-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHY9N2zEY992IZs0tS9Y0PPUAP9cqxNdYVpXnLSytR+E5/vyselzrrbAnvxajGvj qlzNrMOlijIu96sXpRYGWQ== 0001144204-05-023131.txt : 20050729 0001144204-05-023131.hdr.sgml : 20050729 20050729165704 ACCESSION NUMBER: 0001144204-05-023131 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050401 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050729 DATE AS OF CHANGE: 20050729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nayna Networks, Inc. CENTRAL INDEX KEY: 0000769591 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 830210455 STATE OF INCORPORATION: WY FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13822 FILM NUMBER: 05985578 BUSINESS ADDRESS: STREET 1: 5525 SOUTH 900 EAST SUITE 110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 BUSINESS PHONE: 8012628844 MAIL ADDRESS: STREET 1: 5525 SOUTH 900 EAST SUITE 110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 FORMER COMPANY: FORMER CONFORMED NAME: RESCON TECHNOLOGY CORP DATE OF NAME CHANGE: 19990629 8-K/A 1 v022431_8-ka4.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- FORM 8-K/A-4 CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 1, 2005 --------------- NAYNA NETWORKS, INC. (Exact name of registrant as specified in its charter) Nevada 000-13822 83-0210455 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation) Identification No.) 180 Rose Orchard Way San Jose, CA 95134 (Address of principal executive offices, including zip code) (408) 956-8000 (Registrant's telephone number, including area code) (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ Explanatory Note: This Form 8-K/A-4 (Amendment No. 4) is being filed solely for the purpose of supplementing and replacing the financial statements filed under Item 9.01 Financial Statements and Exhibits with the Form 8-K of Nayna Networks, Inc. (formerly Rescon Technology, Inc.) (the "Registrant") filed on April 8, 2005, as amended on April 18, April 20 and April 26, 2005 (the "Form 8-K"). This amendment replaces (i) the Nayna Networks, Inc. (the acquired company) audited financial statements for the 12 months ended December 31, 2003 and the unaudited financial statements for the 12 months ended December 31, 2004 with audited financial statements for the 12 months ended December 31, 2004 and December 31, 2003, and (ii) supplements the unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2004 by including notes to such pro forma financial statements. This amendment does not make any other changes to the Form 8-K. Item 9.01. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired. The audited financial statements of Nayna Networks, Inc., as of and for the years ended December 31, 2004 and December 31, 2003 are attached hereto as Exhibit 99.1 and incorporated herein by this reference. (b) The unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2004, prepared to give effect to the merger of Nayna Networks, Inc., a Delaware corporation, with the Registrant are attached hereto as Exhibit 99.2 and incorporated herein by this reference. (c) Exhibits The following exhibits are furnished in accordance with Item 601 of Regulation S-B. - -------------------------------------------------------------------------------- EXHIBIT NO. DESCRIPTION EXHIBIT 23.1 Consent of Independent Accountants EXHIBIT 99.1 Financial statements of Nanya Networks, Inc. (the acquired company), as of and for the years ended December 31, 2004 and December 31, 2003. EXHIBIT 99.2 Unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2004 - -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Nayna Networks, Inc. By: /s/ NAVEEN S. BISHT ------------------- Naveen S. Bisht President and Chief Executive Officer Date: July 29, 2005 EX-23.1 2 v022431_ex23-1.txt - -------------------------------------------------------------------------------- EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- We hereby consent to the use in this Current Report on Form 8-K/A of our report dated July 20, 2005, relating to the financial statements of Nayna Networks, Inc., which appear in such Current Report on Form 8-K/A of Nayna Networks, Inc., dated July 29, 2005. /s/ NARESH ARORA CPA, INC. San Jose, California July 29, 2005 - -------------------------------------------------------------------------------- EX-99.1 3 v022431_ex99-1.txt [LETTERHEAD] NARESH ARORA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Nayna Networks, Inc. (a company in the development stage) We have audited the accompanying balance sheets of Nayna Networks, Inc., a development stage enterprise as of December 31, 2004 and 2003 and the related statements of operations, stockholders' (deficit) equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As stated in our earlier report dated September 7, 2004 on financial statements for the year 2003, we were unable to examine independent third party valuation report on 100% acquisition of an entity during 2003, as explained in Note B to the financial statements; nor were we able to satisfy ourselves as to the aggregate cost of acquisition allocated to goodwill and the related charge to results of operations for its impairment. In our opinion, except for the effects of such adjustments in 2003, if any, as might have been determined to be necessary had we been able to examine evidence regarding cost of acquisition, the financial statements referred to above, present fairly, in all material respects, the financial position of Nayna Networks, Inc. as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company is in the development stage and has incurred losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Santa Clara, California July 20, 2005 1 NAYNA NETWORKS, INC. (a development stage enterprise) BALANCE SHEETS (in thousands, except share and per share data)
