U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to ____________________
Commission File Number: 000-50177
NANO SUPERLATTICE TECHNOLOGY, INC.
(Exact name of small business issuer in its charter)
Delaware 95-4735252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
No. 666, Jhensing Rd.
Gueishan Township, Taoyuan County 333
Taiwan, ROC N/A
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number: 011-886-3-349-8677
Wigwam Development, Inc., 1438 Black Brant Place,
Parksville, BC V9P 2A3, Canada
(Former Name and Address)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period) that the issuer was required to file such reports, and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $0.001 par
value, as of the close of business on November 22, 2004 was 27,371,000.(1)
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
- ----------
(1) The issuer believes that only 27,370,000 shares of its common stock are
outstanding as of November 22, 2004 and it is currently working with its
transfer agent to correct this discrepancy.
TABLE OF CONTENTS
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
Page
----
PART I - FINANCIAL INFORMATION.............................................. 1
Item 1. Consolidated Financial Statements.............................. 1
Consolidated Balance Sheets....................................... 1
Consolidated Statements of Income (Unaudited)..................... 2
Consolidated Statements of Cash Flows (Unaudited)................. 3
Consolidated Statements of Changes in Stockholders' Equity........ 4
Notes to Consolidated Financial Statements September 30, 2004..... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 14
Item 3. Controls and Procedures........................................ 16
PART II - OTHER INFORMATION................................................. 17
Item 1. Legal Proceedings.............................................. 17
Item 2. Changes in Securities.......................................... 17
Item 3. Defaults Upon Senior Securities................................ 17
Item 4. Submission of Matters to a Vote of Security Holders............ 17
Item 5. Other Information.............................................. 17
Item 6. Exhibits....................................................... 17
Signatures............................................................. 18
i
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED BALANCE SHEETS
September 30, 2004
(Unaudited) June 30, 2004
----------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 633,546 $ 580,443
Accounts receivable, net 1,596,098 911,206
Inventory 661,528 1,041,837
Other receivable 133,515 0
Prepaid expenses 8,101 0
Investments 0 133,515
----------- -----------
Total Current Assets 3,032,788 2,667,001
----------- -----------
Fixed Assets, net 5,894,408 4,111,428
----------- -----------
Total Fixed Assets 5,894,408 4,111,428
----------- -----------
Other Assets
Deposits 16,556 510,556
Other current assets 192,098 57,612
----------- -----------
Total Other Assets 208,654 568,168
----------- -----------
Total Assets $ 9,135,850 $ 7,346,597
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,312,802 $ 1,066,730
Due to related party 957,564 157,251
Current portion, debt 1,146,544 100,000
----------- -----------
Total Current Liabilities 3,416,910 1,323,981
Long-term debt, net of current portion 644,622 597,710
----------- -----------
Total Liabilities 4,061,532 1,921,691
----------- -----------
Minority Interest 437,923 457,575
----------- -----------
Stockholders' Equity
Common stock, $.001 par value, 80,000,000 shares authorized,
27,370,000 shares issued and outstanding 2,737 2,737
Additional paid in capital 4,778,732 4,778,732
Cumulative foreign-exchange translation adjustment (97,011) 4,744
Retained earnings (deficit) (48,063) 181,118
----------- -----------
Total Stockholders' Equity 4,636,395 4,967,331
----------- -----------
Total Liabilities and Stockholders' Equity $ 9,135,850 $ 7,346,597
=========== ===========
Please see the notes to these condensed consolidated financial statements.
1
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
-------------------------------------------
September 30, 2004 September 30, 2003
------------------ ------------------
Sales, net $ 1,483,228 $ 0
Cost of sales 1,258,732 0
------------ ------------
Gross profit 224,496 0
General and administrative expenses 450,425 2,246
------------ ------------
Income (loss) from operations (225,929) (2,246)
------------ ------------
Other (Income) Expense
Interest expense 15,097 0
Minority interest (19,652) 0
------------ ------------
Total Other (Income) Expense (4,555) 0
------------ ------------
Income (loss) before income taxes (221,374) (2,246)
Provision for income taxes 7,807 0
------------ ------------
Net Income (loss) $ (229,181) $ (2,246)
============ ============
Net/loss per share (basic and diluted)
Basic $ (0.01) $ (0.00)
Diluted $ (0.01) $ (0.00)
Weighted average number of shares
Basic 27,370,000 1,233,000
Diluted 27,370,000 1,233,000
Please see the notes to these condensed consolidated financial statements.
