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CTLE > SEC Filings for CTLE > Form 10-Q on 18-Feb-2014All Recent SEC Filings

Show all filings for NANO LABS CORP.

Form 10-Q for NANO LABS CORP.


18-Feb-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

We were incorporated as Colorado Ceramic Tile Inc. in the State of Colorado on March 27, 1995 primarily to sell and install stone, tile and marble products used in residential and commercial buildings. During April 2012, we were reorganized by transferring all of our assets to CCT, Inc., our wholly-owned subsidiary ("CCT"). We subsequently sold CCT to Sandy Venezia, our former officer and director, for $500.00. On April 11, 2012, we filed an amendment to our articles of incorporation with the Colorado Secretary of State changing our name from "Colorado Ceramic Tile Inc." to "Nano Labs Corp."

Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "Nano Labs" refers to Nano Labs Corp.

CURRENT BUSINESS OPERATIONS

We are a nanotechnology research and development company. We are able to access resources that encompass nearly thirty years of research and development in nanotechnology as well as hundreds of peer-reviewed and published research papers and other scholarly material. Our research and development team of scientists, designers, and engineers is focused on creating a portfolio of advanced products that could provide benefits to a variety of industries as further discussed below including: (i) consumer products, (ii) energy, (iii) materials, and (iv) healthcare. Through the use and integration of proprietary nano compounds, our goal is to evolve common products into new, revolutionary products in order to make the world a better place.

Asset Purchase Agreement

On October 10, 2012, we entered into that certain asset purchase agreement (the "Asset Purchase Agreement") with Dr. Victor Castano ("Castano"). In accordance with the terms and provisions of the Asset Purchase Agreement, Castano sold, assigned and transferred to us all rights and assets related to Castano's Nano Coatings Technology (the "Nano Coating Technology") including, but not limited to: (i) all plans, specifications, drawings, concepts, designs, engineering studies and reports, test results, models, manufacturing processes and flowcharts; (ii) all raw materials, supplies, work in progress, finished product and lists of suppliers; (iii) all software programs and software codes relating thereto and all copies and tangible embodiments of the software programs and software code (in source and object code form) together with all documentation related to such programs and code; (iv) all intellectual property rights including all intellectual property, patent applications, patents, trademarks, tradenames, copyrights, and the exclusive right for us to hold ourselves out to be the successor to the Nano Coatings Technology;(v) all licenses to the Nano Coatings Technology and properties of third parties (including licenses with respect to intellectual property rights owned by third parties); (vi) claims, royalty rights, deposits, and rights and claims to refunds; (vii) all Internet domain names and registrations held by Castano that relate to the Nano Coatings Technology; (viii) all franchises, permits, licenses, agreements, waivers and authorizations from, issued or granted by any governmental authority; and (ix) copies of marketing and sales information, including pricing and customer lists. In consideration thereof and in further accordance with the terms and provisions of the Asset Purchase Agreement, we issued an aggregate 101,000,000 shares of our restricted common stock to Dr. Castano.


Universal Assignment

On December 13, 2013, we entered into that certain universal assignment (the "Assignment") with Castano pertaining to an invention entitled "Nanotechnological Thermal Insulating Coating and Uses Thereof" for which a patent application was filed with the United States Patent, Copyright and Trademark Office on October 31, 2012, Serial Number 61/720,716 (the "Nanotechnology Patent"). In accordance with the terms and provisions of the Assignment, Castano transferred and assigned to us his whole right, title and interest for the United States and Canada and all other countries in and to the said Nanotechnology Patent.

Nanotechnology Gasoline

On September 24, 2013, we presented test results relating to a proprietary nanotechnology which replaces commercial gasoline. We have successfully tested our Nanotechnology Gasoline ("Nanotech Gasoline"). The Nanotech Gasoline combines 60% commercial grade gasoline with 40% ordinary drinking water plus our proprietary nanotechnology. The result may mean an alternative to existing additives, like Ethanol, MTBE, Benzene, Methanol, and Aromatics additives that are harmful to the environment. We replaced 40% of gasoline with water and nanotechnology which thereby dramatically reduces the need of gasoline by over a third, thereby increasing fuel efficiency and reducing environmental emissions. We reported that five gasoline mixtures were successfully tested; the tests were repeated three times over a period of thirteen months. Management believes that the Nanotech Gasoline mixture combines our technology with normal tap water and gasoline which does not separate. In fact, it has remained intact after many months of testing. Also, the Nanotech Gasoline does not freeze at temperatures of minus 40 degrees Celsius. Management further believes that this Nanotech Gasoline could dramatically increase profits for the oil companies that they could pass on to consumers, and at the same time dramatically decrease the harmful emissions that contribute to global warming.

