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: June 30, 2005
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
(Address of Principal Executive Offices)
Issuer's Telephone Number: 011-886-3-349-8677
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, $0.0001 par
value, as of the close of business on August 22, 2005 was 32,343,000.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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
Nano Superlattice Technology, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004.......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 13
Item 3. Controls and Procedures......................................... 18
PART II - OTHER INFORMATION.................................................. 19
Item 1. Legal Proceedings............................................... 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 19
Item 3. Defaults Upon Senior Securities................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............. 19
Item 5. Other Information............................................... 19
Item 6. Exhibits........................................................ 19
Signatures...................................................... 20
i
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED BALANCE SHEETS
June 30, 2005 December 31, 2004
(Unaudited)
------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 513,279 $ 991,109
Accounts receivable, net 1,139,999 994,458
Inventory 889,981 647,510
Other receivable 9,149 133,515
Prepaid expense 677 0
----------- -----------
Total Current Assets 2,553,085 2,766,592
----------- -----------
Fixed Assets, net 6,160,193 5,813,927
----------- -----------
Total Fixed Assets 6,160,193 5,813,927
----------- -----------
Other Assets
Deposits 139,018 16,556
Other current assets 82,744 32,412
----------- -----------
Total Other Assets 221,762 48,968
----------- -----------
Total Assets $ 8,935,040 $ 8,629,487
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,061,230 $ 892,615
Income tax payable 90,543 83,000
Due to related party 0 251,371
Current portion, debt 735,707 1,082,817
----------- -----------
Total Current Liabilities 1,887,480 2,309,803
Long-term debt, net of current portion 1,312,595 589,262
----------- -----------
Total Liabilities 3,200,075 2,899,065
----------- -----------
Minority Interest 432,463 432,149
----------- -----------
Stockholders' Equity
Common stock, $.0001 par value, 80,000,000
shares authorized, 32,342,000
issued and outstanding 3,234 3,234
Additional paid in capital 6,735,078 6,735,078
Cumulative foreign-exchange translation adjustment (313,401) (308,367)
Retained earnings (deficit) (1,122,409) (1,131,672)
----------- -----------
Total Stockholders' Equity 5,302,502 5,298,273
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,935,040 $ 8,629,487
=========== ===========
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 Six Months Ended
---------------------------- -----------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales, net $ 938,250 $ 645,571 $ 1,930,895 $ 645,571
Cost of sales 885,039 278,994 1,632,878 278,994
----------- ----------- ----------- -----------
Gross profit 53,211 366,577 298,017 366,577
General and administrative expenses 330,843 46,767 731,299 46,767
----------- ----------- ----------- -----------
Income (loss) from operations (277,632) 319,810 (433,282) 319,810
----------- ----------- ----------- -----------
Other (Income) Expense
Interest income (553) (23) (655) (23)
Collection of bad debts (1,378) 0 (548,796) 0
(Gain) loss of currency exchange (63) 0 (25,010) 0
Interest expense 21,832 277 40,714 277
Other expense 81,929 0 83,345 0
Minority interest (5,405) 25,360 314 25,360
----------- ----------- ----------- -----------
Total Other (Income) Expense 96,362 25,614 (450,088) 25,614
----------- ----------- ----------- -----------
Income (loss) before income taxes (373,994) 294,196 16,806 294,196
Provision for income taxes (121,050) 83,000 7,543 83,000
----------- ----------- ----------- -----------
Net Income (loss) $ (252,944) $ 211,196 $ 9,263 $ 211,196
=========== =========== =========== ===========
Net earnings (loss) per share (basic and diluted)
Basic $ (0.01) $ 0.02 $ 0.00 $ 0.02
Diluted $ (0.01) $ 0.02 $ 0.00 $ 0.02
Weighted average number of shares
Basic 32,342,000 14,016,995 32,342,000 14,016,995
Diluted 32,342,000 14,016,995 32,342,000 14,016,995
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)
Six Months Ended
-----------------------------------
June 30, 2005 June 30, 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 9,263 $ 211,196
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 378,448 69,884
Bad debt 35,768 0
Minority interest 314 25,360
Translation adjustment (33,663) 7,589
Decrease (Increase) in accounts receivables (145,541) (106,169)
Decrease (Increase) in inventory (242,471) (685,163)
Decrease (Increase) in other receivable 124,366 0
Decrease (Increase) in prepaid expenses (677) 0
Decrease (Increase) in deposit (122,462) (510,556)
