10QSB/A 1 nnos10q093004.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarter ended September 30, 2004 Commission file number 000-31735 NANOSIGNAL CORPORATION, INC. (Name of Small Business Issuer in its charter) Nevada 88-0231200 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 5440 W Sahara Ave, Suite 206 (Address of principal executive offices) Las Vegas, NV 89146 (City, State and Zip Code) (702) 227-5111 Company's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: None. Name of each exchange on which registered: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period of that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No As of September 30, 2004 there were 238,757,788 shares of Common Stock of the issuer outstanding. The aggregate number of shares of the voting stock held by non-affiliates on September 30, 2004 was 238,757,788. The market value of these shares, computed by reference to the market closing price on September 30, 2004 was $4,775,156. For the purposes of the foregoing calculation only, all directors and executive officers of the registrant have been deemed affiliates. INDEX Page No. PART I - MANAGEMENT DISCUSSION AND ANALYSIS Item 1. Financial Statements Balance Sheet as of September 30, 2004 4 Statement of Expenses for Three Months ended September 30, 2004 and 2003 5 Statement of Cash Flows for the Three Months ended September 30, 2004 and 2003 6 Notes to Financial Statements 7- 8 Item 2. Business 9-13 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matter to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 13 Page Two PART I MANAGEMENT DISCUSSION AND ANALYSIS Item 1 Financial Statements Pollard-Kelley Auditing Services, Inc Auditing Services West Market St, Suite 307, Fairlawn, OH 44333 330-864-2265 Independent Certified Public Accountants Board of Directors NanoSignal Corporation, Inc. We have reviewed the accompanying consolidated balance sheets of NanoSignal Corporation, Inc. as of September 30, 2004 and the related consolidated statements of income, stockholders' equity, and cash flows for the three-month and since inception periods then ended. These interim financial statements are the responsibility of the Company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board, the object of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The Company has not generated significant revenues or profits to date. This factor among others may indicate the Company will be unable to continue as a going concern. The Company's continuation as a going concern depends upon its ability to generate sufficient cash flow to conduct its operations and its ability to obtain additional sources of capital and financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles accepted in the United States of America. Pollard-Kelley Auditing Services, Inc. By /s/ Pollard-Kelley ----------------------- Pollard-Kelley Auditing Services, Inc. December 20, 2004 Fairlawn, Ohio NANOSIGNAL CORPORATION, INC. BALANCE SHEET September 30, 2004 (Unaudited)
ASSETS Current Assets September 30, 2004 Cash $ 1,873 ---------- Total Current Assets 1,873 Other Assets Property and equipment, net 58,441 Paintings 10,000 ---------- Total Other Assets 68,441 Total Assets $ 70,314 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 127,615 Accrued Expenses 138,292 Lease Payable 38,650 Accrued Interest Payable 1,123,009 Notes Payable 615,339 Notes Payable - Shareholders 2,131,195 Deposits 40,000 ---------- Total Current Liabilities 4,214,100 STOCKHOLDERS' EQUITY: Superpreferred common stock, $.001 par value, 50,000,000 shares authorized, 20,000,000 shares issued and outstanding 20,000 Common stock, $.001 par value, 500,000,000 shares authorized. Issued and outstanding September 30, 2004 238,757,788 shares 238,758 Additional paid in capital 25,495,503 Accumulated deficit (29,898,047) ---------- TOTAL STOCKHOLDERS' EQUITY (4,143,786) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 70,314 ---------- ----------
See accompanying notes to financial statements. Page Four NANOSIGNAL CORPORATION, INC. STATEMENTS OF EXPENSES For Three Months Ended September 30, 2004 and 2003 (Unaudited)
August 21, 1987 (Date of Inception) Three months ended to September 30 September 30 September 30 2004 2004 2003 ------------------ ------------- ------------- Operating Expenses: General, selling and administrative $ 9,828,819 $ 22,899 $ 204,321 Consulting 19,549,343 841,500 - ------------- ------------- ------------- Loss from operations (29,378,162) (864,399) (204,321) Interest expense 519,885 63,000 45,000 ------------- ------------- ------------- Net loss (29,898,047) $( 027,399) $ (249,321) ------------- ------------- ------------- ------------- ------------- ------------- Net loss per share: Net loss basic and diluted $ (0.13) $ (0.00) $ (0.00) Weighted average shares outstanding: Basic and diluted 238,757,788 238,757,788 54,022,792 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements. Page Five NANOSIGNAL CORPORATION, INC. STATEMENTS OF CASH FLOWS For Three Months Ended September 30, 2004 and 2003 (Unaudited)
2004 2003 August 21, 1987 (Date of Inception) Three months ended to September 30 September 30 September 30 2004 2004 2003 ------------------ ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(29,898,047) $ (927,399) $ (249,321) Adjustments to reconcile net loss to cash used by operating activities: Common stock for services 20,633,456 841,500 0 Impairment 3,009,546 Depreciation 293,054 1,984 0 Net change in: Prepaid Expenses (5,742) Accounts payable 127,615 (12,295) 67,197 Accrued Expenses 138,292 Accrued interest payable 1,373,171 63,000 39,000 ------------- ------------- ------------- CASH FLOWS USED IN OPERATING ACTIVITIES (4,322,913) (8,620) (148,866) CASH FLOWS FROM INVESTING ACTIVITES Advances from shareholders 1,577,559 9,280 Purchase of property and equipment (344,422) 0 (13,351) Purchase of paintings (10,000) 0 0 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES 1,223,137 9,280 (13,351) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from shareholder notes payable 1,375,186 0 164,900 Proceeds from issuing common stock 1,726,463 ------------- ------------- ------------- 3,101,649 0 164,900 Balance at beginning of period 0 1,213 1,967 Net Increase (Decrease) in cash 1,873 660 2,683 ------------- ------------- ------------- Balance at end of period 1,873 1,873 4,650 NON-CASH TRANSACTIONS: Issuance of common stock for debt 152,256 152,256 0 Issuance of common stock for assets 12,490 Issuance of common stock for services 20,633,456 10,791,088 0 Advances from shareholders 232,200
