U.S. Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number 000-13822
NAYNA NETWORKS, INC.
---------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 83-0210455
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(State or other jurisdiction of (IRS Employer
incorporation) Identification No.)
4699 Old Ironsides Drive, Suite 420, Santa Clara, California 95054
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(Address of principal executive offices)
Registrant's telephone number, including area code (408) 956-8000
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180 Rose Orchard Way, San Jose, California 95134
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(Former name, former address and former fiscal year if hanged from last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 issuer's classes of common
equity, as of the latest practicable date.
Common stock, par value $0.0001 - 35,852,504 shares outstanding as of October
30, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
All financial information, with the exception of stock, are reported in
thousands (000's).
Item 1. Financial Statements
NAYNA NETWORKS, INC.
(a development stage enterprise)
BALANCE SHEET
(in thousands, except share and per share data)
- --------------------------------------------------------------------------------
(Unaudited)
September 30,
2005
ASSETS
Current assets:
Cash and cash equivalents $ 91
Accounts receivable, net of allowance for doubtfuls of $33 63
Prepaid expenses and other current assets 79
--------
Total current assets 233
Property and equipment, net 150
Other assets 193
--------
Total assets $ 576
========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable $ 1,292
Accrued liabilities 281
Accrued payroll liabilities 547
Notes payable 1,328
--------
Total current liabilities 3,448
Convertible debentures 2,372
--------
Total liablities 5,820
--------
Stockholders' (deficit) equity
Common stock, $0.001 par value:
Authorized shares - 1,000,000,000; issued and outstanding
shares - 35,802,504 at September 30, 2005 30
Additional paid-in capital 51,981
Deficit accumulated during the development stage (57,255)
--------
Total stockholders' (deficit) equity (5,244)
--------
Total liabilities and stockholders' (deficit) equity $ 576
========
See accompanied notes to these unaudited condensed financial statements
NAYNA NETWORKS, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
(in thousands)
- --------------------------------------------------------------------------------
(Unaudited)
Quarter Ended September 30,
------------------------------
2005 2004
------------ ------------
Operating expenses:
Research and development $ 780 $ 693
Business development 110 304
General and administrative 314 52
------------ ------------
Total operating expenses 1,204 1,049
------------ ------------
Loss from operations (1,204) (1,049)
Interest income -- 5
Interest expense (24) (4)
Gain on sale of assets -- --
Merger related costs (7) --
Impairment of goodwill and other intangible assets -- --
------------ ------------
Net loss $ (1,235) $ (1,048)
============ ============
Net loss per share - basic and diluted
basic (0.034) (0.040)
diluted
Shares used in computing net loss per share - basic and diluted
2004 adjusted for the 1:5.9 reverse split that occurred
immediately prior to the April 1, 2005 merger
basic 35,852,504 26,302,504
diluted
See accompanied notes to these unaudited condensed financial statements
NAYNA NETWORKS, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
(in thousands)
- --------------------------------------------------------------------------------
(Unaudited)
Cumulative
Period from
February 10,
2000 (date of
Nine Months Ended September 30, inception) to
------------------------------ September 30,
2005 2004 2005
------------ ------------ ------------
Operating expenses:
Research and development $ 2,689 $ 3,012 $ 41,639
Business development 533 911 3,143
General and administrative 740 352 8,274
------------ ------------ ------------
Total operating expenses 3,962 4,275 53,056
------------ ------------ ------------
Loss from operations (3,962) (4,275) (53,056)
Interest income -- 13 2,392
Interest expense (40) (37) (872)
Gain on sale of assets 370 -- 358
Merger related costs (243) -- (243)
Impairment of goodwill and other intangible assets -- -- (5,834)
------------ ------------ ------------
Net loss $ (3,874) $ (4,299) $ (57,255)
============ ============ ============
Net loss per share - basic and diluted
basic (0.119) (0.186)
diluted
Shares used in computing net loss per share - basic
and diluted 2004 adjusted for the 1:5.9 reverse
split that occurred immediately prior to the
April 1, 2005 merger
basic 32,652,504 23,082,688
diluted
See accompanied notes to these unaudited condensed financial statements
NAYNA NETWORKS, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
(Unaudited)
Cumulative
Period from
February 10,
Nine Months Ended 2000 (date of
September 30, inception) to
---------------------- September 30,
2005 2004 2005
-------- -------- --------
Cash flows from operating activities:
Net loss $ (3,874) $ (4,299) $(57,256)
Adjustments to reconcile net loss to net cash used in operations:
Noncash charges related to stock options granted to consultants and
accelerated vesting of employee stock options -- -- 40
Depreciation and amortization 388 458 4,138
Amortization of discount on warrants associated with equipment financing -- 17 202
Impairment of goodwill related to acquisitions -- -- 5,834
Loss (gain) on sale of property and equipment -- -- 756
Changes in operating assets and liabilities:
Restricted cash 49 --
Accounts receivable 97 (41) (63)
Prepaid expenses and other current assets (44) (38) (79)
Other assets (177) 29 137
Accounts payable 639 204 1,294
Accrued liabilities 41 (76) 288
Accrued payroll liabilities 250 66 547
-------- -------- --------
Net cash used in operating activities (2,631) (3,680) (44,162)
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (4) (1,239)
Proceeds from sale of property and equipment 260 -- 746
Costs associated with acquisition of Xpeed, Inc. -- -- (3,685)
-------- -------- --------
Net cash used in investing activities 260 (4) (4,178)
-------- -------- --------
Cash flows from financing activities:
Proceeds from (repayments on) loan facility 610 (690) 631
Payments on capital lease obligations and loan facility (1,229) (148) (5,599)
Proceeds from issuance of common stock, net of repurchases -- 13 243
Proceeds from issuance of Series A redeemable convertible
preferred stock, net of issuance costs -- -- 11,953
Proceeds from issuance of Series B redeemable convertible
preferred stock, net of issuance costs -- -- 35,897
Proceeds from issuance of Series D redeemable convertible
preferred stock, net of issuance costs -- 3,651 3,399
Issuance of convertible debt 2,372 -- 2,072
Restricted cash -- -- (165)
-------- -------- --------
Net cash provided (used) by financing activities 1,753 2,826 48,431
-------- -------- --------
Net decrease in cash and cash equivalents (618) (858) 91
Cash and cash equivalents at beginning of period 709 1,663 --
Cash and cash equivalents at end of period $ 91 $ 805 $ 91
======== ======== ========
See accompanied notes to these unaudited condensed financial statements
Notes to Condensed Financial Statements (unaudited)
NOTE 1: THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Nayna Networks, Inc., a development stage enterprise (the "Company" or "Nayna"),
is engaged in the development of next-generation broadband access networking
solutions. Nayna was incorporated in Delaware on February 10, 2000 and is
located in Santa Clara, California.