Decrease (Increase) in other current assets (50,332) 29,577
(Decrease) Increase in accounts payable
and accrued expenses 168,615 503,602
(Decrease) Increase in income tax payable 7,543 0
----------- -----------
Total Adjustments 112,365 (665,876)
----------- -----------
Net cash provided by (used in) operations 121,628 (454,680)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (724,311) (8,403)
----------- -----------
Net cash (used in) investing activities (724,311) (8,403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in acquisition of subsidiary 0 785,821
Loan from related party 0 157,251
Payment of loan to related party (251,371) 0
Proceeds from issuance of debt 1,430,619 100,000
Payment of Debt (1,054,396) 0
Additional paid in capital 0 0
----------- -----------
Net cash provided by financing activities 124,852 1,043,072
----------- -----------
Net change in cash and cash equivalents (477,831) 579,989
----------- -----------
Cash and cash equivalents at beginning of year 991,109 454
----------- -----------
Cash and cash equivalents at end of year $ 513,278 $ 580,443
=========== ===========
Supplemental cash flows disclosures:
Income tax payments $ 0 $ 20,463
----------- -----------
Interest payments $ 40,714 $ 18,216
----------- -----------
Issuance of stock for purchase of subsidiary $ 0 $ 2,504,000
----------- -----------
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
June 30, 2005 December 31, 2004
------------- -----------------
(Unaudited)
Common stock
Balance at beginning of period 32,342,000 27,370,000
Issuance of stock 0 4,972,000
------------ ------------
Balance at end of period 32,342,000 32,342,000
------------ ------------
Common stock, par value $.0001
Balance at beginning of period $ 3,234 $ 2,737
Issuance of stock 0 497
------------ ------------
Balance at end of period 3,234 3,234
------------ ------------
Additional paid in capital
Balance at beginning of period 6,735,078 4,778,732
Issuance of stock 0 1,956,346
------------ ------------
Balance at end of period 6,735,078 6,735,078
------------ ------------
Cumulative foreign-exchange translation adjustment
Balance at beginning of period (308,367) 4,744
Foreign currency translation (5,034) (313,111)
------------ ------------
Balance at end of period (313,401) (308,367)
------------ ------------
Retained (deficits)
Balance at beginning of period (1,131,672) 181,118
Net income (loss) 9,263 (1,312,790)
------------ ------------
Balance at end of period (1,122,409) (1,131,672)
------------ ------------
Total stockholders' equity at end of period $ 5,302,502 $ 5,298,273
============ ============
Please see the notes to these condensed consolidated financial statements.
4
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 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 Republic of China on
September 6, 1994. Nano Superlattice Technology, Inc. owns 100% of the
capital stock of Nano Superlattice Technology, Inc. - BVI, and Nano
Superlattice Technology, Inc. - BVI owns 98.1% of the capital stock of Nano
Superlattice Technology, Inc. - Taiwan. Collectively these three
corporations are referred to herein as the "Company". When used in these
notes, the terms "Company," means Nano Superlattice Technology, Inc. and
its subsidiaries.
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"). Pursuant to the Exchange Agreement, Nano
Superlattice Technology, Inc. - BVI became a wholly owned subsidiary of
Nano Superlattice Technology, Inc. and, 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 91.6% of the issued and
outstanding capital stock of Nano Superlattice Technology, Inc. at that
time. On June 2, 2004, the Company completed the purchase of Nano
Superlattice Technology, Inc. - a Taiwanese developer and producer of
nano-scale coating technology to be applied to various mechanical tools
metal surfaces for sale to manufacturers specifically in the computer,
mechanical and molding industries.
The Company, through its acquisition of Nano Superlattice Technology, Inc.
- BVI and Nano Superlattice Technology, Inc. - Taiwan, is no longer
considered a development stage company, as it was during the fiscal year
ended June 30, 2003.
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 in the computer, mechanical and molding industries.
Nanotechnology, or molecular manufacturing, is a technological process
designed to allow products to be manufactured lighter, stronger, smarter,
cheaper, cleaner and more precisely than they would otherwise be.
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.
On December 30, 2004, the Company changed its fiscal year end from June
30th to December 31st.
5
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements have been prepared by Nano
Superlattice Technology, 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 six months ended June 30, 2005
and 2004 are not necessarily indicative of the results that may be expected
for the year ending December 31, 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 December
31, 2004.
