NanoTech Entertainment (NTEK) 10-Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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 EXCHANGE ACT

For the transition period from _________________ to _________________

Commission file number 333-149184

NanoTech Entertainment, Inc.

(Exact name of registrant as specified in its charter)

Nevada	20-1379559
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3887 Pacific Street

Las Vegas, Nevada 89121

(Address of principal executive offices)

702 518 7410

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last

report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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. x Yes ¨ 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 x  No ¨

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. ¨ Yes x No

As of the date of this filing, the registrant had 15,910,000 shares of common stock, $.001 par value, issued and outstanding.

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSON AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
PART II — OTHER INFORMATION	22
ITEM 1. LEGAL PROCEEDINGS	22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
ITEMS 3. DEFAULTS UPON SENIOR SECURITIES	22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
ITEM 5. OTHER INFORMATION	23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K	23
SIGNATURES	24

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's June 30, 2009 Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

3

NanoTech Entertainment, Inc.

(A Development Stage Company)

Balance Sheets

	December 31,			June 30,
	2009			2009
	(unaudited)
ASSETS
Current assets:
Cash	$	19,037		$	35,536
Inventory (Note B)		11,050			8,800
Prepaid expenses		7,500			2,500
Prepaid royalties (Note I)		100,000			55,000
Total current assets		137,587			101,836
Property and equipment (Note B)		3,945			3,071
Less: accumulated depreciation		(2,182	)		(1,524	)
Net property and equipment		1,763			1,547
Total assets	$	139,350		$	103,383
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES
Current liabilities:
Accounts payable	$	130,724		$	81,553
Cash drawn in excess of bank balance		5,375			5,174
Accrued liabilities – related parties (Note C)		1,325,112			981,906
Royalties payable (Note I)		80,521			31,771
Accrued interest, convertible debentures (Note F)		1,364			458
Accrued interest, notes payable (Note D)		31,171			17,586
Accrued interest, notes payable – related party (Note C)		15,398			9,223
Convertible debentures, net (Note F)		19,904			15,778
Notes payable – current (Note D)		32,500			30,000
Notes payable – current, related party (Note C)		81,408			80,500
Total current liabilities		1,723,477			1,253,949
Long-Term Liabilities
Notes payable – noncurrent (Note D)		250,000			250,000
Total liabilities		1,973,477			1,503,949
STOCKHOLDERS’ DEFICIT (Note E)
Common stock, $.001 par value, 75,000,000
shares authorized, 15,665,000 and 14,437,000 shares
issued and outstanding as of December 31, 2009 and
June 30, 2009, respectively		15,665			14,437
Additional paid-in capital		471,324			360,502
Services prepaid with common stock		(9,792	)		-
Deficit accumulated during the development stage		(2,311,324	)		(1,775,505	)
Total stockholders’ deficit		(1,834,127	)		(1,400,566	)
Total liabilities and stockholders’ deficit	$	139,350		$	103,383

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

4

NanoTech Entertainment, Inc.

(A Development Stage Company)

Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended						November 13, 2007 (inception) to
	December 31,						December 31,						December 31,
	2009			2008			2009			2008			2009
Revenues:
Sales, net	$	10,345		$	12,029		$	17,136		$	17,559		$	72,987
Less: costs of goods sold		(1,992	)		(688	)		(2,965	)		(748	)		(13,295	)
Gross profit		8,353			11,341			14,171			16,811			59,692
Operating Expenses:
Selling, general and administrative		247,655			223,213			523,286			445,598			2,117,306
Other Income (Expenses)
Interest expense		(13,352	)		(8,042	)		(26,704	)		(18,058	)		(239,098	)
Net loss before income taxes		(252,654	)		(219,914	)		(535,819	)		(446,845	)		(2,296,712	)
Provision for income taxes		-			-			-			-			-
Net loss before discontinued operations		(252,654	)		(219,914	)		(535,819	)		(446,845	)		(2,296,712	)
Discontinued operations:
Loss from discontinued operations (net)		-			-			-			-			(14,612	)
Net loss available to common stockholders	$	(252,654	)	$	(219,914	)	$	(535,819	)	$	(446,845	)	$	(2,311,324	)
Continuing operations
Basic	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.07	)
Diluted	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.07	)
Weighted average shares outstanding
Basic		15,455,727			6,480,000			15,147,456			6,480,000
Diluted		15,757,727			6,480,000			15,449,456			6,480,000

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

5

NanoTech Entertainment, Inc.