2
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------------------------------
September 30, 2004 September 30, 2003
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (229,181) $ (2,246)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization 25,127 0
Depreciation 157,496 0
Minority interest (19,652) 0
Translation adjustment 38,778 0
Decrease (Increase) in receivables (684,892) 0
Decrease (Increase) in inventory 380,309 0
Decrease (Increase) in other receivable (133,515) 0
Decrease (Increase) in prepaid expenses (8,101) 0
Decrease (Increase) in deposit 494,000 0
Decrease (Increase) in other current assets (134,486) 0
(Decrease) Increase in accounts payable and accrued expenses 246,072 (2,300)
----------- -----------
Total Adjustments 361,136 (2,300)
----------- -----------
Net cash provided by (used in) operations 131,955 (4,546)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,972,621) 0
----------- -----------
Net cash used in investing activities (1,972,621) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of debt (72,889) 0
Proceeds of loan from related party 800,313 0
Proceeds from issuance of debt 1,166,345 0
Capital contribution 0 4,255
----------- -----------
Net cash provided by financing activities 1,893,769 4,255
----------- -----------
Net change in cash and cash equivalents 53,103 (291)
----------- -----------
Cash and cash equivalents at beginning of year 580,443 454
----------- -----------
Cash and cash equivalents at end of period $ 633,546 $ 163
=========== ===========
Supplemental cash flows disclosures:
Income tax payments $ 23,241 $ 0
----------- -----------
Interest payments $ 15,097 $ 0
----------- -----------
Please see the notes to these condensed consolidated financial statements.
3
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
September 30, 2004
(Unaudited) June 30, 2004
------------ -------------
Common stock, par value $.001
Balance at beginning of year 27,370,000 1,233,000
Stock cancellation 0 (1,000,000)
Issuance of stock 0 2,504,000
Stock split 0 24,633,000
------------ ------------
Balance at end of period 27,370,000 27,370,000
------------ ------------
Common stock, par value $.001 (thousands of shares)
Balance at beginning of year $ 2,737 $ 125
Stock cancellation 0 (102)
Issuance of stock 0 250
Stock split 0 2,463
------------ ------------
Balance at end of period 2,737 2,737
------------ ------------
Additional paid in capital
Balance at beginning of year 4,778,732 24,175
Issuance of stock 0 4,754,557
------------ ------------
Balance at end of period 4,778,732 4,778,732
------------ ------------
Cumulative foreign-exchange translation adjustment
Balance at beginning of year 4,744 0
Foreign currency translation (101,755) 4,744
------------ ------------
Balance at end of period (97,011) 4,744
------------ ------------
Retained (deficits)
Balance at beginning of year 181,118 (26,146)
Net income (loss) (229,181) 207,264
------------ ------------
Balance at end of period (48,063) 181,118
------------ ------------
Total stockholders' equity at end of period $ 4,636,395 $ 4,967,331
============ ============
Please see the notes to these condensed consolidatedfinancial statements.
4
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE A - ORGANIZATION
Nano Superlattice Technology, Inc., formerly Wigwam Development, Inc.,
was incorporated on July 20, 1998 under the laws of the State of
Delaware. Nano Superlattice Technology, Inc. (BVI) was incorporated on
February 18, 2004 under the laws of the British Virgin Islands. Nano
Superlattice Technology, Inc. (Taiwan) was incorporated under the laws
of the Republic of China on January 15, 2002. Nano Superlattice
Technology, Inc. owns 100% of the capital stock of Nano Superlattice
Technology, Inc. (BVI), and Nano Superlattice Technology, Inc. (BVI)
owns 92.1% of the capital stock of Nano Superlattice Technology, Inc.
(Taiwan). Collectively these three corporations are referred to herein
as the "Company."
