UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2007
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 000-26067
NANOSCIENCE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0571300
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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281 Eighth Street, Jersey City NJ 07302
(Address of principal executive offices)
(201) 320-1019
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
CLASS OUTSTANDING AS OF JULY 27, 2007
Common Stock, $.001 par value 11,574,207
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
HEADING PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................................................... 3
Balance Sheets - June 30, 2007 (Unaudited) and September 30, 2006 .................. 4
Statements of Operations (Unaudited) - three months and nine months ended June 30,
2007 and 2006 and the period from inception on September 14, 1987 through
June 30, 2007....................................................................... 5
Statements of Cash Flows (Unaudited) - nine months ended June 30, 2007
and 2006 and the period from inception on September 14, 1987 through
June 30, 2007..................................................................... 6
Notes to Financial Statements ...................................................... 8
Item 2. Management's Discussion and Analysis and Results of Operations........................... 13
Item 3. Controls and Procedures.................................................................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.............................. 15
Item 3. Defaults Upon Senior Securities.......................................................... 16
Item 4. Submission of Matters to a Vote of Securities Holders.................................... 16
Item 5. Other Information........................................................................ 16
Item 6. Exhibits and Reports on Form 8-K......................................................... 16
Signatures............................................................................... 16
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PART I
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheet of Nanoscience Technologies, Inc. at June 30, 2007, related statements of operations, stockholders' equity (deficit) and cash flows for the three and nine months ended June 30, 2007 and 2006, have been prepared by our management in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the nine months ended June 30, 2007, are not necessarily indicative of the results that can be expected for the fiscal year ending September 30, 2007.
NANOSCIENCE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 2007
June 30, September 30,
2007 2006
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ -- $ 2,803
----------- -----------
Total Current Assets -- 2,803
----------- -----------
OTHER ASSETS
Lease deposit -- 550
----------- -----------
Total Other Assets -- 550
----------- -----------
TOTAL ASSETS $ -- $ 3,353
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 433,614 $ 511,390
Interest payable 219,181 108,807
Notes payable - related parties 341,060 325,060
----------- -----------
Total Current Liabilities 993,855 945,257
----------- -----------
WARRANT LIABILITY 3,287 10,709
CONVERTIBLE DEBENTURES,net of discount of $867,746 995,354 567,939
----------- -----------
TOTAL LIABILITIES 1,992,496 1,523,905
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares authorized,
at $0.001 par value, 11,574,207 and 11,101,946
shares issued and outstanding at June 30, 2007 11,574 11,102
and September 30, 2006, respectively
Additional paid-in capital 2,903,420 2,797,254
Deficit accumulated during the development stage (4,907,490) (4,328,908)
----------- -----------
Total Stockholders' Equity (Deficit) (1,992,496) (1,520,552)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ -- $ 3,353
=========== ===========
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The accompanying notes are an integral part of these financial statements.
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
From Inception
of the
Development Stage
For the Three Months Ended For the Nine Months Ended on September 14,
June 30, June 30, 1987 through
------------------------------------------------------------ June 30,
2007 2006 2007 2006 2007
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
OPERATING EXPENSES
General and administrative 8,896 100,906 39,663 600,457 2,206,073
Research and development -- 347,288 -- 447,288 1,293,038
Licensing fees -- -- -- 25,000 96,248
------------ ---------------------------- ------------ ------------
Total Operating Expenses 8,896 448,194 39,663 1,072,745 3,595,359
------------ ---------------------------- ------------ ------------
LOSS FROM OPERATIONS (8,896) (448,194) (39,663) (1,072,745) (3,595,359)
------------ ---------------------------- ------------ ------------
OTHER INCOME (EXPENSES)
Other income (expense) 518 14,938 31,679 25,155 93,798
Interest expense (199,916) (182,193) (570,598) (413,872) (1,405,929)
------------ ---------------------------- ------------ ------------
Total Other Expenses (199,398) (167,255) (538,919) (388,717) (1,312,131)
------------ ---------------------------- ------------ ------------
NET LOSS $ (208,294) $ (615,449) $ (578,582) $ (1,461,462) $ (4,907,490)
============ ============================ ============ ============
BASIC LOSS PER SHARE $ (0.02) $ (0.06) $ (0.05) $ (0.13)
============ ============================ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,574,207 11,101,946 11,416,787 11,101,946
============ ============================ ============
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The accompanying notes are an integral part of these financial statements.
