UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


x
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
quarterly period ended December 31, 2009





 ̈
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
  ACT


For the
transition period from _________________ to _________________





Commission
file number 333-149184





NanoTech
      Entertainment, Inc.(Exact
      name of registrant as specified in its
charter)





Nevada
                      
                      20-1379559(State or jurisdiction of incorporation or
                        organization)
                      
                      (I.R.S. Employer Identification No.)





3887
      Pacific StreetLas
      Vegas, Nevada 89121(Address
      of principal executive
offices)





702
      518 7410(Issuer's
      telephone
number)





(Former
      name, former address and former fiscal year, if changed since
      last
                  report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or shorter period 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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes x  No
 ̈




Indicate
by a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.


Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.  ̈ Yes
x
No




As of the
date of this filing, the registrant had 15,910,000 shares of common stock, $.001
par value, issued and outstanding.







TABLE OF
CONTENTS




PAGEPART
      I — FINANCIAL INFORMATION
                  
                  3ITEM
      1. FINANCIAL STATEMENTS
                  
                  3ITEM
      2. MANAGEMENT’S DISCUSSON AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS
                  
                  18PART
      II — OTHER INFORMATION
                  
                  22ITEM
      1. LEGAL PROCEEDINGS
                  
                  22ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS
                  
                  22ITEMS
      3. DEFAULTS UPON SENIOR SECURITIES
                  
                  22ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  
                  23ITEM
      5. OTHER INFORMATION
                  
                  23ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K
                  
                  23SIGNATURES
                  
                  24




2




PART
I — FINANCIAL INFORMATION




ITEM
1. FINANCIAL STATEMENTS





The
accompanying unaudited financial statements 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 June 30, 2009 Form 10-K. 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 periods presented have been reflected herein. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.




3




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Balance
Sheets





December 31,
                        
                        
                        June 30,2009
                        
                        
                        2009(unaudited)ASSETSCurrent
      assets:Cash
                        
                        $
                        19,037
                        
                        
                        $
                        35,536Inventory
      (Note B)
                        
                        
                        11,050
                        
                        
                        
                        8,800Prepaid
      expenses
                        
                        
                        7,500
                        
                        
                        
                        2,500Prepaid
      royalties (Note I)
                        
                        
                        100,000
                        
                        
                        
                        55,000Total
      current assets
                        
                        
                        137,587
                        
                        
                        
                        101,836Property
      and equipment (Note B)
                        
                        
                        3,945
                        
                        
                        
                        3,071Less:
      accumulated depreciation
                        
                        
                        (2,182
                        )
                        
                        
                        (1,524
                        )Net
      property and equipment
                        
                        
                        1,763
                        
                        
                        
                        1,547Total
      assets
                        
                        $
                        139,350
                        
                        
                        $
                        103,383LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCurrent
      liabilities:Accounts
      payable
                        
                        $
                        130,724
                        
                        
                        $
                        81,553Cash
      drawn in excess of bank balance
                        
                        
                        5,375
                        
                        
                        
                        5,174Accrued
      liabilities – related parties (Note C)
                        
                        
                        1,325,112
                        
                        
                        
                        981,906Royalties
      payable (Note I)
                        
                        
                        80,521
                        
                        
                        
                        31,771Accrued
      interest, convertible debentures (Note F)
                        
                        
                        1,364
                        
                        
                        
                        458Accrued
      interest, notes payable (Note D)
                        
                        
                        31,171
                        
                        
                        
                        17,586Accrued
      interest, notes payable – related party (Note C)
                        
                        
                        15,398
                        
                        
                        
                        9,223Convertible
      debentures, net (Note F)
                        
                        
                        19,904
                        
                        
                        
                        15,778Notes
      payable – current (Note D)
                        
                        
                        32,500
                        
                        
                        
                        30,000Notes
      payable – current, related party (Note C)
                        
                        
                        81,408
                        
                        
                        
                        80,500Total
      current liabilities
                        
                        
                        1,723,477
                        
                        
                        
                        1,253,949Long-Term
      LiabilitiesNotes
      payable – noncurrent (Note D)
                        
                        
                        250,000
                        
                        
                        
                        250,000Total
      liabilities
                        
                        
                        1,973,477
                        
                        
                        
                        1,503,949STOCKHOLDERS’
      DEFICIT (Note E)Common
      stock, $.001 par value, 75,000,000shares
      authorized, 15,665,000 and 14,437,000 sharesissued
      and outstanding as of December 31, 2009 andJune
      30, 2009, respectively
                        
                        
                        15,665
                        
                        
                        
                        14,437Additional
      paid-in capital
                        
                        
                        471,324
                        
                        
                        
                        360,502Services
      prepaid with common stock
                        
                        
                        (9,792
                        )
                        
                        
                        -Deficit
      accumulated during the development stage
                        
                        
                        (2,311,324
                        )
                        
                        
                        (1,775,505
                        )Total
      stockholders’ deficit
                        
                        
                        (1,834,127
                        )
                        
                        
                        (1,400,566
                        )Total
      liabilities and stockholders’ deficit
                        
                        $
                        139,350
                        
                        
                        $
                        103,383





The
accompanying notes are an integral part of these financial
statements.




4




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Statements
of Operations


(unaudited)





Three Months Ended
                
                
                Six Months Ended
                
                
                November 13, 2007
                  (inception) toDecember 31,
                
                
                December 31,
                
                
                December 31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009Revenues:Sales,
      net
                
                $
                10,345
                
                
                $
                12,029
                
                
                $
                17,136
                
                
                $
                17,559
                
                
                $
                72,987Less:
      costs of goods sold
                
                
                (1,992
                )
                
                
                (688
                )
                
                
                (2,965
                )
                
                
                (748
                )
                
                
                (13,295
                )Gross
      profit
                
                
                8,353
                
                
                
                11,341
                
                
                
                14,171
                
                
                
                16,811
                
                
                
                59,692Operating
      Expenses:Selling,
      general and administrative
                
                
                247,655
                
                
                
                223,213
                
                
                
                523,286
                
                
                
                445,598
                
                
                
                2,117,306Other
      Income (Expenses)Interest
      expense
                
                
                (13,352
                )
                
                
                (8,042
                )
                
                
                (26,704
                )
                
                
                (18,058
                )
                
                
                (239,098
                )Net
      loss before income taxes
                
                
                (252,654
                )
                
                
                (219,914
                )
                
                
                (535,819
                )
                
                
                (446,845
                )
                
                
                (2,296,712
                )Provision
      for income taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      loss before discontinued operations
                
                
                (252,654
                )
                
                
                (219,914
                )
                
                
                (535,819
                )
                
                
                (446,845
                )
                
                
                (2,296,712
                )Discontinued
      operations:Loss
      from discontinued operations (net)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (14,612
                )Net
      loss available to common stockholders
                
                $
                (252,654
                )
                
                $
                (219,914
                )
                
                $
                (535,819
                )
                
                $
                (446,845
                )
                
                $
                (2,311,324
                )Continuing
      operationsBasic
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.04
                )
                
                $
                (0.07
                )Diluted
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.04
                )
                
                $
                (0.07
                )Weighted
      average shares outstandingBasic
                
                
                15,455,727
                
                
                
                6,480,000
                
                
                
                15,147,456
                
                
                
                6,480,000Diluted
                
                
                15,757,727
                
                
                
                6,480,000
                
                
                
                15,449,456
                
                
                
                6,480,000





The
accompanying notes are an integral part of these financial
statements.