Nano Superlattice Technology, Inc. acquired all of the issued and
outstanding capital stock of Nano Superlattice Technology, Inc. (BVI),
pursuant to an Exchange Agreement dated as of May 26, 2004 by and among
Nano Superlattice Technology, Inc. (BVI) and Nano Superlattice
Technology, Inc. (the "Exchange Agreement"). In exchange for the Nano
Superlattice Technology, Inc. (BVI) shares, Nano Superlattice
Technology, Inc. issued 2,504,000 shares of its common stock to the
shareholders of Nano Superlattice Technology, Inc. (BVI), representing
91.5% of the issued and outstanding capital stock of Nano Superlattice
Technology, Inc. at that time.
The Company, through Nano Superlattice Technology, Inc. (Taiwan), is in
the business of developing and producing nano-scale coating technology
to be applied to various mechanical tools and metal surfaces for sales
to manufacturers specifically in the computer, mechanical and molding
industries. Nanotechnology, or molecular manufacturing, is a
technological process designed to allow products to be manufacture red
lighter, stronger, smarter, cheaper, cleaner and more precise.
The Company operates in an industry characterized by rapid
technological changes. They will need additional investments and
funding in order to complete the development and improvements necessary
for the development and production of the nano-scale coating
technology.
5
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements have been prepared by Nano
Superlattice Techonology, Inc., pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC") Form 10-QSB and
Item 310 of regulation S-B, and U.S. generally accepted accounting
principles for interim financial reporting. These financial statements
are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals)
necessary for a fair presentation of the statement of financial
position, operations, and cash flows for the periods presented.
Operating results for the three months ended September 30, 2004 and
2003 are not necessarily indicative of the results that may be expected
for the fiscal year ending June 30, 2005, or any future period, due to
seasonal and other factors. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting policies have been
omitted in accordance with the rules and regulations of the SEC. These
financial statements should be read in conjunction with the audited
financial statements and accompanying notes, included in the Company's
Annual Report for the year ended June 30, 2004.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nano
Superlattice Technology, Inc., and its wholly owned subsidiary, Nano
Superlattice Technology, Inc. (BVI), and its majority owned subsidiary,
Nano Superlattice Technology, Inc. (Taiwan), collectively referred to
within as the Company. All material intercompany accounts, transactions
and profits have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue from sales of products to customers is recognized upon shipment
or when title passes to customers based on the terms of the sales, and
is recorded net of returns, discounts and allowances.
RISKS AND UNCERTAINTIES
The Company is subject to substantial risks from, among other things,
rapid change in technology, rapidly changing customer requirements,
limited operating history, and the volatility of public markets.
6
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONTINGENCIES
Certain conditions may exist as of the date the financial statements
are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur.
The Company's management and legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may
result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well
as the perceived merits of the amount of relief sought or expected to
be sought.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability would be accrued in the
Company's financial statements. If the assessment indicates that a
potential material loss contingency is not probable but is reasonably
possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of
possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote by management are generally
not disclosed unless they involve guarantees, in which case the
guarantee would be disclosed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
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 amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates include
collectibility of accounts receivable, accounts payable, sales returns
and recoverability of long-term assets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for loss on receivables based on a
review of the current status of existing receivables, historical
collection experience, subsequent collections and management's
evaluation of the effect of existing economic conditions.
FIXED ASSETS
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for major additions and improvements are
capitalized and minor replacements, maintenance and repairs are charged
to expense as incurred. Depreciation is provided on the straight-line
method over the estimated useful lives of the assets, or the remaining
term of the lease, as follows:
Furniture and Fixtures 5 years
Equipment 5 -10 years
Computer Hardware and Software 2- 5 years
7
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCHANGE GAIN (LOSS):
During the three months ended September 30, 2004, the transactions of
Nano Superlattice Technology, Inc. (Taiwan) were denominated in a
foreign currency and are recorded in New Taiwan dollars at the rates of
exchange in effect when the transactions occur. Exchange gains and
losses are recognized for the different foreign exchange rates applied
when the foreign currency assets and liabilities are settled.
TRANSLATION ADJUSTMENT
As of June 30, 2004, the accounts of Nano Superlattice Technology, Inc.
