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, 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
The number of shares outstanding of the issuer's Common Stock, $0.0001 par
value, as of the close of business on November 18, 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
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 15
Item 3. Controls and Procedures........................................ 19
PART II - OTHER INFORMATION................................................. 19
Item 1. Legal Proceedings.............................................. 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 20
Item 3. Defaults Upon Senior Securities................................ 20
Item 4. Submission of Matters to a Vote of Security Holders............ 20
Item 5. Other Information.............................................. 20
Item 6. Exhibits....................................................... 20
Signatures..................................................... 21
i
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 2005 December 31, 2004
------------------ -----------------
ASSETS
Current Assets (Unaudited)
Cash and cash equivalents $ 1,502,867 $ 991,109
Investment 30,120 0
Accounts receivable, net 836,358 994,458
Inventory 998,575 647,510
Other receivable 8,660 133,515
Prepaid expense 106,326 0
----------- -----------
Total Current Assets 3,482,906 2,766,592
----------- -----------
Fixed Assets, net 5,651,678 5,813,927
----------- -----------
Total Fixed Assets 5,651,678 5,813,927
----------- -----------
Other Assets
Deposits 139,208 16,556
Other current assets 146,124 32,412
----------- -----------
Total Other Assets 285,332 48,968
----------- -----------
Total Assets $ 9,419,916 $ 8,629,487
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 333,601 $ 892,615
Income tax payable 164,258 83,000
Due to related party 500 251,371
Current portion, debt 2,084,090 1,082,817
----------- -----------
Total Current Liabilities 2,582,449 2,309,803
Long-term debt, net of current portion 1,199,634 589,262
----------- -----------
Total Liabilities 3,782,083 2,899,065
----------- -----------
Minority interest 429,433 432,149
----------- -----------
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 (214,532) (308,367)
Retained earnings (deficit) (1,315,380) (1,131,672)
----------- -----------
Total Stockholders' Equity 5,208,400 5,298,273
----------- -----------
Total Liabilities and Stockholders' Equity $ 9,419,916 $ 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 OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Sales, net $ 1,752,313 $ 1,483,228 $ 3,683,208 $ 2,128,799
Cost of sales 1,071,013 1,258,732 2,703,891 1,537,726
----------- ----------- ----------- -----------
Gross profit 681,300 224,496 979,317 591,073
General and administrative expenses 417,176 450,425 1,148,475 497,192
----------- ----------- ----------- -----------
Income (loss) from operations 264,124 (225,929) (169,158) 93,881
----------- ----------- ----------- -----------
Other (Income) Expense
Interest income (72) 0 (727) (23)
Collection of bad debts 4,651 0 (544,145) 0
(Gain) loss of currency exchange (280) 0 (25,290) 0
Interest expense 29,623 15,097 70,337 15,374
Loss on sale of fixed assets 435,860 0 435,860 0
Other expense (2,114) 0 81,231 0
Minority interest (3,030) (19,652) (2,716) 5,708
----------- ----------- ----------- -----------
Total Other (Income) Expense 464,638 (4,555) 14,550 21,059
----------- ----------- ----------- -----------
Income (loss) before income taxes (200,514) (221,374) (183,708) 72,822
Provision for income taxes (7,543) 7,807 0 90,807
----------- ----------- ----------- -----------
Net income (loss) $ (192,971) $ (229,181) $ (183,708) $ (17,985)
=========== =========== =========== ===========
Net earnings ( loss) per share
(basic and diluted)
Basic $ (0.01) $ (0.01) $ (0.01) $ (0.00)
Diluted $ (0.01) $ (0.01) $ (0.01) $ (0.00)
Weighted average number of
shares outstanding
Basic 32,342,000 27,370,000 32,342,000 18,467,997
Diluted 32,342,000 27,370,000 32,342,000 18,467,997
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)
Nine Months Ended
-----------------------------------
September 30, September 30,
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (183,708) $ (17,985)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 572,682 252,507
Bad debt 56,070 0
Loss on sale of fixed assets 435,860 0
Minority interest (2,716) 5,708
Translation adjustment (85,162) (120,663)
Decrease (Increase) in accounts receivables 158,100 (791,061)
Decrease (Increase) in inventory (351,065) (304,854)
Decrease (Increase) in other receivable 124,855 133,515
Decrease (Increase) in prepaid expenses (106,326) (8,101)