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
From Inception
of the
Development Stage
For the Nine Months Ended on September 14,
June 30, 1987 Through
-------------------------- June 30,
2007 2006 2007
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (578,582) $(1,461,462) $(4,907,490)
Adjustments to reconcile net loss to net cash used by operating
activities:
Accrued interest contributed by shareholders 24,380 24,004 94,916
Common stock issued for services and fees -- -- 345,448
Common stock warrants granted for services -- -- 75,430
Depreciation and amortization expense -- 3,644 43,658
Amortization of marketing expense -- 66,000 110,000
Services contributed by shareholder -- -- 290
Amortization of discount on debt 435,811 305,654 997,231
Change in fair value of warrant liability (7,422) (25,155) (41,170)
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses -- (245) --
Increase (decrease) in accounts payable,
accrued expenses and interest payable 47,010 493,836 708,355
----------- ----------- -----------
Net Cash Used by Operating Activities (78,803) (593,724) (2,573,332)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- -- (4,931)
Lease deposits -- -- (550)
Patents -- -- (38,727)
----------- ----------- -----------
Net Cash Used by Investing Activities -- -- (44,208)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - related parties 16,000 25,200 391,627
Proceeds from convertible debentures,net 60,000 530,593 1,710,593
Proceeds from stock subscriptions -- -- 130,000
Repayment of notes payable - related parties -- -- (20,200)
Common stock issued for cash -- -- 405,520
----------- ----------- -----------
Net Cash Provided by Operating
Activities 76,000 555,793 2,617,540
----------- ----------- -----------
NET DECREASE IN CASH (2,803) (37,931) --
CASH AT BEGINNING OF PERIOD 2,803 44,582 --
----------- ----------- -----------
CASH AT END OF PERIOD $ -- $ 6,651 $ --
=========== =========== ===========
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The accompanying notes are an integral part of these financial statements.
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
(Unaudited)
From Inception
of the
Development Stage
For the Nine Months Ended on September 14,
June 30, 1987 Through
----------------------------- June 30,
2007 2006 2007
---------- ---------- -----------
SUPPLIMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ -- $ 487 $ 487
Income Taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Forgiveness of debt by related party $ -- $ -- $ 30,367
Common stock issued for services and fees $ 15,000 $ -- $ 360,448
Common stock warrants granted for services $ -- $ -- $ 75,430
Interest payable converted to debt $ -- $ 31,801 $ 41,148
Production costs contributed by shareholder $ -- $ -- $ 110,000
Stock subscriptions converted to common stock $ -- $ -- $ 130,000
Termination of derivative feature of debentures $ -- $ -- $ 113,481
Allocation of convertible note proceeds to
beneficial conversion feature $ -- $1,527,284 $1,527,284
Debt converted to equity $ 7,259 $ -- $ 7,259
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The accompanying notes are an integral part of these financial statements.
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 1 - FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2006 audited financial statements. The results of operations for the periods ended June 30, 2007 and 2006 are not necessarily indicative of the operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Historically, the Company has incurred significant annual loses, which have resulted in an accumulated deficit of $4,907,490 at June 30, 2007, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operation. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
Management's plans to obtain such resources for the Company include obtaining capital in the form of loans from significant shareholders sufficient to meet its minimal operating expenses and from the sale of shares of its common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
NOTE 3 - EQUITY ACTIVITY
2005 STOCK OPTION PLAN
The Company has made available an aggregate of 1,100,000 shares of its common stock for issuance to employees upon the exercise of options granted under the 2005 Stock Option Plan. The purchase price per Share deliverable upon the exercise of each option shall be 100% of the Fair Market Value per Share on the date the option is granted. For purposes of this Plan, Fair Market Value shall be the closing sales price as reported on the Nasdaq National Market or such other national securities exchange, inter-dealer quotation system or electronic bulletin board or over the counter market as the Company's Common Stock shall then be traded on the date in question, or, if the Shares shall not have traded on such date, the closing sales price on the first date prior thereto on which the Shares were so traded.