See accompanying notes to financial statements. Page Six NANOSIGNAL CORPORATION, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements of Nanosignal Corporation have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's registration statement filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2003 as reported in Form 10-KSB, have been omitted. NOTE 2 COMMON STOCK In March 2004 NanoSignal changed the authorized shares of Common Stock from 300,000,000 to 500,000,000 and changed the Superpreferred Common Stock from 20,000,000 to 50,000,000. The Superpreferred Common Stock has voting rights of ten votes per each one share of Superpreferred Common Stock. During the three months ending March 31, 2004 NanoSignal issued 56,384,074 shares of common stock for services valued at $10,081,844. On January 12, 2004 a related party to the company returned 10,000,000 shares of common stock for 20,000,000 shares of superpreferred common stock. This issuance gave this shareholder a majority voting interest in the company. The stock issued was valued at $1,500,000 which was the fair market value of the additional 10,000,000 shares issued. In the same transaction the shareholder relieved $152,256 of debt that NanoSignal owed. On June 1, 2004 NanoSignal issued 30,000,000 shares of superpreferred common stock for services. The shares will be valued using the fair market value of the stock on the date of issuance. In August 2004, NanoSignal's board of directors canceled the 30,000,000 shares of superpreferred common stock issued on June 1, 2004. On August 17, 2004, the company issued 35,000,000 shares of its common stock, par value $.001 for consulting services valued at $840,000. NOTE 3 COMMITMENTS NanoSignal entered into a lease in October 2002 for office space located in Pittsburgh, Pennsylvania on a three year lease term through September 2005. This lease was cancelled in April 2004 and no future payments were necessary. The monthly rental payment was $1,854 per month. In February 2004 NanoSignal signed a sublease agreement with a shareholder for office space in Las Vegas, Nevada. NanoSignal signed a three year contact beginning February 1, 2004 for $4,500 per month. Page Seven Employment Agreement Effective February 2, 2004 NanoSignal entered into an employment agreement with its Chief Executive Officer. The one year agreement provides for an annual salary of $182,500 for each year, plus incentives and certain employee benefits, as defined by the agreement. The agreement also provides for 5,000,000 shares of common stock. The Chief Executive Officer has not received any compensation, common stock, incentives or employee benefits as of August 18, 2004. NOTE 4 SUBSEQUENT EVENT On October 13, 2004, the company issued 20,000,000 shares of its common stock. On November 29, 2004 the company canceled the issuance. NOTE 5 GOING CONCERN The Company has not generated significant revenues or profits to date. This factor among others, may indicate the Company will be unable to continue as a going concern. The Company's continuation as a going concern depends upon its ability to generate sufficient cash flow to conduct its operations and its ability to obtain additional sources of capital and financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Page Eight ITEM 2. BUSINESS This Quarterly Report on Form 10-QSB contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in or incorporated by reference into this Form 10-QSB, are forward-looking statements. In addition, when used in this document, the words "anticipate", "estimate", "project" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to certain risks, uncertainties and assumptions including risks relating to our limited operating history and operations losses; significant capital requirements; development of markets required for successful performance by the Company as well as other risks described in the Company's Annual Report on Form 10-KSB as well as in this report on Form 10-QSB. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Although the Company believes that the expectations we include in such forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. The accompanying financial statements have been prepared in accordance with Generally accepted accounting principles for interim financial information and With instructions of Form 10Q-SB. Accordingly, they do not include all of the Information and footnotes required by generally accepted accounting principles For complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three months period ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ended December 31, 2004. The interim financial statements should be read in conjunction with the audited financial statements and notes contained in the Company's annual Report on Form 10KSB for the year- ended December 31, 2003. A) General MicroSignal Corporation (the "Company") was incorporated on August 21, 1987 as "Ragen Corporation" under the laws of the State of Nevada. On October 21, 1999, the Company entered into a reverse merger pursuant to Rule 368(a)(1)(B)if the Internal Revenue Code of 1986 as