Decrease (Increase) in deposit (122,652) (16,556)
Decrease (Increase) in other current assets (113,712) (104,909)
(Decrease) Increase in accounts payable and accrued expenses (559,014) 749,674
(Decrease) Increase in income tax payable 81,258 0
----------- -----------
Total Adjustments 6,921 (204,740)
----------- -----------
Net cash provided by (used in) operations (176,787) (222,725)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of fixed assets 933,720 0
Purchase of investment (30,120) 0
Purchase of fixed assets (1,603,635) (1,981,024)
----------- -----------
Net cash (used in) investing activities (700,035) (1,981,024)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in acquisition of subsidiary 0 785,821
Loan from related party 500 957,564
Issuance of note for capitalized leases 1,042,032 0
Payments on capitalized leases (28,945) 0
Payment of loan to related party (251,371) 0
Proceeds from issuance of debt 1,834,456 1,166,345
Payment of debt (1,208,090) (72,889)
----------- -----------
Net cash provided by financing activities 1,388,581 2,836,841
----------- -----------
Net change in cash and cash equivalents 511,758 633,092
----------- -----------
Cash and cash equivalents at beginning of period 991,109 454
----------- -----------
Cash and cash equivalents at end of period $ 1,502,867 $ 633,546
=========== ===========
Supplemental cash flows disclosures:
Income tax payments $ 0 $ 0
----------- -----------
Interest payments $ 64,942 $ 15,374
----------- -----------
Issuance of stock for purchase of subsidiary $ 0 $ 2,504,000
----------- -----------
Please see the notes to these condensed consolidated financial statements.
3
NANO SUPPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
September 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 93,835 (313,111)
------------ ------------
Balance at end of period (214,532) (308,367)
------------ ------------
Retained (deficits)
Balance at beginning of period (1,131,672) 181,118
Net income (loss) (183,708) (1,312,790)
------------ ------------
Balance at end of period (1,315,380) (1,131,672)
------------ ------------
Total stockholders' equity at end of period $ 5,208,400 $ 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
SEPTEMBER 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 and
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
SEPTEMBER 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 nine months ended September
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 September 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
SEPTEMBER 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 September 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.
7
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Translation Adjustment
As of September 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 a component of shareholders' equity.
As of September 30, 2005 and 2004, the exchange rates between NTD and the
USD was NTD$1=USD$0.03012 and NTD$1=USD$0.02942, respectively . The
weighted-average rate of exchange between NTD and USD as of September 30,
2005 was NTD$1=USD$0.03159 and NTD$1=USD$0.02948, respectively. Total
translation adjustment recognized as of September 30, 2005 and 2004 was
$(214,532) and $(90,711), respectively.
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.
8
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 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 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 September 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. Cash with
maturity dates greater than three months are classified as investment.
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 lever (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.
New Accounting Pronouncements
In January 2003, The Financial Accounting Standards Board (FABB") issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN46"). This interpretation of Accounting Research Bulletin No. 51,
requires companies to consolidate the operations of all variable interest
entities ("VIE's") for which they are the primary beneficiary. The term
"primary beneficiary" is defined as the entity that will absorb a majority
of expected losses, receive a majority of the expected residual returns, or
both. This interpretation was later revised by the issuance of
Interpretation No. 46R ("FIN 46R"). The revision was issued to address
certain implementation issues that had arisen since the issuance of the
original interpretation and to provide companies with the ability to defer
the adoption of FIN46 to period after March 15, 2004. The implementation of
FIN No. 46 and FIN 46R, had no material impact on the Company's financial
statements.
