10QSB 1 g1020a.txt QUARTERLY REPORT FOR THE QTR ENDED 9/30/05 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).