(A Development Stage Company)

Statements of Cash Flows

(unaudited)

							November 13,
	Six Months Ended						2007 (Inception) to
	December 31,						December 31,
	2009			2008			2009
Cash flows from operating activities:
Net loss	$	(535,819	)	$	(446,845	)	$	(2,311,324	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense		658			512			2,885
Amortization of debt discount		4,126			-			35,504
Common stock issued for finder fees		-			-			162,000
Common stock issued for services		16,050			-			36,050
Amortization of services prepaid with common stock		5,208			-			5,208
Interest on debt converted to common stock		-			-			124,500
Loss on disposal of fixed assets		-			-			10,373
Changes in operating assets and liabilities:
Decrease in accounts receivable		-			-			572
Increase in inventory		(2,250	)		(8,471	)		(11,050	)
Increase in prepaid expenses		(5,000	)		-			(7,500	)
Decrease in prepaid expenses – related party		-			57,576			-
Increase in prepaid royalties		(45,000	)		(52,500	)		(100,000	)
Increase in accounts payable		49,171			41,479			92,445
Increase in accrued liabilities – related party		343,206			281,250			1,252,221
Increase in accrued interest, convertible debentures		906			-			1,213
Increase in accrued interest, notes payable		13,585			-			31,171
Increase in accrued interest, notes payable – related party		6,175			-			13,541
Increase in royalties payable		48,750			36,875			80,521
Net cash used in operating activities		(100,234	)		(90,124	)		(581,670	)
Cash flows from investing activities:
Net cash received in reverse recapitalization		-			-			31,769
Purchase of property and equipment		(874	)		-			(3,945	)
Cash flows provided by (used in) investing activities		(874	)		-			27,824
Cash flows from financing activities:
Increase in cash drawn in excess of bank balance		201			-			5,375
Proceeds from issuance of convertible debentures		-			-			21,300
Proceeds from issuance of common stock		81,000			-			188,000
Proceeds from notes payable – related party		908			25,000			78,408
Repayment of notes payable – related party		-			-			(2,700	)
Proceeds from notes payable		2,500			25,000			282,500
Net cash provided by financing activities		84,609			50,000			572,883
Increase (decrease) in cash		(16,499	)		(40,124	)		19,037
Cash, beginning of period		35,536			41,801			-
Cash, end of period	$	19,037		$	1,677		$	19,037

(continued)

6

NanoTech Entertainment, Inc.

(A Development Stage Company)

Statements of Cash Flows (cont’d)

(unaudited)

					November 13,
	Six Months Ended				2007 (Inception) to
	December 31,				December 31,
	2009		2008		2009
Non-cash investing and financing activities:
Issuance of common stock upon conversion of debentures	$	-	$	-	$	40,000
Issuance of common stock upon conversion of loan	$	-	$	-	$	500
Issuance of common stock in settlement of vendor debt	$	-	$	-	$	1,000
Conversion of notes payable to convertible debentures	$	-	$	-	$	21,400
Supplemental cash flow information:
Interest paid in cash	$	1,916	$	18,295	$	31,973
Income taxes paid in cash	$	-	$	-	$	-

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

7

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

A. ORGANIZATION

NanoTech Entertainment, Inc. (“NEI”) was incorporated under the laws of the state of Nevada on November 13, 2007.  On April 30, 2009, NEI entered into a Sale and Acquisition Agreement (the “Agreement”) with Aldar Group, Inc. (“AGI”), a Nevada corporation, wherein AGI acquired 100% of NEI’s issued and outstanding common stock through the issuance of 6,480,000 common shares.  As a result of the Agreement, AGI changed its name to NanoTech Entertainment, Inc. (“NTI”) (“the Company”) to better reflect the direction of the newly formed entity.  For accounting purposes, the share exchange transaction was treated as a capital transaction where AGI, as the shell corporation and legal acquirer, issued stock for the net monetary assets of NEI, the accounting acquirer, accompanied by a recapitalization. The accounting is similar in form to a reverse acquisition, except that goodwill or other intangibles are not recorded.  All references to NTI’s common stock have been restated to reflect the equivalent numbers of AGI’s common shares (Note E).

The accompanying financial statements include those of NEI for the period of inception on November 13, 2007 through December 31, 2009.  The financial statements of AGI are consolidated from the date of the Agreement through June 30, 2009, subsequent to which the NEI Nevada corporation was dissolved and the AGI Nevada corporation amended its Articles of Incorporation to effect its name change to NanoTech Entertainment, Inc. (“NTI”), thereby discontinuing all AGI operations and assuming all of the former NEI assets, liabilities, and operations.  Prior to June 30, 2009, all significant intercompany balances and transactions were eliminated in consolidation.  Subsequent to June 30, 2009, the financial statements consist solely of NTI.

The Company operates as a virtual manufacturer, developing technology and games, and then licensing such products to third parties for manufacturing and ultimate distribution.

DEVELOPMENT STAGE COMPANY

The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic No. 915.  The Company’s efforts have been devoted primarily to raising capital, borrowing funds and attempting to implement its planned, principal activities.

8

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

B. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.  The Company’s cash balances totaled $19,037 and $35,536 as of December 31, 2009 and June 30, 2009, respectively.

INVENTORY

The Company’s inventory is stated at the lower of cost or market using the FIFO costing method.  Inventory on hand totaled $11,050 and $8,800 at December 31, 2009 and June 30, 2009, respectively, and consisted entirely of finished goods gaming equipment available and ready for sale.