BASIS OF CONSOLIDATION
The consolidated financial statements for June 30, 2005 and 2004 include
the accounts of Nano Superlattice Technology, Inc. and its wholly owned
subsidiaries, Superlattice Technology, Inc. - BVI, which owns 98.1% of the
capital stock of Nano Superlattice Technology, Inc. - Taiwan. All
references herein to the Company are included in the consolidated results.
All significant intercompany accounts and transactions have been eliminated
upon consolidation.
FINANCIAL STATEMENT PRESENTATION
Certain changes to the 2004 financial statements have been made to conform
to the 2005 financial statement format.
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
changes 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 -20 years
Computer Hardware and Software 2- 5 years
EXCHANGE GAIN (LOSS)
As of June 30, 2005 and 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, 2005 and 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 other comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income".
As of June 30, 2005 and 2004, the exchange rates between NTD and the USD
was NTD$1=USD$0.03182 and NTD$1=USD$0.02967, respectively. The
weighted-average rate of exchange between NTD and USD as of June 30, 2005
and 2004 was NTD$1=USD$0.03186 and NTD$1=USD$0.02962. Total translation
adjustment recognized as of June 30, 2005 and 2004 was ($313,401) and
$4,744, respectively.
7
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 SFAS 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.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable and other receivables
arising from its normal business activities. The Company has a diversified
customer base. 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 June 30, 2005, 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.
8
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provision of FASB No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amounts of the assets exceed the fair
values of the assets. In assessing the impairment of these identifiable
intangible assets, identifiable goodwill will be allocated on a pro rata
basis using fair values of the assets at the original acquisition date. In
estimating expected future cash flows for determining whether an asset is
impaired and if expected future cash flows are used in measuring assets
that are impaired, assets will be grouped at the lowest level (entity
level) for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. In recording an impairment loss, any related goodwill
would be reduced to zero before reducing the carrying amount of any
identified impaired asset.
For goodwill not identifiable with an impaired asset, the Company will
establish benchmarks at the lowest level (entity level) as its method of
assessing impairment. In measuring impairment, unidentifiable goodwill will
be considered impaired if the fair value at the lowest level is less than
its carrying amount. The fair value of unidentifiable goodwill will be
determined by subtracting the fair value of the recognized net asset at the
lowest level (excluding goodwill) from the value at the lowest level. The
amount of the impairment loss should be equal to the difference between the
carrying amount of goodwill and the fair value of goodwill. In the event
that impairment is recognized, appropriate disclosures would be made.
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.
In connection with the exchange and 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.
9
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE D - STOCK PURCHASE BUSINESS COMBINATION
On June 2, 2004, the Company completed the purchase of Nano Superlattice
Technology, Inc. - Taiwan, a developer and producer of nano-scale coating
technology to be applied to various mechanical tools and metal surfaces for
sale to manufacturers specifically in the computer, mechanical and molding
industries, by acquiring approximately ninety-two percent (92%) 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, Nano Superlattice
Technology, Inc. - Taiwan's results of operations 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 June 30, 2005 there were no uninsured portions of the
balances held at the bank.
NOTE F - FIXED ASSETS
Fixed assets consist of the following:
June 30, 2005 December 31, 2004
------------- -----------------
Machinery and equipment $ 7,087,977 $ 6,381,286
Furniture and fixtures 244,159 226,539
----------- -----------
7,332,136 6,607,825
Accumulated depreciation (1,171,943) (793,898)
----------- -----------
$ 6,160,193 $ 5,813,927
=========== ===========
NOTE G - COMMITMENTS
The Company leases two office facilities under operating leases that
terminate on various dates. Rental expense for these leases consisted of
$33,772 for the six months ended June 30 , 2005. The Company has future
minimum lease obligations as follows:
2005 $35,556
---- -------
Total $35,556
=======
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. At termination, employees are paid for any
accumulated annual vacation leave. As of June 30, 2005 and 2004
vacation liability exists in the amount of $4,299 and $1,385,
respectively.
10
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND 2004
NOTE I - INCOME TAXES
Total Federal and State income tax expense for the six months ended June
30, 2005 amounted to $7,543.
