United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
February 28, 2005 000-13822
NAYNA NETWORKS, INC.
(formerly ResCon Technology Corporation)
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization
83-0210455
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(I.R.S. Employer Identification No.)
180 Rose Orchard Way, San Jose, California 95134
------------------------------------------------
(Address of principal executive offices)
(408) 956-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
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 for such 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
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date.
Common stock, par value $.0001; 35,802,504 outstanding as of April 12, 2005
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
RESCON TECHNOLOGY CORPORATION
Condensed Financial Statements
February 28, 2005
2
RESCON TECHNOLOGY CORPORATION
Condensed Balance Sheet
(Unaudited)
ASSETS
February 28,
2005
------------
Current Assets
Cash $ 803
Prepaid expenses 20,000
------------
Total Current Assets 20,803
------------
Fixed Assets (Net) 22,358
Prepaid Equipment Lease 13,333
Software & Technology License Agreement 403,280
Investment Speed of Thought 286,720
Other investment 50,000
------------
Total Non-Current Assets 775,691
------------
Total Assets $ 796,494
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable $ 29,817
Payable to shareholders 721,794
------------
Total Current Liabilities 751,611
------------
Total Liabilities 751,611
Minority Interest (944)
Stockholders' Equity
Common stock 417
Additional paid in capital 6,342,844
Accumulated deficit prior to development stage (4,467,609)
Accumulated deficit during the development stage (1,829,825)
------------
Total Stockholders' Equity 45,827
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 796,494
============
See accompanying notes
3
RESCON TECHNOLOGY CORPORATION
Condensed Statements of Operations
(Unaudited)
For the Three For the Three
Months Ended Months Ended
February 28, February 29,
2005 2004
------------ ------------
Revenues $ 0 $ 0
General & Administrative Expenses 45,823 181,035
------------ ------------
Operating Income (Loss) (45,823) (181,035)
Other Income and Expense
Income (Loss) on investment in GIT 0 0
------------ ------------
Net Income (Loss) Before Taxes (45,823) (181,035)
Current Year Provision for Income Taxes 0 0
------------ ------------
Net Income (Loss) $ (45,823) $ (181,035)
============ ============
Income Per Share $ (0.01) $ (0.05)
============ ============
Weighted Average Number of Shares Outstanding
4,170,450 3,747,419
============ ============
See accompanying notes
4
RESCON TECHNOLOGY CORPORATION
Condensed Statements of Operations
(Unaudited)
For the
Development
For the Six For the Six Stage
Months Ended Months Ended Through
February 28, February 29, February 28,
2005 2004 2005
------------ ------------ ------------
Revenues $ 0 $ 0 $ 0
General & Administrative Expenses 93,027 560,143 2,536,907
------------ ------------ ------------
Operating Income (Loss) (93,027) (560,143) (2,536,907)
Other Income and Expense
Income from forgiveness of debt 0 0 755,145
Income (Loss) on investment in GIT 0 0 (48,063)
------------ ------------ ------------
Net Income (Loss) Before Taxes (93,027) (560,143) (1,829,825)
Current Year Provision for Income Taxes 0 0 0
------------ ------------ ------------
Net Income (Loss) $ (93,027) $ (560,143) $ (1,829,825)
============ ============ ============
Income Per Share $ (0.02) $ (0.16) $ (1.29)
============ ============ ============
Weighted Average Number of Shares Outstanding 4,170,450 3,573,178 1,415,257
============ ============ ============
See accompanying notes
5
RESCON TECHNOLOGY CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
For the
For the Six For the Six Development
Months Ended Months Ended Stage Through
February 28, February 29, February 28,
2005 2004 2005
------------ ------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (93,027) $ (560,143) $ (1,829,825)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 4,111 43,617 144,352
Income from investment in GIT 0 0 48,063
Increase in advances 0 (6,000) 0
Income from forgiveness of debt 0 0 (755,145)
Issued common stock for service or expenses 0 0 810,881
Decrease in accounts payable 449 (2,542) 29,817
Decrease in prepaid expenses 13,334 13,333 13,333
Change in minority interest 0 (194) (944)
Expenses paid by shareholders 0 0 5,345
------------ ------------ ------------
Net Cash from operating activities (75,133) (511,929) (1,534,123)
Cash Flows from Investing Activities:
Purchase of property and equipment 0 0 (21,740)
Investments 0 0 (50,000)
------------ ------------ ------------
Net Cash from investing activities 0 0 (71,740)
Cash Flows from Financing Activites:
Loan proceeds 72,288 528,189 1,606,666
------------ ------------ ------------
Net Cash from financing activities 72,288 528,189 1,606,666
------------ ------------ ------------
Net Increase/(Decrease) in Cash (2,845) 16,260 803
Beginning Cash Balance 3,648 0 0
------------ ------------ ------------
Ending Cash Balance 803 16,260 803
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 0 $ 0 $ 0
Cash paid during the year for income taxes $ 0 $ 0 $ 0
Issued stock for investment $ 0 $ 0 $ 548,223
Issued stock for professional fees contracts $ 0 $ 0 $ 788,500
See accompanying notes
6
RESCON TECHNOLOGY CORPORATION
Notes to Condensed Financial Statements
February 28, 2005
PRELIMINARY NOTE
The accompanying condensed financial statements have been prepared without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These interim
financial statements include all adjustments, which in the opinion of
management, are necessary in order to make the financial statements not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
August 31, 2004.