PROPERTY AND EQUIPMENT

The Company’s property and equipment is comprised of office and computer equipment, which are stated at cost.  Depreciation is calculated over the estimated useful lives ranging from 3 to 7 years using the straight – line method.  The Company is in the development stage and has only acquired minimal operating assets.  At December 31, 2009 and June 30, 2009, the Company had property and equipment of $3,945 and $3,071, and accumulated depreciation of $2,182 and $1,524, respectively.  Depreciation expense totaled $658 and $512 for the six months ended December 31, 2009 and 2008, respectively.

REVENUE RECOGNITION

Revenues for gaming equipment sales are recognized when risks associated with ownership have passed to unaffiliated customers, and when all criteria of ASB Topic No. 605 (SAB Topic 13) have been met.  Typically, this occurs when finished products are shipped.

9

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

B. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

NET INCOME (LOSS) PER SHARE OF COMMON STOCK

ASC Topic No. 260 requires presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.  In the accompanying financial statements, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, while diluted loss per share takes into consideration the convertible bonds (Note F) and their related interest and debt discount.  The potential conversion of the bonds would have no effect on loss per share due to the Company’s continuing losses, so basic and diluted loss per share are the same.  The Company has no other potentially dilutive securities, such as options or warrants, currently issued and outstanding.

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
BASIC
Net loss	$	(252,654	)	$	(219,914	)	$	(535,819	)	$	(446,845	)
Weighted average common shares outstanding		15,455,727			6,480,000			15,147,456			6,480,000
Net loss per share (Basic)	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.07	)
DILUTED
Net loss (Basic)	$	(252,654	)	$	(219,914	)	$	(535,819	)	$	(446,845	)
Convertible bond interest expense		2,516			-			5,032			-
Unamortized convertible bond issuance costs		(10,296	)		-			(10,296	)		-
Net loss (Diluted)	$	(260,434	)	$	(219,914	)	$	(541,083	)	$	(446,845	)
Weighted average common shares outstanding (Basic)		15,455,727			6,480,000			15,147,456			6,480,000
Convertible preferred shares		-			-			-			-
Convertible bonds and notes		302,000			-			302,000			-
Options		-			-			-			-
Warrants		-			-			-			-
Weighted average common shares outstanding (Diluted)		15,757,727			6,480,000			15,449,456			6,480,000
Net loss per share (Diluted)	$	(0.02	)	$	(0.03	)	$	(0.04	)	$	(0.07	)

RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.

10

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

B. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS (CONT’D)

Statement of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), "Subsequent Events," SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140," SFAS No. 167 (ASC Topic 810), "Amendments to FASB Interpretation No. 46(R)," and SFAS No. 168 (ASC Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162," were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.

Accounting Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU's No. 2009-2 through ASU No. 2010-18 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

C. RELATED PARTY TRANSACTIONS

NOTES PAYABLE

Several of the Company’s current and former officers have provided funding in the form of notes payable, totaling $81,408 and $80,500 as of December 31, 2009 and June 30, 2009, respectively.  The notes carry interest rates ranging from 0% to 20%, resulting in interest expense of $6,175 and $613 for the six months ended December 31, 2009 and 2008, respectively, and accrued interest of $15,398 and $9,223 as of December 31, 2009 and June 30, 2009, respectively.  The notes are due on demand and therefore classified as current liabilities. Interest has not been imputed due to its nominal impact on the financial statements.

ACCRUED LIABILITIES

The Company has employment agreements with its current and former officers whereby the officers are entitled to the annual salaries payable as follows:

Salary for the Year Ended June 30,

	2008		2009		2010		2011		2012		Total
David Foley	$	175,000	$	400,000	$	500,000	$	275,000	$	-	$	1,350,000
Robert DeKett		75,000		162,500		192,500		105,000		-		535,000
Ted Campbell		-		-		36,000		72,000		30,000		138,000
Total	$	250,000	$	562,500	$	728,500	$	452,000	$	30,000	$	2,023,000

11

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

C. RELATED PARTY TRANSACTIONS (CONT’D)

ACCRUED LIABILITIES (CONT’D)

Salaries for Mr. Foley and Mr. DeKett are payable in cash, while Mr. Campbell’s salary is payable in cash and stock of $55,500 and $82,500, respectively.  His stock compensation is expensed and issued at the end of each month; $3,250 in stock for each of the months December 2009 through May 2010, and $3,500 in stock for each of the months June 2010 through November 2011.  The number of shares issued is based on the average trading price over the previous thirty days.  Accrued cash salaries for the officers totaled $1,160,500 and $812,500 at December 31, 2009 and June 30, 2009, respectively, and will be paid as cash flows allow.  Salary expense totaled $348,000 and $281,250 for the six months ended December 31, 2009 and 2008, respectively.