10
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and supercedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based
on their fair values, beginning with the first interim or annual period
after June 15, 2005. In April 2005, the Securities and Exchange Commission
adopted a new rule that amends the compliance date of SFAS 123R, requiring
the Company to adopt SFAS 123R in the first quarter of fiscal 2006. The new
rule does not change the accounting required by SFAS 123R, it only changes
the date for compliance. The pro forma disclosures previously permitted
under SFAS 123 no longer will be an alternative to financial statement
recognition. Under SFAS 123R, The Company must determine the appropriate
fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be
used at date of adoption. The transition methods include prospective and
retroactive adoption options. Under the retroactive options, prior periods
may be restated either as of the beginning of the year of adoption or for
all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options and restricted stock at
the beginning of the first quarter of adoption of SFAS 123R, while the
retroactive methods would record compensation expense for all unvested
stock options and restricted stock beginning with the first period
restated. The Company is evaluating the requirements of SFAS 123, and it
expects that the adoption of SFAS 123R will have no material impact on the
Company's financial statements.
In September 2004, the EITF Issue No. 04-08, "The Effect of Contingently
Convertible Debt on Diluted Earnings per Share." ("EITF 04-08") was issued
stating that contingently convertible debt should be included in diluted
earnings per share computations regardless of whether the market price
trigger has been met. EITF 04-08 is effective for reporting periods ending
after December 15, 2004. The adopted EITF 04-08 will have no material
impact on the Company's financial statements.
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.
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.
11
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE E -CASH
The Company maintains its cash balances at various banks in Taiwan and Hong
Kong. All balances are partially insured by the Central Deposit Insurance
Corporation (CDIC). As of September 30, 2005 deposits worth $1,173,351 were
uninsured balances held at the banks.
NOTE F - FIXED ASSETS
Fixed assets consist of the following:
September 30, 2005 December 31, 2004
------------------ -----------------
Machinery and equipment $ 6,769,550 $ 6,381,286
Furniture and fixtures 248,708 226,539
----------- -----------
7,018,258 6,607,825
Accumulated depreciation (1,366,580) (793,898)
----------- -----------
$ 5,651,678 $ 5,813,927
=========== ===========
NOTE G - COMMITMENTS
Operating Lease - The Company leases three facilities under operating
leases that terminate on various dates. Rental expense for these leases
consisted of $55,510 for the nine months ended September 30, 2005. The
Company has future minimum lease obligations as follows:
2006 $ 30,609
----------
Total $ 30,609
==========
Capital Leases - The Company leases certain equipment under agreements that
are classified as capital leases. The cost of equipment under capital
leases is included in the Statement of Financial Position as fixed assets.
The Company has future minimum payments under capital leases as follows
(see note J):
2006 $ 347,343
2007 347,343
2008 318,401
----------
Total $1,013,087
==========
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 September 30, 2005 and 2004 vacation liability exists in the
amount of $4,069 and $3,975, respectively.
12
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE I - SALES-LEASEBACK TRANSACTION
In September 2005, the Company completed the sale of a piece of equipment
for $933,720. The transaction has been accounted for as a sales-lease back
transaction, wherein the property was sold, immediately leased back, and
accounted for as a capital lease. An obligation in the amount of
$1,042,032, representing the proceeds, has been recorded in the Company's
Statement of Financial Position, and is being reduced based on payments
under the lease. As of September 30, 2005, the Company has a balance due of
$1,013,087 (see note G).
The Company is currently in default of their sales-leaseback transaction
and therefore the entire amount of the capitalized lease has been
categorized as a current liability (see Note J).
NOTE J - LEASE AND LOAN DEFAULT
In September 2005 the Company entered into a sales-leaseback agreement
(Note I) on a piece of equipment with a financial institution. However, the
equipment sold had already been pledged as collateral for the Company's
line of credit with a bank in Taiwan. The bank's recourse is to repossess
the asset or demand payment in full. As of September 30, 2005, and the date
of this report, no such demand has been made. Because of the default with
the transaction the Company has categorized all debts associated with these
transactions as current liabilities until the matter is resolved.
NOTE K - RELATED PARTY TRANSACTIONS
As of September 30, 2005, the Company has a non interest-bearing loan from
Huan Tzu Hsia, a member of the board, in the amount of $500.
13
NANO SUPERLATTICE TECHNOLOGY, INC. AND SUBSIDIARIES
(FORMERLY WIGWAM DEVELOPMENT, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
NOTE L - DEBT
At of September 30, 2005 The Company had eight separate revolving secured
lines of credit agreements, with six banks in Taiwan. The lines of credits
are secured by some of the Company's fixed assets.
