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Home > Press > Advance Nanotech Reports Third Quarter 2008 Financial Results

Abstract:
Advance Nanotech, Inc. (OTC Bulletin Board: AVNA) reported financial results for its third quarter and nine month period ended September 30, 2008. Highlights:

Advance Nanotech Reports Third Quarter 2008 Financial Results

New York, NY | Posted on November 18th, 2008

-- Revenues increased to $2.5 million for the nine-month period ended September 30, 2008 from $369,000 for the same period in the previous year

-- The Company received its first order in environmental chemical detection monitoring from a commercial entity totaling approximately $180,000

-- Moved application development laboratory to expanded facility in Cambridge to meet customer demand

-- Exchange agreement between founding members and management of Owlstone consummated

-- Completion of $1.15 million placement of senior secured convertible notes

-- Company appointed Bret Bader as CEO of Advance Nanotech and strengthened its Board of Directors with four additional members

"In the third quarter of 2008, we completed several key corporate initiatives relating to the consummation of the exchange agreement, which resulted in my formal appointment as CEO and the addition of four experienced members to our Board of Directors," commented Bret Bader. "All the while, our Owlstone subsidiary has continued to generate strong growth in revenues from its existing suite of products and the fulfillment of its partner contracts. As Owlstone continues to evolve, we are building a pipeline of sales opportunities with existing products and with applications currently in development. Our continued work in application development has resulted in material progress in key commercial and government areas, all of which we expect will reflect positively on our financial performance. We also continue to evaluate financing options for the purpose of executing on our near and long term business plans."

The Company generated revenues of $1,009,240 in the three months ended September 30, 2008 compared to $100,590 for the three months ended September 30, 2007, representing an increase of $908,650. The Company generated revenues of $2,497,855 in the nine months ended September 30, 2008 compared to $369,376 in the same period of the previous year, representing an increase of $2,128,479. The increase in revenues were a direct result of our subsidiary, Owlstone, shipping its Tourist, Lonestar and Vapor Generator products, along with contracted, instructional and set-up services provided to customers.

The Company had a loss from operations of $1,560,549 in the three months ended September 30, 2008, compared to $2,410,247 for the comparable period in 2007, representing a decrease of $849,698 or 35%. The Company had a net loss of $382,556 or $0.02 per basic share for the three months ended September 30, 2008 compared to a net loss of $1,889,194 or $0.07 per basic share for the comparable period in 2007, representing a decrease of $1,506,638 or 80%. While revenue increased by $908,650, operating expenses decreased by $359,159 for the three months ended September 30, 2008. In addition, the Company had $1,140,885 in non-cash gains due to the revaluation of the warrant liability and approximately a $156,000 increase in interest expense for the three months in the current year third quarter.

The Company had a loss from operations of $6,027,375 in the nine months ended September 30, 2008, compared to $8,232,005 for the comparable period in 2007, representing a decrease of $2,204,630 or 27%. We had a net loss of $3,831,661 in the nine months ended September 30, 2008 compared to $6,681,032 for the comparable period in 2007, representing a decrease of $2,849,371 or 43%. In the first nine months of 2008, the Company had a net loss of $0.10 per basic share, compared with a net loss of $0.19 per basic share for the comparable period in 2007. While revenue increased by $2,128,479 during the first nine months of 2008, operating expenses decreased by $956,738. The Company also had a non-cash gain of $989,149 from minority interest related to subsidiaries' losses for the nine months ended September 30, 2008.

Research and development costs for the three month period ended September 30, 2008 and September 30, 2007 were $500,474 and $671,279, respectively, representing a decrease of $170,805 or 25.4%. Research and development costs for the nine month period ended September 30, 2008 and September 30, 2007 were $1,713,344 and $2,668,860, respectively, representing a decrease of $955,516 or 35.8%. This decrease is attributable to the Company's decision to focus solely on the further development and commercialization of Owlstone's technology and reflect the cancellation or suspension of a significant portion of non-Owlstone projects.

General and administrative expenses for the three months ended September 30, 2008 were $1,620,022 compared to $1,808,376 for the comparable period in 2007, representing a decrease of $188,354 or 10 percent. General and administrative expenses for the nine month period ended September 30, 2008 and September 30, 2007 were $5,804,647 and $5,805,869, respectively. Non-cash related expenses for the nine month period ended September 30, 2008 were approximately $1.3 million. Non-cash expenses include costs related to FAS123R options, employee and Board of Directors equity grants, equity grants and warrants for consultants in lieu-of-cash and deferred financing costs.

Interest and other income for the nine months ended September 30, 2008 and September 30, 2007 was $597,810 and $81,737, respectively. This increase was primarily due to the receipt of a tax credit of approximately $406,000 from the UK government, the Company receiving approximately $35,000 of rent income from the sublease of its New York City offices, and for the forgiveness of previously incurred expenses in accounts payable that were canceled with our collaboration partners and vendors of approximately $140,000.

