American Nano Silicon (OTC BB:ANNO)

To date, the Company has not commenced full-scale manufacture at its new facilities, although limited production began on January 2, 2012. The primary reason is a lack of working capital to purchase raw materials for its products. In the past, the Company received seller financing for its raw material purchases from its single largest supplier and customer. However, in an effort to minimize this concentration risk, the Company is actively negotiating with other raw materials suppliers to secure beneficial terms and long-term cooperation agreements to facilitate production at its new site. The Company has a working capital deficiency, has suspended manufacturing operations in May 2011 as part of an effort to relocate the production facilities and needs additional cash resources to maintain its operations. These factors raise substantial doubt about our ability to continue as a going concern. Our auditors have expressed substantial doubt about the Company’s ability to continue as a going concern in the audit report on our consolidated financial statements included with the Annual report on Form 10K for the year ended September 30, 2011. In December 2011, the Company fully completed its relocation to the new manufacturing facility and began limited production on January 2, 2012.The Company will need additional funds to meet its operating and financing obligations until sufficient cash flows are generated from anticipated production to sustain operations and to fund future development and financing obligations. The Company’s largest shareholder and President, Mr. Pu Fachun has the intention to continue providing necessary funding for the Company’s normal operations.

To date, the Company has not commenced full-scale manufacture at its new facilities. The primary reason is a lack of working capital to purchase raw materials for its products. In the past, the Company received seller financing for its raw material purchases from its single largest supplier and customer, Chongqing Trading Company which supplied the Company with 99% and 98% of its raw materials and also accounted for 44% and 35% of revenues in the past two fiscal years. However, in an effort to minimize this concentration risk, the Company is actively negotiating with other raw materials suppliers to secure beneficial terms and long-term cooperation agreements to facilitate production at its new site. As a result of our negative cash flow and our inability to commence full-scale manufacture as of the date of this report, our auditors have issued a going concern opinion to us. If the Company is not able to reach favorable trade terms, it will seek additional capital resources, such as bank loans, an equity raise, or rely on our management to further loan capital to the Company, in order to fund these work capital needs.

Fiscal 2011 Results

• Sales of $16.1 million compared to sales of $23.4 million in FY 2010, a decrease of $7.3 million
• Net income was $3.4 million as compared to a net loss of $4.3 million in FY 2010, an increase of $7.7 million or 179 percent.
• EPS for fiscal 2011 were $0.11 vs a loss of ($0.16) in 2010

Business Outlook

"We are very excited about our prospects in 2012," remarked Mr. Pu. "Our new flame retardant additive will be a welcome addition to our product line, and our new facilities and increased product diversification capacities will help us better meet the demands of our customers. Our goal is to establish our patented technology, Micro Nano Silicon, in a broad range of industries as many of our products based on this unique technology have shown to be more cost effective and environmentally friendly than competitors. While we look to provide additional industries with more effective, cleaner additives, we will also strive to build upon our understanding of nano technology and develop other practical, cost effective and eco friendly products."

On September 6, 2011 American Nano Silicon Technologies, Inc. (the “Registrant”) acquired the minority interest in its subsidiary corporations from Pu Fachun, who is the Registrant’s Chief Executive Officer. In exchange for those interests, the Registrant issued to Mr. Pu 1,650,636 shares of the Registrant’s common stock. The issued shares represented five percent of the outstanding shares after the issuance. That number of shares were issued because the equity interests acquired represented five percent of the equity in the Registrant’s subsidiaries.

Second Quarter 2011 Financial Highlights:

• Revenue increased 29%, from $4.9 million in Q2 2010 to $6.3 million in Q2 2011
• Gross profit improved 27%, from $1.1 million in Q2 2010 to $1.5 million in Q2 2011
• Operating income rose 43%, from $0.95 million in Q2 2010 to $1.36 million in Q2 2011
• Net income increased from ($4.4 million) in Q2 2010 to $0.5 million in Q2 2011
• EPS was $0.01 vs. $(0.17).