At September 30, 2005, the Company had borrowings outstanding in the
aggregate amount of $3,283,725, of which $2,227,577 are against these lines
of credit. Payable as follows:
September 30, 2005 December 31, 2004
------------------ -----------------
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 6.8% per in Taiwan, Interest at 6.10% per
annum, due by October 11, 2005 $ 43,060 annum, due by January 10, 2005 $ 76,493
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 7.82% per in Taiwan, Interest at 5.3% per
annum, due by November 4, 2005 5,000 annum, due by January 19, 2005 506,000
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 6.054% per in Taiwan, Interest at 3.76% per
annum, due by November 16, 2006 28,184 annum, due by March 31, 2005 156,400
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 6.054% per in Taiwan, Interest at 7.53% per
annum, due by November 16, 2006 112,736 annum, due by November 4, 2005 28,559
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 5% per in Taiwan, Interest at 7.47% per
annum, due by April 30, 2007 172,882 annum, due by November 4, 2005 404,034
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 6.279% per in Taiwan, Interest at 5% per
annum, due by July 21, 2007 276,100 annum, due by April 30, 2007 247,278
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 6.53% per in Taiwan, Interest at 6.3% per
annum, due by November 10, 2008 141,136 annum, due by November 10, 2008 177,139
Unsecured notes payable to a bank Unsecured notes payable to a bank
in Taiwan, Interest at 7.23% per in Taiwan, Interest at 7% per
annum, due by November 10, 2008 60,839 annum, due by November 11, 2008 76,176
Secured notes payable to a bank in
Taiwan, Interest at 3.5% per
annum, due by August 8, 2010 602,400
Secured notes payable to a bank in
Taiwan, Interest at 6.351% per
annum, due by January 17, 2012 828,300
Capital lease note payable to a
company in Taiwan, Interest at 3%
per annum, due by September 15,
2008 1,013,087
---------- ----------
Total 3,283,724 Total 1,672,079
Current portion $2,084,090 Current portion $1,082,817
---------- ----------
Long term portion $1,199,634 Long term portion $ 589,262
========== ==========
14
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
December 31, 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
15
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 10-QSB.
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 10-QSB.
The following table presents the pro forma results of operations of Nano
Superlattice Technology, Inc. for the nine months ended September 30, 2004, and
the consolidated results of Nano Superlattice Technology, Inc. for the nine
months ended September 30, 2005 and 2004. The pro forma results of Nano
Superlattice Technology, Inc for the nine months ended September 30, 2004 are
provided for discussion purposes only as they contain operating activity prior
to the acquisition of the company. The discussion following the table is based
on the pro forma results of operations of Nano Superlattice Technology, Inc. for
the nine months ended September 30, 2004 and the consolidated results of Nano
Superlattice Technology, Inc. for the nine months ended September 30, 2005.
Nine Months Ended Pro forma
----------------------------------- -----------------
Nine Months Ended
September 30, September 30, September 30,
2005 2004 2004
----------- ----------- -----------
Sales, net $ 3,683,208 $ 2,128,799 $ 5,238,459
Cost of sales 2,703,891 1,537,726 3,990,358
----------- ----------- -----------
Gross profit 979,317 591,073 1,248,101
General and administrative expenses 1,148,475 497,192 794,072
----------- ----------- -----------
Income (loss) from operations (169,158) 93,881 454,029
----------- ----------- -----------
Other (Income) Expense
Interest income (727) (23) (348)
Collection of bad debts (544,145) 0 0
(Gain) loss of currency exchange (25,290) 0 0
Interest expense 70,337 15,374 15,654
Loss on sale of fixed assets 435,860 0 0
Other expense 81,231 0 0
Minority interest (2,716) 5,708 (19,652)
----------- ----------- -----------
Total Other (Income) Expense 14,550 21,059 (4,346)
----------- ----------- -----------
Income (loss) before income taxes (183,708) 72,822 458,375
Provision for income taxes 0 90,807 7,807
----------- ----------- -----------
Net income (loss) $ (183,708) $ (17,985) $ 450,568
=========== =========== ===========
16
THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
NET SALES. Net sales for the three months ended September 30, 2005 were
$1,752,313 compared to $1,483,228 for the three months ended September 30, 2004.