During 2003, the Company expanded its business development focus as a result of
an acquisition of another company, to develop and market passive optical
networks ("PON") equipment and digital subscriber line ("DSL") equipment. PON
equipment delivers high performance broadband access over fiber cable, linking
business and residential subscribers to the local central office. DSL technology
provides high-speed data transmission using the local telephone company's
existing infrastructure. During 2004, the Company shifted its focus in its
development efforts in the Ethernet in the First Mile ("EFM") segment of the
broadband access market. The Company has introduced a new platform that builds
upon the Company's PON expertise through its support for the latest generation
Gigabit Ethernet.
On April 4, 2005, Nayna merged into Rescon Technology Corporation ("Rescon"), a
publicly traded company, and became a wholly-owned subsidiary of Rescon.
Following the merger, Rescon Technology Corporation changed its name to Nayna
Networks, Inc.
The Company is in the development stage and, since inception, has devoted
substantially all of its efforts to the development of its products, raising
capital, and recruiting personnel. The Company has incurred losses since its
inception, and management believes that it will continue to do so for the
foreseeable future because of additional costs and expenses related to continued
development and expansion of the Company's product offerings. The Company
currently plans to generate revenues and reduce operating expenses to levels
that will result in at least neutral cash flows from operations. However, until,
and if, that stage is reached, the Company will continue to use its current cash
on hand and require additional financing to support its operations. Failure to
generate sufficient cash flows from operations, raise additional financing or
reduce certain discretionary spending could have a material adverse effect on
the Company's ability to continue as a going concern and to achieve its intended
business objectives. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Company's common stock is traded on the Nasdaq OTC Bulletin Board under the
trading symbol OTC:BB:NAYN.OB.
Development Stage Enterprise
Since its inception, although the Company has commenced its principal
operations, it has not achieved a sufficient level of sales and market demand to
become an established operating enterprise. Therefore, the Company is currently
classified as a development stage enterprise under the Statement of Financial
Accounting Standards ("SFASB") No. 7, "Accounting and Reporting by Development
Stage Enterprises." Successful completion of the Company's development program
and the attainment of profitable operations is dependent on future events,
including, among other things, the receipt of adequate financing to continue its
operations and fulfill its development activities and the achievement of a level
of sales adequate to support the Company's cost structure. There can be no
assurance that the Company will successfully accomplish these events.
The Company has experienced net losses since its inception and had an
accumulated deficit of $57.3 million as of September 30, 2005. Such losses are
attributable to cash and non-cash expenses resulting from costs incurred in the
development of the Company's products and infrastructure. The Company expects
operating losses to continue for the foreseeable future as it continues to
develop and market its products. However, the Company's ability to continue its
operations as a going concern is in doubt (See Note 10 - Going Concern).
Regardless of when or if the Company is able to commercialize its products, the
Company will require additional funding and may sell additional shares of its
common stock or preferred stock through private placement or public offerings.
There can be no assurance that the Company will be able to obtain additional
debt or equity financing, if and when needed, on terms acceptable to the Company
or at all. Any additional equity or convertible debt financing may involve
substantial dilution to the Company's stockholders, restrictive covenants, or
high interest costs. The failure to raise needed funds on sufficiently favorable
terms could have a material adverse effect on the Company's business, operating
results, and financial condition. The Company's long-term liquidity also depends
upon its ability to increase revenues from the sale of its products and achieve
profitability. The failure to achieve these goals could have a material adverse
effect on the operating results and financial condition of the Company.
The successful accomplishment of future activities and initiatives cannot be
determined at this time due to, among other things, current market conditions,
the volatility of the Company's business and the industry in which it competes
and other factors as are set forth herein under the caption "Risk Factors" and
in other filings made, from time to time, with the Commission. There can be no
assurance that the Company will have sufficient funds to execute its intended
business plan or generate positive operating results.
Basis of Presentation
The accompanying condensed financial statements are unaudited, as permitted
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "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 Transition Report on Form
10-KSB for the transition period from September 1, 2004 to December 31, 2004
filed with the Commission on August 16, 2005, the Company's Current Reports on
Form 8-K filed with the Commission on April 8, 2005, as amended on April 18,
April 20, April 26 and July 29, 2005, the Company's Quarterly Report on Form
10-QSB, for the period ended June 30, 2005, filed with the Commission on August
19, 2005, and other filings that the Company may make, from time to time, with
the Commission.