Interest and other expenses for the nine months ended September 30, 2008 increased $463,828 to $554,941 from the comparable 2007 period as a result of the increase in convertible notes that the Company issued. In addition, the Company recognized a non-cash late registration cost of $88,219 during the current year and also incurred a non-cash gain of $1,251,915, during the same period, for the re-valuation of the Company's warrant liability. As of December 31, 2007, the Company had net operating tax loss carry forwards in excess of $8.3 million that may be used to offset future taxable income through 2027.

At September 30, 2008, the Company had a total of approximately $427,604 of cash and cash equivalents. Based upon the Company's forecast of future revenues from its products, services and grants, in conjunction with the cash and cash equivalents on hand, the Company's continued ability to operate is dependent upon obtaining additional financing. The Company is presently pursuing various financing options. If the Company is unable to arrange new financing or generate sufficient cash flow to support its operations and meet its obligations within the first quarter of 2009, the Company will be forced to consider the further restructuring of its operations, disposition of various assets, seeking of protection from its creditors, or ceasing of operations and liquidation.

Management is also exploring ways to generate additional revenue from operations including co-development and co-funding of its products, licensing products for upfront and milestone payments, and applying for more government grants. The Company has initiated cost reduction programs and will continue to control and reduce expenses until funds from operations can support the growth of the business. Although the Company is exploring all opportunities to improve its financial condition, there is no assurance that these programs will be successful. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

For additional information, please refer to the Advance Nanotech, Inc. Quarterly Report on Form 10-Q for the period ended September 30, 2008, filed with the Securities and Exchange Commission.

####

About Advance Nanotech, Inc.
Advance Nanotech is in the process of restructuring its business and becoming an operating company focused on its majority owned subsidiary Owlstone Nanotech’s next generation chemical detection technology.

About Owlstone Nanotech, Inc.

Owlstone Nanotech, Inc. ("Owlstone") is a majority owned subsidiary of Advance Nanotech and is a pioneer in the commercialization of chemical detection products. The Owlstone Detector is a revolutionary dime-sized sensor that can be programmed to detect a wide range of chemical agents that may be present in extremely small quantities. Using leading-edge micro- and nano-fabrication techniques, Owlstone has created a complete chemical detection sensor that is significantly smaller and can be produced more cost effectively than products using existing technology. There are numerous applications -- across industries from security and defense to industrial process, air quality control and healthcare -- that depend on the rapid, accurate detection and measurement of chemical compounds. Owlstone works with market leaders within these industries to integrate the detector into next generation chemical sensing products and solutions. Owlstone’s technology offers a unique combination of benefits, including small size, low manufacturing costs, minimal power consumption, reduced false-positives, and a customizable platform. For more information about Owlstone Nanotech, please visit www.owlstonenanotech.com.

The information contained in this news release, other than historical information, consists of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Although the Company believes that the expectations reflected in such forward- looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors, including general economic conditions, spending levels, market acceptance of product lines, the recent economic slowdown affecting technology companies, the future success of scientific studies, ability to successfully develop products, rapid technological change, changes in demand for future products, legislative, regulatory and competitive developments, the Company’s ability to secure additional working capital and/or generate sufficient cash flow to support its operations, and other factors could cause actual results to differ materially from the Company’s expectations. Advance Nanotech’s Annual Report on Form 10-K, recent and forthcoming Quarterly Reports on Form 10-Q, recent Current Reports and other SEC filings discuss some of the important risk factors that may affect Advance Nanotech’s business, results of operations and financial condition. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

     (Financial Tables Follow)



                   ADVANCE NANOTECH, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE COMPANY)
                         CONSOLIDATED BALANCE SHEETS
                                     (1)

                                               September 30,    December 31,
                                                   2008             2007
                     ASSETS                     (Unaudited)         (a)
    CURRENT ASSETS
      Cash and cash equivalents                  $427,604         $1,867,626
      Restricted cash                                 264             77,557
      Prepaid expenses and other current assets   250,094            162,622
      Accounts receivable                         549,956          1,325,080
      Inventory                                   277,896             74,672
      VAT tax refund receivable                    19,607              3,902
      Deferred financing costs, current position  729,455            801,618

    TOTAL CURRENT ASSETS                        2,254,876          4,313,077

    Property plant and equipment, net             309,199            242,005
    Patents                                       699,056            636,381
    Deferred financing costs, net of
     current portion                              182,365            801,620

    TOTAL ASSETS                               $3,445,496         $5,993,083

          LIABILITIES AND STOCKHOLDERS’ DEFICIT

    CURRENT LIABILITIES
      Accounts payable                         $1,145,731         $1,291,882
      Accrued expenses                          1,225,878          1,369,538
      Deferred equity compensation                472,366            345,268
      Deferred revenue                                  -             38,279
      Capital lease obligation, current portion     9,794             21,483
    TOTAL CURRENT LIABILITIES                   2,853,769          3,066,450