The increase in net sales was due to an increase in business with existing
customers and new product-coating products entering the market. In addition, as
our new products are in their early stages of selling, sales volume was
generally low for the three months ended September 30, 2005.
COST OF SALES. Cost of sales for the three months ended September 30, 2005 was
$1,071,013, or 61.1% of net sales, as compared to $1,258,732 or 84.9% of net
sales, for the three months ended September 30, 2004. The decrease in cost of
sales as compared to net sales was due to the higher gross margins of new
products during the three months ended September 30, 2005.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three months ended September 30, 2005 were $417,176 or 23.8% of net sales, as
compared to $450,425 or 30.4% of net sales, for the three months ended September
30, 2004. The decrease in general and administrative expenses was due to
decrease in salaries.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the three
months ended September 30, 2005 was $264,124 as compared to $(225,929) for the
three months ended September 30, 2004. This change was the result of the
increase in sales and decrease in costs of goods sold and general and
administrative expenses during the three months ended September 30, 2005.
TOTAL OTHER (INCOME) EXPENSE. Total other (income) expense for the three months
ended September 30, 2005 was $464,638 as compared to $(4,555) for the three
months ended September 30, 2004. This change is primarily due to losses on the
sales of fixed assets, including the sale and lease back of the Company's Arc
Bond Sputtering Machine for proceeds of $933,720.
NET INCOME (LOSS). Net income (loss) for the three months ended September 30,
2005 of $(192,971) as compared to income of $(229,181) for the three months
ended September 30, 2004 primarily for the reasons described above.
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
NET SALES. Net sales for the Company for the nine months ended September 30,
2005 were $3,683,208 compared to $5,238,459 for the nine months ended September
30, 2004. The decrease in sales for the nine months ended September 30, 2005 was
due to a decrease in business with existing customers and new nano-coating
products being in the early stages of selling, resulting in low sales volume.
COST OF SALES. Cost of sales for the nine months ended September 30, 2005 was
$2,703,891 or 73.4.% of net sales, as compared to $3,990,358, or 76.2% of net
sales, during the nine months ended September 30, 2004. The decrease in cost of
sales was due to the decrease in sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$1,148,475 or 31.2% of net sales, for the nine months ended September 30, 2005,
as compared to $794,072, or 15.2% of net sales, for the nine months ended
September 30, 2004. The increase in general and administrative expenses was due
to an increase in depreciation and amortization expenses associated with the
acquisition of new fixed assets.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for the nine months
ended September 30, 2005 was $(169,158) compared to income (loss) from
operations for the nine months ended September 30, 2004 of $454,029. The
decrease in income (loss) from operations was due to the decrease in sales and
increased general administrative expenses during the nine months ended September
30, 2005.
OTHER (INCOME) EXPENSE. Total other (income) expense was $14,550 for the nine
months ended September 30, 2005, as compared to $(4,346) for the nine months
ended September 30, 2004. The increase in other expense was due to the losses on
17
the sale of fixed assets, including the sale and leaseback of the Company's Arc
Bond Sputtering Machine for proceeds of $933, 720, and collection of bad debt,
during the nine months ended September 30, 2005.
NET INCOME (LOSS). Net income (loss) for the nine months ended September 30,
2005 was $(183,708) compared to net income (loss) of $450,568 for the nine
months ended September 30, 2004. The decrease loss was due to the reasons
primarily described above.