Options may be exercised only upon payment of the purchase price thereof in full. Such payment shall be made in cash or, unless otherwise determined by the Board, in Shares, which shall have a Fair Market Value (determined in accordance with the rules of paragraph (i) above) at least equal to the aggregate exercise price of the Shares being purchased, or a combination of cash and Shares.
The Company has made available an aggregate of 500,000 shares of its common stock for issuance upon the exercise of options granted under the 2005 Stock Option Plan for Independent and Non-Employee Directors. The purchase price per Share deliverable upon the exercise of each option shall be 100% of the Fair Market Value per Share on the date the option is granted. For purposes of this Plan, Fair Market Value shall be the closing sales price as reported on the Nasdaq National Market or such other national securities exchange, inter-dealer quotation system or electronic
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 3 - EQUITY ACTIVITY (Continued)
2005 STOCK OPTION PLAN FOR INDEPENDENT AND NON-EMPLOYEE DIRECTORS
bulletin board or over the counter market as the Company's Common Stock shall then be traded on the date in question, or, if the Shares shall not have traded on such date, the closing sales price on the first date prior thereto on which the Shares were so traded.
Options may be exercised only upon payment of the purchase price thereof in full. Such payment shall be made in cash or, unless otherwise determined by the Board, in Shares, which shall have a Fair Market Value (determined in accordance with the rules of paragraph (i) above) at least equal to the aggregate exercise price of the Shares being purchased, or a combination of cash and Shares.
The creation of the 2005 Stock Option Plans is subject to shareholder approval.
In December 2006, the Company issued 250,000 shares and 500,000 common stock purchase options to a consultant for arranging financing for the Company. The shares were valued at the fair value of the services performed of $15,000. The options were valued at fair value using the Black-Scholes pricing model at $23,905.
DEBT CONVERTED TO EQUITY
In January 2007, the Company issued 108,980 shares of common stock upon the conversion of $4,359 of debt. In March 2007, the Company issued 113,281 shares of common stock upon the conversion of $2,900 of debt.
NOTE 4- RELATED PARTY TRANSACTIONS
As of June 30, 2007, related parties lent the Company $341,060. The loans are non interest bearing, due upon demand and unsecured. The Company has imputed interest on the loans at 10% per annum. This interest was recorded as contribution to capital by the shareholders.
NOTE 5 - SIGNIFICANT EVENTS
CONVERTIBLE DEBENTURES
On December 13, 2004, the Company entered into a Securities Purchase Agreement with Highgate House, LP and Montgomery Equity Partners, LP, each a Delaware limited partnership. Pursuant to the Agreement, the Company issued $500,000 in convertible debentures dated December 13, 2004. The debentures were convertible into shares of the Company's common stock at the holder's option any time up to maturity at a conversion price equal to the lower of (i) 120% of the closing bid price of the common stock on the date of the debentures or (ii) 80% of the lowest closing bid price of the common stock for the five trading days immediately preceding the conversion date. The debentures were secured by the assets of the Company. The debentures had a three-year term and accrued interest at 5% per year. At maturity, the outstanding principal and accrued and unpaid interest under the debentures are, at the Company's option, to be either repaid by the Company in cash or converted into shares of common stock. In addition, the related Securities Purchase Agreement requires the Company to register the underlying shares of common stock with the US Securities and Exchange Commission.
On April 28, 2005, this $500,000 of convertible debentures along with $9,247 of accrued interest were exchanged for amended convertible debentures having a fixed conversion price of $1.20 at a time when the market value of the Company's common stock was $1.15 per share of common stock. Accordingly, there was no beneficial conversion amount related to these amended convertible debentures. All other terms and conditions of the amended convertible debentures remained substantially the same as the original convertible debentures with the three-year term recommencing on April 28, 2005.