Testing Results

On September 27, 2013, we announced testing results on OTI Canada Group's (OTI) laboratory reference number M13-840 according to ASTM test protocol of our Nanotech Gasoline. OTI reported the following key results for Octane Number Research (600rpm), Octane Number Motor (900rpm) and Octane Index:

ASTM TEST METHOD D2699 Octane Number Research: >100 ASTM TEST METHOD D2700 Octane Number Motor: 92.2 ASTM TEST METHOD CALC Octane Index: >96.1

Management believes that the Nanotech Gasoline as a gasoline-water emulsion represents a major breakthrough. Management is of the position that if we examine each test of the Nanotech Gasoline and compare it to 'Super' gasoline, it is clear and obvious that the Nanotech Gasoline compares extremely well and is much better for the Octane Index. This is an extremely important point, because each one Octane Index upwards costs more money as evidenced by the price between "Regular" and "Super." To raise the Octane, the refineries have to perform certain petroleum cuts, add aromatics, in some places MTBE, and now even Anhydrous Ethyl Alcohol (AEA).


Exova's Testing Results

On September 30, 2013, we announced further test results of our Nanotech Gasoline. Exova performed the ASTM D-240, the Standard Test Method for Heat of Combustion, using a Parr Calorimeter. The heat of combustion, as determined by this test method, is designated as one of the chemical and physical requirements of both commercial and military turbine fuels and aviation gasoline. Exova reported BTU values of 35,659 kJ/kg for our Nanotech Gasoline compared to "Regular" gasoline at 41,134 kJ/kg. It was expected that the Nanotech Gasoline, since it contains water, would have a lower calorific value. Management believes that this is reflected by the above results: by calculations it is only about 13.3% less, As a general rule, the higher the calorific value, the better the mileage. However, our novel gasoline-water emulsion has a surprising high calorific value comparable to regular gasoline. The main advantages of using emulsified fuels, instead of the pure fuel itself, are environmental and economic. As one of the different solutions to the problem of world pollution, emulsion fuel technology has received close attention, because it may provide better combustion and would contribute to a reduction in emissions. There are also great expectations that it would lead to a reduction in fossil fuel consumption and carbon dioxide emissions on a global level, eventually contributing to providing a final solution to environmental problems, such as effluent gas. It is an established fact that water in the emulsion fuels is shown to improve combustion efficiency and contribute to emission reduction.

As of the date of this Quarterly Report, we continue to run tests against commercial grade gasoline in the market today. The ultimate tests will run real comparisons of both fuels side-by-side. For the refineries, management believes that the use of the Nanotech Gasoline as an Octane Index Booster, blending naphtha with the nano base by simply using standard circulation pumps, would be very economical. This is another area we will begin testing immediately starting with the basic low Octane Naphtha distillation cut and see how much we can raise the Octane Index.

We are at the development stage here and working with select partners to continue testing and discussions for commercialization.

MATERIAL AGREEMENTS

Soluciones Nanotechnologicas S.L. Collaboration Agreement

Effective on September 25, 2013, we entered into that certain collaboration agreement (the "Collaboration Agreement") with Soluciones Nanotechnologicas, S.L. ("Nanotex"), which is a company organized under the laws of Spain that has developed in-house technologies for the industrial production of superparamagnetic nanoparticles. In accordance with the terms and provisions of the Collaboration Agreement, we will work together with Nanotex to launch an industrial applications development program ("ADP") to design and develop new industrial applications suitable for commercialization of "nano scale magnetic particles." The Collaboration Agreement further outlines the establishment of a joint work group for the purpose of creating a consistent product which addresses the growing market share worldwide in the nano tech magnetics industry. The initial project managers shall be Dr. Victor Castano, our Chief Scientific and Technological Officer and a member of our Board of Directors, and Fernando Mores Egea of Nanotex.

The terms and provisions of the Collaboration Agreement further provide that we will work with Nanotex to develop and commercialize nanomagnetic technology, patents, utility models and industrial designs for industrial and commercial applications. All technical information in the form of test and performance data from tests or samples provided under the Collaboration Agreement shall be the jointly owned property of us and Nanotex.

Lastly, in accordance with the terms and provisions of the Collaboration Agreement, any invention, whether patentable or not, provided by either party during the course of performance of obligations under the Collaboration Agreement where the inventive concept relates magnetic nano/sub micron particles functionalization, purifications, sizing or other manipulations shall be the sole property of the party responsible for the invention and only that party shall be entitled to apply for patent protection. Any invention owned solely by either party may be used by the other party for the purposes of the Collaboration Agreement; however, any commercializations of inventions made under the Collaboration Agreement shall not be included under its terms and must be negotiated separately.


RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited financial statements and the related notes that appear elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Quarterly Report. Our reviewed financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

We are a development stage company and have not generated any revenue. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

Six Month Period Ended December 31, 2013 Compared to Six Month Period Ended December 31, 2012.

Our net loss for the six month period ended December 31, 2013 was ($17,686,208) compared to a net loss of ($122,762) during the six month period ended December 31, 2012, an increase of $17,563,446. We generated no revenue for the six month periods ended December 31, 2013 and December 31, 2012, respectively.

During the six month period ended December 31, 2013, we incurred operating expenses of $317,751 compared to $122,762 incurred during the six month period ended December 31, 2012, an increase of $194,989. During the six month period ended December 31, 2013, operating expenses consisted of: (i) consulting fees of $136,965 (2012: $-0-); (ii) general and administrative of $90,730 (2012:
$112,762); (iii) professional fees of $45,367 (2012: $-0-); (iv) travel of $21,957 (2012: $-0-); and (v) wages of $22,732 (2012: $-0-). General and administrative expenses also generally include corporate overhead, financial and administrative contracted services, marketing, legal, auditor, edgarizing and transfer agent fees.

Loss from operations for the six month period ended December 31, 2013 was ($317,751) compared to loss from operations of ($112,762) during the six month period ended December 31, 2012. Operating expenses increased during the six month period ended December 31, 2013 generally due to increased consulting and professional fees based upon an increase in scope and scale of business operations.

During the six month period ended December 31, 2013, we incurred other expense of $17,368,457 relating to interest expense - derivative associated with the derivative liability on our outstanding convertible notes.

Therefore, our net loss and loss per share during the six month period ended December 31, 2013 was ($17,686,208) or ($0.09) per share compared to a net loss and loss per share of ($112,762) or $0.00 per share during the six month period ended December 31, 2012. Net loss increased substantially during the six month period ended December 31, 2013 as compared to December 31, 2012 as a result of the derivative interest expense attributable to the outstanding convertible notes payable. The weighted average number of shares outstanding was 187,476,648 and 179,125,000 for the six month periods ended December 31, 2013 and December 31, 2012.


Three Month Period Ended December 31, 2013 Compared to Three Month Period Ended December 31, 2012.

Our net loss for the three month period ended December 31, 2013 was ($5,896,974) compared to a net loss of ($112,670) during the three month period ended December 31, 2012, an increase of $5,784,304. We generated no revenue for the three month periods ended December 31, 2013 and December 31, 2012, respectively.

During the three month period ended December 31, 2013, we incurred operating expenses of $151,550 compared to $112,670 incurred during the three month period ended December 31, 2012, an increase of $38,880. During the three month period ended December 31, 2013, operating expenses consisted of: (i) consulting fees of $33,494 (2012: $-0-); (ii) general and administrative of $51,910 (2012:
$112,670); (iii) professional fees of $34,407 (2012: $-0-); (iv) travel of $14,007 (2012: $-0-); and (v) wages of $17,732 (2012: $-0-). General and administrative expenses also generally include corporate overhead, financial and administrative contracted services, marketing, legal, auditor, edgarizing and transfer agent fees.

Loss from operations for the three month period ended December 31, 2013 was ($151,550) compared to loss from operations of ($112,670) during the three month period ended December 31, 2012. Operating expenses increased during the three month period ended December 31, 2013 generally due to increased consulting and professional fees based upon an increase in scope and scale of business operations.

During the three month period ended December 31, 2013, we incurred other expense of $5,745,424 relating to interest expense - derivative associated with the derivative liability on our outstanding convertible notes.

Therefore, our net loss and loss per share during the three month period ended December 31, 2013 was ($5,896,974) or ($0.03) per share compared to a net loss and loss per share of ($112,670) or $0.00 per share during the three month period ended December 31, 2012. Net loss increased substantially during the three month period ended December 31, 2013 as compared to December 31, 2012 as a result of the derivative interest expense attributable to the outstanding convertible notes payable. The weighted average number of shares outstanding was 204,125,000 and 179,125,000 for the three month periods ended December 31, 2013 and December 31, 2012.


LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2013, our current assets were $6,773 and our current liabilities were $27,886,991, which resulted in a working capital deficit of $27,886,218. As of December 31, 2013, current assets were comprised of $6,773 in cash. As of December 31, 2013, current liabilities were comprised of: (i) $24,093 in accounts payable; (ii) $1,046,000 in convertible notes payable; and
(iii) $26,816,898 in derivative liability. See " -- Material Commitments".