(Taiwan) were maintained, and their financial statements were
expressed, in New Taiwan Dollars (NTD). Such financial statements were
translated into U.S. Dollars (USD) in accordance with Statement of
Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency
Translation", with the NTD as the functional currency. According to the
Statement, all assets and liabilities were translated at the current
exchange rate, stockholder's equity are translated at the historical
rates and income statement items are translated at the weighted average
exchange rate for the period. The resulting translation adjustments are
reported under cumulative foreign-exchange translation adjustment in
the stockholders' equity.
As of September 30, 2004, the exchange rates between NTD and the USD
was NTD$1=USD$0.02942 The weighted-average rate of exchange between NTD
and USD was NTD$l = USD$0.02948. Total translation adjustment
recognized for the three months ended September 30, 2004 is ($90,711).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including accounts receivable (trade
and related party), notes receivable and accounts payable (trade and
related party), and accrued expenses, the carrying amounts approximate
fair value due to their short maturities. The amounts owed for
long-term debt and revolving credit facility also approximate fair
value because interest rates and terms offered to the Company are at
current market rates.
STATEMENT OF CASH FLOWS
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows", cash flows from the Company's operations is
based upon the local currencies. As a result, amounts related to assets
and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the
balance sheet.
8
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash, accounts receivable and other
receivables arising from its normal business activities. The Company
places its cash in what it believes to be credit-worthy financial
institutions. The Company controls credit risk related to accounts
receivable through credit approvals, credit limits and monitoring
procedures. The Company routinely assesses the financial strength of
its customers and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and,
as a consequence, believes that its accounts receivable credit risk
exposure beyond such allowance is limited.
INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined
on the weighted average method. As of September 30, 2004, inventory
consisted only of finished goods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
initial maturities of three months or less to be cash equivalents.
ADVERTISING
Advertising costs are expensed in the year incurred.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported
amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to
be realized or settled as prescribed in SFAS No. 109, "Accounting for
Income Taxes". As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes.
EARNINGS PER SHARE
The Company uses SFAS No. 128, "Earnings Per Share", for calculating
the basic and diluted earnings (loss) per share. Basic earnings (loss)
per share are computed by dividing net income (loss) attributable to
common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share are computed similar to basic
earnings per share except that the denominator is increased to include
common stock equivalents, if any, as if the potential common shares had
been issued.
9
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted SFAS 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets". The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. If the estimated
future cash flows (undiscounted and without interest charges) from the
use of an asset is less than the carrying value, a write-down would be
recorded to reduce the related asset to its estimated fair value. There
have been no such impairments to date.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) ("Interpretation 46"), "Consolidation of Variable
Interest Entities." Application of this interpretation is required in
our financial statements for interests in variable interest entities
that are considered to be special-purpose entities for the year ended
June 30, 2004. Our Company determined that we do not have any
arrangements or relationships with special-purpose entities.
Application of Interpretation 46 for all other types of variable
interest entities is required for our Company effective March 31, 2004.
Interpretation 46 addresses the consolidation of business enterprises
to which the usual condition (ownership of a majority voting interest)
of consolidation does not apply. This interpretation focuses on
controlling financial interests that may be achieved through
arrangements that do not involve voting interests. It concludes that in
the absence of clear control through voting interests, a company's
exposure (variable interest) to the economic risks and potential
rewards from the variable interest entity's assets and activities are
the best evidence of control. If an enterprise holds a majority of the
variable interests of an entity, it would be considered the primary
beneficiary. The primary beneficiary is required to include assets,
liabilities and the results of operations of the variable interest
entity in its financial statements.
Our Company holds interests in certain entities currently accounted for
under the equity method of accounting that are not considered variable
interest entities. We do not expect compliance with Interpretation 46
to have an impact on our financial statements.
10
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE C - EXCHANGE AGREEMENT
On May 26, 2004, Nano Superlattice Technology, Inc. (BVI) became a
wholly owned subsidiary of Nano Superlattice Technology, Inc. through
an Exchange Agreement. Nano Superlattice Technology, Inc. acquired all
of the issued and outstanding capital stock of Nano Superlattice
Technology, Inc. (BVI) pursuant to the Exchange Agreement, by issuing
2,504,000 shares of Nano Superlattice Technology, Inc. common stock.