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 6 - SIGNIFICANT EVENTS (Continued)
CONVERTIBLE DEBENTURES (Continued)
Also on April 28, 2005, and in accordance with terms of the Securities Purchase Agreement, the Company issued an additional $500,000 of convertible debentures based on the terms of the amended convertible debentures.
The Company recorded a liability of $141,852 for the value of the embedded derivative related to the conversion option of the convertible debenture. The Company recomputed the value of the embedded derivative quarterly and recorded the decrease in the value as other income of $28,371. Upon the refinancing of the $500,000 convertible debenture, the Company recorded contributed capital of $113,481 for the remaining balance of the embedded derivative liability for the conversion feature. The newly issued debenture included the interest accrued on the prior debenture. A total liability of $1,009,347 has been recorded as of April 28, 2005.
On December 14, 2005, the $1,009,347 of convertible debentures along with $31,801 of accrued interest were exchanged for a new Securities Purchase Agreement with the same investors ("Note Holders") including new net proceeds of $530,593 for the sale of $1,690,359 Secured Convertible Notes (the "Convertible Notes") and warrants to purchase up to 100,000 shares of its common stock. The Convertible Notes bear interest at 8% and have a maturity date of three years from the date of issuance. The Company is not required to make any principal payments during the term of the Convertible Notes. The Convertible Notes are convertible into 7,171,000 shares of the Company's common stock at the Note Holders' option as described in the agreement. The full principal amount of the Notes is due upon the occurrence of an event of default. The warrants are exercisable for a period of three years from the date of issuance and have an exercise price of $0.01 per share. In addition, the Company has granted the Note Holders registration rights and a security interest in substantially all of the Company's assets.
In accordance with Emerging Issues Task Force 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, the Company allocated the proceeds from the sale of $1,690,359 of Convertible Notes on December 14, 2005, between the relative fair values of the warrants and the debt. The fair value of the warrants was calculated using the Black-Scholes valuation model with the following assumptions: market price of common stock on the date of grant of $0.45, exercise price of warrants of $0.01, risk free interest rate of 3.5%, expected volatility of 124% and expected life of three years. The resulting fair value of the warrants of $44,457 was recorded as a debt discount. The Company also recorded $118,618 of fees withheld by the lender as an additional debt discount. The Company calculated a beneficial conversion feature related to the remaining proceeds allocated to the debt portion of the Convertible Notes. This calculation resulted in a beneficial conversion feature which was greater than the amount of the allocated proceeds of $1,527,284. Accordingly, the Company recorded an additional debt discount of $1,527,284. The total debt discount of $1,690,359 is being amortized to interest expense over the three year term of the Convertible Notes.
Similarly, the Company allocated the proceeds from the sale of $120,000 of Convertible Notes on July 28, 2006, between the relative fair values of the warrants and the debt. The fair value of the warrants was calculated using the Black-Scholes valuation model with the following assumptions: market price of common stock on the date of grant of $0.17, exercise price of warrants of $0.20, risk free interest rate of 3.5%, expected volatility of 106% and expected life of two years. The resulting fair value of the warrants of $44,457 was recorded as a debt discount. The Company also recorded $20,000 of fees withheld by the lender as an additional debt discount. The Company calculated a beneficial conversion feature related to the remaining proceeds allocated to the debt portion of the Convertible Notes. This calculation resulted in a beneficial conversion feature which was greater than the amount of the allocated proceeds of
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 6 - SIGNIFICANT EVENTS (Continued)
CONVERTIBLE DEBENTURES (Continued)
$100,000. Accordingly, the Company recorded an additional debt discount of $100,000. The total debt discount of $120,000 is being amortized to interest expense over the two year term of the Convertible Notes. The Convertible Notes bear interest at 8% and have a maturity date of two years from the date of issuance. The Company is not required to make any principal payments during the term of the Convertible Notes. The Convertible Notes are convertible into 1,200,000 shares of the Company's common stock at the Note Holders' option as described in the agreement. The full principal amount of the Notes is due upon the occurrence of an event of default. The warrants are exercisable for a period of three years from the date of issuance and have an exercise price of $0.01 per share. In addition, the Company has granted the Note Holders registration rights and a security interest in substantially all of the Company's assets.