The Company also reimburses its officers for expenses they incur in the Company’s behalf, including rent for the use of property for business purposes.  Rent expense totaled $66,060 and $99,000 for the six months ended December 31, 2009 and 2008, respectively.

Salaries, rent, and other reimbursable expenses owed to officers totaled $1,325,112 and $981,906 at December 31, 2009 and June 30, 2009, respectively, and will be repaid as cash flows allow.

CONSULTING SERVICES

On December 1, 2009, the Company executed a consulting agreement with a company affiliated with the Company’s CFO.  See Note E (3).

D. NOTES PAYABLE

The Company has originated the following notes payable with unaffiliated entities and individuals:

	Principal Balance						Accrued Interest
	12/31/2009			6/30/2009			12/31/2009		6/30/2009
Note 1, 10% interest, due April 30, 2011	$	250,000		$	250,000		$	27,253	$	16,668
Note 2, 20% interest, due on demand		25,000			25,000			3,335		835
Note 3, 20% interest, due on demand		5,000			5,000			583		83
Note 4,  0% interest, due on demand		2,500			-			-		-
Totals		282,500			280,000		$	31,171		17,586
Less current portion (Notes 2, 3, and 4)		(32,500	)		(30,000	)
Noncurrent portion (Note 1)	$	250,000		$	250,000

The notes require monthly interest payments only, with principal and any accrued interest payable upon maturity or demand, as indicated above.

12

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

E. STOCKHOLDERS’ DEFICIT

The Company has authorized 75,000,000 shares of common stock with a par value of $.001, and no preferred stock.  Upon inception on November 13, 2007, the Company had 6,480,000 shares issued and outstanding, which represents the number of shares issued by AGI in the recapitalization retroactively reflected to have occurred at inception.  The recapitalization also included an effective share issuance of 4,533,000, which represents the number of AGI shares issued and outstanding at June 30, 2008 (the most recent fiscal year prior to the recapitalization).  Additional share issuances occurring through December 31, 2009 to arrive at the total shares issued and outstanding of 15,665,000 are as follows:

During the period of January through June 2009, the following shares were issued for cash in accordance with private offerings (of which 1,670,000 shares were issued and $87,000 cash received subsequent to the reverse recapitalization):

	Number		Stock		Cash
Date	of Shares		Price		Received
1/16/2009		100,000	$	0.10	$	10,000
2/19/2009		96,000		0.05		4,800
5/15/2009		100,000		0.05		5,000
5/29/2009		20,000		0.10		2,000
6/14/2009		1,500,000		0.05		75,000
6/23/2009		50,000		0.10		5,000
Totals		1,866,000			$	101,800

During the period of July through December 2009, the following shares were issued for services rendered, as prepayment for future services to be rendered, or for cash in accordance with private offerings to unrelated individuals:

	Number		Stock		Cash		Services		Services
Date	of Shares		Price		Received		Rendered		Prepaid
7/1/2009		200,000	$	0.10	$	20,000	$	-	$	-
8/1/09		125,000		0.10		-		5,208		7,292	(1)
9/11/2009		560,000		0.10		56,000		-		-
9/16/09		24,000		0.10		-		2,400		-	(2)
10/23/2009		100,000		0.05		5,000		-		-
12/1/09		50,000		0.05		-		-		2,500	(3)
12/19/09		104,000		0.10		-		10,400		-	(4)
12/31/09		65,000		0.05		-		3,250		-	(5)
Totals		1,228,000			$	81,000	$	21,258	$	9,792

13

NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

E.  STOCKHOLDERS’ DEFICIT (CONT’D)

(1) On August 1, 2009, the Company entered into an agreement with an unrelated entity that was to render financial consulting services for a 12-month period.  As compensation, the Company issued 125,000 shares of common stock upon the agreement’s execution.  The shares were valued at $.10 per share for total compensation of $12,500 to be amortized ratably over the term of the agreement.  During the six months ended December 31, 2009, the Company amortized $5,208 to consulting expense, resulting in a $7,292 prepaid balance that has been reported in the stockholders’ equity section of the balance sheet.  The entity is also entitled to $25,000 in finders’ fees for each $1,000,000 of funding raised in the Company’s behalf.  No funds have been raised as of the date of this report.

(2) On August 5, 2009, the Company entered into an agreement with an unrelated individual who was to render consulting services for a 6-week period.  The consultant was to receive cash compensation of $6,000 over the term of the contract, and 24,000 shares of common stock upon the contract’s completion.  The shares were valued at $.10 per share, for total stock compensation of $2,400 to be expensed ratably over the contract’s term.  The Company recorded 6 weeks, or $8,400, of consulting expense during the six months ended December 31, 2009, of which $6,000 was paid in cash.  The 24,000 shares of common stock were issued upon the contract’s completion on September 16, 2009.