In connection with the Exchange Agreement and resulting change in
control, the name of the Company was changed from Wigwam Development,
Inc. to Nano Superlattice Technology, Inc. and the officers and
directors of Wigwam Development, Inc. resigned and new officers and
directors were appointed.
NOTE D - STOCK PURCHASE BUSINESS COMBINATION
On June 2, 2004, the Company completed the purchase of Nano
Superlattice Technology, Inc. (Taiwan), by acquiring approximately
ninety-two percent (92.1%) of the outstanding capital stock of Nano
Superlattice Technology, Inc. (Taiwan) in exchange for $4,656,357. The
acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations of Nano Superlattice
Technology, Inc. (Taiwan) have been included in the consolidated
financial statements since the date of acquisition.
NOTE E - CASH
The Company maintains its cash balances at various banks in Taiwan and
Hong Kong. All balances are insured by the Central Deposit Insurance
Corporation (CDIC). As of September 30, 2004, there were no uninsured
portions of the balances held at the banks.
NOTE F - FIXED ASSETS
Fixed assets consist of the following as of September 30, 2004:
Machinery and equipment $ 6,419,465
Furniture and fixtures 146,124
-----------
$ 6,565,589
Accumulated depreciation (671,181)
-----------
$ 5,894,408
===========
11
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE G - COMMITMENTS
The Company leases two facilities under operating leases that terminate
on various dates. Rental expense for these leases consisted of $16,416
for the three months ended September 30, 2004. The Company has future
minimum lease obligations as of September 30:
2005 $51,270
2006 23,143
-------
Total $74,413
=======
NOTE H - COMPENSATED ABSENCES
Employees earn annual vacation leave at the rate of seven (7) days per
year for the first three years. Upon completion of the third year of
employment, employees earn annual vacation leave at the rate of ten
(10) days per year for years. At termination, employees are paid for
any accumulated annual vacation leave. As of September 30, 2004,
vacation liability exists in the amount of $3,975.
NOTE I - DEBT
At September 30, 2004, the Company had notes payable outstanding in the
aggregate amount of $1,791,166 payable as follows:
Notes payable to a bank in Taiwan, interest at
5.05% per annum, due on December 14, 2004,
personally guaranteed by an officer of the Company $ 100,000
Notes payable to a bank in Taiwan, interest at 5.3%
per annum, due on January 19, 2005 , personally
guaranteed by an officer of the Company 506,000
Notes payable to a bank in Taiwan, interest at 6.1%
per annum, due on January 10, 2005 , personally
guaranteed by an officer of the Company 71,945
Notes payable to a bank in Taiwan, interest at
3.673% per annum, due on March 31, 2005, personally
guaranteed by an officer of the Company 147,100
12
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 2004
NOTE I - DEBT (CONTINUED)
Notes payable to a bank in Taiwan, interest at
6.96% per annum, due on November 10, 2008,
personally guaranteed by an officer of the Company 75,590
Notes payable to a bank in Taiwan, interest at
6.27% per annum, due on November 10, 2008,
personally guaranteed by an officer of the Company 175,918
Notes payable to a bank in Taiwan, interest at 5.0%
per annum, due on April 30, 2007, personally
guaranteed by an officer of the Company 263,643
Notes payable to a bank in Taiwan, interest at
7.47% per annum, due on November 4, 2005,
personally guaranteed by an officer of the Company 34,186
Note payable to a bank in Taiwan, interest at 5.99%
per annum, due on July 21, 2007, personally
guaranteed by an officer of the Company 416,784
----------
1,791,166
Current portion $1,146,544
----------
Long-term portion $ 644,622
==========
NOTE J - RELATED PARTY TRANSACTIONS
Throughout the history of the Company, certain members of the Board of
Directors and management have made loans to the Company to cover
operating expenses or operating deficiencies. As of September 30, 2004,
the Company has a non interest-bearing loan from Huan Tzu Hsai,
President of the Company, in the amount of $957,564. Mrs. Hsai has also
personally guaranteed all of the notes payable of the Company in the
amount of $1,791,166.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
related notes thereto and in conjunction with the Management's Discussion and
Analysis set forth in our Annual Report on Form 10-KSB for the year ended June
30, 2004.