5




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Statements
of Cash Flows


(unaudited)


November 13,Six Months Ended
                  
                  
                  2007 (Inception) toDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009Cash
      flows from operating activities:Net
      loss
                  
                  $
                  (535,819
                  )
                  
                  $
                  (446,845
                  )
                  
                  $
                  (2,311,324
                  )Adjustments
      to reconcile net loss tonet
      cash used in operating activities:Depreciation
      expense
                  
                  
                  658
                  
                  
                  
                  512
                  
                  
                  
                  2,885Amortization
      of debt discount
                  
                  
                  4,126
                  
                  
                  
                  -
                  
                  
                  
                  35,504Common
      stock issued for finder fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  162,000Common
      stock issued for services
                  
                  
                  16,050
                  
                  
                  
                  -
                  
                  
                  
                  36,050Amortization
      of services prepaid with common stock
                  
                  
                  5,208
                  
                  
                  
                  -
                  
                  
                  
                  5,208Interest
      on debt converted to common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  124,500Loss
      on disposal of fixed assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,373Changes
      in operating assets and liabilities:Decrease
      in accounts receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  572Increase
      in inventory
                  
                  
                  (2,250
                  )
                  
                  
                  (8,471
                  )
                  
                  
                  (11,050
                  )Increase
      in prepaid expenses
                  
                  
                  (5,000
                  )
                  
                  
                  -
                  
                  
                  
                  (7,500
                  )Decrease
      in prepaid expenses – related party
                  
                  
                  -
                  
                  
                  
                  57,576
                  
                  
                  
                  -Increase
      in prepaid royalties
                  
                  
                  (45,000
                  )
                  
                  
                  (52,500
                  )
                  
                  
                  (100,000
                  )Increase
      in accounts payable
                  
                  
                  49,171
                  
                  
                  
                  41,479
                  
                  
                  
                  92,445Increase
      in accrued liabilities – related party
                  
                  
                  343,206
                  
                  
                  
                  281,250
                  
                  
                  
                  1,252,221Increase
      in accrued interest, convertible debentures
                  
                  
                  906
                  
                  
                  
                  -
                  
                  
                  
                  1,213Increase
      in accrued interest, notes payable
                  
                  
                  13,585
                  
                  
                  
                  -
                  
                  
                  
                  31,171Increase
      in accrued interest, notes payable – related party
                  
                  
                  6,175
                  
                  
                  
                  -
                  
                  
                  
                  13,541Increase
      in royalties payable
                  
                  
                  48,750
                  
                  
                  
                  36,875
                  
                  
                  
                  80,521Net
      cash used in operating activities
                  
                  
                  (100,234
                  )
                  
                  
                  (90,124
                  )
                  
                  
                  (581,670
                  )Cash
      flows from investing activities:Net
      cash received in reverse recapitalization
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,769Purchase
      of property and equipment
                  
                  
                  (874
                  )
                  
                  
                  -
                  
                  
                  
                  (3,945
                  )Cash
      flows provided by (used in) investing activities
                  
                  
                  (874
                  )
                  
                  
                  -
                  
                  
                  
                  27,824Cash
      flows from financing activities:Increase
      in cash drawn in excess of bank balance
                  
                  
                  201
                  
                  
                  
                  -
                  
                  
                  
                  5,375Proceeds
      from issuance of convertible debentures
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  21,300Proceeds
      from issuance of common stock
                  
                  
                  81,000
                  
                  
                  
                  -
                  
                  
                  
                  188,000Proceeds
      from notes payable – related party
                  
                  
                  908
                  
                  
                  
                  25,000
                  
                  
                  
                  78,408Repayment
      of notes payable – related party
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,700
                  )Proceeds
      from notes payable
                  
                  
                  2,500
                  
                  
                  
                  25,000
                  
                  
                  
                  282,500Net
      cash provided by financing activities
                  
                  
                  84,609
                  
                  
                  
                  50,000
                  
                  
                  
                  572,883Increase
      (decrease) in cash
                  
                  
                  (16,499
                  )
                  
                  
                  (40,124
                  )
                  
                  
                  19,037Cash,
      beginning of period
                  
                  
                  35,536
                  
                  
                  
                  41,801
                  
                  
                  
                  -Cash,
      end of period
                  
                  $
                  19,037
                  
                  
                  $
                  1,677
                  
                  
                  $
                  19,037


(continued)




6




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Statements
of Cash Flows (cont’d)


(unaudited)





November 13,Six Months Ended
                
                
                2007 (Inception) toDecember 31,
                
                
                December 31,2009
                
                
                2008
                
                
                2009Non-cash
      investing and financing activities:Issuance
      of common stock upon conversion of debentures
                
                $
                -
                
                
                $
                -
                
                
                $
                40,000Issuance
      of common stock upon conversion of loan
                
                $
                -
                
                
                $
                -
                
                
                $
                500Issuance
      of common stock in settlement of vendor debt
                
                $
                -
                
                
                $
                -
                
                
                $
                1,000Conversion
      of notes payable to convertible debentures
                
                $
                -
                
                
                $
                -
                
                
                $
                21,400Supplemental
      cash flow information:Interest
      paid in cash
                
                $
                1,916
                
                
                $
                18,295
                
                
                $
                31,973Income
      taxes paid in cash
                
                $
                -
                
                
                $
                -
                
                
                $
                -





The
accompanying notes are an integral part of these financial
statements.