(3) On December 1, 2009, the Company executed an agreement with a company affiliated with its CFO (“the Affiliate”) that is to perform services including the compilation and coordination of corporate documentation, as well as filing services to facilitate the Company’s public listing on the OTCBB.  The Affiliate was compensated with a non-refundable $7,500 cash retainer payment and 50,000 shares of common stock upon the agreement’s execution, and an additional $7,500 cash payment is due upon the completion of a Form S-1 to be filed with the SEC.  The stock was valued at $.05 per share for total prepaid compensation of $2,500.  As of December 31, 2009, no services had been rendered under this contract.

(4) On June 19, 2009, the Company entered into an agreement with an unrelated individual who was to render consulting services for a 26-week period.  The consultant received cash compensation of $36,400 over the term of the contract, and 104,000 shares of common stock upon the contract’s completion on or about December 19, 2009.  The shares were valued at $.10 per share, for total stock compensation of $10,400.

(5) On December 31, 2009, the Company issued to Ted Campbell 65,000 shares of common stock at $.05 per share for compensation expense of $3,250 pursuant to an employment agreement (Note C, Accrued Liabilities).

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NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

E.  STOCKHOLDERS’ DEFICIT (CONT’D)

On January 30, 2009, the Company issued 10,000 shares at $.10 per share to a vendor to settle a $1,000 debt.

During March through May 2009, several convertible debenture holders converted their debentures resulting in the issuance of 400,000 shares of common stock at $.10 for total value of $40,000 (Note F).

On April 30, 2009 and in connection with the reverse recapitalization between NTI and AGI, the Company issued 648,000 shares to an unaffiliated entity as a finders’ fee.  The shares were valued at $.25 per share, resulting in total expense of $162,000. As a term of the recapitalization, the Company also issued 500,000 shares at $.001 to an affiliated entity in settlement of $500 in debt.  This issuance resulted in recognition of $124,500 in additional interest expense.

F. CONVERTIBLE DEBENTURES

During March through May 2009, the Company issued convertible debentures bearing interest at 6% with a term of two years.  The debenture principle and accrued interest may be converted into shares of the Company’s common stock in the first year at a conversion price of $0.10 or in the second year at a price which is 80% of the three lowest closing bid prices during the ten days prior to conversion.  

During the year ended June 30, 2009, the Company issued debentures totaling $70,200 (convertible into potentially 702,000 shares of common stock based on a $.10 conversion rate), which amount includes cash received of $48,800 (of which $21,300 was received after the reverse recapitalization) and $21,400 in notes payable converted to convertible debentures on March 12, 2009.   The fair market value of the stock on the convertible debenture issuance dates ranged from $.10 to $.25, resulting in a beneficial conversion feature of $45,800, of which $31,378 was amortized during the year ended June 30, 2009.

The following debentures were converted during the year ended June 30, 2009:

Conversion	Number		Conversion
Date	of Shares		Price		Total
3/13/2009		107,000	$	0.10	$	10,700
3/27/2009		50,000		0.10		5,000
3/31/2009		10,000		0.10		1,000
4/3/2009		20,000		0.10		2,000
5/4/2009		80,000		0.10		8,000
5/7/2009		50,000		0.10		5,000
5/29/2009		83,000		0.10		8,300
Total		400,000			$	40,000

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NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

F. CONVERTIBLE DEBENTURES

At December 31, 2009 and June 30, 2009, the Company’s unconverted debentures totaled $19,904 ($30,200 principal netted with $10,296 unamortized debt discount) and $15,778 ($30,200 principal netted with $14,422 unamortized debt discount), respectively, while the potential number of shares into which the debentures could be converted was 302,000 based on a $.10 conversion rate.  Accrued interest on the bonds totaled $1,364 and $458 at December 31, 2009 and June 30, 2009, respectively.  No debentures were converted during the six months ending December 31, 2009.

G. INCOME TAXES

The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income, regardless of when reported for tax purposes. Deferred taxes are provided in the financial statements under ASC Topic No. 740 to give effect to the resulting temporary differences which may arise from differences in the bases of fixed assets, depreciation methods, allowances, and start-up costs based on the income taxes expected to be payable in future years.

Deferred compensation in the amount of $1,160,500 has been expensed per the financial statements but is not deducted for tax purposes in the current year.  This results in a deferred tax asset of $406,175 which would reduce tax payments in the future as the compensation is subsequently recognized for tax purposes.  This deferred tax asset however is offset in its entirety by a valuation allowance of the same amount due to doubts concerning the Company’s ability to utilize the deferred tax asset in future years.

Operating loss carryforwards of $1,521,135 (including permanent differences of $370,311 attributed to AGI’s accumulated losses on the reverse recapitalization date) generated since inception through December 31, 2009 will begin to expire in 2027.  Accordingly, deferred tax assets of approximately $532,398 were completely offset by a valuation allowance, which increased by approximately $187,537 and $156,396 during the six months ended December 31, 2009 and 2008, respectively.  This deferred tax asset was also offset due to a lack of evidence that suggests that the Company would likely be able to utilize the asset to offset tax payments in future years.