The information contained herein has been prepared by the Company in accordance
with the rules of the Commission. The financial information contained herein as
of September 30, 2005, for the three and nine month periods ended September 30,
2005 and corresponding periods is unaudited. The consolidated financial
statements reflect all adjustments, consisting of only normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods presented. The results of the
Company's operations for any interim period are not necessarily indicative of
the results of the Company's operations for ay other interim period or for a
full year.
All amounts set forth in these Notes to Condensed Financial Statements are in
thousands (`000s), except per share data (except where specifically noted
otherwise).
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues, expenses and disclosures of contingent
assets and liabilities at the date of the financial statements. Significant
estimates include revenue recognition, inventory valuation, useful lives and the
valuation of long-lived assets. Actual results could differ from these
estimates. Additionally, a change in the facts and circumstances surrounding
these estimates could result in a change to the estimates and could impact
future results.
Inventory Valuation
As a development stage enterprise, the Company expenses all inventories to
research and development until such time as commercial revenues may commence.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property and equipment,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When the sum of the present
value of future net cash flows expected to result from the use of the asset and
its eventual disposition is less than its carrying amount, an impairment loss
would be measured based on the discounted cash flows compared to the carrying
amount. No impairment charge has been recorded in any of the periods presented
herein.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
instruments with an original maturity of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense is determined using the straight-line method over the
estimated useful lives of the respective assets, which are generally three to
five years for computers, equipment and furniture. Depreciation on leasehold
improvements is provided using the straight-line method over the shorter of the
estimated useful lives of the improvements or the lease term. Expenditures for
maintenance and repairs are charged to operating expense as incurred. Upon
retirement or sale, the original cost and related accumulated depreciation are
removed from the respective accounts, and the gains and losses are included in
other income or expense.
Business and Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents invested in deposits and
trade receivables. The Company has not experienced any losses on its deposits of
cash and cash equivalents. Management believes that the institutions are
financially sound and, accordingly, minimal credit risk exists. The carrying
values reported in the balance sheets for cash, cash equivalents and trade
receivables approximate their fair values.
Research and Development
The Company accounts for research and development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 2, "Accounting for
Research and development Costs," and, accordingly, the Company expenses research
and development costs when incurred.
Income Taxes
The Company recognizes deferred tax assets and liabilities for operating loss
carryforwards, tax credit carryforwards and the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which the temporary differences are expected to be
recovered or settled. A valuation allowance is recorded to reduce the carrying
amounts of net deferred tax assets if there is uncertainty regarding their
realization.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation using the
intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and Financial
Accounting Standards Board ("FASB") Interpretation ("FIN") No. 44, "Accounting
for Certain Transactions Involving Stock Compensation."
Stock and other equity instruments issued to non-employees are accounted for in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," and
EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," and are valued using the Black-Scholes model.
No stock-based employee compensation cost related to stock options is reflected
in net income (loss), as all options granted under the Company's stock-based
compensation plans had an exercise price equal to fair value of the underlying
common stock on the applicable grant date.
Goodwill and Purchased Intangible Assets
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires
goodwill to be tested for impairment on an annual basis and between annual tests
in certain circumstances, and written down when impaired, rather than being
amortized as previous accounting standards required. Furthermore, SFAS 142
requires purchased intangible assets other than goodwill to be amortized over
their useful lives unless these lives are determined to be indefinite.
NOTE 2: PREPAID EXPENSES
Prepaid expenses consisted of the following at September 30, 2005 and December
31, 2004:
September 30, December 31,
2005 2004
---------- ----------
Prepaid lease $ 177 $ 0
Other 91 35
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Balance $ 268 $ 35
========== ==========
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of September 30, 2005 and
December 31, 2004:
September 30, December 31,
2005 2004
---------- ----------
Computer equipment $ 450 $ 417
Computer software 1,354 1,354
Test equipment 173 1,608
Furniture and fixtures 2 2
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1,979 3,381
Less: Accumulated depreciation (1,829) (2,583)
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Balance $ 150 $ 798
========== ==========
NOTE 4: LEASES
On July 31, 2005, the Company's lease on 180 Rose Orchard Way, San Jose, CA
expired. The Company has subsequently signed a six month lease for the premises
located at 4699 Old Ironsides Drive, Santa Clara, California, which the Company
now occupies as its primary headquarters.
On June 1, 2005, the Company completed the sale of certain equipment to
TFG-California, L.P. ("TFG"). Subsequent to such sale, the Company leased the
equipment back from TFG through an operating lease having a term of 24 months.
Under the terms of the lease agreement, the Company received approximately
$700,000. Such amount is being held, on the Company's behalf, by TFG, and will
be released upon the Company meeting certain conditions.
NOTE 5: DEBT
In April 2003, in connection with the Company's acquisition of Xpeed, Inc.