7




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





A.
            ORGANIZATION





NanoTech
Entertainment, Inc. (“NEI”) was incorporated under the laws of the state of
Nevada on November 13, 2007.  On April 30, 2009, NEI entered into a
Sale and Acquisition Agreement (the “Agreement”) with Aldar Group, Inc. (“AGI”),
a Nevada corporation, wherein AGI acquired 100% of NEI’s issued and outstanding
common stock through the issuance of 6,480,000 common shares.  As a
result of the Agreement, AGI changed its name to NanoTech Entertainment, Inc.
(“NTI”) (“the Company”) to better reflect the direction of the newly formed
entity.  For accounting purposes, the share exchange transaction was
treated as a capital transaction where AGI, as the shell corporation and legal
acquirer, issued stock for the net monetary assets of NEI, the accounting
acquirer, accompanied by a recapitalization. The accounting is similar in form
to a reverse acquisition, except that goodwill or other intangibles are not
recorded.  All references to NTI’s common stock have been restated to
reflect the equivalent numbers of AGI’s common shares (Note E).





The
accompanying financial statements include those of NEI for the period of
inception on November 13, 2007 through December 31, 2009.  The
financial statements of AGI are consolidated from the date of the Agreement
through June 30, 2009, subsequent to which the NEI Nevada corporation was
dissolved and the AGI Nevada corporation amended its Articles of Incorporation
to effect its name change to NanoTech Entertainment, Inc. (“NTI”), thereby
discontinuing all AGI operations and assuming all of the former NEI assets,
liabilities, and operations.  Prior to June 30, 2009, all significant
intercompany balances and transactions were eliminated in
consolidation.  Subsequent to June 30, 2009, the financial statements
consist solely of NTI.





The
Company operates as a virtual manufacturer, developing technology and games, and
then licensing such products to third parties for manufacturing and ultimate
distribution.





DEVELOPMENT STAGE COMPANY





The
Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic No. 915.  The Company’s efforts have been devoted
primarily to raising capital, borrowing funds and attempting to implement its
planned, principal activities.




8




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





B.
            SIGNIFICANT
      ACCOUNTING POLICIES





USE OF ESTIMATES





The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.  The Company’s periodic filings with the Securities and
Exchange Commission include, where applicable, disclosures of estimates,
assumptions, uncertainties and markets that could affect the financial
statements and future operations of the Company.





CASH
AND CASH EQUIVALENTS





Cash and
cash equivalents include cash in banks, money market funds, and certificates of
term deposits with maturities of less than three months from inception, which
are readily convertible to known amounts of cash and which, in the opinion of
management, are subject to an insignificant risk of loss in
value.  The Company’s cash balances totaled $19,037 and $35,536 as of
December 31, 2009 and June 30, 2009, respectively.





INVENTORY





The
Company’s inventory is stated at the lower of cost or market using the FIFO
costing method.  Inventory on hand totaled $11,050 and $8,800 at
December 31, 2009 and June 30, 2009, respectively, and consisted entirely of
finished goods gaming equipment available and ready for sale.





PROPERTY
AND EQUIPMENT





The
Company’s property and equipment is comprised of office and computer equipment,
which are stated at cost.  Depreciation is calculated over the
estimated useful lives ranging from 3 to 7 years using the straight – line
method.  The Company is in the development stage and has only acquired
minimal operating assets.  At December 31, 2009 and June 30, 2009, the
Company had property and equipment of $3,945 and $3,071, and accumulated
depreciation of $2,182 and $1,524, respectively.  Depreciation expense
totaled $658 and $512 for the six months ended December 31, 2009 and 2008,
respectively.





REVENUE
RECOGNITION





Revenues
for gaming equipment sales are recognized when risks associated with ownership
have passed to unaffiliated customers, and when all criteria of ASB Topic No.
605 (SAB Topic 13) have been met.  Typically, this occurs when
finished products are shipped.




9




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





B.
              SIGNIFICANT
      ACCOUNTING POLICIES (CONT’D)





NET
INCOME (LOSS) PER SHARE OF COMMON STOCK





ASC Topic
No. 260 requires presentation of basic and diluted EPS on the face of the
statement of operations for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.  In the accompanying financial statements, basic loss per
share is computed by dividing net loss by the weighted average number of shares
of common stock outstanding during the period, while diluted loss per share
takes into consideration the convertible bonds (Note F) and their related
interest and debt discount.  The potential conversion of the bonds
would have no effect on loss per share due to the Company’s continuing losses,
so basic and diluted loss per share are the same.  The Company has no
other potentially dilutive securities, such as options or warrants, currently
issued and outstanding.




Three Months Ended
                
                
                Six Months EndedDecember 31,
                
                
                December 31,2009
                
                
                2008
                
                
                2009
                
                
                2008BASICNet
      loss
                
                $
                (252,654
                )
                
                $
                (219,914
                )
                
                $
                (535,819
                )
                
                $
                (446,845
                )Weighted
      average common shares outstanding
                
                
                15,455,727
                
                
                
                6,480,000
                
                
                
                15,147,456
                
                
                
                6,480,000Net
      loss per share (Basic)
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.04
                )
                
                $
                (0.07
                )DILUTEDNet
      loss (Basic)
                
                $
                (252,654
                )
                
                $
                (219,914
                )
                
                $
                (535,819
                )
                
                $
                (446,845
                )Convertible
      bond interest expense
                
                
                2,516
                
                
                
                -
                
                
                
                5,032
                
                
                
                -Unamortized
      convertible bond issuance costs
                
                
                (10,296
                )
                
                
                -
                
                
                
                (10,296
                )
                
                
                -Net
      loss (Diluted)
                
                $
                (260,434
                )
                
                $
                (219,914
                )
                
                $
                (541,083
                )
                
                $
                (446,845
                )Weighted
      average common shares outstanding (Basic)
                
                
                15,455,727
                
                
                
                6,480,000
                
                
                
                15,147,456
                
                
                
                6,480,000Convertible
      preferred shares
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Convertible
      bonds and notes
                
                
                302,000
                
                
                
                -
                
                
                
                302,000
                
                
                
                -Options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Warrants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Weighted
      average common shares outstanding (Diluted)
                
                
                15,757,727
                
                
                
                6,480,000
                
                
                
                15,449,456
                
                
                
                6,480,000Net
      loss per share (Diluted)
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.04
                )
                
                $
                (0.07
                )





RECENTLY-ISSUED
ACCOUNTING PRONOUNCEMENTS




In June
2009 the FASB established the Accounting Standards Codification ("Codification"
or "ASC") as the source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in accordance with generally accepted accounting principles in the
United States ("GAAP"). Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") issued under authority of federal securities laws
are also sources of GAAP for SEC registrants. Existing GAAP was not intended to
be changed as a result of the Codification, and accordingly the change did not
impact our financial statements. The ASC does change the way the guidance is
organized and presented.