Also, the Company allocated the proceeds from the sale of $60,000 of Convertible Notes in December 2006, between the relative fair values of the warrants and the debt. The fair value of the warrants was calculated using the Black-Scholes valuation model with the following assumptions: market price of common stock on the date of grant of $0.06, exercise price of warrants of $0.06, risk free interest rate of 4.35%, expected volatility of 219% and expected life of one and one half years. The resulting fair value of the warrants of $23,905 was recorded as a debt discount. The Company also recorded $20,000 of fees withheld by the lender as an additional debt discount. The Company calculated a beneficial conversion feature related to the remaining proceeds allocated to the debt portion of the Convertible Notes. This calculation resulted in a beneficial conversion feature which was greater than the amount of the allocated proceeds of $60,000. Accordingly, the Company recorded an additional debt discount of $60,000. The total debt discount of $60,000 is being amortized to interest expense over the two year term of the Convertible Notes. The Convertible Notes bear interest at 8% and have a maturity date of two years from the date of issuance. The Company is not required to make any principal payments during the term of the Convertible Notes. The Convertible Notes are convertible into 1,200,000 shares of the Company's common stock at the Note Holders' option as described in the agreement. The full principal amount of the Notes is due upon the occurrence of an event of default. The warrants are exercisable for a period of three years from the date of issuance and have an exercise price of $0.01 per share. In addition, the Company has granted the Note Holders registration rights and a security interest in substantially all of the Company's assets.
A summary of the Secured Convertible Notes at June 30, 2007:
Convertible secured notes: 8% per annum
due December 14, 2008 $1,683,100
Convertible secured notes: 8% per annum
due July 28, 2008 180,000
Discount on debt, net of accumulated
amortization of $590,079 (867,746)
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Net convertible secured debentures $ 995,354
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Pursuant to the terms of a registration rights agreement entered into with the Note Holders, the Company is obligated to register for resale, within a defined time period, the shares underlying the warrants that were issued to the Note Holders under the Securities Act of 1933, as amended. The terms of the registration rights agreement provide that in the event that the registration statement does not become effective within 90 days after the date filed, the Company is required to pay to the Note Holders as
NANOSCIENCE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
NOTE 6 - SIGNIFICANT EVENTS (Continued)
CONVERTIBLE DEBENTURES (Continued)
liquidated damages, an amount equal to 2% per month of the outstanding principal amount of the Convertible Notes.
In accordance with EITF 00-19, "Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company's Own Common Stock," the fair value of the warrants amounting to $45,457 was recorded as a liability on the closing date of December 14, 2005. The fair value of the warrants was calculated using the Black-Scholes valuation model with the following assumptions: market price of common stock on the date of grant of $0.45, exercise price of warrants of $0.01, risk free interest rate of 3.5%, expected volatility of 124% and expected life of three years. The Company is required to re-measure the fair value of the warrants at each reporting period until the registration statement is declared effective. Accordingly, the Company measured the fair value of the warrants at December 31, 2005 using the Black-Scholes valuation model with the following assumptions: market price of common stock on the date of grant of $0.45, exercise price of warrants of $0.01, risk free interest rate of 3.5%, expected volatility of 185% and expected life of 2.96 years. The decrease in the fair market value of the warrants from $44,457 to $3,287 resulted in non-cash other income of $41,170. Upon the Company meeting its obligations to register the securities, the fair value of the warrants on that date will be reclassified to equity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS FORM 10-QSB.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This report contains certain forward-looking statements. These statements relate to future events or our future performance and involve known and unknown risks and uncertainties. Actual results may differ substantially from such forward-looking statements, including, but not limited to, the following:
o the progress and success of a specific research project being conducted at NYU and our ability to commercialize any technology and or products that might eventually result from such research;
o our ability to meet our cash and working capital needs;
o our ability to maintain our corporate existence as a viable entity; and
o other risks detailed in our periodic report filings with the SEC.
In some cases, you can identify forward-looking statements by terminology such as "may," "will" "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology.