FORWARD-LOOKING STATEMENTS
The following discussion relates to future events and expectations and as such
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The words "believes," "anticipates,"
"plans," "expects," and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of us to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements and to vary significantly from reporting period to
reporting period. These forward-looking statements were based on various factors
and were derived utilizing numerous important assumptions and other factors that
could cause actual results to differ materially from those in the
forward-looking statements, including, but not limited to: risks and
uncertainties related to the need for additional funds doing business in Asia,
political risks in China and the volatility of the price of our common stock.
Other factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other
assumptions to be realized, as well as other factors, may also cause actual
results to differ materially from those projected. We assume no obligation to
update these forward looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements.
GENERAL
On May 26, 2004, Nano Superlattice Technology, Inc. (BVI) became a wholly owned
subsidiary of Nano Superlattice Technology, Inc. ("we," "us" or "our") through
an Exchange Agreement. We acquired all of the issued and outstanding capital
stock of Nano Superlattice Technology, Inc. (BVI) and issued 2,504,000 shares of
our common stock to the shareholders of Nano Superlattice Technology, Inc.
(BVI), representing 91.5% of our issued and outstanding capital stock at that
time. On June 2, 2004, we completed the purchase of Nano Superlattice
Technology, Inc. (Taiwan), a company incorporated under the laws of the People's
Republic of China ("Nano Taiwan"), by acquiring approximately ninety-two percent
(92.1%) of the outstanding capital stock of Nano Taiwan in exchange for
$4,656,357 (the "Acquisition").
Through Nano Taiwan, we are in the business of developing and producing
nano-scale coating technology to be applied to various mechanical tools and
metal surfaces for sales to manufacturers in the computer, mechanical and
molding industries. Nanotechnology, or molecular manufacturing, is a
technological process designed to allow products to be manufacture red lighter,
stronger, smarter, cheaper, cleaner and more precise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared under
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could materially differ from those
estimates. We have disclosed all significant accounting policies in Note B to
the consolidated financial statements included in this Form 10-QSB.
RESULTS OF OPERATIONS
Because the Acquisition occurred during the fourth quarter of fiscal 2004, we
did not have operations for the three months ended September 30, 2003.
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Accordingly, we do not believe a comparison of the three months ended September
30, 2004 and 2003 is meaningful. Rather, we have chosen to present comparisons
of the results of operations of Nano Taiwan for the three months ended September
30, 2004 and 2003. We believe such comparison will be useful to our stockholders
in evaluating us.
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003
NET SALES. Nano Taiwan's net sales for the three months ended September 30, 2004
were $1,483,228 compared to $69,229 for the three months ended September 30,
2003. The increase in net sales was due to an increase in business with existing
customers and from new customers during the three months ended September 30,
2004 as compared to the same period in 2003.
COST OF SALES. Nano Taiwan's cost of sales for the three months ended September
30, 2004 was $1,258,732, or 84.9% of net sales, as compared to $65,715 or 94.9%
of net sales, for the three months ended September 30, 2003. The increase in
cost of sales was due to the increase in net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. Nano Taiwan's general and administrative
expenses for the three months ended September 30, 2004 were $450,393 or 30.3% of
net sales, as compared to $115,925, or 167.5% of net sales, for the three months
ended September 30, 2003. The increase in general and administrative expenses
was due to an increase in salary expense associated with an increase in the
number of employees and expenses incurred related to the amortization and
depreciation of fixed assets.
INCOME (LOSS) FROM OPERATIONS. Nano Taiwan's income (loss) from operations for
the three months ended September 30, 2004 was ($225,897) as compared to $112,411
for the three months ended September 30, 2003. This change was the result of an
increase in fixed costs and general and administrative expenses during the three
months ended September 30, 2004.
OTHER (INCOME) EXPENSE. Nano Taiwan's other (income) expense for the three
months ended September 30, 2004 was ($4,555) as compared to $0 for the three
months ended September 30, 2003. This change is primarily due to an increase in
interest income.