10




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





B.
            SIGNIFICANT
      ACCOUNTING POLICIES (CONT’D)




RECENTLY-ISSUEDACCOUNTING PRONOUNCEMENTS
(CONT’D)




Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), "Subsequent Events," SFAS No.
166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140," SFAS No. 167
(ASC Topic 810), "Amendments
to FASB Interpretation No. 46(R),"and SFAS No. 168 (ASC Topic 105),
"The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles-a
replacement of FASB Statement No. 162," were recently issued. SFAS No.
165, 166, 167, and 168 have no current applicability to the Company or their
effect on the financial statements would not have been significant.




Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue
Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that
include Software Elements, and various other ASU's No. 2009-2 through ASU
No. 2010-18 which contain technical corrections to existing guidance or affect
guidance to specialized industries or entities were recently issued. These
updates have no current applicability to the Company or their effect on the
financial statements would not have been significant.




C.
            RELATED
      PARTY TRANSACTIONS





NOTES
PAYABLE





Several
of the Company’s current and former officers have provided funding in the form
of notes payable, totaling $81,408 and $80,500 as of December 31, 2009 and June
30, 2009, respectively.  The notes carry interest rates ranging from
0% to 20%, resulting in interest expense of $6,175 and $613 for the six months
ended December 31, 2009 and 2008, respectively, and accrued interest of $15,398
and $9,223 as of December 31, 2009 and June 30, 2009,
respectively.  The notes are due on demand and therefore classified as
current liabilities. Interest has not been imputed due to its nominal impact on
the financial statements.





ACCRUED
LIABILITIES





The
Company has employment agreements with its current and former officers whereby
the officers are entitled to the annual salaries payable as
follows:





Salary
for the Year Ended June 30,


2008
                
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                TotalDavid
      Foley
                
                $
                175,000
                
                
                $
                400,000
                
                
                $
                500,000
                
                
                $
                275,000
                
                
                $
                -
                
                
                $
                1,350,000Robert
      DeKett
                
                
                75,000
                
                
                
                162,500
                
                
                
                192,500
                
                
                
                105,000
                
                
                
                -
                
                
                
                535,000Ted
      Campbell
                
                
                -
                
                
                
                -
                
                
                
                36,000
                
                
                
                72,000
                
                
                
                30,000
                
                
                
                138,000Total
                
                $
                250,000
                
                
                $
                562,500
                
                
                $
                728,500
                
                
                $
                452,000
                
                
                $
                30,000
                
                
                $
                2,023,000




11




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





C.
            RELATED
      PARTY TRANSACTIONS (CONT’D)





ACCRUED
LIABILITIES (CONT’D)





Salaries
for Mr. Foley and Mr. DeKett are payable in cash, while Mr. Campbell’s salary is
payable in cash and stock of $55,500 and $82,500, respectively.  His
stock compensation is expensed and issued at the end of each month; $3,250 in
stock for each of the months December 2009 through May 2010, and $3,500 in stock
for each of the months June 2010 through November 2011.  The number of
shares issued is based on the average trading price over the previous thirty
days.  Accrued cash salaries for the officers totaled $1,160,500 and
$812,500 at December 31, 2009 and June 30, 2009, respectively, and will be paid
as cash flows allow.  Salary expense totaled $348,000 and $281,250 for
the six months ended December 31, 2009 and 2008, respectively.





The
Company also reimburses its officers for expenses they incur in the Company’s
behalf, including rent for the use of property for business
purposes.  Rent expense totaled $66,060 and $99,000 for the six months
ended December 31, 2009 and 2008, respectively.





Salaries,
rent, and other reimbursable expenses owed to officers totaled $1,325,112 and
$981,906 at December 31, 2009 and June 30, 2009, respectively, and will be
repaid as cash flows allow.





CONSULTING
SERVICES





On
December 1, 2009, the Company executed a consulting agreement with a company
affiliated with the Company’s CFO.  See Note E (3).





D.
            NOTES
      PAYABLE





The
Company has originated the following notes payable with unaffiliated entities
and individuals:





Principal Balance
                        
                        
                        Accrued Interest12/31/2009
                        
                        
                        6/30/2009
                        
                        
                        12/31/2009
                        
                        
                        6/30/2009Note
      1, 10% interest, due April 30, 2011
                        
                        $
                        250,000
                        
                        
                        $
                        250,000
                        
                        
                        $
                        27,253
                        
                        
                        $
                        16,668Note
      2, 20% interest, due on demand
                        
                        
                        25,000
                        
                        
                        
                        25,000
                        
                        
                        
                        3,335
                        
                        
                        
                        835Note
      3, 20% interest, due on demand
                        
                        
                        5,000
                        
                        
                        
                        5,000
                        
                        
                        
                        583
                        
                        
                        
                        83Note
      4,  0% interest, due on demand
                        
                        
                        2,500
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Totals
                        
                        
                        282,500
                        
                        
                        
                        280,000
                        
                        
                        $
                        31,171
                        
                        
                        
                        17,586Less
      current portion (Notes 2, 3, and 4)
                        
                        
                        (32,500
                        )
                        
                        
                        (30,000
                        )Noncurrent
      portion (Note 1)
                        
                        $
                        250,000
                        
                        
                        $
                        250,000





The notes
require monthly interest payments only, with principal and any accrued interest
payable upon maturity or demand, as indicated above.




12




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





E.
            STOCKHOLDERS’
      DEFICIT





The
Company has authorized 75,000,000 shares of common stock with a par value of
$.001, and no preferred stock.  Upon inception on November 13, 2007,
the Company had 6,480,000 shares issued and outstanding, which represents the
number of shares issued by AGI in the recapitalization retroactively reflected
to have occurred at inception.  The recapitalization also included an
effective share issuance of 4,533,000, which represents the number of AGI shares
issued and outstanding at June 30, 2008 (the most recent fiscal year prior to
the recapitalization).  Additional share issuances occurring through
December 31, 2009 to arrive at the total shares issued and outstanding of
15,665,000 are as follows:





During
the period of January through June 2009, the following shares were issued for
cash in accordance with private offerings (of which 1,670,000 shares were issued
and $87,000 cash received subsequent to the reverse
recapitalization):





Number
                  
                  
                  Stock
                  
                  
                  CashDate
                  
                  of Shares
                  
                  
                  Price
                  
                  
                  Received1/16/2009
                  
                  
                  100,000
                  
                  
                  $
                  0.10
                  
                  
                  $
                  10,0002/19/2009
                  
                  
                  96,000
                  
                  
                  
                  0.05
                  
                  
                  
                  4,8005/15/2009
                  
                  
                  100,000
                  
                  
                  
                  0.05
                  
                  
                  
                  5,0005/29/2009
                  
                  
                  20,000
                  
                  
                  
                  0.10
                  
                  
                  
                  2,0006/14/2009
                  
                  
                  1,500,000
                  
                  
                  
                  0.05
                  
                  
                  