These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
PLAN OF OPERATION
CESSATION OF OPERATIONS
As disclosed previously in our Form 10-KSB, we have experienced a chronic working capital deficiency, which has severely handicapped our ability to meet our business objectives. At the date hereof, we have current assets of $-0- and liabilities of approximately $1,992,496. We recorded no revenues during the nine months ended June 30, 2007. Further, we are in default with respect to loans in the principal amount of $1,790,000 from our principal creditor.
We have expended efforts to secure additional capital from both our principal creditor and other third parties, but such efforts have been unsuccessful. Currently, we have a severe working capital deficiency.
We are party to an Amended and Restated Research and License Agreement, dated September 12, 2003, (the "License Agreement") with New York University ("NYU") that was further amended on November 11, 2003. The License Agreement is our sole material asset. Under the terms of the License Agreement, NYU granted to us a license to certain pre-existing inventions and certain intellectual property to be generated by a designated research project being conducted at NYU relating to DNA nanotechnology. Pursuant to the License Agreement, we are required to pay to NYU an annual licensing fee. At the date hereof, we are in default of our payment obligations under the License Agreement in the amount of $347,500 and have received notice from NYU that NYU intends to terminate the License Agreement. Further, we are required to reimburse NYU additional amounts for patent fees and other expenses estimated to be approximately $80,000 at the date hereof.
Accordingly, we determined on December 1, 2006 to cease operations immediately and, at the request of such creditor appointed a director designated by such creditor to our Board of Directors. Immediately following such appointment, our existing directors resigned effective immediately and terminated their association with us. Accordingly, such creditor may be deemed to control us at the date of the filing of this Report.
SHELL COMPANY STATUS
As a result of our cessation of operations and the termination of the License Agreement, we became a "blank check" or "shell company" whose sole purpose at this time is to locate and consummate a merger or acquisition with a private entity. Many states have enacted statutes, rules and regulations limiting the sale of
securities of "blank check" companies in their respective jurisdictions. Management does not believe it will undertake any efforts to cause a market to develop in our securities until such time as we have successfully implemented our business plan described herein. However, if we intend to facilitate the eventual creation of a public trading market in our outstanding securities, we must consider that our securities, when available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker- dealers to sell our securities and also may affect the ability of holders of our securities to sell their securities in any market that might develop therefor.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks." Because our securities are "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The rules may further affect the ability of owners of our common stock to sell our securities in any market that might develop for them.
Our business plan is to seek, investigate, and, if warranted, acquire one or more properties or businesses, and to pursue other related activities intended to enhance shareholder value. The acquisition of a business opportunity may be made by purchase, merger, exchange of stock, or otherwise, and may encompass assets or a business entity, such as a corporation, joint venture, or partnership. We have very limited capital, and it is unlikely that we will be able to take advantage of more than one such business opportunity. At the present time, we have not identified any business opportunity that it plans to pursue, nor have we reached any agreement or definitive understanding with any person concerning an acquisition.
It is anticipated that our officers and directors may contact broker-dealers and other persons with whom they are acquainted who are involved in corporate finance matters to advise them of our existence and status and to determine if any companies or businesses they represent have an interest in considering a merger or acquisition with us. We can provide no assurance that we will be successful in finding or acquiring a desirable business opportunity, given the limited funds that are expected to be available to us for acquisitions, or that any acquisition that occurs will be on terms that are favorable to us or our stockholders.
We anticipate that the business opportunities presented to us will (i) be recently organized with no operating history, or a history of losses attributable to under-capitalization or other factors; (ii) be experiencing financial or operating difficulties; (iii) be in need of funds to develop a new product or service or to expand into a new market; (iv) be relying upon an untested product or marketing concept; or (v) have a combination of the characteristics mentioned in (i) through (iv). We intend to concentrate our acquisition efforts on properties or businesses that we believe to be undervalued. Given the above factors, investors should expect that any acquisition candidate may have a history of losses or low profitability.
We do not propose to restrict our search for investment opportunities to any particular geographical area or industry, and may, therefore, engage in essentially any business, to the extent of our limited resources. This includes industries such as service, finance, natural resources, manufacturing, high technology, product development, medical, communications and others.