Item 2. Plan of Operations
This Form 10-QSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties. Actual results may differ materially depending on a
variety of factors. For a complete understanding, this Plan of Operations should
be read in conjunction with Part I- Item 1. Financial Statements to this Form
10-QSB.
Results of Operations
For the three months ended February 28, 2005 and February 29, 2004
During the three months ended February 28, 2005, the Company generated an
operating loss of $45,823 compared to an operating loss of $181,035 during the
three months ended February 29, 2004. This represents a reduction in operating
loss of $135,212. This reduction in net loss is directly attributable to
corresponding reductions in general and administrative expenses as the Company
has discontinued all operations and focused its efforts to closing the Agreement
and Plan of Reorganization ("Agreement") whereby Nayna Networks, Inc., a
Delaware corporation, ("Nayna") will become a wholly owned subsidiary of the
Company.
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For the six months ended February 28, 2005 and February 29, 2004
During the six months ended February 28, 2005, the Company generated an
operating loss of $93,027 compared to an operating loss of $560,143 during the
six months ended February 29, 2004. This represents a reduction in operating
loss of $467,116. Again, this reduction in net loss is directly attributable to
corresponding reductions in general and administrative expenses as the Company
has discontinued all operations and focused its efforts on closing the Agreement
to acquire Nayna as a wholly owned subsidiary of the Company.
As of February 28, 2004, the Company had an accumulated deficit since
reactivation of $1,829,825 and cash on hand of $803.
Liquidity and Capital Resources
As the Company has limited working capital and limited cash on hand,
and as it is not currently realizing revenue from operations, the Company needs
to seek additional funding from third parties. This funding may be sought by
means of private equity or debt financing. The Company currently has no
commitments from any party to provide funding and there is no way to predict
when, or if, any such funding could materialize. There is no assurance that the
Company will be successful in obtaining additional funding on attractive terms,
or at all. If the Company is unsuccessful in obtaining additional debt or equity
financing during the second quarter of 2005, the Company may be unable to
continue operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
Cash Flows
During the quarter ended February 28, 2005, cash was primarily used to fund
Company expenses. Cash on hand decreased approximately $15,457 during the six
months ended February 28, 2005, compared to February 29, 2004. See below for
additional discussion and analysis of cash flow.
For the Six For the Six
Months Ended Months Ended
February 28, 2005 February 29, 2004
Net cash from operating activities $ (75,133) $ (511,143)
Net cash from investing activities $-0- $-0-
Net cash from financing activities $ 72,288 $ 528,189
NET INCREASE/(DECREASE) IN CASH $ 2,218 $ 50,852
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During the six months ended February 28, 2005, net cash used in operations
was $75,133, as net loss and decrease in accounts payable were only partially
offset by depreciation and decrease in prepaid expenses. The Company used no net
cash from financing activities during the six months ended February 28, 2005, as
the Company engaged in no investing activities. During the six months ended
February 28, 2005, the Company realized loan proceeds of $72,288, which reflects
the entire amount of net cash from financing activities.