                  75,0006/23/2009
                  
                  
                  50,000
                  
                  
                  
                  0.10
                  
                  
                  
                  5,000Totals
                  
                  
                  1,866,000
                  
                  
                  
                  
                  
                  
                  $
                  101,800





During
the period of July through December 2009, the following shares were issued for
services rendered, as prepayment for future services to be rendered, or for cash
in accordance with private offerings to unrelated individuals:





Number
                  
                  
                  Stock
                  
                  
                  Cash
                  
                  
                  Services
                  
                  
                  ServicesDate
                  
                  of Shares
                  
                  
                  Price
                  
                  
                  Received
                  
                  
                  Rendered
                  
                  
                  Prepaid7/1/2009
                  
                  
                  200,000
                  
                  
                  $
                  0.10
                  
                  
                  $
                  20,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -8/1/09
                  
                  
                  125,000
                  
                  
                  
                  0.10
                  
                  
                  
                  -
                  
                  
                  
                  5,208
                  
                  
                  
                  7,292
                  (1)9/11/2009
                  
                  
                  560,000
                  
                  
                  
                  0.10
                  
                  
                  
                  56,000
                  
                  
                  
                  -
                  
                  
                  
                  -9/16/09
                  
                  
                  24,000
                  
                  
                  
                  0.10
                  
                  
                  
                  -
                  
                  
                  
                  2,400
                  
                  
                  
                  -
                  (2)10/23/2009
                  
                  
                  100,000
                  
                  
                  
                  0.05
                  
                  
                  
                  5,000
                  
                  
                  
                  -
                  
                  
                  
                  -12/1/09
                  
                  
                  50,000
                  
                  
                  
                  0.05
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500
                  (3)12/19/09
                  
                  
                  104,000
                  
                  
                  
                  0.10
                  
                  
                  
                  -
                  
                  
                  
                  10,400
                  
                  
                  
                  -
                  (4)12/31/09
                  
                  
                  65,000
                  
                  
                  
                  0.05
                  
                  
                  
                  -
                  
                  
                  
                  3,250
                  
                  
                  
                  -
                  (5)Totals
                  
                  
                  1,228,000
                  
                  
                  
                  
                  
                  
                  $
                  81,000
                  
                  
                  $
                  21,258
                  
                  
                  $
                  9,792





13





NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





E.
            STOCKHOLDERS’
      DEFICIT (CONT’D)





(1)
            On
      August 1, 2009, the Company entered into an agreement with an unrelated
      entity that was to render financial consulting services for a 12-month
      period.  As compensation, the Company issued 125,000 shares of
      common stock upon the agreement’s execution.  The shares were
      valued at $.10 per share for total compensation of $12,500 to be amortized
      ratably over the term of the agreement.  During the six months
      ended December 31, 2009, the Company amortized $5,208 to consulting
      expense, resulting in a $7,292 prepaid balance that has been reported in
      the stockholders’ equity section of the balance sheet.  The
      entity is also entitled to $25,000 in finders’ fees for each $1,000,000 of
      funding raised in the Company’s behalf.  No funds have been
      raised as of the date of this
report.





(2)
            On
      August 5, 2009, the Company entered into an agreement with an unrelated
      individual who was to render consulting services for a 6-week
      period.  The consultant was to receive cash compensation of
      $6,000 over the term of the contract, and 24,000 shares of common stock
      upon the contract’s completion.  The shares were valued at $.10
      per share, for total stock compensation of $2,400 to be expensed ratably
      over the contract’s term.  The Company recorded 6 weeks, or
      $8,400, of consulting expense during the six months ended December 31,
      2009, of which $6,000 was paid in cash.  The 24,000 shares of
      common stock were issued upon the contract’s completion on September 16,
      2009.





(3)
            On
      December 1, 2009, the Company executed an agreement with a company
      affiliated with its CFO (“the Affiliate”) that is to perform services
      including the compilation and coordination of corporate documentation, as
      well as filing services to facilitate the Company’s public listing on the
      OTCBB.  The Affiliate was compensated with a non-refundable
      $7,500 cash retainer payment and 50,000 shares of common stock upon the
      agreement’s execution, and an additional $7,500 cash payment is due upon
      the completion of a Form S-1 to be filed with the SEC.  The
      stock was valued at $.05 per share for total prepaid compensation of
      $2,500.  As of December 31, 2009, no services had been rendered
      under this contract.





(4)
            On
      June 19, 2009, the Company entered into an agreement with an unrelated
      individual who was to render consulting services for a 26-week
      period.  The consultant received cash compensation of $36,400
      over the term of the contract, and 104,000 shares of common stock upon the
      contract’s completion on or about December 19, 2009.  The shares
      were valued at $.10 per share, for total stock compensation of
      $10,400.





(5)
            On
      December 31, 2009, the Company issued to Ted Campbell 65,000 shares of
      common stock at $.05 per share for compensation expense of $3,250 pursuant
      to an employment agreement (Note C, Accrued
  Liabilities).




14




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





E.
              STOCKHOLDERS’
      DEFICIT (CONT’D)





On
January 30, 2009, the Company issued 10,000 shares at $.10 per share to a vendor
to settle a $1,000 debt.





During
March through May 2009, several convertible debenture holders converted their
debentures resulting in the issuance of 400,000 shares of common stock at $.10
for total value of $40,000 (Note F).





On April
30, 2009 and in connection with the reverse recapitalization between NTI and
AGI, the Company issued 648,000 shares to an unaffiliated entity as a finders’
fee.  The shares were valued at $.25 per share, resulting in total
expense of $162,000. As a term of the recapitalization, the Company also issued
500,000 shares at $.001 to an affiliated entity in settlement of $500 in
debt.  This issuance resulted in recognition of $124,500 in additional
interest expense.





F.
            CONVERTIBLE
      DEBENTURES





During
March through May 2009, the Company issued convertible debentures bearing
interest at 6% with a term of two years.  The debenture principle and
accrued interest may be converted into shares of the Company’s common stock in
the first year at a conversion price of $0.10 or in the second year at a price
which is 80% of the three lowest closing bid prices during the ten days prior to
conversion.





During
the year ended June 30, 2009, the Company issued debentures totaling $70,200
(convertible into potentially 702,000 shares of common stock based on a $.10
conversion rate), which amount includes cash received of $48,800 (of which
$21,300 was received after the reverse recapitalization) and $21,400 in notes
payable converted to convertible debentures on March 12,
2009.   The fair market value of the stock on the convertible
debenture issuance dates ranged from $.10 to $.25, resulting in a beneficial
conversion feature of $45,800, of which $31,378 was amortized during the year
ended June 30, 2009.