The following is a reconciliation of income tax expense:
June 30, 2005 U.S. International Total
------ ------------- -----
Current $ 0 $7,543 $7,543
Deferred 0 0 0
------ ------ ------
Total $ 0 $7,543 $7,543
====== ====== ======
Reconciliation of the differences between the statutory U.S. Federal income
tax rate and the effective rate is as follows:
Federal statutory tax rate 34%
International tax rate 33%
11
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2005 AND DECEMBER 31, 2004
NOTE L - DEBT
At June 30, 2005 and December 31, 2004, the Company had notes payable
outstanding in the aggregate amount of $2,048,302 and $1,672,079, respectively.
Payable as follows:
June 30, 2005 December 31, 2004
------------- -----------------
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 6.10% per annum, Taiwan, Interest at 6.10% per annum,
due by August 31, 2005 61,786 due by January 10, 2005 76,493
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 3.767% per annum, Taiwan, Interest at 5.3% per annum, due
due by September 16, 2005 312,800 by January 19, 2005 506,000
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 6.8% per annum, due Taiwan, Interest at 3.76% per annum,
by October 11, 2005 45,000 due by March 31, 2005 156,400
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 7.53% per annum, Taiwan, Interest at 7.53% per annum,
due by November 4, 2005 12,981 due by November 4, 2005 28,559
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 5% per annum, due Taiwan, Interest at 7.47% per annum,
by April 30, 2007 205,206 due by November 4, 2005 404,034
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 6.135% per annum, Taiwan, Interest at 5% per annum, due
due by July 21, 2007 325,833 by April 30, 2007 247,278
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 7% per annum, due Taiwan, Interest at 6.3% per annum, due
by November 10, 2008 67,585 by November 10, 2008 177,139
Unsecured notes payable to a bank in Unsecured notes payable to a bank in
Taiwan, Interest at 6.3% per annum, due Taiwan, Interest at 7% per annum, due
by November 10, 2008 156,911 by November 11, 2008 76,176
Unsecured notes payable to a bank in
Taiwan, Interest at 3.44% per annum,
due by January 17, 2012 860,200
---------- ----------
Total 2,048,302 Total 1,672,079
---------- ----------
Current portion 735,707 Current portion 1,082,817
---------- ----------
Long term portion 1,312,595 Long term portion 589,262
---------- ----------
12
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
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 in the
computer, mechanical and molding industries. Nanotechnology, or molecular
manufacturing, is a technological process designed to allow products to be
manufactured lighter, stronger, cheaper, cleaner and more precisely than they
would otherwise be.
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.
The Company's business strategy is to increase its market share by first
focusing on providing its superlattice nano-coating technology service to
manufacturers in domestic markets, expanding into Mainland China markets, and
further expanding into international markets. Since nanotechnology has a vast
application range, the Company also intends to conduct further research into the
many additional uses for nanotechnology with the goal of becoming an
internationally recognized nanotechnology design center.
In the future, the Company expects to expand the number and type of industries
it is able to service. The Company anticipates working with the developmental
needs of Taiwan's semiconductor, precision machinery and telecommunication
industries to establish micro-component production, equipment and inspection
technology, and micro-system assembly and testing technology. The Company also
plans to integrate the design technologies of mechanical, optical, electronic,
magnetic, and micro systems to be applied in future products.
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
13
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10Q. The
following discussion contains forward-looking statements. Our actual results may
differ significantly from those projected in the forward-looking statements.
Factors that may cause future results to differ materially from those projected
in the forward-looking statements include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this Form 10Q.
The following table presents the pro forma results of operations of Nano
Superlattice Technology, Inc. for the three and six months ended June 30, 2004,
and the consolidated results of Nano Superlattice Technology, Inc. for the three
and six months ended June 30, 2005 and 2004. The discussion following the table
is based on the pro forma results of operations of Nano Superlattice Technology,
Inc. for the three and six months ended June 30, 2004 and the consolidated
results of Nano Superlattice Technology, Inc. for the three and six months ended
June 30, 2005.