- ---------------------------------------------------------------------------------------------- December 31, ---------------------- ASSETS 2004 2003 -------- -------- Current assets: Cash and cash equivalents $ 709 $ 1,663 Restricted cash 49 48 Accounts receivable, net of allowance of $33 and $0 as of December 31, 2004 and 2003, respectively 160 121 Prepaid expenses and other current assets 35 63 -------- -------- Total current assets 953 1,895 Property and equipment, net 798 1,388 Other assets 16 9 -------- -------- Total assets $ 1,767 $ 3,292 ======== ======== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities Accounts payable $ 655 $ 682 Accrued liabilities 240 162 Accrued payroll liabilities 295 361 Notes payable 718 843 Current portion of capital lease obligations 9 184 -------- -------- Total current liabilities 1,919 2,232 Capital lease obligations, less current portion -- 9 Notes payable 298 997 Bridge to common stock 922 -- -------- -------- Total liablities 3,138 3,239 -------- -------- Stockholders' (deficit) equity Series A preferred stock, $0.001 par value: Authorized shares - 15,000,000; issued and outstanding shares - 15,000,000 at December 31, 2003 (Liquidation preference $12,000) -- 15 Series B preferred stock, $0.001 par value: Authorized shares - 11,111,112; issued and outstanding shares - 7,999,997 at December 31, 2003 (Liquidation preference $36,000) -- 199 Series C preferred stock, $0.001 par value: Authorized shares - 13,840,000; issued and outstanding shares - 4,680,647 at December 31, 2003 (issued for consideration other than cash; liquidation preference $5,041) -- -- Series D preferred stock, $0.001 par value: Authorized shares - 52,500,000; issued and outstanding shares - 19,531,247 at December 31, 2004 (Liquidation preference $36,000) 20 -- Common stock, $0.001 par value: Authorized shares - 125,000,000; issued and outstanding shares - 48,794,091 at December 31, 2004 and 20,512,289 at December 31, 2003 80 52 Additional paid-in capital 51,911 48,071 Deficit accumulated during the development stage (53,382) (48,284) -------- -------- Total stockholders' (deficit) equity (1,371) 53 -------- -------- Total liabilities and stockholders' (deficit) equity $ 1,767 $ 3,292 ======== ========
Accompanied notes are an integral part of these financial statements. 2 NAYNA NETWORKS, INC. (a development stage enterprise) STATEMENTS OF OPERATIONS (in thousands)
- ----------------------------------------------------------------------------------------------- Cumulative Period from February 10, 2000 (date of Year Ended December 31, inception) to ----------------------- December 31, 2004 2003 2004 -------- --------- ----------- Operating expenses: Research and development $ 2,971 $ 3,051 $ 38,950 Business development 1,011 720 2,611 General and administrative 1,069 3,675 7,533 -------- -------- -------- Total operating expenses 5,051 7,447 49,094 -------- -------- -------- Loss from operations (5,051) (7,447) (49,094) Interest income 14 121 2,390 Interest expense (40) (137) (832) Loss on sale of assets (12) -- (12) Impairment of goodwill and other intangible assets (9) (5,825) (5,834) -------- -------- -------- Net loss $ (5,098) $(13,288) $(53,382) ======== ======== ========
Accompanied notes are an integral part of these financial statements. 3 NAYNA NETWORKS, INC. (a development stage enterprise) Statements of Stockholders' (Deficit) Equity For the Cumulative Period from February 10, 2000 (date of inception) to December 31, 2004 (in thousands, except share and per share data)
Series A Redeemable Series B Redeemable Series C Redeemable Convertible Convertible Convertible Preferred Stock Preferred Stock Preferred Stock Shares Amount Shares Amount Shares Amount ---------------------------------------------------------------------------------------------------- Issuance of common stock to founders in March 2000 at $0.001 per share for cash -- $ -- -- $ -- -- $ -- Issuance of Series A redeemable convertible preferred stock in March 2000 at $0.80 per share for cash 15,000,000 15 -- -- -- -- Issuance of Series B redeemable convertible preferred stock in December 2000 at $4.50 per share for cash, net of $73 of issuance cost -- -- 7,999,997 8 -- -- Issuance of warrants to purchase Series B redeemable convertible preferred stock in connection with an equipment lease in July 2000 -- -- -- 180 -- -- Exercise of common stock options for cash -- -- -- -- -- -- Repurchase of common stock issued to founders in July 2000 at $0.001 per share for cash -- -- -- -- -- Net loss and comprehensive loss -- -- -- -- -- -- ---------------------------------------------------------------------------------------------------- Balances, December 31, 2000 15,000,000 15 7,999,997 188 -- -- Issuance cost related to Series B preferred stock -- -- -- (30) -- -- Issuance of warrants to purchase Series B redeemable convertible preferred stock to a lessor in July 2001 -- -- -- 79 -- -- Compensation expense related to accelerated stock options issued to terminated employees in september 2001 -- -- -- -- -- -- Compensation expense related to stock option grants to consultants in July and December 2001 -- -- -- -- -- -- Adjustment to valuation of warrant issued to a lessor to purchase Series B redeemable convertible preferred stock -- -- -- (38) -- -- Exercise of common stock options for cash -- -- -- -- -- -- Repurchase of common stock issued to founders at $0.10 per share for cash -- -- -- -- -- -- Net loss and comprehensive loss -- -- -- -- -- -- ---------------------------------------------------------------------------------------------------- Balances, December 31, 2001 15,000,000 $ 15 7,999,997 $ 199 -- $ -- Repurchase of common stock for $0.10 to $0.90 per share -- -- -- -- -- -- Exercise of common stock options for cash -- -- -- -- -- -- Cancellation of previously issued common stock subject to restriction -- -- -- -- -- -- Net loss -- -- -- -- -- -- ---------------------------------------------------------------------------------------------------- Balances, December 31, 2002 15,000,000 15 7,999,997 199 -- -- Issuance of Series C redeemable convertible preferred stock for consideration other than cash in connection with Xpeed acquisition -- -- -- -- 4,680,647 -- Issuance of common stock for consideraion other than cash in connection with Xpeed acquisition -- -- -- -- -- -- Exercise of common stock options for cash -- -- -- -- -- -- Repurchase of common stock for $0.10 per share -- -- -- -- -- -- Net loss -- -- -- -- -- -- ---------------------------------------------------------------------------------------------------- Balances, December 31, 2003 15,000,000 15 7,999,997 199 4,680,647 -- Conversion of Series A, B & C into common stock (15,000,000) (15) (7,999,997) (199) (4,680,647) -- Issuance of Series D redeemable convertible preferred stock for cash ~~ ~~ ~~ ~~ ~~ ~~ Issuance of Series D redeemable convertible preferred stock for consideration other than cash in connection with note payable to Siemens ~~ ~~ ~~ ~~ ~~ ~~ Exercise of common stock options for cash ~~ ~~ ~~ ~~ ~~ ~~ Issuance of common stock for consideration other than cash on purchase of intangible assets Net loss Balances, ---------------------------------------------------------------------------------------------------- December 31, 2004 -- $ -- -- $ -- -- $ -- ====================================================================================================