    Loan payable                                       -             334,001
    Convertible notes payable                  10,045,123          6,294,105
    Common stock warrants                       2,795,761          2,184,266
    Capital lease obligation, net of
     current portion                                7,523             13,879
    TOTAL LIABILITIES                          15,702,176         11,892,701

    Minority interests in subsidiaries          6,088,896          6,854,191

    STOCKHOLDERS’ DEFICIT
    Preferred stock; $0.001 par value;
     25,000,000 shares authorized; 0 shares
     issued and outstanding                            -                  -
    Common stock; $0.001 par value;
     200,000,000 shares authorized; 50,751,164
     and 36,595,686 shares issued and
     outstanding at September 30, 2008 and
     December 31, 2007, respectively               50,751             36,596
    Additional paid in capital                 16,636,429         16,128,733
    Warrant valuation                             662,200          2,708,358
    Accumulated other comprehensive loss       (1,037,186)          (801,386)
    Deficit accumulated during
     development stage                        (34,657,770)       (30,826,109)
    TOTAL STOCKHOLDERS’ DEFICIT               (18,345,576)       (12,753,808)

    TOTAL LIABILITIES AND STOCKHOLDERS’
     DEFICIT                                   $3,445,496         $5,993,083

    (a) Derived from audited financial statements.



                   ADVANCE NANOTECH, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE COMPANY)
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                               (Unaudited) (1)

                  Three       Three        Nine         Nine    From Inception
                  Months      Months       Months       Months (Aug. 17, 2004)
                  Ended       Ended        Ended        Ended         To
                 Sept. 30,   Sept. 30,    Sept. 30,    Sept. 30,    Sept. 30,
                   2008        2007         2008         2007         2008

    Revenue -
     product     $390,464      $1,596     $771,049      $89,939    $1,216,931
    Revenue -
     service      618,776      98,994    1,726,806      279,437     2,299,319
    Total net
     revenue    1,009,240     100,590    2,497,855      369,376     3,516,250

    Cost of
     Sales       (449,293)    (31,182)  (1,007,239)    (126,652)   (1,284,178)
    Gross Margin  559,947      69,408    1,490,616      242,724     2,232,072

    Research and
     development (500,474)   (671,279)  (1,713,344)  (2,668,860)  (17,852,288)
    Selling,
     general
     and admin-
     istrative (1,620,022) (1,808,376)  (5,804,647)  (5,805,869)  (35,733,890)
    Total
     operating
     expenses  (2,120,496) (2,479,655)  (7,517,991)  (8,474,729)  (53,586,178)

    Loss from
     oper-
     ations    (1,560,549) (2,410,247)  (6,027,375)  (8,232,005)  (51,354,106)

    Other income/
     (expense)
    Interest
     income         3,054      19,253       19,514       81,737       436,933
    Grant income       -           -           -        113,318       198,831
    Gain on sale of
     investment        -           -           -            -         937,836
    Forgiveness of
     accounts
     payable
     and other
     income       (14,755)         -       578,296          -       3,616,228
    Interest
     and other
     expense     (199,052)    (42,378)    (554,941)     (91,113)     (796,115)
    Fair value of
     warrants gain/
     (loss)     1,140,885          -     1,251,915          -       9,991,058
    Accrued late
     registration
     cost         (21,827)         -       (88,219)         -      (2,413,412)

    Net loss
     before
     minority
     interest    (652,244) (2,433,372)  (4,820,810)  (8,128,063)  (39,800,061)

    Minority
     interest in
     net loss of
     subsidiary   269,688     544,178      989,149    1,447,031     5,142,291

    Net loss     (382,556) (1,889,194)  (3,831,661)  (6,681,032)  (34,657,770)


    Foreign
     currency
     translation
     adjustment
     gain/(loss)  300,521   1,630,844     (317,886)  (2,041,483)     (483,500)

    Comprehensive
     loss        $(82,035)  $(258,350) $(3,513,775) $(8,722,515) $(35,141,270)

    Net loss per
     share - basic
     and diluted   $(0.02)     $(0.07)      $(0.13)      $(0.23)       $(1.22)

    Net loss per
     share after
     minority
     interest -
     basic and
     diluted       $(0.01)     $(0.05)      $(0.10)      $(0.19)       $(1.06)

    Comprehensive
     loss per
     share -
     basic and
     diluted       $(0.00)     $(0.01)      $(0.09)      $(0.24)       $(1.07)

    Weighted
     average
     shares
     outstanding -
     basic and
     diluted*  39,501,968  36,753,295   37,613,562   35,671,318    32,721,806


    (1) Please refer to the Advance Nanotech, Inc. Quarterly Report on Form
        10-Q for the period ended June 30, 2008, filed with the Securities and
        Exchange Commission.
    *   Weighted average number of basic shares outstanding

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