("Xpeed"), the Company agreed to pay off $5,904 towards liabilities of Xpeed. As
of September 30, 2005 and December 31, 2004, the following amounts were
outstanding under this obligation:
September 30, December 31,
2005 2004
---------- ----------
Accrued liabilities for expenses $ 122 $ 106
Notes payable 225 360
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Total $ 347 $ 466
========== ==========
Beginning in late 2004 and during this fiscal year, the Company has continued to
fund its operations through debt. As of September 30, 2005 and December 31,
2004, the following amounts are outstanding:
September 30, December 31,
2005 2004
---------- ----------
Notes Payable (includes $23 of
interest accrued on Bridge Loan) $ 1,103 $ 0
Convertible Debentures 2,372 1,138
---------- ----------
Total Notes Payable $ 3,475 $ 1,138
========== ==========
NOTE 6: NET LOSS PER SHARE
Basic Earnings (Loss) per Share ("EPS") excludes dilution and is computed by
dividing net income or loss attributable to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible notes, warrants to purchase common
stock and common stock options using the treasury stock method) were exercised
or converted into common stock. Potentially dilutive securities are excluded
from the diluted EPS computation in loss periods as their effect would be
anti-dilutive.
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
Numerator - Basic $ (1,235) $ (1,048) $ (3,874) $ (4,299)
Denominator - basic
Weighted average common shares
outstanding 35,852,504 26,302,504 32,652,504 23,082,688
Net loss per share - basic (0.034) (0.040) (0.119) (0.186)
Antidilutive securities
Options 4,987,443 1,297,031 4,780,776 1,297,031
Warrants 525,445 88,600 218,630 88,600
NOTE 7: COMMON STOCK (in actual amounts)
As of September 30, 2005, there were 35,852,504 shares of Common Stock issued
and outstanding.
NOTE 8: RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense for the quarter ended September 30, 2005,
included the following:
September 30, 2005
------------------
Employee payroll and related expense $ 251
Cost of material 74
Outside services 90
Allocation of administrative overheads 392
Recovery of expenses from customers (27)
------
$ 780
======
NOTE 9: LEGAL MATTERS
The Company is from time to time party to various legal proceedings, arising in
the ordinary course of business. Based on evaluation of these matters and
discussions with the Company's counsel, the Company believes that liabilities
arising from or sums paid in settlement of these existing matters will not have
a material adverse effect on the consolidated results of operations or financial
position of the Company.
NOTE 10: GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
has incurred losses since its inception and has current liabilities in excess of
current assets. In October and November of 2005, the Company received an
aggregate of approximately $180,000 in bridge loans from certain lenders. Such
notes are due within 120 days of the respective issuance dates and carry an
interest rate of 8% per annum. Notwithstanding the foregoing, the Company does
not have sufficient cash on hand to continue its operations in the manner they
have historically been conducted. These factors raise substantial doubt about
the ability of the Company to continue as a going concern. In this regard,
management is proposing to raise any necessary additional funds not provided by
operations through loans or through additional sales of its common stock. There
is no assurance that the Company will be successful in raising this additional
capital or in achieving profitable operations. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Item 2. Management's Discussion and Analysis or Plan of Operations
This Quarterly Report on Form 10-QSB, including the following sections, contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of
1934, as amended. 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, and the cautionary
statements set forth below and those set forth herein under the caption entitled
"Risk Factors" identify important factors that could cause actual results to
differ materially from those predicted in any such forward-looking statements.
Investors should not place any undue reliance on any such forward looking
statements and are cautioned that actual results may differ materially from
those projected in the forward-looking statements as a result of certain risk
factors identified in this Quarterly Report on Form 10-QSB and other filings we
have made, and may make, with the Securities and Exchange Commission.
Any forward-looking statements made by us do not reflect the potential impact of
any future acquisitions, mergers, dispositions, joint ventures or investments
the Company may make. The Company does not assume, and specifically disclaims,
any obligation to update any forward-looking statements, and these statements
represent the Company's current outlook only as of the date given.
The following discussion should be read in conjunction with the condensed
financial statements and notes thereto included elsewhere in this report, as
well as, the financial statements and notes thereto included in the Company's
Transition Report on Form 10-KSB for the transition period from August 31, 2004
to December 31, 2004 filed with the Commission on August 16, 2005, the Company's
Current Report on Form 8-K filed with the Commission on April 8, 2005, as
amended on April 18, April 20, April 26 and July 29, 2005, the Company's
Quarterly Report on Form 10-QSB, for the period ending June 30, 2005, filed with
the Commission on August 19, 2005, and other reports and filings that the
Company may make from time to time with the Commission.
OVERVIEW
Headquartered in Santa Clara, CA, Nayna Networks, Inc., ("Nayna" or the
"Company") 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") for the secure communications market.
Nayna was formed as a result of a merger and plan of reorganization (the
"Merger") between ResCon Technology Corporation ("Rescon") and Nayna Networks,
Inc. ("NNI"). On April 1, 2005, NNI merged into Rescon in a stock-for-stock
transaction. As a result of the Merger, Rescon continued as the surviving
corporation, assumed the operations and business plan of NNI, the stockholders
of NNI became stockholders of Rescon, and Rescon changed its name to Nayna
Networks, Inc. (trading symbol OTC:BB:NAYN.OB).
RESULTS OF OPERATIONS
Revenues, Cost of Sales and Gross Profit
For the three and nine month periods ended September 30, 2005 and September 30,
2004, the Company did not have any material revenue, cost of sales or gross
profit. As a development stage company, any revenues generated by trial and
evaluation sales have been classified as a reduction of expenses.
Operating Expenses
Operating expenses include research and development, business development and
general and administrative expenses. Total operating expenses for the three
months ended September 30, 2005 and September 30, 2004 were $1.2 million and
$1.0 million, respectively. Such increase of $155,000 resulted primarily from
the following:
o Increased research and development expenditures of $88,000 as a
result of the Company's recent completion of development of the its
ExpressSTREAM product line;
o Decreased business development expenditures of $194,000 as a result
of a decrease in the number of sales and marketing employees and a
focus on large partners and channels; and
o Increased general and administration expenditures of $262,000 as a
result of expenses related to the Company's increased obligations
upon becoming a reporting enterprise.