Series D Redeemable Accumulated Total Convertible Additional During the Stockholders' Preferred Stock Common Stock Paid-In Development (Deficit) Shares Amount Shares Amount Capital Stage Equity -------------------------------------------------------------------------------------------------- Issuance of common stock to founders in March 2000 at $0.001 per share for cash -- $ -- 15,000,000 $ 15 $ -- $ -- $ 15 Issuance of Series A redeemable convertible preferred stock in March 2000 at $0.80 per share for cash -- -- -- -- 11,938 -- 11,953 Issuance of Series B redeemable convertible preferred stock in December 2000 at $4.50 per share for cash, net of $73 of issuance cost -- -- -- -- 35,919 -- 35,927 Issuance of warrants to purchase Series B redeemable convertible preferred stock in connection with an equipment lease in July 2000 -- -- -- -- -- -- 180 Exercise of common stock options for cash -- -- 4,069,000 4 403 -- 407 Repurchase of common stock issued to founders in July 2000 at $0.001 per share for cash -- -- (66,667) -- -- -- -- Net loss and comprehensive loss -- -- -- -- -- (6,267) (6,267) -------------------------------------------------------------------------------------------------- Balances, December 31, 2000 -- -- 19,002,333 19 48,260 (6,267) 42,215 Issuance cost related to Series B preferred stock -- -- -- -- -- -- (30) Issuance of warrants to purchase Series B redeemable convertible preferred stock to a lessor in July 2001 -- -- -- -- -- -- 79 Compensation expense related to accelerated stock options issued to terminated employees in september 2001 -- -- -- 28 -- -- 28 Compensation expense related to stock option grants to consultants in July and December 2001 -- -- -- 12 -- -- 12 Adjustment to valuation of warrant issued to a lessor to purchase Series B redeemable convertible preferred stock -- -- -- -- -- -- (38) Exercise of common stock options for cash -- -- 93,374 0.09 10 -- 10 Repurchase of common stock issued to founders at $0.10 per share for cash -- -- (1,174,399) (1) (116) -- (117) Net loss and comprehensive loss -- -- -- -- -- (20,117) (20,117) -------------------------------------------------------------------------------------------------- Balances, December 31, 2001 -- $ -- 17,921,308 $ 58 $ 48,154 $ (26,384) $ 22,042 Repurchase of common stock for $0.10 to $0.90 per share -- -- (997,195) (1) (100) -- (101) Exercise of common stock options for cash -- -- 100,750 0.10 10 -- 10 Cancellation of previously issued common stock subject to restriction -- -- (1,472,500) (1) -- -- (1) Net loss -- -- -- -- -- (8,612) (8,612) -------------------------------------------------------------------------------------------------- Balances, December 31, 2002 -- -- 15,552,363 56 48,064 (34,996) 13,338 Issuance of Series C redeemable convertible preferred stock for consideration other than cash in connection with Xpeed acquisition -- -- -- -- -- -- -- Issuance of common stock for consideraion other than cash in connection with Xpeed acquisition -- -- 5,348,572 -- -- -- -- Exercise of common stock options for cash -- -- 25,000 0.03 6 -- 7 Repurchase of common stock for $0.10 per share -- -- (413,646) (4) -- -- (4) Net loss -- -- -- -- -- (13,288) (13,288) -------------------------------------------------------------------------------------------------- Balances, December 31, 2003 -- -- 20,512,289 52 48,071 $ (48,284) $ 53 Conversion of Series A, B & C into common stock -- -- 27,680,644 28 186 -- -- Issuance of Series D redeemable convertible preferred stock for cash 18,220,425 18 3,381 3,399 Issuance of Series D redeemable convertible preferred stock for consideration other than cash in connection with note payable to Siemens 1,310,822 1 249 250 Exercise of common stock options for cash 301,158 0.30 16 16 Issuance of common stock for consideration other than cash on purchase of intangible assets 300,000 0.30 9 9 Net loss (5,098) (5,098) Balances, -------------------------------------------------------------------------------------------------- December 31, 2004 19,531,247 $ 20 48,794,091 $ 80 $ 51,911 $ (53,382) $ (1,371) ==================================================================================================
Accompanied notes are an integral part of these financial statements 4 NAYNA NETWORKS, INC. (a development stage enterprise) STATEMENTS OF CASH FLOWS (in thousands)