H. GOING CONCERN CONSIDERATIONS

The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of and during the period from November 13, 2007 (inception) to December 31, 2009, the Company has incurred net losses totaling $2,311,324, and has a working capital deficit of $1,585,890.

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NanoTech Entertainment, Inc.

(A Development Stage Company)

 Notes to Unaudited Financial Statements

Six Months Ended December 31, 2009 and 2008,

and the Period of November 13, 2007 (Inception) to December 31, 2009

H.  GOING CONCERN CONSIDERATIONS (CONT’D)

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's ability to meet its ongoing financial requirements is dependent on management being able to obtain additional equity and/or debt financing, the realization of which is not assured.

I. ROYALTIES

The Company has entered into several licensing agreements whereby the Company licenses certain gaming software from various developers.  The Company is responsible for paying royalties to the developers based on product sales.  In the event that no product is sold, the Company is also required to pay a minimum royalty in order to maintain exclusivity (i.e., the developer cannot license the same software to the Company's competitors).  Certain developers also require prepayment of royalties that are either offset by future sales, or expire at the end of a calendar year - at which point they are expensed.  The Company had prepaid $100,000 and $55,000 in royalties at December 31, 2009 and June 30, 2009, respectively.  No sales of the licensed products had occurred during the period of inception on November 13, 2007 through December 31, 2009, so only exclusivity minimums of $80,521 and $31,771 have been accrued at December 31, 2009 and June 30, 2009, respectively.  The Company recognized royalty expense of $8,750 and $9,375 during the six months ended December 31, 2009 and 2008, respectively.

J. SUBSEQUENT EVENTS

On March 16, 2010, the Company received a $10,000 loan from a stockholder pursuant to a promissory note carrying a 10% interest rate.  The loan and $167 in accrued interest were payable on May 16, 2010, but had not yet been repaid as of the date of this report.

On March 30, 2010, the Company issued to an independent investor 50,000 shares of common stock at $.10 per share for total proceeds of $5,000.

On April 1, 2010, the Company issued $5,000 in convertible debentures bearing interest at 6% with a maturity date of March 30, 2010.  The debenture principle and accrued interest may be converted into shares of the Company’s common stock in the first year at a conversion price of $0.10 or in the second year at a price which is 80% of the three lowest closing bid prices during the ten days prior to conversion.  

The Company has evaluated events from December 31, 2009, through the date whereupon the financial statements were issued and has determined that there are no additional items to disclose.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section must be read in conjunction with the unaudited financial statements included in this report.

A.  Management’s Discussion

The Company was originally organized as a Nevada Corporation on July 15, 2004 under the name Aldar Group, Inc. (“AGI”) for the purpose of acquiring, selling and breeding thoroughbred horses. NanoTech Entertainment, Inc. (“NEI”) was originally organized as a Nevada corporation on November 13, 2007. On April 30, 2009, NEI entered into an Acquisition Agreement (the “Agreement”) with AGI, wherein AGI acquired 100% of NEI’s issued and outstanding common stock through the exchange of 6,480,000 common shares.  As a result of the Agreement, the Company changed its name to NanoTech Entertainment, Inc. (“NTI”) (“the Company” or “We” or “NanoTech”) to better reflect the direction of the newly formed entity.

For accounting purposes, the share exchange transaction was treated as a capital transaction where AGI, as the legal acquirer and shell corporation, issued stock for the net monetary assets of NEI, as the accounting acquirer, accompanied by a recapitalization. The accounting is similar in form to a reverse acquisition, except that goodwill or other intangibles are not recorded.  

The Company now operates as a virtual manufacturer, developing technology and games, and then licensing such products to third parties for manufacturing and ultimate distribution.  The Company’s business model supports relatively low overhead costs and efficiencies in operations in the new global manufacturing economy.

Company Overview

NanoTech Entertainment, Inc. is a provider of gaming technology for the coin-op arcade, casino gaming and consumer gaming markets. Headquartered in Las Vegas, Nevada, we operate as a virtual manufacturer, developing technology and games, and then licensing them to third parties for manufacturing and distribution. This business model supports extremely low overhead and efficient operations in the new global manufacturing economy.

With an ever-expanding lineup of technology and products, NanoTech is redefining the role of developers and manufacturers in the gaming market. NanoTech's team is compromised of industry veterans of the gaming industry that have collectively been responsible for dozens of award winning products and multi-million copy selling video games and technology.

During the period from July 15, 2004 (AGI’s inception) to December 31, 2009, the Company generated revenues of $72,987, while incurring $13,295 in cost of sales, $2,117,306 in general and administrative expenses, $239,098 in interest expense, and $14,612 in losses from AGI’s discontinued operations. This resulted in a cumulative net loss of $2,311,324 through December 31, 2009.