Operating expenses for the nine months ended September 30, 2005 and September
30, 2004 totaled $4.0 million and $4.3 million, respectively. Such decrease of
$313,000 resulted primarily from cost savings associated with a reduction in the
number of employees.
Other Expenses
Other expenses include interest expense and merger-related costs. Other expense
for the three months ended September 30, 2005 and September 30, 2004, was
$31,000 and $4,000, respectively. Such increase of $27,000 was primarily due to
ongoing costs related to the Company's recent merger with Rescon.
Other expenses for the nine months ended September 30, 2005 and September 30,
2004, were $283,000 and $37,000, respectively. Such increase was primarily due
to costs related to the Company's recent merger with Rescon.
Other Income
Other income includes interest income and gains on the sale of certain of the
Company's assets. There was no other income for the three months ended September
30, 2005, and other income for the three months ended September 30, 2004 was
$5,000. Such decrease was the result of the Company's no longer having interest
bearing deposits.
Other income for the nine months ended September 30, 2005 and September 30,
2004, was $370,000 and $13,000, respectively. Such increase was due primarily to
the Company's gain on the sale of certain fixed assets.
Net Loss
As a result of the foregoing factors, for the three months ended September 30,
2005 and September 30, 2004, the Company incurred a net loss of $1.2 million and
$1.0 million, respectively.
For the nine months ended September 30, 2005 and September 30, 2004, the Company
incurred a net loss of $3.9 million and 4.3 million, respectively.
During the Company's continuing development phase, it has consistently sustained
operating losses and expects such losses to continue through the rest of fiscal
2005 and for the foreseeable future.
Liquidity and Capital Resources
As of September 30, 2005, the Company had an accumulated deficit since inception
of $57.3 million and cash and cash equivalents of $91,000. The Company has
incurred losses since its inception and has current liabilities in excess of
current assets. In October and November of 2005, the Company received an
aggregate of approximately $180,000 in bridge loans from certain lenders. Such
notes are due within 120 days of the respective issuance dates and carry an
interest rate of 8% per annum. Notwithstanding the foregoing, the Company does
not have sufficient cash on hand to continue its operations in the manner they
have historically been conducted. These factors raise substantial doubt about
the ability of the Company to continue as a going concern.
In this regard, as the Company has limited working capital and limited cash on
hand, and as it is not currently realizing revenue from operations, management
is proposing to raise any necessary additional funds not provided by operations
through loans or through additional sales of its common stock. There is no
assurance that the Company will be successful in raising this additional capital
or in achieving profitable operations. 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.
Cash Flows
During the quarter ended September 30, 2005, cash was primarily used to fund
Company expenses. Cash and cash equivalents decreased by $618,000 during the
nine months ended September 30, 2005. The Company's summary cash flow
information for the nine month periods ended September 30, 2005 and 2004 is set
forth below:
For the Nine For the Nine
Months Ended Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Net cash used in operating activities $(2,631) $(3,680)
Net cash used in investing activities $ 260 $ (4)
Net cash used in financing activities $ 1,753 $ 2,826
Net Increase/(Decrease) in Cash $ (618) $ (858)
During the nine months ended September 30, 2005, net cash used in operations was
$2.6 million, as net loss and loss on the sale of fixed assets were only
partially offset by depreciation and increases in accounts payable and accrued
payroll liabilities. During the nine months ended September 30, 2005, the
Company realized loan proceeds of $1.8 million.
Significant Events
Dr. Raj Jain
In August 2005, Dr. Raj Jain, the Company's Chief Technical Officer (CTO),
accepted a professorship at Washington University in St. Louis, Missouri. Dr.
Jain will be devoting one day a week to his duties as CTO.
Merger with ResCon
On April 1, 2005, NNI merged into Rescon in a stock-for-stock transaction. As a
result of the Merger, Rescon continued as the surviving corporation, assumed the
operations and business plan of NNI, the stockholders of NNI became stockholders
of Rescon, and Rescon changed its name to Nayna Networks, Inc.
South Seas Data, Inc.
On May 17, 2005, the Company entered into an Agreement and Plan of
Reorganization (the "SSDI Acquisition Agreement") with South Seas Data, Inc.
("South Seas"), which provided for the acquisition of SSDI. SSDI is a privately
held company located in Englewood, Colorado, that provides sophisticated,
enterprise-class network solutions and services. This SSDI Acquisition Agreement
was terminated by mutual agreement on October 24, 2005.
Risk Factors
We are a development stage company and have only a limited operating history on
which to evaluate our potential for future success.
We have only recently launched many of our products and services and therefore
have a limited operating history upon which you can evaluate our business and
future prospects. In addition, since we are a development stage company, we have
yet to develop sufficient experience in forecasting the revenues we expect to
receive from the sale of our products and services. If we are unsuccessful in
addressing the risks and uncertainties commonly faced by development stage
companies, our business, results of operations and financial condition will be
materially and adversely affected.
We expect to incur operating losses for the foreseeable future.
We continue to incur operating losses due primarily to product development costs
and increasing sales and marketing expenses. In addition, we plan to undertake
significant investments in marketing and promotion, the hiring of additional
employees and to enhance our network content and management technologies through
both internal development efforts and strategic acquisitions. As a result of
these expenditures, we expect to incur net losses for the foreseeable future. We
believe these expenditures are necessary to build and maintain our hardware and
software technology and to penetrate our target product markets. If our revenue
growth is slower than we anticipate or our operating expenses exceed our
expectations, our losses will be significantly greater than they are at the
present time and we may never achieve profitability.