amended. Pursuant to this reverse merger, the Company acquired 100% of the common stock of Pro Glass Technologies, Inc., a Canadian corporation with three wholly owned subsidiaries in exchange for the issuance of 17,714,000 shares of the Company's common stock. The Company changed its name to "Pro Glass Technologies, Inc." and increased the number of authorized common shares to 50,000,000 at that time. Pro Glass Technologies, Inc. is the predecessor due to the reverse merger and Ragen was the legal survivor. Pro Glass Technologies, Inc. was a holding company. Upon completion of the merger, the Company began engaging in the auto glass repair and replacement business under "Windshield Superstores, Ltd." in Calgary, Alberta. Fran Aiello became the President and CEO of the Company at that time. On September 10, 2002, the Company entered into an Agreement and Plan of reorganization with MicroSignal Corporation, a Pennsylvania corporation, and exchanged 100% of the MicroSignal common stock in exchange for the issuance of 17,051,344 shares of the Company's common stock, or 94% of the Company. At that time, the Company changed its name to "MicroSignal Corporation". At the same time, the Company sold its auto glass repair and replacement business to its former president, Frank Aiello, in change for the return of 150,000 shares of the Company's common stock owned by him. Mr. Aiello assumed Page Nine responsibility for all the debts and liabilities of the auto glass repair and replacement business. For accounting purposes, this transaction was treated as an acquisition of Pro Glass and a recapitalization of MicroSignal. MicroSignal is the accounting acquirer and the results of its operations carry over. Accordingly, the operations of the Company while Pro Glass are not carried over and are adjusted to $0. As part of this transaction, the Company's fiscal year end changed from September 30 to December 31. Business Plan The Company has developed a product designed to improve the quality and efficiency of magnetic resonance imaging ("MRI") systems. The product consists of a combination of hardware and software compatible with all MR machines, designed to improve the image quality as well as the display of the final MRI exam. At the core of the system is a totally novel method of reconstructing the MR information obtained by the machine (the raw data), developed by Dr. Jeffery Taft. The Company's product uses a unique algorithm, exchange analytic computation technique (EXACT), which decouples the size of the raw data from the image matrix size and overcomes a lot of the inherent limitations of the Fourier transformations. The technology allows tremendous flexibility once the MRI data has been acquired; it is possible using SLICES(TM) to obtain sharply magnified images, up to ten times the original magnification, without creating pixel artifacts inherent to the optical zoom provided by all manufacturers. The major benefits of MSC's SLICES technology are: Increased information extraction Helps with the elimination of some artifacts Improves the radiologist's productivity Reduces patient re-scan and call back Reduces patient scan time Reduces film costs The Company intends to proceed with marketing and sales of the Company's proprietary product. Significant opportunities exist for follow-on product both in MRI and in other computed medical imaging applications such as CAT scan and nuclear medicine. Exciting opportunities exist to apply new proprietary MicroSignal Corporation technology to stroke prediction, breast cancer detection and cardiac evaluation, thus expanding MRI into use for the top three disease conditions in the U.S. Sales opportunities for these additional products are in the billions of dollars. Additional opportunities exist to make use of the Internet to perform high- end teleradiology and Picture Archiving and Control. MicroSignal Corporation can become the preferred channel not only for computing and displaying medical images, but also for transporting them. The transport, if done properly, can result in an ongoing revenue stream valued in the hundreds of millions of dollars per year within five years. There can be no assurances that the Company will see these results. Future revenues are dependent upon the Company being able to secure outside financing and raising additional capital to enable it to commence operations in a meaningful manner, neither of which the Company has commitments to receive. Until such time as the Company is able to secure additional financing through loans or capital raising, the Company's efforts to commence revenue producing operations will have to be scaled back. The Company formally changed its name to NanoSignal, Inc in November 2003. Henceforth, all references to the Company will be with its current name. The Company has changed its name effective immediately to "NanoSignal Corporation, Inc." and has applied for a new trading symbol with the NASD. The Company's new CUSIP number is 63008S 10 8. Page Ten FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION OVERALL OPERATING RESULTS: The Company plans to seek financing and capital to allow it to exploit this technology as well as to enhance and improve on this technology. During the next twelve months, the Company intends to seek the necessary financing to allow it to implement its business plan and to commence operations in a meaningful way. We have had no revenues for the three months ended September 30, 2004 and 2003, respectively. Our operating expenses for the quarter ended September 30, 2004 were $864,399 and were primarily incurred for consultants, rent and other services rendered in connection with our financial reporting obligations with the Securities and Exchange Commission as well interest. Operating expenses for the prior year quarter ended September 30, 2003 totaled $204,321 for general