As of December 31, 2013, our total assets were $6,773 comprised of current assets. The decrease in total assets during the six month period ended December 31, 2013 from fiscal year ended June 30, 2013 was primarily due to a decrease in cash.

As of December 31, 2013, our total liabilities were $27,886,218 comprised entirely of current liabilities. The increase in liabilities during the six month period ended December 31, 2013 from fiscal year ended June 30, 2013 was primarily due to the increase in the derivative liability of $26,816,898.

Stockholders' deficit increased from ($10,194,010) as of June 30, 2013 to ($27,880,218) as of December 31, 2013.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the six month period ended December 31, 2013, net cash flows used in operating activities was ($17,686,208) compared to ($-0-) for the six month period ended December 31, 2012. Net cash flows used in operating activities consisted primarily of a net loss of $17,686,208 (2012: ($122,762), which was adjusted by $17,368,457 (2012: $-0-) of derivative interest calculated from the outstanding convertible notes. Net cash flows used in operating activities was further changed by ($16,328) (2012: $-0-) of accounts payable and accrued expenses and $-0- (2012: $122,762) in related party payables.


Cash Flows from Investing Activities

For the six month period ended December 31, 2013 and December 31, 2012, net cash flows used in investing activities was $0.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments. For the six month period ended December 31, 2013, net cash flows provided from financing activities was $280,000 compared to $0 for the six month period ended December 31, 2012. Cash flows from financing activities for the six month period ended December 31, 2013 consisted of $-0- .

PLAN OF OPERATION AND FUNDING

We expect that future working capital requirements will to be funded through a combination of our existing funds, debt and equity, and potential generation of revenues. Our working capital requirements are expected to increase in line with the growth of our business.

Our principal demands for liquidity are to increase research and development, capacity for developing products, inventory purchase, potential sales distribution, and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment and/or inventory, and the expansion of our business, through cash flow provided by funds raised through proceeds from the issuance of debt or equity.

Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. We may finance expenses with further issuances of securities and debt issuances. Any additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all.

MATERIAL COMMITMENTS

Convertible Note Payable

On December 30, 2012, the Company entered into a convertible promissory note with Globe Financial Corp. for $201,000 bearing no interest and convertible at a 50% discount to market. The note is payable on demand. Since the conversion rate is discounted to market, the Company calculated a derivative liability of $7,017,892 at December 31, 2013 using the Black Scholes Model.

On December 31, 2012, the Company entered into a convertible promissory note with Globe Financial Corp. for $90,000 bearing no interest and convertible at a 50% discount to market. The note is payable on demand. Since the conversion rate is discounted to market, the Company calculated a derivative liability of $3,359,522 at December 31, 2013 using the Black Scholes Model.

On January 31, 2013 and March 31, 2013, the Company entered into a convertible promissory note with Asus Global Holdings Inc. for $100,000and $375,000, respectively, bearing no interest and convertible at a 50% discount to market. The note are payable on demand. Since the conversion rate is discounted to market, the Company calculated a derivative liability of $15,318,695 at December 31, 2013 using the Black Scholes Model.


In the three months ended September 30, 2013 the Company entered into a new convertible note agreement with Asus Global Holdings for $150,000 with the same terms as previously noted. The Company recorded a derivative liability of $761,637 at December 31, 2013 using the Black Scholes Model.

During the three month period ended December 31, 2013, the Company further entered into similar convertible note agreements for $130,000 with the same terms as previously noted. The Company recorded a derivative liability of $359,15 at December 31, 2013 using the Black Scholes Model.

At December 31, 2013, the balance due against these convertible notes was $1,046,000. In connection with the issuance of these convertible notes the Company recorded a derivative liability of $26,816,898 as of December 31, 2013.

Consulting Agreements

On October 10,2012, the Company executed a three year consulting agreement with Dr. Victor Castano (the "Castano Agreement"). In accordance with the terms and provisions of the Castano Agreement, the Company shall pay Dr. Castano a monthly fee of $15,000 plus reimbursement for travel related expenses.

On January 1, 2013, the Company executed a three year consulting agreement with Felipe Estevan Samario Nino (the "Nino Agreement"). In accordance with the terms and provisions of the Nino Agreement, the Company shall pay Mr. Nino a monthly fee of $5,000 plus reimbursement for travel related expenses.

PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any significant equipment during the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

GOING CONCERN

The independent auditors' report accompanying our June 30, 2013 and June 30, 2012 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a working capital deficit and are currently in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue as a going concern.

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