quarter ended December 31, 2008. Our net income ratio is increasing from quarter to quarter. As our core product segment is gaining more market awareness, we expect to experience steady growth.
Liquidity and Capital Resources
As of December 31, 2009 | As of December 31, 2008 | |||||||
Cash and cash equivalents | $ | 253,108 | $ | 327,420 | ||||
Accounts receivable, net | $ | 1,702,484 | $ | 1,050,852 | ||||
Working capital | $ | 1,556,081 | $ | 893,146 |
Our working capital totaled $1,556,081 as of December 31, 2009, an increase of $681,832 since the end of our last fiscal year on September 30, 2009. Included in the working capital, however, was accounts receivable of $1,792,484, almost all of which are owed by the two customers who were the source of 85% of our net revenue.
Cash flows from operating activities.
Net cash provided by operating activities totaled $218,503 for the three months ended December 31, 2009, as compared to $373,775 of net cash provided by operating activities for the corresponding period of the prior year. The decrease was mainly attributable to a surge of accounts receivable and a decrease in accounts payable.
Cash flows from investing activities.
Net cash used in investing activities, construction of our facilities - for the three months ended December 31, 2009 totaled $48,383, an increase of $38,715 compared with $10,170 used in corresponding period of the prior year.
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Cash flows from financing activities.
Net cash used in financing activities for the three months ended December 31, 2009 totaled $81,874, as we made payments of $92,275 on our long term loans, which was only partially offset by funds we we realized from related party loans. In the corresponding period of the prior year, our financing activities increased our cash, as we incurred additional debt.
The Company’s capital resources and cash flow are adequate to sustain operations as currently constituted. However, the Company expects to incur substantial additional costs, including costs related to ongoing research and development activities. The Company's future cash requirements will depend on many factors, including continued scientific progress in our research and development programs, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, competing technological and market development and the cost of product commercialization. We will require external financing to sustain our operations, perhaps for a significant period of time. We intend to seek additional funding through grants and through public or private financing transactions. At the present time, however, we have no commitment for financing from any source.
Off-Balance Sheet Arrangements
The Company has no 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. EVALUATION OF CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act 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 our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of December 31, 2009, 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 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.
(b) Changes in Internal Controls
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this quarterly report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is not party to any material legal proceeding.
ITEM 1A. RISK FACTORS.
During the period covered by this report, there was no material change in the risk factors described in Item 1A: “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2009.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Unregistered sales of equity securities
None
(e) 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 1st quarter of fiscal 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31 | Rule 13a-14(a) Certification |
32 | Rule 13a-14(b) Certification |
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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 : February 16, 2010 | /s/Pu Fachun |
Pu Fachun, Chief Executive Officer
and Chief Financial Officer
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