- -------------------------------------------------------------------------------------------------------------------------- Cumulative Period from February 10, 2000 (date of inception) to Year Ended December 31, December 31, 2004 2003 2004 Cash flows from operating activities : Net loss $ (5,098) $(13,288) $(53,382) 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 615 930 3,751 Amortization of discount on warrants associated with equipment financing -- 67 202 Impairment of goodwill related to acquisitions 9 5,825 5,834 Loss on sale of property and equipment 12 364 1,126 Changes in operating assets and liabilities: Restricted cash (1) 117 (49) Accounts receivable (39) (121) (160) Prepaid expenses and other current assets 28 13 (35) Other assets (8) (9) (16) Accounts payable (27) 306 655 Accrued liabilities 78 80 240 Accrued payroll liabilities (66) 215 295 -------- -------- -------- Net cash used in operating activities (4,496) (5,502) (41,499) -------- -------- -------- Cash flows from investing activities : Purchase of property and equipment (45) (108) (1,238) Proceeds from sale of property and equipment 8 193 445 Costs associated with acquisition of Xpeed, Inc. -- (3,685) (3,685) -------- -------- -------- Net cash used in investing activities (37) (3,600) (4,478) -------- -------- -------- Cash flows from financing activities : Proceeds from loan facility -- -- 327 Payments on capital lease obligations and loan facility (758) (1,373) (5,589) Proceeds from issuance of common stock, net of repurchases 16 4 243 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 3,399 -- 3,399 Issuance of convertible debt 922 -- 622 Restricted cash -- -- (165) -------- -------- -------- Net cash provided (used) by financing activities 3,579 (1,369) 46,686 -------- -------- -------- Net decrease in cash and cash equivalents (954) (10,471) 709 Cash and cash equivalents at beginning of period 1,663 12,134 -- Cash and cash equivalents at end of period $ 709 $ 1,663 $ 709 ======== ======== ========
Accompanied notes are an integral part of these financial statements 5 NAYNA NETWORKS, INC. (a development stage enterprise) NOTES TO FINANCIAL STATEMENTS ($ in thousands, except shares and per share data) - -------------------------------------------------------------------------------- NOTE A: THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) The Company Nayna Networks, Inc., a development stage enterprise (the Company or Nayna), is engaged in the development of next-generation broadband access networking solutions. 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. 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. Nayna Networks, Inc. was incorporated in Delaware on February 10, 2000 and is located in San Jose, California. 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 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. (b) Development Stage 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, as per the Statement of Financial Accounting Standards ("SFAS") No.7, "Accounting and Reporting by Development Stage Enterprises", the Company is being classified as a development stage enterprise. The Company is in the development stage and accordingly, its financial statements are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage Enterprises". Successful completion of the Company's developmental program and, ultimately, the attainment of profitable operations are dependent upon future events, including future financing, successfully completing product development, and achieving a sufficient level of sales and market demand to become an established operating enterprise. However, there can be no assurance that the Company will be able to achieve profitable operations. 6 (c) Estimates and Assumptions Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in the facts and circumstances surrounding these estimates could result in a change to the estimates and could impact future operating results. (d) 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. (e) 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. (f) 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. (g) 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. (h) 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. 7 (i) 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. (j) Stock-Based Compensation The Company accounts for its stock-based employee compensation using the intrinsic-value method, which follows the recognition and measurement principles of 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 stock-based compensation plans had an exercise price equal to fair value of the underlying common stock on grant date. (k) 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. (l) Recently Issued Accounting Pronouncements In March 2004, the FASB approved the consensus reached on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The objective of EITF Issue No. 03-1 is to provide guidance for identifying other-than-temporarily impaired investments. EITF Issue No. 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF 03-1 that delays the effective date of the measurement and recognition guidance in EITF Issue No. 03-1 until further notice. The disclosure requirements of EITF Issue No. 03-1 are effective for the year ended December 31, 2004. Once the FASB reaches a final decision on the measurement and recognition provisions, the Company will evaluate the impact of the adoption of the accounting provisions of EITF Issue No. 03-1. In December 2004, the FASB issued SFAS No. 123 (R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB Opinion No. 25. SFAS No. 123 (R) requires that compensation cost relating to all share-based payment transactions, including grants of employee stock options, be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123 (R) is effective the first interim or annual reporting period that begins after June 15, 2005. The company expects to adopt SFAS No. 123 (R) on July 1, 2005 and expects to apply the modified prospective method upon adoption. The modified prospective method requires companies to record compensation cost beginning with the effective date (a) based on the requirements of SFAS No. 123 (R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123 (R) that remain unvested on the effective date. 8 As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS no. 123 (R)'s fair value method may have a significant impact on the Company's results of operations, although it will have no impact on the Company's overall financial position. The impact of the adoption of SFAS No. 123 (R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123 (R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income (loss) in Note H. The company expects its earnings will be adversely affected upon adoption of SFAS No. 123 (R). In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - - an amendment of APB Opinion No. 29," which amends APB Opinion No. 29, "Accounting of Nonmonetary Transactions," to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 153 to have a material impact