During the quarter, the Company continued to work toward the closing of
the merger with Nayna Networks, Inc. Subsequent to quarter end, on April 1,
2005, the Company closed the merger and acquired 100% of the outstanding capital
stock of Nayna in exchange for the issuance of 32,249,997 shares of Company
common stock to the Nayna stockholders, making them the majority holders of the
outstanding shares of the Company
Founded in February 2000, Nayna Networks is a hardware and software
development company that designs, develops and markets next generation broadband
access solutions, also known as Ethernet In The First Mile (EFM) solutions for
the secure communications market. Typical customers include carriers, Cable TV
(CATV) service providers and municipal, defense and enterprise networks. Nayna's
multi-gigabit flagship platform, ExpressSTREAM, removes the performance
bottlenecks typically found in access networks. The high quality and rich
feature set of Nayna's solutions enables the gigabit class ExpressSTREAM
platform to address a wide variety of applications from the transport level up
to and through the application layer. Nayna, together with the companies which
it has acquired, has raised more than $65 million in venture capital investment
over the past five years, substantially all of which has been spent on product
development. In addition to continued internal development efforts, Nayna plans
to augment its product and service offerings through the acquisitions of
complementary companies in the secured communications solutions field including
infrastructure, software and services companies.
Nayna's solutions are based on proprietary hardware and software
implementations that are largely based on standard components. This methodology
makes Nayna's solutions more flexible and less costly and enables Nayna to
address its customer's needs swiftly without the cost or time required to make
custom silicon chips. These high-performance, cost-effective solutions are
enhanced by intelligent enforcement of Quality of Service (QoS), which we
believe positions Nayna to compete effectively in its target markets.
Following the merger, we anticipate that our currently available funds are
sufficient to meet our needs for working capital, capital expenditures and
business expansion for the next three months. Thereafter, we will need to raise
additional funds. If any of our assumptions are incorrect, we may need to raise
capital before the end of three months. We cannot assure you that we will be
able to raise such additional capital on terms that are favorable to us or at
all. Any inability to raise these funds could have a material adverse effect on
our business, results of operations and financial condition.
9
Item 3. Controls and Procedures
The Company's principal executive officer and principal financial officer
(the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e). Such officers have concluded (based upon their evaluations of
these controls and procedures as of the end of the period covered by this
report) that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by it in this report is
accumulated and communicated to management, including the Certifying Officers as
appropriate, to allow timely decisions regarding required disclosure.
The Certifying Officers have also indicated that there were no significant
changes in the Company's internal controls over financial reporting or other
factors that could significantly affect such controls subsequent to the date of
their evaluation, and there were no significant deficiencies and material
weaknesses.
Management, including the Certifying Officers, does not expect that the
Company's disclosure controls or its internal controls will prevent all error
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. In addition, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people or by
management override of the control. The design of any systems of controls is
also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Because of these
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On January 7, 2005, the Company filed with the Securities and Exchange
Commission and caused to be mailed to its shareholders a Schedule 14F-1
informing the shareholders of the Company that upon the closing of the Agreement
to acquire Nayna, a change in control of the Company would occur, with the
current directors and officers resigning and new directors and officers being
appointed as set forth in the Schedule 14F-1.
The Company did not solicit proxies in connection with this proposed
action.
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K
On January 21, 2005, the Company filed a Current Report on Form 8-K
disclosing that the Over-the-Counter Bulletin Board ("OTCBB") had stopped
posting quotations for the Company's common stock because of the Company's
failure to file all reports required under Sections 13 or 15(d) of the
Securities Exchange Act of 1934, with in time allowed by NASD Rule 6530. The
Current Report also disclosed that the Company's common stock was then trading
on the Pink Sheets under symbol "RSCT."
Subsequent to quarter end, on April 8, 2005, the Company filed a Current
Report on Form 8-K disclosing the closing of the merger with Nayna Networks,
Inc. as set forth in the Agreement and Plan of Reorganization, the issuance of
32,249,947 shares of unregistered common stock to the stockholders of Nayna
Networks, a change in control of the Company and the departure of the Company's
officers and directors and the appointment of new officers and directors in
connection with the closing of the merger. The Current Report also disclosed
that on April 1, 2005, the Company dismissed Mantyla McReynolds as its
independent certified public accountants and engaged Naresh Arora, CPA, Inc., to
act as the Company's new independent certified accountant. Finally, the current
report disclosed that on April 6, 2005, the Company filed a Certificate of
Amendment with the State of Nevada to change the name of the Company from ResCon
Technology Corporation to Nayna Networks, Inc.
(B) Exhibits. The following exhibits are included as part of this
report:
Exhibit 31.1 Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Principal Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
ResCon Technology Corporation
Dated: April 15, 2005 By: /S/ Naveen S. Bisht
---------------------
Naveen Bisht, CEO
Dated: April 15, 2005 By: /S/ Michael Meyer
---------------------
Michael Meyer, CFO
12