The
following debentures were converted during the year ended June 30,
2009:





Conversion
                  
                  Number
                  
                  
                  ConversionDate
                  
                  of Shares
                  
                  
                  Price
                  
                  
                  Total3/13/2009
                  
                  
                  107,000
                  
                  
                  $
                  0.10
                  
                  
                  $
                  10,7003/27/2009
                  
                  
                  50,000
                  
                  
                  
                  0.10
                  
                  
                  
                  5,0003/31/2009
                  
                  
                  10,000
                  
                  
                  
                  0.10
                  
                  
                  
                  1,0004/3/2009
                  
                  
                  20,000
                  
                  
                  
                  0.10
                  
                  
                  
                  2,0005/4/2009
                  
                  
                  80,000
                  
                  
                  
                  0.10
                  
                  
                  
                  8,0005/7/2009
                  
                  
                  50,000
                  
                  
                  
                  0.10
                  
                  
                  
                  5,0005/29/2009
                  
                  
                  83,000
                  
                  
                  
                  0.10
                  
                  
                  
                  8,300Total
                  
                  
                  400,000
                  
                  
                  
                  
                  
                  
                  $
                  40,000




15




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





F.
            CONVERTIBLE
      DEBENTURES





At
December 31, 2009 and June 30, 2009, the Company’s unconverted debentures
totaled $19,904 ($30,200 principal netted with $10,296 unamortized debt
discount) and $15,778 ($30,200 principal netted with $14,422 unamortized debt
discount), respectively, while the potential number of shares into which the
debentures could be converted was 302,000 based on a $.10 conversion
rate.  Accrued interest on the bonds totaled $1,364 and $458 at
December 31, 2009 and June 30, 2009, respectively.  No debentures were
converted during the six months ending December 31, 2009.





G.
              INCOME
    TAXES





The
Company recognizes the tax effects of transactions in the year in which such
transactions enter into the determination of net income, regardless of when
reported for tax purposes. Deferred taxes are provided in the financial
statements under ASC Topic No. 740 to give effect to the resulting temporary
differences which may arise from differences in the bases of fixed assets,
depreciation methods, allowances, and start-up costs based on the income taxes
expected to be payable in future years.





Deferred
compensation in the amount of $1,160,500 has been expensed per the financial
statements but is not deducted for tax purposes in the current
year.  This results in a deferred tax asset of $406,175 which would
reduce tax payments in the future as the compensation is subsequently recognized
for tax purposes.  This deferred tax asset however is offset in its
entirety by a valuation allowance of the same amount due to doubts concerning
the Company’s ability to utilize the deferred tax asset in future
years.





Operating
loss carryforwards of $1,521,135 (including permanent differences of $370,311
attributed to AGI’s accumulated losses on the reverse recapitalization date)
generated since inception through December 31, 2009 will begin to expire in
2027.  Accordingly, deferred tax assets of approximately $532,398 were
completely offset by a valuation allowance, which increased by approximately
$187,537 and $156,396 during the six months ended December 31, 2009 and 2008,
respectively.  This deferred tax asset was also offset due to a lack
of evidence that suggests that the Company would likely be able to utilize the
asset to offset tax payments in future years.





H.
            GOING
      CONCERN CONSIDERATIONS





The
Company’s financial statements have been 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. As of and during the period from
November 13, 2007 (inception) to December 31, 2009, the Company has incurred net
losses totaling $2,311,324, and has a working capital deficit of
$1,585,890.




16




NanoTech
Entertainment, Inc.


(A
Development Stage Company)


Notes
to Unaudited Financial Statements


Six
Months Ended December 31, 2009 and 2008,


and
the Period of November 13, 2007 (Inception) to December 31, 2009





H.
            GOING
      CONCERN CONSIDERATIONS (CONT’D)


These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The
Company's ability to meet its ongoing financial requirements is dependent on
management being able to obtain additional equity and/or debt financing, the
realization of which is not assured.





I.
            ROYALTIES


The
      Company has entered into several licensing agreements whereby the Company
      licenses certain gaming software from various developers.  The
      Company is responsible for paying royalties to the developers based on
      product sales.  In the event that no product is sold, the
      Company is also required to pay a minimum royalty in order to maintain
      exclusivity (i.e., the developer cannot license the same software to the
      Company's competitors).  Certain developers also require
      prepayment of royalties that are either offset by future sales, or expire
      at the end of a calendar year - at which point they are
      expensed.  The Company had prepaid $100,000 and $55,000 in
      royalties at December 31, 2009 and June 30, 2009,
      respectively.  No sales of the licensed products had occurred
      during the period of inception on November 13, 2007 through December 31,
      2009, so only exclusivity minimums of $80,521 and $31,771 have been
      accrued at December 31, 2009 and June 30, 2009,
      respectively.  The Company recognized royalty expense of $8,750
      and $9,375 during the six months ended December 31, 2009 and 2008,
      respectively.





J.
            SUBSEQUENT
      EVENTS


On March
16, 2010, the Company received a $10,000 loan from a stockholder pursuant to a
promissory note carrying a 10% interest rate.  The loan and $167 in
accrued interest were payable on May 16, 2010, but had not yet been repaid as of
the date of this report.





On March
30, 2010, the Company issued to an independent investor 50,000 shares of common
stock at $.10 per share for total proceeds of $5,000.





On April
1, 2010, the Company issued $5,000 in convertible debentures bearing interest at
6% with a maturity date of March 30, 2010.  The debenture principle
and accrued interest may be converted into shares of the Company’s common stock
in the first year at a conversion price of $0.10 or in the second year at a
price which is 80% of the three lowest closing bid prices during the ten days
prior to conversion.





The
Company has evaluated events from December 31, 2009, through the date whereupon
the financial statements were issued and has determined that there are no
additional items to disclose.




17




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




This
section must be read in conjunction with the unaudited financial statements
included in this report.




A.  Management’s
Discussion




The
Company was originally organized as a Nevada Corporation on July 15, 2004 under
the name Aldar Group, Inc. (“AGI”) for the purpose of acquiring, selling and
breeding thoroughbred horses. NanoTech Entertainment, Inc. (“NEI”) was
originally organized as a Nevada corporation on November 13, 2007. On April 30,
2009, NEI entered into an Acquisition Agreement (the “Agreement”) with AGI,
wherein AGI acquired 100% of NEI’s issued and outstanding common stock through
the exchange of 6,480,000 common shares.  As a result of the
Agreement, the Company changed its name to NanoTech Entertainment, Inc. (“NTI”)
(“the Company” or “We” or “NanoTech”) to better reflect the direction of the
newly formed entity.