We will need to raise additional capital in the immediate future.
We have incurred losses since inception and have current liabilities in excess
of our current assets. We do not have sufficient cash on hand to continue
operations in the manner they have historically been conducted. We will need to
raise additional funds or significantly decrease or curtail our operations. We
cannot assure you that we will be able to raise such additional capital on terms
that are favorable to us, or at all. Such inability could have a material
adverse effect on our business, results of operations and financial condition.
Acquisitions may disrupt or otherwise have a negative impact on our business.
We may acquire or make investments in complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in carrying out our business strategy. Although growth through
acquisitions has been a successful strategy used by other network control and
management technology companies, we cannot assure you that we will be able to
successfully pursue this strategy. We plan to use this as a strategy to grow our
business. If we buy a company, then we could have difficulty in integrating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. An acquisition could also
distract our key management and employees and increase our operating and other
expenses. Furthermore, we may have to incur debt or issue equity securities to
pay for any such future acquisitions, the issuance of which could be dilutive to
our existing stockholders.
Our common stock price is highly volatile and the current market for our common
stock is limited.
The market price of our common stock is highly volatile as the stock market in
general, and the market for small cap and micro cap technology companies in
particular, has been highly volatile. You may not be able to resell your shares
of our common stock following periods of volatility because of the market's
adverse reaction to volatility. We cannot assure you that our stock will trade
at the same levels of other stocks in our industry or that our industry stocks
in general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
o actual or anticipated fluctuations in our quarterly operating
results;
o announcements of technological innovations;
o changes in financial estimates by securities analysts;
o conditions or trends in the network control and management industry;
o changes in the market valuations of other such industry related
companies; and
o the acceptance of market makers and institutional investors of the
Company and our stock.
In addition, our stock is currently traded on the NASD OTC Bulletin Board and it
is uncertain that we will be able to successfully apply for listing on the
American Stock Exchange or the NASDAQ National or Small Cap Markets in the
foreseeable future due to our inability to satisfy their respective listing
criteria. Failure to list our shares on either the American Stock Exchange or
the NASDAQ National or Small Cap Markets will impair the liquidity of our common
stock.
Your holdings may be diluted in the future.
We are authorized to issue up to 1,000,000,000 shares of common stock. Our board
of directors has the ability to issue additional shares of our common stock,
without stockholder approval, in exchange for such consideration that the board
of directors may deem adequate, up to such authorized amount. The issuance of
additional shares of common stock will reduce the proportionate ownership and
voting power of our existing common stockholders. In addition, we currently have
outstanding options and warrants to purchase approximately 3,700,000 shares of
common stock, the exercise of which could also have a substantial dilutive
effect on the ownership of our common stockholders. In addition, the future
designation and issuance of one or more series of preferred stock would create
additional securities that would have, among other things, dividend and
liquidation preferences senior to our common stock.
Shares eligible for future sale by our current stockholders may adversely affect
our stock price.
Sales of substantial amounts of our common stock, including shares issued upon
the exercise of outstanding options and warrants, under Securities and Exchange
Commission Rule 144, or otherwise, could adversely affect the prevailing market
price of our common stock and could impair our ability to raise capital at that
time through the sale of our securities.
If we lose the services of our President and Chief Executive Officer, Naveen
Bisht, or other key personnel, we may not be able to execute our business
strategy effectively.
Our future success depends in large part upon the continued services of our key
technical, sales, marketing and senior management personnel. In particular,
Naveen Bisht, our President and Chief Executive Officer is very important to our
business. The loss of any of our senior management or other key research,
development, sales or marketing personnel, particularly if lost to competitors,
could harm our ability to implement our business strategy and respond to the
rapidly changing needs of our customers. In addition, we believe we will need to
attract, retain and motivate talented management and other highly skilled
employees to be successful. Competition for such individuals is intense. We may
be unable to retain our key employees or attract, assimilate and retain other
highly qualified employees in the future.
We may not be able to compete successfully.
We are engaged in new, rapidly evolving and intensely competitive markets, and
we expect competition to intensify further in the future. We currently or
potentially compete with a number of other companies, such as Alcatel, Alloptic,
Inc., Salira Networks, Inc. (Hitachi), Tellabs and TeraWave Communications. A
number of our competitors, such as Alcatel, are large, well-funded and have
resources significantly greater than ours. Competitive pressures created by any
one of these companies, or by our competitors collectively, could have a
material adverse effect on our business, results of operations and financial
condition.
The market in which we compete is subject to rapid technological progress and to
compete successfully we must continually introduce new products that achieve
broad market acceptance.
The network equipment market is characterized by rapid technological progress,
frequent new product introductions, changes in customer requirements and
evolving industry standards. If we do not regularly introduce new products in
this dynamic environment, our product lines will become obsolete. Developments
in routers and routing software could also significantly reduce demand for our
products. Alternative technologies could achieve widespread market acceptance
and displace the technology on which we have based our product architecture. We
cannot assure you that our technological approach will achieve broad market
acceptance or that other technologies or devices will not supplant our own
products and technology.
Our products must comply with evolving industry standards and complex government
regulations or else our products may not be widely accepted, which may prevent
us from growing our net revenue or achieving profitability.
The market for network equipment is characterized by the need to support
industry standards as different standards emerge, evolve and achieve acceptance.