expenses. LIQUIDITY AND CAPITAL RESOURCES The Company has approximately $1,873 in current assets compared to current Assets of approximately $10,000 for the third quarter ended September 30, 2003. The Company's current liabilities for the period ended September 30, 2004 are approximately $4,214,100 compared to current liabilities of approximately $3,336,000 for the previous third quarter reporting period ended September 30, 2003. Total assets were approximately $70,314 for the period ended September 30, 2004 composed of the Company's prepaid rent, equipment and paintings. At September 30, 2004, the Company had negative working capital of approximately $4,212,227 which consisted of current assets of approximately $1,873 and current liabilities of approximately $4,214,100. At September 30, 2003 the Company had negative working capital of approximately $3,326,000 which consisted of current assets of approximately $10,000 assets and current liabilities of approximately $3,336,000. The current liabilities of the Company at September 30, 2004 are composed primarily of trade payables of $127,615, lease payables of 38,650, Notes payable to Shareholders of $2,131,195, accrued interest payable of $1,123,009, other notes payable of $615,339, deposits of $40,000 and accrued interest of $138,292. The Company will attempt to carry out its business plan as discussed above. The Company cannot predict to what extent its lack of liquidity and capital resources will hinder its business plan prior to commencement of its proposed operations. NEED FOR ADDITIONAL FINANCING The Company's existing capital is not sufficient to meet the Company's cash needs, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended. No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any funds will be available to the Company to allow it to cover its expenses. The Company might seek to compensate providers of services by issuances of stock in lieu of cash. Employees As of September 30, 2004, the Company had three employees. Page Eleven DESCRIPTION OF PROPERTIES The Company presently subleases office space on a one-year lease, which ends in January 2005. The monthly lease payment is $4,500. The Company anticipates that this space is sufficient for the near future. NEW ACCOUNTING PRONOUNCEMENTS In April 2002, the FASB approved for issuance Statements of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds previous accounting guidance, which required all gains and losses from extinguishment of debt be classified as an extraordinary item. Under SFAS 145 classification of debt extinguishment depends on the facts and circumstances of the transaction. SFAS 145 is effective for fiscal years beginning after May 15, 2002 and is not expected to have a material effect on the Company's financial position or results of its operations. In July 2002, the FASB issued Statements of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material effect on the Company's financial position or results of its operations. In December 2002, the FASB issued Statements of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure" an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS 148 is not expected to have a material effect on the Company's financial position or results of its operations. Inflation The Company's results of operations have not been affected by inflation and management does not expect inflation to have a significant effect on its operations in the future. Item 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer (collectively the "Certifying Officers") maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d- 14(c)] under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC. Page Twelve (b) Changes in internal controls. Our Certifying Officer has indicated that there were no significant changes in our internal controls or other factors that could significantly affect such controls subsequent to the date of his evaluation, and there were no such control actions with regard to significant deficiencies and material weaknesses. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES The company issued 35,000,000 shares of its common stock in an S-8 registration filing on August 17, 2004. ITEM 3. RECENT SALES OF UNREGISTERED SECURITIES None. ITEM 4. DEFAULTS UPON SENIOR SECURITIES None. ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No issues have been submitted to the shareholders. ITEM 6. OTHER INFORMATION None. ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit Number Name of Exhibit None b. Reports on Form 8-K NanoSignal, Inc. filed a report on Form 8-K on August 31, 2004 that reported that a shareholder had filed suit against The Depository Trust and Clearing Corporation, The Depository Trust Company, Knight Trading Group, Inc. (NITE) and The National Securities Clearing Corporation for alleged violations of the Stock Borrow Program. The plaintiff alleges that Knight Securities has failed to deliver approximately 447 million shares under this program. NanoSignal, Inc. filed a report on Form 8-K on September 1, 2004 that reported that the company had engaged Ronald J. Stauber, 1880 Century Park East, Suite 300, Los Angeles, California 90067, 310-556-0080 as special counsel to the company NanoSignal, Inc. filed a report on Form 8-K on September 7, 2004 that reported that the company had engaged Gary L Blum, 3278 Wilshire Blvd. #603, Los Angeles, California 90010, 213-381-7450 as securities counsel to the company NanoSignal, Inc. filed a report on Form 8-K on September 29, 2004 that reported that the company had engages two independent audit committee members. Signatures Pursuant to the requirements of Section 13 or 15(d) 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. NANOSIGNAL CORPORATION, INC. By /s/ Scott A. Ervin Dated: December 30, 2004 ------------------------------ Scott A. Ervin, President