For
accounting purposes, the share exchange transaction was treated as a capital
transaction where AGI, as the legal acquirer and shell corporation, issued stock
for the net monetary assets of NEI, as the accounting acquirer, accompanied by a
recapitalization. The accounting is similar in form to a reverse acquisition,
except that goodwill or other intangibles are not
recorded.




The
Company now operates as a virtual manufacturer, developing technology and games,
and then licensing such products to third parties for manufacturing and ultimate
distribution.  The Company’s business model supports relatively low
overhead costs and efficiencies in operations in the new global manufacturing
economy.




Company
Overview




NanoTech
Entertainment, Inc. is a provider of gaming technology for the coin-op arcade,
casino gaming and consumer gaming markets. Headquartered in Las Vegas, Nevada,
we operate as a virtual manufacturer, developing technology and games, and then
licensing them to third parties for manufacturing and distribution. This
business model supports extremely low overhead and efficient operations in the
new global manufacturing economy.




With an
ever-expanding lineup of technology and products, NanoTech is redefining the
role of developers and manufacturers in the gaming market. NanoTech's team is
compromised of industry veterans of the gaming industry that have collectively
been responsible for dozens of award winning products and multi-million copy
selling video games and technology.




During
the period from July 15, 2004 (AGI’s inception) to December 31, 2009, the
Company generated revenues of $72,987, while incurring $13,295 in cost of sales,
$2,117,306 in general and administrative expenses, $239,098 in interest expense,
and $14,612 in losses from AGI’s discontinued operations. This resulted in a
cumulative net loss of $2,311,324 through December 31, 2009.




During
the six months ended December 31, 2009, the Company generated revenues of
$17,136 while incurring $2,965 in cost of sales, $523,286 in general and
administrative expenses, and $26,704 in interest expense. This is compared to
earning $17,559 in revenues for the six months ended December 31, 2008, while
incurring $748 in cost of sales, $445,598 in general and administrative
expenses, and $18,058 in interest expense. This resulted in a net loss for the
six months ended December 31, 2009 and 2008 of $535,819 and $446,845,
respectively. The net loss for both comparative periods is attributable
primarily to the continuing costs of operations and product
development.




18




For the
three months ended December 31, 2009, the Company generated revenues of $10,345
while incurring cost of sales of $1,992, general and administrative expenses of
$247,655, and interest expense of $13,352. During the three months ended
December 31, 2008, the Company earned revenues of $12,029, while incurring $688
in cost of sales, $223,213 in general and administrative expenses, and $8,042 in
interest expense. This resulted in a net loss of $252,654 and $219,914 for three
months ended December 31, 2009 and 2008, respectively. The net loss for both
quarter ends is attributable primarily to the continuing costs of operations and
product development.




Liquidity and Capital
Resources




As of
December 31, 2009, the Company had a working capital deficit of $1,585,890,
which is current assets minus current liabilities.  This negative
working capital is attributable to monies owed for the acquisition of the
Company’s current products, monies owed to officers for accrued salaries and
other reimbursable expenses, royalties payable, convertible debentures, and the
accrued interest and current portion of notes payable to related and unrelated
parties.  The Company’s current assets as of December 31, 2009
consisted of $19,037 in cash, $11,050 in inventory, $7,500 in prepaid expenses,
and $100,000 in prepaid royalties.




NTI has
limited capital resources from which to operate.  Without the
realization of either significant cash flow from ongoing revenue or additional
capital investment, the Company may not be able to continue without short-term
loans from its current officers and directors.  However, the Company’s
independent auditors have expressed substantial doubt about the Company's
ability to continue as a going concern.




B.  Plan
of Operation





Market
and Industry




We have
experience and products for all aspects of the various gaming industries. 
By traversing the market from consumer to coin-op to casino, the Company may be
able to take advantage of all three growth and profitable industries and balance
out the seasonal patterns of each.





Even in
the unsteady economic climate, the gaming market continues to flourish and
expand.  In 2008, the arcade industry saw $7.2 billion in revenue and the
consumer market saw $58 billion with a growth of 19% in 2008. The following are
excerpts from other sources:





“As
people cut back on travel and going out, they are turning more to home
entertainment, providing a boost to the video game industry.” Reuters, April 2,
2009





“The
video game business continues to enjoy robust growth, making it the fastest
growing of the many consumer goods categories.” Market Watch, Feb 18,
2009





The
NanoTech team has won numerous awards in recent years including innovative
product of the year in 2005 and 2006 in the arcade industry, and innovative
product of the year in 2007 in the casino market.




19





Products





Below is
a list of the Company’s current product line with detailed descriptions. For
more information on the Company’s products and services you can view our web
site at www.NanoTechEnt.com.




MultiPinTM
- There is currently only one Pinball manufacturer left in the world, Stern
Pinball.  While they supply over 10,000 machines per year to the market,
there is a huge demand for new and innovative pinball.  MultiPinTM
represents the next generation in pinball.  By replacing the mechanical
parts of a pinball machine with state of the art electronics, MultiPinTM solves
two major problems seen by operators of Pinball machines.  First, it
eliminates any mechanical failures, which are common amongst pinball
machines.  Secondly, it provides a multi-game platform that can be
constantly updated with new games without having to swap out the machine. 
Our proprietary physics engine and motion sensors allow MultiPinTM to accurately
recreate the experience of a mechanical pinball machine, while providing players
with a variety of classic and modern pinball games to choose from.




Xtreme
Rally RacingTM - An Xtreme Off-Road Racing Experience with no boundaries. Xtreme
Rally Racing is an innovative new driving machine that features three modes of
game play:




Xtreme
Off-Road - Race head-to-head against other players and the computer to
checkpoints while driving anywhere on the map with no preset
course.





Timed
Rally Stages - Classic Rally Racing on real world courses. Players will be able
to race in five different countries on real world rally courses.





Xtreme
Stadium Racing - Custom Stadiums designed for Xtreme racing including a figure 8
multi-lap course with huge jumps.





NanoNET
Online System - Local and Worldwide head-to-head competition in real time
against machines located around the world. Remote Operator Control of your
machines including diagnostics, accounting reports, and automatic software
updates and enhancements downloaded over the net. Link up to 4 Cabinets for
local multiplayer action.




Pinball
Wizard TM - Consumer Pinball enthusiasts have been growing with the advent of
Visual Pinball and now Future Pinball.  The official Visual Pinball forum
boasts over 155,000 members, and the free version Future Pinball has been
downloaded over 1 million times in the past six months, and over 500,000 copies
in April 2009.  We have created the only input device designed to give
these players a way to experience real pinball controls on their personal
computer.   Based on the technology developed for the MultiPinTM
product we have built a controller that lets people play pinball using
traditional controls and the ability to “shake” and “nudge” the
table.