on its results of operations or financial condition. NOTE B: ACQUISITION On April 1, 2003, the Company acquired 100 percent of the outstanding common and preferred shares of Xpeed, Inc. The results of Xpeed's operations have been included in the consolidated financial statements since that date. Xpeed, Inc was engaged in development and marketing of affordable passive optical network ("PON") and digital subscriber line (DSL) products. As a result of the acquisition, the Company has introduced a new platform that builds upon the Company's PON expertise through its support for the latest generation Gigabit Ethernet. The acquisition involved issuance of 10,029,219 shares of the Company's common and preferred stock, cancellation of $300 convertible note and assumption of liabilities $5,604. SFAS No. 141 requires that all business combinations be accounted for by the purchase method and accordingly, it requires acquisition cost to be determined and allocated to assets acquired and liabilities assumed. However, independent third party valuation of Xpeed was not performed and therefore no value could be assigned to the shares issued as part of purchase consideration. Based on the information available, the cost of acquisition in this report is determined and allocated as follows: Cost of acquisition: Cancellation of note $ 300 Liabilities assumed 5,604 ------ $5,904 ====== Allocation: Current assets $ 79 Goodwill 5,825 ------ $5,904 ====== 9 As discussed in Note A, the cost allocated to goodwill is written down entirely in the current year, following testing for impairment as required by SFAS No. 142 on "Goodwill and Other Intangible Assets". However, for tax purpose Goodwill is being amortized over 15 years. NOTE C: PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands): December 31, 2004 2003 Computer equipment $ 417 $ 416 Computer software 1,354 1,354 Test equipment 1,608 1,629 Furniture and fixtures 2 2 ------- ------- 3,381 3,401 Less: Accumulated depreciation (2,583) (2,013) ------- ------- Balances as at December 31, 2004 and 2003 $ 798 $ 1,388 ======= ======= NOTE D: IMPAIRMENT OF PURCHASED INTANGIBLE ASSETS In April 2004, the Company purchased intangible assets from Accordion Networks, Inc. and as purchase consideration issued 300,000 shares (valued at $0.03 per share) of the Company's common stock. Based on the impairment tests performed using present value of future cash flows, the value of intangible asset acquired in April 2004 was considered impaired as of December 31, 2004. Accordingly, the Statement of Operations for the year ended December 31, 2004, included a charge of $9 for impairment of intangible asset. NOTE E: DEBT In July 2001, the Company entered into a $1,500 equipment line of credit. Borrowings outstanding at December 31, 2004 were $9, bearing interest at a rate of 13% to 15%, for each of the draw downs that comprise the total outstanding balance. The borrowings are payable in 36 equal installments, the last of which is due in January 2005. In April 2003, subsequent to the acquisition of Xpeed, Inc., the Company agreed to pay off $5,904 towards liabilities of Xpeed, Inc. As at December 31, 2004, the following amounts are outstanding: Notes payable - Current $ 718 Notes payable - Non-current 298 Accrued liabilities 122 ------ Total $1,138 ------ NOTE F: COMMITMENTS The Company leases office space under non-cancelable operating lease agreement which expires in July 2005. Rent expense was $206, $1,043, $842 and $2,924 for the years ended December 31, 2004, 2003, 2002, and, cumulatively, for the period from February 10, 2000 (date of inception) to December 31, 2004, respectively. 10 NOTE G: CONVERTIBLE PREFERRED STOCK The holders of Series D redeemable convertible preferred stock have various rights and preferences as follows: Voting The holders of Series D preferred stock are entitled to voting rights equal to the number of shares of common stock into which each such share preferred stock could be converted at the record date and have voting rights and powers equal to the voting rights and powers of the shares of common stock. Dividends The holders of shares of Series D are entitled to receive dividends prior and in preference to any declaration or payment of any dividend (payable other than in common stock) to the holders of common stock of the Company at the rates of $0.015 per year on each outstanding share (as adjusted for any stock dividends, combination, or splits with respect to such shares). When, as, and to the extent that any dividends are paid on common stock, the holders of shares of redeemable convertible preferred stock will be entitled to receive, in addition to the dividend specified above, dividends in an amount equal to the amount paid in such year on the number of shares of common stock. Such dividends are payable only when, as, and if declared by the Board of Directors, but only out of funds that are legally available, and are non-cumulative. No dividends have been declared as of December 31, 2004. Liquidation In the event of liquidation, dissolution, or winding up of the Company, as further defined in the Company's certificate of incorporation, holders of Series D are entitled to receive in preference over common stockholders an amount of $0.38144 per share, plus any declared but unpaid dividends ("Preferred Liquidation Preference"). After payment has been made to the holders of the Series D of the full amounts to which they are entitled pursuant to above, all remaining assets available for distribution, if any, will be distributed ratably among the holders of common stock. Conversion Each share of Series D preferred stock, at the option of the holder, is convertible into fully paid, non-assessable shares of common stock at an initial one-to-one conversion rate, which is subject to subsequent adjustment for antidilution as provided in the Company's articles of incorporation. Additionally, conversion is automatic upon the closing of a qualified public offering of common stock with net proceeds of at least $15,000 and a public offering price of at least $5 per share. Antidilution provisions The conversion price of the Company's