Three Months Ended Pro forma
--------------------------------- ------------------
June 30, June 30, Three months ended
2005 2004 June 30, 2004
----------- ----------- -------------
Sales, net $ 938,250 $ 645,571 $ 1,540,793
Cost of sales 885,039 278,994 800,630
----------- ----------- -----------
Gross profit 53,211 366,577 740,163
General and administrative expenses 330,843 46,767 206,932
----------- ----------- -----------
Income (loss) from operations (277,632) 319,810 533,231
----------- ----------- -----------
Other (Income) Expense
Interest income (553) (23) (23)
Collection of bad debts (1,378) 0 0
(Gain) loss of currency exchange (63) 0 0
Interest expense 21,832 277 557
Other expense 81,929 0 0
Minority interest (5,405) 25,360 25,360
----------- ----------- -----------
Total Other (Income) Expense 96,362 25,614 25,894
----------- ----------- -----------
Income (loss) before income taxes (373,994) 294,196 507,337
Provision for income taxes (121,050) 83,000 83,000
----------- ----------- -----------
Net income (loss) $ (252,944) $ 211,196 $ 424,337
=========== =========== ===========
Six Months Ended Pro forma
--------------------------------- ----------------
June 30, June 30, Six months ended
2005 2004 June 30, 2004
----------- ----------- -------------
Sales, net $ 1,930,895 $ 645,571 $ 3,755,231
Cost of sales 1,632,878 278,994 2,731,626
----------- ----------- -----------
Gross profit 298,017 366,577 1,023,605
General and administrative expenses 731,299 46,767 343,647
----------- ----------- -----------
Income (loss) from operations (433,282) 319,810 679,958
----------- ----------- -----------
14
Other (Income) Expense
Interest income (55) (23) (348)
Collection of bad debts (548,796) 0 0
(Gain) loss of currency exchange (25,010) 0 0
Interest expense 40,714 277 557
Other expense 83,345 0 0
Minority interest 314 25,360 25,360
----------- ----------- -----------
Total Other (Income) Expense (450,088) 25,614 25,569
----------- ----------- -----------
Income (loss) before income taxes 16,806 294,196 654,389
Provision for income taxes 7,543 83,000 83,000
----------- ----------- -----------
Net income (loss) $ 9,263 $ 211,196 $ 571,389
=========== =========== ===========
THREE MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
NET SALES. Net sales for the three months ended June 30, 2005 were $938,250
compared to $1,540,793 for the three months ended June 30, 2004. The decrease in
net sales was due to a decrease in business with existing customers. In
addition, our new products are in the early stages of selling, the sales volume
is generally low during the three months ended June 30, 2005.
COST OF SALES. Cost of sales for the three months ended June 30, 2005 was
$885,039, or 94.3% of net sales, as compared to $800,630 or 52% of net sales,
for the three months ended June 30, 2004. The decrease in cost of sales is
associated with the decrease in sales. The increase in the cost of sales as a
percentage of revenue is due to the lower gross margin of the products we sold
this year, as compared to the gross margin on our products sold during the three
months ended June 30, 2004.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three months ended June 30, 2005 were $330,843 or 35.2% of net sales, as
compared to $206,932 or 1.3% of net sales, for the three months ended June 30,
2004. The increase in general and administrative expenses was due to an increase
in the valuation of bad debt expense and an increase in depreciation and
amortization expenses. The increase in general and administrative expenses as
compared to net sales was due to the increase in the valuation of bad debt
expense and the increase in depreciation and amortization expenses. .
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the three
months ended June 30, 2005 was ($277,632) as compared to $533,231 for the three
months ended June 30, 2004. This change was the result of the lower gross
margins and increased general and administrative expenses during the three
months ended June 30, 2005. .
OTHER (INCOME) EXPENSE. Other (income) expense for the three months ended June
30, 2005 was $96,362 as compared to $25,894 for the three months ended June 30,
2004. This change is primarily due to the increase in interest expenses and
other expenses.
NET INCOME (LOSS). Net income (loss) for the three months ended June 30, 2005 of
$(252,944) as compared to income of $424,337 for the three months ended June 30,
2004 primarily for the reasons described above.
SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
NET SALES. Net sales for the Company for the six months ended June 30, 2005 were
$1,930,895 compared to $3,755,231 for the six months ended June 30, 2004.The
decrease in sales for the six months ended June 30, 2005 was due to a decrease
in business with existing customers and new products being in the early stages
of selling, resulting in low sales volume.