As of the date hereof, we have two part time employees and have no plans for retaining employees as our business warrants the expense, or when the technology developed pursuant to our License Agreement becomes commercially feasible. We may find it necessary to periodically hire part-time clerical help on an as-needed basis. We also fulfill several of our management functions through the use of independent contractors. These functions include legal, accounting and investor relations. Currently, our part time employees are our President and our CFO.
In the opinion of management, inflation has not and will not have a material effect on our business and operations in the immediate future.
RESULTS OF OPERATIONS
For the three month period ended June 30, 2007, we did not have any revenues and incurred a net loss of $208,294 compared to a loss of $615,449 for the three month period ended June 30, 2006. For the nine month period ended June 30, 2007, we did not have any revenues and incurred a net loss of $578,582 compared to a loss of $1,461,462 for the nine month period ended June 30, 2006. The decrease in net loss was the result of loss of our license agreement with NYU and the cessation of any related operations. Management anticipates that general and administrative expenses will be approximately $3,000 per month for the remainder of our fiscal year ending September 30, 2007.
We had a net decrease in cash during the nine months ended June 30, 2007 of $78,803, compared to a net decrease of $593,724 in 2006. We received our operating funds during the nine months ended June 30, from the sale of $60,000 and $530,593 in convertible debenture proceeds to Cornell Capital, LP and Highgate House Funds, Ltd. in 2006 and 2005, respectively. We also received $16,000 and $10,000 from related party loans during the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2007, we had cash and cash equivalents of $-0- compared to $2,803 as of September 30, 2006. Our liabilities exceeded our cash by $1,992,496 at June 30, 2007. Our convertible debentures are net of the discount of $867,746. Presently, we intend to raise funds for operating expenses and to fulfill our funding requirements from the sale of shares of our convertible debt. If we are unable sell sufficient shares to satisfy our funding needs, we will have to look at alternative sources of funding. We do not have any firm plans as to the source of this alternative funding and there is no assurance that the funds will be available or, that even if they are available, that they will be available on terms that will be acceptable to us.
NET OPERATING LOSS
We have accumulated approximately $2,700,000 of net operating loss carryforwards as of June 30, 2007, which may be offset against taxable income and income taxes in future years. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. The carry-forwards expire in the year 2027. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards which can be used. No tax benefit has been reported in the financial statements for the year ended September 30, 2006 or the nine month period ended June 30, 2007 because there is a 50% or greater chance that the carryforward will not be used. Accordingly, the potential tax benefit of the loss carryforward is offset by a valuation allowance of the same amount.
ITEM 3. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to cause the material information required to be disclosed by us in the reports that we file or submit under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation.
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS
The following unregistered securities have been issued since October 1st, 2006:
Valued
Date No. of Shares Title At Reason
December 29, 2006 250,000 Common $0.06 Services
January 17, 2007 108,980 Common $0.04 Debt conversion
March 28, 2007 113,281 Common $0.03 Debt conversion
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
This Item is not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This Item is not applicable.
ITEM 5. OTHER INFORMATION
This Item is not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 31.1 Certification of C.E.O. Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Principal Accounting Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
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(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NANOSCIENCE TECHNOLOGIES, INC.
Date: August 20, 2007 By: /S/ JOHN T. RUDDY
---------------------
JOHN T. RUDDY
President, C.E.O., Chief Financial Officer
and Director
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John T. Ruddy, Chief Executive Officer of Nanoscience Technologies, Inc. (the "registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Nanoscience Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of our financial reporting internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: August 20, 2007 /s/ JOHN T. RUDDY John T. Ruddy Chief Executive Officer and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Nanoscience Technologies, Inc., (the "Company") on Form 10-QSB for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John T. Ruddy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
1. The Report fully complies with the requirements of section 13 (a) or 15
(d) of the Securities and Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ JOHN T. RUDDY |
John T. Ruddy
Chief Executive Officer and Chief Financial Officer
August 20, 2007
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certifications are accompanying the Company's Form 10-QSB solely
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code) and is not
being filed as part of the Form 10-QSB or as a separate disclosure document.