preferred stock is subject to adjustment, as further defined by the Company's restated articles of incorporation, to prevent dilution in the event that the Company issues additional shares of preferred stock, common stock, or common stock equivalents at a purchase price less than the then-effective conversion price, provided, however, that without triggering antidilution adjustments, the Company may issue to directors, officers, employees, or consultants, shares of common stock that are reserved for issuance under the Company's stock option plan or in connection with financings or other transactions which involve consideration and which are approved by the Board of Directors. NOTE H: COMMON STOCK During 2004, the Company issued 27,680,644 shares of common stock upon conversion of Series A, B and C redeemable convertible preferred stock. The Company also issued 301,158 shares to employees upon exercise of stock options and 300,000 shares to another company as consideration for purchase of intellectual property (See Note D). 11 NOTE I: STOCK OPTION PLANS In May 2000, the Company's Board of Directors and stockholders adopted the 2000 Stock Plan (the "Plan"). The Plan provides for incentive stock options, as defined by the Internal Revenue Code, to be granted to employees at an exercise price not less than 100% of the fair value at the grant date as determined by the Board of Directors, unless the optionee is a 10% stockholder, in which case the per share exercise price will not be less than 110% of such fair value. The plan also provides for nonqualified, stock options and stock purchase rights to be issued to service providers at an exercise price of not less than 85% of the fair value at the grant date unless the service provider is a 10% stockholder, in which case the per share exercise price will not be less than 110% of such fair value. Options granted generally have a maximum term of ten years from the grant date, are immediately exercisable, and generally vest over a four-year period. The Plan provides that the unvested shares are subject to repurchase by the Company upon termination of employment at the original price paid for the shares. Activity under the Plan since adoption through December 31, 2004 is as follows:
Weighted- Average Shares Exercise Available Outstanding Price For Grant Options Per Share Authorized at inception of the plan 10,000,000 Options granted (6,450,250) 6,450,250 $ 0.100 Options exercised -- (4,069,000) 0.100 Options canceled 346,000 (346,000) 0.100 ----------- ---------- Balances at December 31, 2000 3,895,750 2,035,250 0.100 Options granted (2,747,000) 2,747,000 0.570 Options exercised -- (93,374) 0.110 Options canceled 1,054,626 (1,054,626) 0.450 Shares related to previously exercised options subject to repurchase, which were repurchased 1,174,399 -- 0.100 ----------- ---------- Balances at December 31, 2001 3,377,775 3,634,250 0.470 Options granted (1,308,000) 1,308,000 0.250 Options exercised -- (100,750) 0.100 Options canceled 3,848,335 (3,848,335) 0.001 Shares related to previously exercised options subject to repurchase, which were repurchased 997,195 -- 0.001 ----------- ---------- Balances at December 31, 2002 6,915,305 993,165 0.250 Options granted (3,739,586) 3,739,586 0.250 Options exercised -- (25,000) 0.260 Options canceled 1,042,900 (1,042,900) 0.253 Shares related to previously exercised options subject to repurchase, which were repurchased 413,646 -- 0.009 ----------- ---------- Balances at December 31, 2003 4,632,265 3,664,851 0.250 Increase in authorized options 20,000,000 Options granted (22,379,561) 22,379,561 0.031 Options exercised -- (788,833) 0.135 ----------- ---------- Options canceled 4,868,213 (4,868,213) 0.210 ----------- ---------- Balances at December 31, 2004 7,120,917 20,387,366 0.024
12 The following table summarizes information about stock options outstanding as of December 31, 2004: Options Options Outstanding Exercisable ------------------------------ ------------ Weighted- Number Number of average of Range of exercise Options remaining life Options prices Outstanding (years) Vested $ 0.10 117,896 4.66 84,250 0.50 80,000 6.87 53,750 0.25 1,672,900 8.42 941,025 0.05 18,516,570 9.58 6,035,801 ------------ ------------ 20,387,366 7,114,826 ============ ============ Stock-based compensation The Company has adopted the disclosure on provisions of SFAS 123, "Accounting for Stock-based Compensation." Pro forma information regarding net loss is required in SFAS 123. Under this method, the estimated fair value of the options is amortized to expense over the vesting period of the options. The Company's pro forma net loss for the years ended December 31, 2004, 2003, 2002, 2001 and cumulatively from February 10, 2000 (date of inception) to December 31, 2004 would have been $5,153, $13,320, $8,621, $20,313 and $53,720, respectively. However, this is not likely to be representative of the effects of net loss on a pro forma basis for future years, due to the inclusion of additional grants and years of vesting in subsequent years. The Company calculated the fair value of each option grant on the date of grant using the minimum value method for employees and the Black-Scholes option pricing model for non-employees with the following assumptions: dividend yield at 0%; weighted average expected option term of ten years; volatility of 0% for employees and 80% for non-employees, and risk-free interest rates of 1.13% to 5.28%. The weighted average fair value of options granted during 2004 was $0.031. NOTE J: INCOME TAXES The components of net deferred tax assets are as follows: December 31, 2004 2003 Net operating loss carryforwards $ 16,235 $ 14,626 Tax credit carryforwards 2,294 2,294 -------- -------- Total deferred tax assets 18,529 16,920 Less: Valuation allowance (18,529) (16,920) -------- -------- $ -- $ -- ======== ======== The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. 13 As of December 31, 2004, the Company has a net operating loss carryforward of approximately $47 million for federal purposes. The carryforwards are available to offset future taxable income. If not utilized, these carryforwards will expire in varying amounts beginning in 2020. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carry-forwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, cumulative ownership change of more than 50%, as defined, over a three year period. NOTE K: RESEARCH AND DEVELOPMENT EXPENSE Research and development expenses for the years ended December 31, 2004 and 2003, include the following: Employee payroll expense $ 1,705 $ 2,248 Cost of material 890 1,099 Outside services 293 342 Allocation of administrative overheads 508 -- Recovery of expenses from customers (425) (638) ------- ------- $ 2,971 $ 3,051 ======= ======= NOTE L: SUBSEQUENT EVENTS Nayna Networks, Inc. (the "company") merged into Rescon Technology Corporation ("Rescon"), a publicly traded company, on April 4, 2005 and became a wholly-owned subsidiary of Rescon. Following the merger, Rescon Technology Corporation changed its name to Nayna Networks, Inc. Accompanied notes are an integral part of these financial statements. 14 EX-99.2 4 v022431_ex99-2.txt - -------------------------------------------------------------------------------- EXHIBIT 99.2 99.2 Unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2004 - -------------------------------------------------------------------------------- Unaudited Pro Forma Condensed Combined Financial Statements as of and for the Year Ended December 31, 2004. On April 1, 2005, a wholly owned subsidiary of Rescon Technology, Inc., a Nevada corporation ("Rescon"), merged with Nayna Networks, Inc., a Delaware corporation ("Nayna") pursuant to an Agreement and Plan of Merger between Rescon and Nayna (the "Agreement"). In the Merger Rescon issued 32,249,947 shares of its restricted common stock to the stockholders of Nayna and issued options to purchase 3,475,763 shares of its restricted common stock and warrants to purchase 88,600 shares of its restricted stock, in exchange for 100% of Nayna's issued and outstanding shares of common stock, options and warrants. As a result of the Merger, Rescon continued as the surviving corporation and the stockholders of Nayna became stockholders of Rescon. The stockholders of Rescon prior to the Merger now own approximately 9.92 % of the issued and outstanding shares of Rescon common stock after the Merger. If all options and warrants issued pursuant to the Merger were exercised, the stockholders of Rescon would own approximately 9.02% of the issued and outstanding shares of Rescon common stock. The stockholders of Nayna prior to the Merger now own approximately 90.08% of the issued and outstanding shares of Rescon common stock after the Merger. If all of the options and warrants issued pursuant to the Merger were exercised, the stockholders of Nayna would own approximately 90.98% of the issued and outstanding shares of Rescon common stock. Pursuant to the Agreement, Rescon changed its name to Nayna Networks, Inc. The following unaudited pro forma condensed combined financial information gives effect to the merger of Rescon and Nayna. The unaudited pro forma condensed combined balance sheet combines the financial position of Rescon at November 30, 2004 (as reflected in the Form 10-QSB filed by Rescon for its quarter ended November 30, 2004, the most recent fiscal quarter preceding December 31, 2004) and Nayna at December 31, 2004 as if the acquisition had been consummated on December 31, 2004. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2004 combines the results of operations of Rescon and Nayna for the year ended December 31, 2004, as if the acquisition had occurred on January 1, 2004. The unaudited pro forma condensed combined financial information presented is based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. The unaudited pro forma condensed combined financial information is not intended to represent what financial results of operations would actually have been if the acquisition had occurred on those dates or to project financial results of operations for any future period. Since Rescon and Nayna were not under common control or management for the period January 1, 2004 to December 31, 2004, the unaudited pro forma condensed combined financial results may not be comparable to, or indicative of, future performance. This unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements of Rescon and Nayna. Rescon's historical financial statements can be found in Rescon's Annual Report on Form 10-KSB filed on January 26, 2005 and Rescon's Quarterly Report on Form 10-QSB filed on January 26, 2005. Nayna's historical financial statements can be found as Exhibit 99.1 to this Current Report on Form 8-K/A. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (000's)
as at as at PRO FORMA December 31, 2004 November 30, 2004 ADJUSTMENTS PRO FORMA NAYNA RESCON (NOTE #3) COMBINED ----------------- ----------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 709 $ 2 $ (2) $ 709 Restricted cash $ 49 49 Accounts receivable, net 160 -- 160 Inventory -- 0 Prepaid expenses 35 20 (20) 35 ----------------- ----------------- ------------ ------------ Total current assets 953 22 (22) 953 Property and equipment, net 798 24 (24) 798 Other assets 16 760 -760 16 ----------------- ----------------- ------------ ------------ Total assets $ 1,767 $ 806 $ (806) $ 1,767 ================= ================= ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 655 $ 25 $ (25) 655 Accrued liabilities 535 -- 535 Current portion - notes payable & equipment leases 727 -- 727 Due to related parties -- 691 (691) 0 ----------------- ----------------- ------------ ------------ Total current liabilities 1,918 716 (716) 1,918 Minority Interest (1) 1 0 Note Payable 298 298 Convertible note payable, net 922 922 Stockholders' equity (deficit) Preferred stock 20 -- 20 Common stock 80 0 0 80 Additonal paid in capital 51,911 6,342 (6,342) 51,911 Deficit accumulated prior to development stage (4,468) 4,468 0 Deficit accumulated during the development stage (53,382) (1,784) 1,784 (53,382) ----------------- ----------------- ------------ ------------ Stockholders' equity (deficit) (1,371) 90 (90) (1,371) ----------------- ----------------- ------------ ------------ Total liabilities and stockholders' deficit $ 1,767 $ 806 $ (806) $ 1,767 ================= ================= ============ ============