During the six months ended December 31, 2009, the Company generated revenues of $17,136 while incurring $2,965 in cost of sales, $523,286 in general and administrative expenses, and $26,704 in interest expense. This is compared to earning $17,559 in revenues for the six months ended December 31, 2008, while incurring $748 in cost of sales, $445,598 in general and administrative expenses, and $18,058 in interest expense. This resulted in a net loss for the six months ended December 31, 2009 and 2008 of $535,819 and $446,845, respectively. The net loss for both comparative periods is attributable primarily to the continuing costs of operations and product development.

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For the three months ended December 31, 2009, the Company generated revenues of $10,345 while incurring cost of sales of $1,992, general and administrative expenses of $247,655, and interest expense of $13,352. During the three months ended December 31, 2008, the Company earned revenues of $12,029, while incurring $688 in cost of sales, $223,213 in general and administrative expenses, and $8,042 in interest expense. This resulted in a net loss of $252,654 and $219,914 for three months ended December 31, 2009 and 2008, respectively. The net loss for both quarter ends is attributable primarily to the continuing costs of operations and product development.

Liquidity and Capital Resources

As of December 31, 2009, the Company had a working capital deficit of $1,585,890, which is current assets minus current liabilities.  This negative working capital is attributable to monies owed for the acquisition of the Company’s current products, monies owed to officers for accrued salaries and other reimbursable expenses, royalties payable, convertible debentures, and the accrued interest and current portion of notes payable to related and unrelated parties.  The Company’s current assets as of December 31, 2009 consisted of $19,037 in cash, $11,050 in inventory, $7,500 in prepaid expenses, and $100,000 in prepaid royalties.

NTI has limited capital resources from which to operate.  Without the realization of either significant cash flow from ongoing revenue or additional capital investment, the Company may not be able to continue without short-term loans from its current officers and directors.  However, the Company’s independent auditors have expressed substantial doubt about the Company's ability to continue as a going concern.

B.  Plan of Operation

Market and Industry

We have experience and products for all aspects of the various gaming industries.  By traversing the market from consumer to coin-op to casino, the Company may be able to take advantage of all three growth and profitable industries and balance out the seasonal patterns of each.

Even in the unsteady economic climate, the gaming market continues to flourish and expand.  In 2008, the arcade industry saw $7.2 billion in revenue and the consumer market saw $58 billion with a growth of 19% in 2008. The following are excerpts from other sources:

“As people cut back on travel and going out, they are turning more to home entertainment, providing a boost to the video game industry.” Reuters, April 2, 2009

“The video game business continues to enjoy robust growth, making it the fastest growing of the many consumer goods categories.” Market Watch, Feb 18, 2009

The NanoTech team has won numerous awards in recent years including innovative product of the year in 2005 and 2006 in the arcade industry, and innovative product of the year in 2007 in the casino market.

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Products

Below is a list of the Company’s current product line with detailed descriptions. For more information on the Company’s products and services you can view our web site at www.NanoTechEnt.com.

MultiPin™ - - There is currently only one Pinball manufacturer left in the world, Stern Pinball.  While they supply over 10,000 machines per year to the market, there is a huge demand for new and innovative pinball.  MultiPin™ represents the next generation in pinball.  By replacing the mechanical parts of a pinball machine with state of the art electronics, MultiPin™ solves two major problems seen by operators of Pinball machines.  First, it eliminates any mechanical failures, which are common amongst pinball machines.  Secondly, it provides a multi-game platform that can be constantly updated with new games without having to swap out the machine.  Our proprietary physics engine and motion sensors allow MultiPin™ to accurately recreate the experience of a mechanical pinball machine, while providing players with a variety of classic and modern pinball games to choose from.

Xtreme Rally Racing™ - An Xtreme Off-Road Racing Experience with no boundaries. Xtreme Rally Racing is an innovative new driving machine that features three modes of game play:

Xtreme Off-Road - Race head-to-head against other players and the computer to checkpoints while driving anywhere on the map with no preset course.

Timed Rally Stages - Classic Rally Racing on real world courses. Players will be able to race in five different countries on real world rally courses.

Xtreme Stadium Racing - Custom Stadiums designed for Xtreme racing including a figure 8 multi-lap course with huge jumps.

NanoNET Online System - Local and Worldwide head-to-head competition in real time against machines located around the world. Remote Operator Control of your machines including diagnostics, accounting reports, and automatic software updates and enhancements downloaded over the net. Link up to 4 Cabinets for local multiplayer action.

Pinball Wizard ™ - Consumer Pinball enthusiasts have been growing with the advent of Visual Pinball and now Future Pinball.  The official Visual Pinball forum boasts over 155,000 members, and the free version Future Pinball has been downloaded over 1 million times in the past six months, and over 500,000 copies in April 2009.  We have created the only input device designed to give these players a way to experience real pinball controls on their personal computer.   Based on the technology developed for the MultiPin™ product we have built a controller that lets people play pinball using traditional controls and the ability to “shake” and “nudge” the table.