NET INCOME (LOSS). Nano Taiwan contributed net income (loss) for the three
months ended September 30, 2004 of ($229,181) as compared to income of
($112,411) for the three months ended September 30, 2003 primarily for the
reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $633,546 at September 30, 2004 and $580,443 at
June 30, 2004. Our total current assets were $3,032,788 at September 30, 2004 as
compared to $2,667,001 at June 30, 2004. Our total current liabilities were
$3,416,910 at September 30, 2004 as compared to $1,323,981 at June 30, 2004. We
had a working capital deficit at September 30, 2004 of ($384,122) compared with
working capital of $1,343,020 at June 30, 2004. This decrease in working capital
was to due to capital expenditures we made during the first quarter for
machinery and equipment used in our nano-coating processes. During the three
months ended September 30, 2004, net cash provided by operations was $131,955 as
compared to net cash used in operations of ($4,546) during the same period in
2003. Net cash provided by financing activities was $1,893,769, which consisted
of proceeds from the loan and debts during the three months ended September 30,
2004, as compared with net cash provided by financing activities of $4,255
during the three months ended September 30, 2003. Net change in cash and cash
equivalents was $53,103 and ($291) for the first quarter of 2004 and 2003,
respectively.
Capital expenditures. Total capital expenditures during the three months ended
September 30, 2004 and 2003 were $1,972,621 and $0, respectively.
Working Capital Requirements. Our liquidity is currently dependent on our
ability to strengthen our accounts receivable collection time period and our
ability to continue to raise cash from financing sources to fund our expansion.
Our short-term and long-term liquidity may be influenced by uncollected accounts
receivables. If the amount of bad debt is high, it will severely effect our
ability to continue operations. Therefore, we are taking precautions to manage
this risk, including diversifying our customer base and control credit risk
15
through credit approvals, credit limits and monitoring procedures. There can be
no assurance that these measures will prove successful. Our inability to manage
this risk will have a material adverse effect upon our business, financial
condition and results of operations.
CURRENCY EXCHANGE FLUCTUATIONS
As of June 30, 2004, the accounts of Nano Taiwan were maintained, and their
financial statements were expressed, in New Taiwan Dollars (NTD). Such financial
statements were translated into U.S. Dollars (USD) in accordance with Statement
of Financial Accounts Standards ("SFAS") No. 52, "Foreign Currency Translation",
with the NTD as the functional currency. According to the Statement, all assets
and liabilities were translated at the current exchange rate, stockholder's
equity are translated at the historical rates and income statement items are
translated at the weighted average exchange rate for the period. The resulting
translation adjustments are reported under cumulative foreign-exchange
translation adjustment in the stockholders' equity.
As of September 30, 2004, the exchange rates between NTD and the USD was
NTD$1=USD$0.02942 The weighted-average rate of exchange between NTD and USD was
NTD$l = USD$0.02948 Total translation adjustment recognized for the three months
ended September 30, 2004 is ($90,711).
ITEM 3. CONTROLS AND PROCEDURES
We maintain "disclosure controls and procedures," as such term is defined under
Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our 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 Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. In
designing and evaluating the disclosure controls and procedures, our 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 and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We have carried out an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2004. Based upon their evaluation and subject to
the foregoing, the Chief Executive Officer and Chief Financial Officer concluded
that as of September 30, 2004 our disclosure controls and procedures were
effective at the reasonable assurance level in ensuring that material
information relating to us, is made known to the Chief Executive Officer and
Chief Financial Officer by others within the company during the period in which
this report was being prepared.
There were no changes in our internal controls or in other factors during the
most recent quarter that have materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
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
Exhibits:
31.1 Certification of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certifications of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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SIGNATURES
In accordance with 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.
NANO SUPERLATTICE TECHNOLOGY, INC.
Dated: November 22, 2004 By: /s/ Alice Tzu-Shia Hwang
------------------------------------
Alice Tzu-Shia Hwang
President and Chairman of the Board
(Principal Executive Officer)
Dated: November 22, 2004 By: /s/ Chien-Fang Wang
------------------------------------
Chien-Fang Wang
Vice President
(Principal Financial Officer)
18