"I am very pleased that ANNO had a strong second quarter," said Fachun Pu, ANNO's Chief Executive Officer. "Solid growth in our core business, our phosphate-free detergent additive, along with excellent progress in our emerging business, our accelerator and enforcement additive for concrete, drove 29 percent revenue growth from the first quarter of 2010 to the first quarter of 2011. We are especially delighted that our accelerator and enforcement additive for concrete has been embraced by China's rapidly developing construction industry. We are very confident about our future and we intend to continue to invest aggressively in our core areas of business."

Business Outlook

In the future, ANNO looks to produce approximately 30,000 tons per year of its Micro Nano Silicon based flame retardant additive for rubber and plastic materials. The Company considers its flame retardant a technologically and economically viable alternative to halogenated flame retardant products. Compared to its halogenated-based competitors, ANNO's research indicates that its flame retardant additive is more cost effective due to its superior flame retardancy, lower specific gravity, low loading level, and non-blooming characteristic. The Company's studies also show that when its flame retardant is exposed to flame, it is less toxic with lower smoke density and less invasive odor than competitive products.

"Since our sales already exceed our production capacity, we plan to further expand our current capacity for our finished Micro Nano Silicon products from 30,000 tons to 120,000 tons per year. Additionally, we intend to strengthen our sales force so that we are better able to market our products beyond our regional base of customers. Our goal is to establish Micro Nano Silicon in a broad range of industries as our current products based on this unique technology have shown to be more cost effective and environmentally friendly than competitors. We will strive to develop additional uses for Micro Nano Silicon as we look to provide other industries with more effective, cleaner additives," stated Mr. Fachun Pu.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)
				For the Three months Ended
				December 31
				2010				2009
Revenues				$	5,929,436			$	4,154,011
Cost of Goods Sold					4,458,559				3,198,663
Gross Profit					1,470,877				955,348
Operating Expenses
	Research and development expense				-				4,732
	Selling, general and administrative				170,983				52,238
		Income from operations			1,299,894				898,378
Other Income and Expense
	Interest expense				(8,165	)			(32,692	)
	Change in fair value of warrant liabilities				1,484,396				-
		Total other expense			1,476,231				(32,692	)
Income  Before  Income Taxes					2,776,125				865,686
Provision for Income Taxes					193,160				146,918
Net Income					2,582,965				718,768
Less: net income attributable to the noncontrolling interest					103,515				46,665
Net Income attributable to American Nano silicon Technologies, Inc					2,479,450				672,103
Other comprehensive income (loss)
	Foreign currency translation adjustment				198,325				(665	)
Comprehensive Income				$	2,677,775			$	671,438
Income per common share
	Basic			$	0.08			$	0.03
	Diluted			$	0.08			$	0.03
Weighted average number of common shares
	Basic				30,989,306				26,578,767
	Diluted				31,607,119				26,578,767

GeoTeam® Note: Adjusted EPS for the 2010 December quarter was $0.04, after subtracting warrant gain.

• During the quarter ended December 31, 2010, our revenue from the operation of accelerator additive for cement was $870,289, presenting for approximately 15% of the total revenue for the quarter. During the quarter ended December 31, 2009, we did not have this business section with gross margin rate as compare to our detergent and detergent additive section. This is another reason for our increased revenue. As of right now, in China, the increasing number of infrastructure projects drives the demand for cement and other construction materials. In 2010, approximately two billion square meters of cement were produced in China, approximately half of worldwide production. Our management believes that e will be able to market Micro Nano Silicon to the cement industry to lower production costs and assist cement manufacturers' compliance with energy saving regulations. Going forward, we plan to increase our sales force to market our products beyond our regional base of customers. Since our sales already exceed the production capacity of our plant, we are investing aggressively in an expansion of our production capacity.

• Within the next several quarters, the Company expects to develop applications for Micro-Nano Silicon in industries other than the non-phosphate detergent market. Beginning from the third quarter of fiscal 2010, the Company commenced to distribute micro nano silicon as an accelerator for cement, thereby entering into construction material industry. Other potential applications for Micro-Nano Silicon include use by the paint industry as a pigment agent and use by the plastics industry for structural reinforcement. These and other applications would affect our cost of goods sold, as the products that we would offer to the paint and plastics industries would involve greater manufacturing cost than our current detergent product. In the meantime, as we expand production of our detergent product, we are looking to manage our cost of goods sold more efficiently. In particular, the expansion of our annual production capacity for Micro-Nano Silicon from 30,000 to 120,000 tons should enable us to manage our cost ratio more efficiently, which could increase our gross profit accordingly.