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (000's) except share and per share data
for the twelve months for the twelve months PRO FORMA ending December 31, 2004 ending November 30, 2004 ADJUSTMENTS PRO FORMA NAYNA RESCON (NOTE #3) COMBINED ------------------------ ------------------------ ------------ ------------ Sales $ -- $ -- $ -- $ -- Cost of sales 0 -- -- 0 ------------------------ ------------------------ -------------- ------------ Gross profit -- -- -- -- ------------------------ ------------------------ -------------- ------------ Operating expenses: Engineering 2,971 -- -- 2,971 Sales and marketing 1,011 -- -- 1,011 General and administrative 1,069 697 (697) 1,069 ------------------------ ------------------------ ------------ ------------ Total operating expenses 5,051 697 (697) 5,051 ------------------------ ------------------------ ------------ ------------ Loss from operations (5,051) (697) 697 (5,051) Loss on sales of assets (12) (12) Other income 14 -- 14 Interest expense (40) -- (40) Impairment of goodwill related to 0 acquisitions (9) (9) ------------------------ ------------------------ ------------ ------------ Net loss $ (5,098) $ (697) $ 697 $ (5,098) ======================== ======================== ============ ============ Net loss per share, basic $ (0.34) ============ Net loss per share, diluted $ (0.27) ============ Weighted average shares used in computing net loss per share, basic 14,792,553 ============ Weighted average shares used in computing net loss per share, diluted 18,712,946 ============
The accompanying notes are an integral part of these pro forma condensed combined financial statements. - -------------------------------------------------------------------------------- NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 1. SUMMARY OF TRANSACTION On April 1, 2005, a wholly owned subsidiary of Rescon Technology, Inc., a Nevada corporation ("Rescon"), merged with Nayna Networks, Inc., a Delaware corporation ("Nayna") pursuant to an Agreement and Plan of Merger between Rescon and Nayna (the "Agreement"). In the Merger Rescon issued 32,249,947 shares of its restricted common stock to the stockholders of Nayna and issued options to purchase 3,475,763 shares of its restricted common stock and warrants to purchase 88,600 shares of its restricted stock, in exchange for 100% of Nayna's issued and outstanding shares of common stock, options and warrants. 2. UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE Basic net loss per share and shares used in computing the net loss per share for the year ended December 31, 2004 are based upon the historical weighted average common shares outstanding plus the shares issued in connection with the Merger. Dilutive net loss per share would give effect to the dilutive effect of common stock equivalents consisting of restricted stock and warrants. Potentially dilutive securities have been excluded from the computation of net loss per share as its effect would be antidilutive. The 32,249,947 shares of common stock issued in connection with the Merger have been included in the calculation of pro forma basic and diluted net loss per share as follows: Nayna Networks, Inc. NOTE2: UNAUDITED PRO FORMA CONDENSED Calculation of basic and fully diluted shares
Series A Series B Series C Series D Common Nayna balance as at December 31, 2003 15,000,000 7,999,997 4,680,647 0 20,512,289 Pre-merger post-reverse split Rescon 3,552,557 Conversion to common (15,000,000) (7,999,997) (4,680,647) 27,680,644 Issuance of Series D on July 2004 19,531,247 Issuance on purchase of Accordion asset on August 2004 300,000 Exercise of employee stock options on September 2004 301,158 Issuance on purchase of DC7 - ----------------------------------------------------------------------------------------------------------------------------- Total basic shares as at December 31, 2004 0 0 0 19,531,247 52,346,648 ============================================================================================================================= as converted to common 47,301,090 - ----------------------------------------------------------------------------------------------------------------------------- Total fully diluted shares as at December 31, 2004 0 0 0 66,832,337 52,346,648 ============================================================================================================================= 0 Weighted Average as converted Weighted as converted Total to Rescon Average to Rescon Nayna balance as at December 31, 2003 48,192,933 9,586,346 48,192,933 9,586,346 Pre-merger post-reverse split Rescon 3,552,557 3,552,557 onversion to common 0 0 0 0 Issuance of Series D on July 2004 19,531,247 3,885,078 8,138,020 1,618,782 Issuance on purchase of Accordion asset on August 2004 300,000 59,675 100,000 19,892 Exercise of employee stock options on September 2004 301,158 59,905 75,290 14,976 Issuance on purchase of DC7 46,502,040 9,250,000 - ---------------------------------------------------------------------------------------------------------------------- Total basic shares as at December 31, 2004 118,379,935 22,841,003 56,506,242 14,792,553 ====================================================================================================================== as converted to common 47,301,090 9,408,944 19,708,788 3,920,393 - ---------------------------------------------------------------------------------------------------------------------- Total fully diluted shares as at December 31, 2004 165,681,025 32,249,947 76,215,030 18,712,946 ======================================================================================================================
3. PRO FORMA ADJUSTMENTS The pro forma adjustments are based on management's preliminary estimates, which may change as additional information is obtained, and eliminate the historical assets, liabilities and equity of Rescon that will not be part of the combined company after the Merger. - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----