SALE OF ARC BOND SPUTTERING MACHINE
The terms of the sale lease-back agreement referenced above required the Company
to transfer the piece of equipment to the lessor free of any liens or security
interests. Since the equipment sold and leased back had been previously pledged
to a Taiwan bank in connection with a line of credit, the Company is in default
of the lease-back agreement. If, as a result of the breach of this agreement,
the Company lost use of the equipment, such loss could materially affect the
Company's financial condition and results of operations in that the Company's
business could be disrupted until such time as the Company could replace the
equipment or secure other alternatives.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,502,867 at September 30, 2005 and $991,109 at
December 31, 2004. Our total current assets were $3,482,906 at September 30,
2005 as compared to $2,766,592 at December 31, 2004. Our total current
liabilities were $2,582,449 at September 30, 2005 as compared to $2,309,803 at
December 31, 2004. On July 29, 2005 we collateralized a line of credit with the
Arc Bond Sputtering Machine which we later sold to a third party, in violation
of the credit agreement, and immediately leased back the equipment and assumed
an obligation from the lessor in the amount of $1,042,032. As a result of having
sold equipment to the lessor subject to a lien, we are currently in default of
both the line of credit, for having sold the pledged equipment, and the
sale-leaseback agreement. A total amount due under both agreements as a result
of the defaults is $1,615,487. Repayment of such amounts could materially affect
our liquidity position.
We had working capital at September 30, 2005 of $900,457 compared with working
capital of $456,789 at December 31, 2004. This increase in working capital was
due to the increase in cash and cash equivalents and inventory and decrease in
accounts payable and accrued expenses. During the nine months ended September
30, 2005, net cash used in operations was $(176,787). Net cash provided by
financing activities was $1,388,581, which consisted of proceeds from the loan
and debts during the nine months ended September 30, 2005. Net change in cash
and cash equivalents was $(511,758) for the first three quarters of 2005.
Capital expenditures. Total capital expenditures during the nine months ended
September 30, 2005 was $1,603,635.
The Company believes that, so long as the amounts due under the credit line and
the sale lease back transactions can be deferred, 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 September 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.
18
As of September 30, 2005 and 2004, the exchange rates between NTD and the USD
was NTD$1=USD$0.03012 and NTD$1=USD$0.02942, respectively. The weighted-average
rate of exchange between NTD and USD as of September 30, 2005 was
NTD$1=USD$0.03159 and NTD$1=USD$0.02948, respectively. Total translation
adjustment recognized as of September 30, 2005 and 2004 was $(214,532) and
$(90,711), respectively.
ITEM 3. CONTROLS AND PROCEDURES
Our management has evaluated, with the participation of our principal executive
and financial officers, the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the
end of the period covered by this report. Based on this evaluation, our
principal executive and financial officers have concluded, based on the
deficiency stated in the following paragraph, that our disclosure controls and
procedures were not effective to provide reasonable assurance that information
required to be disclosed by our company in reports that it files or submits
under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Our management has identified, as of September 30, 2005, a deficiency relating
to the inadequacy of our disclosure controls and procedures in place to
effectively identify material definitive agreements that are not made in the
ordinary course of business and required to be disclosed in a current report on
Form 8-K. As a result of this deficiency, we did not report in a timely manner
two transactions that occurred in the quarterly period covered by this report.
We are undertaking corrective actions, including educating our personnel on the
applicable standards for our Exchange Act reporting obligations, to ensure that
our disclosure controls and procedures are effective.
19
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
On September 9, 2005, the Company completed the sale of a piece of equipment for
$933,720. The transaction has been accounted for as a sales-lease back
transaction, wherein the property was sold, immediately leased back, and
accounted for as a capital lease. An obligation in the amount of $1,042,032,
representing the proceeds, has been recorded in the Company's Statement of
Financial Position, and is being reduced based on payments under the lease. As
of September 30, 2005, the Company has a balance due of $1,013,087. However, the
equipment sold and leased back had already been pledged as collateral for the
Company's line of credit with a bank in Taiwan which it entered into on July 29,
2005. The bank has recourse to repossess the asset or demand payment in full. As
of September 30, 2005, and the date of this report, no such demand has been
made. Because of the default with the line of credit transaction and the
sale-lease back agreement the Company has categorized all debts associated with
these transactions as current liabilities until the matter is resolved. The
total amount due as a result of the default under both agreements is
approximately 1,615,487.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
See Item 3 of Part II of this Form 10-QSB.
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).
20
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 21, 2005 By: /s/ Alice Tzu-Shia Hwang
-----------------------------------
Alice Tzu-Shia Hwang
President and Chairman of the Board
(Principal Executive Officer)
Dated: November 21, 2005 By: /s/ Chien-Fang Wang
-----------------------------------
Chien-Fang Wang
Vice President
(Principal Financial Officer)
21
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).