We will not be competitive unless we continually introduce new products and
product enhancements that meet these emerging standards. Our products must
comply with various United States federal government regulations and standards
defined by agencies such as the Federal Communications Commission, as well as
standards established by various foreign governmental authorities and
recommendations of the International Telecommunication Union. If we do not
comply with existing or evolving industry standards or if we fail to obtain
timely domestic or foreign regulatory approvals or certificates, we will not be
able to sell our products where these standards or regulations apply, which may
prevent us from sustaining our net revenue or achieving profitability.
Our future performance will depend on the successful development, introduction
and market acceptance of new and enhanced products.
Our new and enhanced products must address customer requirements in a timely and
cost-effective manner. In the past, we have experienced delays in product
development and such delays may occur in the future. The introduction of new and
enhanced products may cause our customers to defer or cancel orders for existing
products. Therefore, to the extent customers defer or cancel orders in the
expectation of new product releases, any delay in the development or
introduction of new products could cause our operating results to suffer. The
inability to achieve and maintain widespread levels of market acceptance for our
current and future products may significantly impair our revenue growth.
Our limited ability to protect our proprietary intellectual property rights may
adversely affect our ability to compete.
We rely on a combination of patent, copyright, trademark and trade secret laws
and restrictions on disclosure to protect our proprietary intellectual property
rights. We cannot assure you that we have adequately protected our proprietary
intellectual property or that other parties will not independently develop
similar or competing products that do not infringe our patents or other
intellectual property protections. We also enter into confidentiality or license
agreements with our employees, consultants and corporate partners to protect our
intellectual property. In addition, we control access to and limit the
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary intellectual property rights,
unauthorized parties may attempt to copy or otherwise misappropriate or use our
products or technology. If we are unsuccessful in protecting our proprietary
intellectual property rights, our business, results of operations and financial
condition may be harmed.
Our limited ability to defend ourselves against intellectual property
infringement claims made by others may adversely affect our ability to compete.
Our industry is characterized by the existence of a large number of patents and
frequent claims and related litigation regarding patent and other intellectual
property rights. If we are found to infringe the proprietary rights of others,
or if we otherwise settle any such claims, we could be compelled to pay damages
or royalties and either obtain a license to those intellectual property rights
or alter our products so that they no longer infringe upon such proprietary
rights. Such a license could be very expensive to obtain or may not be available
at all. Similarly, changing our products or processes to avoid infringing the
rights of others may be costly or impractical. Litigation resulting from claims
of infringement could result in substantial costs and a diversion of resources,
and could have a material adverse effect on our business, financial condition
and operating results.
Our dependence on contract manufacturers for substantially all of our
manufacturing requirements could harm our operating results.
We rely on independent contractors to manufacture our products. We do not have
long-term contracts with any of these manufacturers. Delays in product shipments
from contract manufacturers are not unusual. Similar or other problems may arise
in the future, such as inferior quality, insufficient quantity of products or
the interruption or discontinuance of operations of a manufacturer, any of which
could have a material adverse effect on our business, financial condition and
operating results.
We do not know whether we will be able to effectively manage our contract
manufacturers, that these manufacturers will meet our future requirements for
timely delivery of products of sufficient quality and quantity, or that such
contract manufacturers will properly satisfy their contractual obligations to
us. We will continue to monitor the performance of our current contract
manufacturers and if they are unable to meet our future requirements, we will
need to transition to other manufacturers. We also intend to regularly introduce
new products and product enhancements, which will require that we rapidly
achieve volume production by coordinating our efforts of our suppliers and
contract manufacturers. The inability of our contract manufacturers to provide
us with adequate supplies of high-quality products or a reduction in the number
of contract manufacturers we utilize may cause a delay in our ability to fulfill
orders and may have a material adverse effect on our business, financial
condition and operating results.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lose sales.
Network equipment products frequently contain undetected software or hardware
errors when new products, versions or updates of existing products are first
released to the marketplace. We have experienced such errors in connection with
prior product releases. We expect that such errors or component failures will be
found from time to time in the future in new or existing products, including the
components incorporated therein, after the commencement of commercial shipments.
These errors may have a material adverse effect on our business and may result
in the following, among other things:
o significant warranty and repair costs;
o diverting the attention of our engineering personnel from new
product development efforts;
o delaying the recognition of revenue; and
o significant customer relations problems.
In addition, if our products are not accepted by customers due to defects, and
such returns exceed any amounts we accrued for defect returns based on our
historical experience, our operating results would be adversely affected.
If problems occur in a computer or communications network, even if unrelated to
our products, we could incur unexpected expenses and lose sales.
Our products must successfully interoperate with products from other vendors. As
a result, when problems occur in a computer or communications network, it may be
difficult to identify the sources of these problems. The occurrence of hardware
and software errors, whether or not caused by our products, could result in the
delay or loss of market acceptance of our products and any necessary revisions
may cause us to incur significant expenses. The occurrence of any such problems
would likely have a material adverse effect on our business, financial condition
and operating results.
We expect the average selling prices of our products to decrease, which may
reduce our gross margin or revenue.
The network equipment industry has experienced a rapid decline in average
selling prices due to a number of factors, including competitive pricing
pressures, promotional pricing, technological progress and lower selling prices
as companies attempt to liquidate excess inventory resulting from the industry
slowdown that began in the later part of 2000.
We anticipate that the average selling prices of our products will decrease in
the future in response to the following, among other things:
o competitive pricing pressures;
o excess inventories;
o increased sales discounts; and
o new product introductions by us or our competitors.