15
COST OF SALES. Cost of sales for the six months ended June 30, 2005 was
$1,632,878 or 84.5% of net sales, as compared to $2,731,626, or 72.7% of net
sales, during the six months ended June 30, 2004. The decrease in cost of sales
is associated with the decrease in sales. The increase in the cost of sales as a
percentage of revenue is due to the lower gross margin of the products we sold
this year, as compared to the gross margin on our products sold during the six
months ended June 30, 2004.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$731,299 or 37.8% of net sales, for the six months ended June 30, 2005, as
compared to $343,647, or 9.1% of net sales, for the six months ended June 30,
2004. The decrease in general and administrative expenses was due to an increase
in the valuation of bad debt expense and an increase in depreciation and
amortization expenses. The increase in general and administrative expenses as
compared to net sales was due to the increase in the valuation of bad debt
expense and the increase in depreciation and amortization expenses.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the six months
ended June 30, 2005 was ($433,282) compared to income (loss) from operations for
the six months ended June 30, 2004 of $679,958. The decrease in income (loss)
from operations was due to the lower gross margins and increased general
administrative expenses during the six months ended June 30, 2005.
OTHER (INCOME) EXPENSE. Total other (income) expense was ($450,088) for the six
months ended June 30, 2005, as compared to $25,569 for the six months ended June
30, 2004. The increase was due to the collection of bad debts.
NET INCOME (LOSS). Net income (loss) for the six months ended June 30, 2005 was
$9,263 compared to net income of $571,389 for the six months ended June 30,
2004. The decrease in income (loss) was due to the reasons primarily described
above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $513,279 at June 30, 2005 and $991,109 at
December 31, 2004. Our total current assets were $2,553,085 at June 30, 2005 as
compared to $2,766,592 at December 31, 2004. Our total current liabilities were
$1,887,480 at June 30, 2005 as compared to $2,309,803 at December 31, 2004. We
had working capital at June 30, 2005 of $665,605 compared with working capital
of $456,789 at December 31, 2004. This increase in working capital was to due to
the increase in receivables and decrease in current portion, debt. During the
six months ended June 30, 2005, net cash provided by operations was $121,628.
Net cash provided by financing activities was $124,852, which consisted of
proceeds from the loan and debts during the six months ended June 30, 2005. Net
change in cash and cash equivalents was ($477,831) for the six months ended June
30, 2005.
Capital expenditures. Total capital expenditures during the six months ended
June 30, 2005 was $724,311.
The Company believes that its short-term financial needs will be met by existing
working capital for at least the next twelve months, after which time we will
need to obtain additional financing. We can make no assurances that we will be
able to obtain additional financing, or that if we do obtain such financing,
that the terms of such financing will be commercially reasonable. If we obtain
additional financing, the terms of such financing may require us to sell our
equity securities or enter into convertible debt arrangements. The sale of
additional equity or convertible debt could result in additional dilution to our
stockholders. The outcome of these uncertainties cannot be assured.
CURRENCY EXCHANGE FLUCTUATIONS
As of June 30, 2005, 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.
16
As of June 30, 2005 and 2004, the exchange rates between NTD and the USD was NTD
$1 = USD $0.03182 and NTD $1 = USD $0.02967, respectively. The weighted-average
rate of exchange between NTD and USD as of June 30, 2005 and 2004 was NTD $1 =
USD $0.03186 and NTD $1 = USD $0.02962. Total translation adjustment recognized
as of June 30, 2005 and 2004 was $(313,401) and $4,744, respectively.
ITEM 3. CONTROLS AND PROCEDURES
CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including our chief executive officer and the chief financial officer, the
Company conducted an evaluation of the effectiveness of the design and operation
of its disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period
covered by this report (the "Evaluation Date"). Based on this evaluation, the
Company's chief executive officer and chief financial officer concluded as of
the Evaluation Date that the Company's disclosure controls and procedures were
effective.
During the quarter ended June 30, 2005, there has been no change in internal
controls over financial reporting that has materially affected, or is reasonably
likely to materially affect, the small business issuer's internal control over
financial reporting.
17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Certification of Chief Executive Officer pursuant to Rule
13A-14(A)/15D-14(aA) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal Financial Officer pursuant to Rule
13A-14(A)/15D-14(aA) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and the Principal Financial
Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley
Act of 2002).
18
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: August 22, 2005 By: /s/ Alice Tzu-Shia Hwang
--------------------------------
Alice Tzu-Shia Hwang
President and Chairman of the Board
(Principal Executive Officer)
Dated: August 22, 2005 By: /s/ Chien-Fang Wang
--------------------------------
Chien-Fang Wang
Vice President
(Principal Financial Officer)
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Certification of Chief Executive Officer pursuant to Rule
13A-14(A)/15D-14(aA) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal Financial Officer pursuant to Rule
13A-14(A)/15D-14(aA) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and the Principal Financial
Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley
Act of 2002).