Mot-IonTM
Adapter - The Mot-Ion adapter is a USB adapter that allows do-it-yourself
Pinball enthusiasts to build their own cabinet using real pinball controls
providing analog inputs for nudging and bumping. This kit includes everything
needed to connect a pinball cabinet to a PC (I/O Board, Digital Plunger, Wiring
Harness).




Opti-GunTM
Adapter - The OptiGun Adapter is a USB adapter that allows players to connect
Arcade Light Guns to any USB based system. This universal adapter provides a
complete solution to implement an arcade game including Gun Inputs, Force
Feedback Outputs, digital inputs, and built in audio amplifier. The adapter can
also be used with PC-based emulators such as M.A.M.E. to connect arcade light
guns on your home system.




20





Retr-IOTM
Adapter - The Retr-IO Adapter provides a standard JAMMA interface for USB based
systems. This universal adapter provides a complete solution to implement an
arcade game using Joysticks, Trackballs, Spinners, buttons and features, digital
outputs, and built-in audio and video amplifiers.





The board
works with any PC-based system including M.A.M.E and other emulation products.
It provides an all-in-one solution to hooking up traditional arcade controls to
your PC, or any USB system. All digital inputs and outputs are interfaced via
standard keyboard commands, and appear as mapped keys to your games. The default
key mappings match those of many popular PC emulation products. Two Trackballs
and two Spinners are supported, and are mapped to the system as mice. The board
supports four player standard configurations or two-player four-way joystick and
six button configurations.





Competition


The
Company will compete against established companies with significantly greater
financial, marketing, research and development, personnel, and other resources
than the Company. Such competition could have a material adverse effect on the
Company's profitability.





Government
Regulation





There are
no government regulations regulating the development and sale of gaming products
for coin operated machines.





ITEM 4T. CONTROLS AND PROCEDURES





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, as amended) was evaluated under the supervision and with
the participation of our management, including the Chief Executive Officer and
Chief Financial Officer, as of the end of the period covered by this quarterly
report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
not effective in providing reasonable assurance that the information required to
be disclosed in this quarterly report is recorded, processed, summarized and
reported within the time period required for the filing of this quarterly
report.





There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended)
identified in connection with the evaluation of our internal control performed
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.





Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system no matter how
well conceived and operated can provide only reasonable, not absolute assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints and the
benefits of control systems must be considered relative to their cost. As a
result of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues of fraud, if
any, have been detected.




21




Based on
their most recent review, which was completed within ninety days of the filing
of this report, NTI’s Officers have concluded that the Company’s newly-adopted
disclosure controls and procedures will be effective to ensure that information
required to be disclosed by NTI in the reports it files or submits under the
Securities Exchange Act of 1934, as amended, is accumulated and communicated to
NTI’s management, including its Officers, as appropriate to allow timely
decisions regarding required disclosure and are effective to ensure that such
information is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.  There were no significant changes in NTI’s internal controls
or in other factors that could significantly affect those controls subsequent to
the date of their evaluation.




PART
II — OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS




None.




ITEM
1A. RISK FACTORS




Not
applicable.




ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




On
October 23, 2009, the Company issued to an unaffiliated individual100,000 shares
of common stock at $.05 per share for $5,000 in cash.





On
December 1, 2009, the Company executed an agreement with a consultant that will
perform services to include the compilation and coordination of corporate
documentation, as well as filing services to facilitate the Company’s public
listing on the OTCBB.  The consultant was compensated with a
non-refundable $7,500 cash retainer payment and 50,000 shares of common stock
due upon the agreement’s execution, and will receive a $7,500 cash payment due
upon the completion of a Form S-1 to be filed with the SEC.  The stock
was valued at $.05 per share for total prepaid compensation of
$2,500.  As of the report date, no services had been rendered under
this contract.





On June
19, 2009, the Company entered into an agreement with an unrelated individual who
was to render consulting services for a 26-week period.  The
consultant received cash compensation of $36,400 over the term of the contract,
and 104,000 shares of common stock upon the contract’s completion on or about
December 19, 2009.  The shares were valued at $.10 per share, for
total stock compensation of $10,400.




On
December 31, 2009, 65,000 shares of common stock were issued to Ted Campbell for
services as CFO and Chief Compliance Officer of the Company for the month of
December 2009.  This monthly compensation represents $5,000 per month
comprised of $1,750 in cash and sufficient shares of stock valued at the monthly
average trading price to equal $3,250.  These terms will remain in
effect for the first six months of the agreement beginning December 1,
2009.  Afterwards, the cash compensation will increase to $2,500 and
stock value will increase to $3,500 for the remaining 18 months.




ITEMS
3. DEFAULTS UPON SENIOR SECURITIES




None.




22




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.




ITEM
5. OTHER INFORMATION




None




ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K





Exhibit No.:
                  
                  Description:3.1(i)
                  
                  Articles
      of Incorporation and amendments thereto (1) and
      (2)3.1(ii)
                  
                  Bylaws
      (1)14
                  
                  Code
      of Ethics (1)31.1
                  
                  Certification
      of Principal Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                  
                  Certification
      of Principal Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                  
                  Certification
      of Principal Executive Officer and Principal Financial Officer Pursuant to
      Section 906 of the Sarbanes-Oxley Act 0f
2002





(1)
            Filed
      with the Securities and Exchange Commission on February 12, 2008 as an
      exhibit numbered as indicated above, to the Registrant’s registration
      statement on Form S-1 (file no. 333-149184 which exhibit is incorporated
      herein by reference.


(2)
            Amendment
      to the Article of Incorporation filed with the Securities and Exchange
      Commission on Form 8-K on May 7, 2009 which exhibit is incorporated herein
      by reference.




(b)
Reports on Form 8-K




During
the period ended December 31, 2009, NANOTECH ENTERTAINMENT, INC. filed the
following Current Reports on Form 8-K:





Date of Report
                        
                        Date Filed
                        
                        Items ReportedNone




23





SIGNATURES




In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





NanoTech
      Entertainment, Inc.(Registrant)





Signature
                            
                            Title
                            
                            Date/s/
      Robert Dekett
                            
                            President
      & CEO, Director
                            
                            May
      24, 2010Robert
      Dekett/s/
      Robert Dekett
                            
                            Secretary,
      Treasurer, Director
                            
                            May
      24, 2010Robert
      Dekett/s/
      Ted D. Campbell II
                            
                            Principal
      Financial Officer
                            
                            May
      24,, 2010Ted
      D. Campbell II/s/
      Robert Dekett
                            
                            Principal
      Accounting Officer
                            
                            May
      24, 2010Robert
      Dekett





24