We may experience substantial decreases in future operating results due to the
erosion of our average selling prices. We expect competitive pressures to
increase as a result of the industry slowdown that began in the later part of
2000, coupled with the slow recovery and still uncertainty of the broader
economy.
Some of our customers may not have the resources to pay for our products as a
result of the current economic environment.
Some of our customers are experiencing cash flow problems as a result of the
current economic environment and are finding it increasingly difficult to obtain
financing. As a result, we may be unable to collect the payments owed to us, or
such payments may be significantly delayed, if our customers are unsuccessful in
generating sufficient revenue or securing alternate financing arrangements. In
addition, our customers may not order as many products from us as we had
originally forecasted or they may cancel their orders with us entirely. The
inability of some of our current or potential customers to pay us for our
products may adversely affect our cash flow, the timing of our revenue
recognition and the amount of revenue we generate, which may cause our stock
price to decline.
Failure to successfully expand our sales and support teams or educate them in
regard to technologies and our product families may harm our business, financial
condition and operating results.
The sale of our products and services requires a sophisticated sales effort that
frequently involves several levels within a prospective customer's organization.
We may not be able to increase net revenue unless we expand our sales and
support teams in order to address all of the customer requirements necessary to
sell our products.
We cannot assure you that we will be able to successfully integrate new
employees into our company or to educate current and future employees in regard
to rapidly evolving technologies and our product families. A failure to do so
may hurt our business, financial condition and operating results.
We must continue to develop and increase the productivity of our sales and
distribution channels to increase net revenue and improve our operating results.
Our sales channel includes our own direct sales people, large original equipment
manufacturer, system integrators, agents, resellers and distributors. Outside
sales channels require us to develop and cultivate strategic relationships and
allocate substantial internal resources for the maintenance of such
relationships. We may not be able to increase gross revenues unless we expand
our sales channel and support teams to handle all of our customer requirements
in a professional manner. If we are unable to expand our sales channel and
support teams in a timely manner, and/or manage them in all cases, we may be
unable to grow our business and revenues as expected and our financial condition
and operating results may suffer.
In addition, many of our sales channel partners also carry products they make
themselves or that are made by our competitors. We cannot assure you that our
sales channel partners will continue to market or sell our products effectively
or continue to devote the resources necessary to provide us with effective
sales, marketing and technical support. Their failure to do so may hurt our
revenue growth and operating results.
Legislative actions, higher insurance costs and potential new accounting
pronouncements are likely to impact our future financial position and results of
operations.
There have been regulatory changes, including the Sarbanes-Oxley Act of 2002,
which have had, and will continue to have, an impact on our future financial
position and results of operations. The Sarbanes-Oxley Act of 2002 and other
rule changes and proposed legislative initiatives are resulting in increased
general and administrative costs to us. The new rules could make it more
difficult for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy
limits and coverage and/or incur substantially higher costs to obtain the same
or similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, on committees of our board of directors or as executive officers.
We cannot predict or estimate the amount of the additional costs we may incur or
the timing of such costs as we implement these new and proposed rules.
In addition, proposed initiatives could result in changes in accounting rules,
including legislative and other proposals to account for employee stock options
as an expense. These and other potential changes could materially increase the
expenses we report under generally accepted accounting principles, and adversely
affect our operating results.
We may need to expend considerable resources in order to comply with recent SEC
rulemaking including the Sarbanes-Oxley Act of 2002.
The costs associated with being a public company have increased dramatically in
recent years following the advent of the Sarbanes-Oxley Act of 2002. We expect
to spend significant resources in order to comply with the new legislation and
rulemaking aimed at public companies. As a result, we expect our general and
administrative expenses will rise as a result of these compliance efforts. In
addition, our management team will need to devote a substantial amount of time
to these efforts which could distract them from their current responsibilities.
Our headquarters are located in Northern California where natural disasters may
occur that could disrupt our operations and harm our business.
Our corporate headquarters are located in Silicon Valley in Northern California.
Historically, this region has been vulnerable to natural disasters and other
risks, such as earthquakes, which at times have disrupted the local economy and
posed physical risks to our and our manufacturers' property.
In addition, terrorist acts or acts of war targeted at the United States, and
specifically Silicon Valley, could cause damage or disruption to us, our
employees, facilities, partners, suppliers, distributors and resellers, and
customers, which could have a material adverse effect on our operations and
financial results. We currently do not have redundant, multiple site capacity in
the event of a natural disaster or catastrophic event. In the event of such an
occurrence, our business would suffer.
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 during the period covered by this report, that has materially affected
or is reasonably likely to materially affect, such controls subsequent to the
date of their evaluation, and there were no significant deficiencies and
material weaknesses.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 16, 2005, the Company issued an aggregate of 50,000 shares of its
common stock, $0.001 par value per share (the "Shares"), to Stonegate
Securities, Inc. ("Stonegate") in consideration for certain investment banking
services rendered by Stonegate to the Company.
No underwriter was employed by the Company in connection with the issuance of
the Shares. The Company believes that the issuance of the Shares was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving a public offering. Stonegate acquired the securities
for investment purposes only and not with a view to distribution, and had
adequate information about the Company.
Item 6. Exhibits
Exhibits.
The following exhibits are included as part of this Quarterly Report on Form
10-QSB:
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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Nayna Networks, Inc.
Dated: November 18, 2005 By: /s/ Naveen S. Bisht
------------------------------
Naveen S. Bisht, CEO
Dated: November 18, 2005 By: /s/ Michael Meyer
------------------------------
Michael Meyer, CFO