• The increase in SG&A expense was primarily related to the expenses arising from consulting expenses, investor relation fee and legal fee, and compensation for directors. We expect that the recent financing will represent only the first step of a more intensive relationship with the U.S. capital markets. If that is the case, then SG&A expense in the future are likely to include increased legal, accounting and other expenses relating to our obligations as a U.S. public company.

• Although our plans to expand our facilities and increase research and development activities will increase our operating expenses in the future, we believe that the top line benefits will more than compensate for the increased expenses, and that we will realize increased income from operations in future periods.

AMERICAN NANO SILICON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009
(Expressed in US dollars)
				For the Years Ended
				September 30,
				2010				2009
Revenues				$	23,403,930			$	15,916,813
Cost of Goods Sold					17,764,941				12,294,361
Gross Profit					5,638,989				3,622,452
Operating Expenses
	Research and development expense				82,934				19,074
	Selling, general and administrative				1,062,726				367,901
		Income from operations			4,493,329				3,235,478
Other Income and Expense
	Interest expense				(32,766	)			(32,658	)
	Loss on private placement				(4,527,138	)			-
	Change of fair value of derivative liabilities				(3,102,455	)			-
	Impairment loss from property and equipment				(366,642	)			-
	Other income (expense)				1,754				(97	)
		Total other expense			(8,027,247	)			(32,756	)
Income  Before  Income Taxes					(3,533,918	)			3,202,722
Provision for Income Taxes					747,214				653,610
Net Income (Loss)					(4,281,132	)			2,549,112
Less: net income attributable to the noncontrolling interest					301,851				187,230
Net Income (Loss)  attributable to American Nano Silicon Technologies, Inc.					(4,582,983	)			2,361,882
Other comprehensive income (loss)
	Foreign currency translation adjustment				319,756				(22,298	)
Comprehensive Income (Loss)				$	(4,263,227	)		$	2,339,584
Income  (loss) per common share
	Basic			$	(0.16	)		$	0.09
	Diluted			$	(0.16	)		$	0.09
Weighted average number of common shares
	Basic				28,373,412				26,568,520
	Diluted				28,373,412				26,568,520

GeoTeam® Note: Non-GAAP EPS for

• Full year 2010 was $0.13.
• 2010 Fourth quarter was $0.04 vs. $0.03 in 2009.

 

Going forward, if we are able to raise additional capital, we expect to add more sales force to market our products beyond our regional base of customers.

The Company’s capital resources and cash flow are adequate to sustain operations as currently constituted. However, the Company expects to incur substantial additional costs, including costs related to ongoing research and development activities. The Company's future cash requirements will depend on many factors, including continued scientific progress in our research and development programs, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, competing technological and market development and the cost of product commercialization. We will require external financing to sustain our operations, perhaps for a significant period of time. We intend to seek additional funding through grants and through public or private financing transactions. At the present time, however, we have no commitment for financing from any source

First quarter December 2009 excerpts:

Cost of goods sold, which consists of labor, overhead and product cost, was $3,198,663 for the quarter ended December 31, 2009, representing an increase of $274,598 or 9% as compared to $2,924,065 for the quarter ended December 31, 2008. This increase in cost of goods sold was close to the increase in revenue. However, since we commenced full scale production of Micro-Nano Silicon in October, 2009, our per unit cost of goods sold began to decline. We are looking to manage our cost of goods sold more efficiently in fiscal 2010.

In line with our increased revenue, our net income increased to $672,103 for the quarter ended December 31, 2009 as compared to $502,678 for the quarter ended December 31, 2008. Our net income ratio is increasing from quarter to quarter. As our core product segment is gaining more market awareness, we expect to experience steady growth.