Mot-Ion™ Adapter - The Mot-Ion adapter is a USB adapter that allows do-it-yourself Pinball enthusiasts to build their own cabinet using real pinball controls providing analog inputs for nudging and bumping. This kit includes everything needed to connect a pinball cabinet to a PC (I/O Board, Digital Plunger, Wiring Harness).

Opti-Gun™ Adapter - The OptiGun Adapter is a USB adapter that allows players to connect Arcade Light Guns to any USB based system. This universal adapter provides a complete solution to implement an arcade game including Gun Inputs, Force Feedback Outputs, digital inputs, and built in audio amplifier. The adapter can also be used with PC-based emulators such as M.A.M.E. to connect arcade light guns on your home system.

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Retr-IO™ Adapter - The Retr-IO Adapter provides a standard JAMMA interface for USB based systems. This universal adapter provides a complete solution to implement an arcade game using Joysticks, Trackballs, Spinners, buttons and features, digital outputs, and built-in audio and video amplifiers.

The board works with any PC-based system including M.A.M.E and other emulation products. It provides an all-in-one solution to hooking up traditional arcade controls to your PC, or any USB system. All digital inputs and outputs are interfaced via standard keyboard commands, and appear as mapped keys to your games. The default key mappings match those of many popular PC emulation products. Two Trackballs and two Spinners are supported, and are mapped to the system as mice. The board supports four player standard configurations or two-player four-way joystick and six button configurations.

Competition

The Company will compete against established companies with significantly greater financial, marketing, research and development, personnel, and other resources than the Company. Such competition could have a material adverse effect on the Company's profitability.

Government Regulation

There are no government regulations regulating the development and sale of gaming products for coin operated machines. 

ITEM 4T. CONTROLS AND PROCEDURES

The effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) was evaluated under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective in providing reasonable assurance that the information required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time period required for the filing of this quarterly report.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of our internal control performed during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system no matter how well conceived and operated can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of control systems must be considered relative to their cost. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues of fraud, if any, have been detected.

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Based on their most recent review, which was completed within ninety days of the filing of this report, NTI’s Officers have concluded that the Company’s newly-adopted disclosure controls and procedures will be effective to ensure that information required to be disclosed by NTI in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to NTI’s management, including its Officers, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.  There were no significant changes in NTI’s internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 23, 2009, the Company issued to an unaffiliated individual100,000 shares of common stock at $.05 per share for $5,000 in cash.

On December 1, 2009, the Company executed an agreement with a consultant that will perform services to include the compilation and coordination of corporate documentation, as well as filing services to facilitate the Company’s public listing on the OTCBB.  The consultant was compensated with a non-refundable $7,500 cash retainer payment and 50,000 shares of common stock due upon the agreement’s execution, and will receive a $7,500 cash payment due upon the completion of a Form S-1 to be filed with the SEC.  The stock was valued at $.05 per share for total prepaid compensation of $2,500.  As of the report date, no services had been rendered under this contract.

On June 19, 2009, the Company entered into an agreement with an unrelated individual who was to render consulting services for a 26-week period.  The consultant received cash compensation of $36,400 over the term of the contract, and 104,000 shares of common stock upon the contract’s completion on or about December 19, 2009.  The shares were valued at $.10 per share, for total stock compensation of $10,400.

On December 31, 2009, 65,000 shares of common stock were issued to Ted Campbell for services as CFO and Chief Compliance Officer of the Company for the month of December 2009.  This monthly compensation represents $5,000 per month comprised of $1,750 in cash and sufficient shares of stock valued at the monthly average trading price to equal $3,250.  These terms will remain in effect for the first six months of the agreement beginning December 1, 2009.  Afterwards, the cash compensation will increase to $2,500 and stock value will increase to $3,500 for the remaining 18 months.

ITEMS 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit No.:	Description:
3.1(i)	Articles of Incorporation and amendments thereto (1) and (2)
3.1(ii)	Bylaws (1)
14	Code of Ethics (1)
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002

(1) Filed with the Securities and Exchange Commission on February 12, 2008 as an exhibit numbered as indicated above, to the Registrant’s registration statement on Form S-1 (file no. 333-149184 which exhibit is incorporated herein by reference.

(2) Amendment to the Article of Incorporation filed with the Securities and Exchange Commission on Form 8-K on May 7, 2009 which exhibit is incorporated herein by reference.

(b) Reports on Form 8-K

During the period ended December 31, 2009, NANOTECH ENTERTAINMENT, INC. filed the following Current Reports on Form 8-K:

Date of Report	Date Filed	Items Reported
None

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NanoTech Entertainment, Inc.

(Registrant)

Signature	Title	Date
/s/ Robert Dekett	President & CEO, Director	May 24, 2010
Robert Dekett
/s/ Robert Dekett	Secretary, Treasurer, Director	May 24, 2010
Robert Dekett
/s/ Ted D. Campbell II	Principal Financial Officer	May 24,, 2010
Ted D. Campbell II
/s/ Robert Dekett	Principal Accounting Officer	May 24, 2010
Robert Dekett

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