10KSB/A 1 v077752_10ksba.htm
Washington, D.C. 20549

FORM 10-KSB
Amendment No. 2
(Mark One)

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

For the Fiscal Year Ended September 30, 2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission File No. 333-90682

TechnoConcepts, Inc.
(Formerly known as Technology Consulting Partners, Inc.)
(Name of Small Business Issuer in its charter)

Colorado
84-1605055
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

6060 Sepulveda Blvd. #202
Van Nuys, Ca. 91411
(Address of principal executive offices)(Zip code)

Issuer's telephone number, including area code:   (818) 988-3364

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which
each is registered
None
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
(Title of Class)

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. Yes x No o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

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

The Issuer’s revenues for the fiscal year ended September 30, 2006 were $2,808,924.

The number of shares of the registrant’s common stock, no par value per share, outstanding as of January 13, 2007 was 31,391,316. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on January 13, 2007, based on the last sales price on the OTC Bulletin Board as of such date, was approximately $52,831,584.




DOCUMENTS INCORPORATED BY REFERENCE
 
None

Transition Small Business Disclosure Format: Yes o No x
 



TABLE OF CONTENTS

 
 
 
 
Page
 
 
 
 
 
PART I
 
 
 
 
 
 
 
 
ITEM 1.
DESCRIPTION OF BUSINESS
  1
 
 
 
 
 
 
ITEM 2.
DESCRIPTION OF PROPERTY
  12
 
 
 
 
 
 
ITEM 3.
LEGAL PROCEEDINGS
  12
 
 
 
 
 
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  12
 
 
 
 
PART II
 
 
13
 
 
 
 
 
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  13
 
 
 
 
 
   
ITEM 6.
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
  18
 
 
 
 
 
ITEM 7.
FINANCIAL STATEMENTS
  F-1
 
 
 
 
 
 
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  24
 
 
 
 
 
 
ITEM 8A.
CONTROLS AND PROCEDURES
  24
 
 
 
 
 
 
ITEM 8B.
OTHER INFORMATION
  25
 
 
 
 
 
PART III
 
 
25
 
 
 
 
 
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON
  25
 
 
 
 
 
 
ITEM 10.
EXECUTIVE COMPENSATION
  31
 
 
 
 
 
 
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  32
 
 
 
 
 
 
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  35
 
 
 
   
 
ITEM 13.
EXHIBITS
  36
 
 
 
 
 
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  39
 
 
 
 
SIGNATURES
   
 



FORWARD-LOOKING STATEMENTS

This annual report on Form 10-KSB contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use words such  as “anticipate,”“expect,”“intend,”“plan,”“believe,”“foresee,”“estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause  actual results to differ materially from those expressed or forecasted in the  forward-looking statements. These risks and uncertainties include those  described in “Risk Factors” and elsewhere in this annual report. You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this a annual report.
PART I
ITEM 1. DESCRIPTION OF BUSINESS

Overview

We are engaged in the business of designing, developing, manufacturing and marketing wireless communications semiconductors, or microchips.

We are in the process of attempting to commercialize proprietary technology that we refer to as True Software Radio™. True Software Radio™ is an advanced delta-sigma microchip architecture that converts radio frequency, or RF, signals directly into digital data. The technology is designed to dramatically improve the way that wireless signals are received and transmitted, by making possible device-to-device communication across otherwise incompatible networks and competing wireless standards (e.g., CDMA, TDMA, GSM, GPRS, G3, Bluetooth, WiFi, WiMAX, WiBro, etc.), creating true convergence for the wireless industry. “Software radio" is an industry term, referring to wireless receivers and transmitters that can be controlled and reconfigured by software commands and that can process radio signals digitally for better performance. To date, we have not generated any revenues from the sale of such microchips or the licensing of rights to the underlying technology. We are currently in the process of seeking to arrange financing to further our efforts to commercialize this technology.

Through our wholly-owned subsidiary, Jinshilin Techno Ltd., or Jinshilin Techno, formed in December 2005 and based in Shanghai, China, we are seeking to provide marketing, sales and technical support for our True Software Radio™ technology in China. On April 21, 2006, Jinshilin Techno acquired Internet Protocol television (IPTV) set-top box (STB) technology through license agreements with Jinshilin Technologies Development Company Ltd. Jinshilin Techno currently offers an IPTV set-top box that also features Voice over Internet Protocol, or VOIP, capability and can receive IP data transmissions through the household electrical power grid. Jinshilin Techno expects that future generation set-top boxes will support multi-protocol wireless connectivity with television, DVD players and other multi-media devices, by integrating True Software Radio™ into IPTV set-top boxes.

We also own a controlling interest in Asanté Networks Inc., based in San Jose, California. Asanté provides Ethernet networking solutions for Apple Computer and the small-to-medium business retail markets, offering the IntraCore® and FriendlyNET® product families, integrating voice, data, and video over wireless and wired networks with unified management and authentication. In fiscal 2006, Asanté Networks’ net sales were lower by $2,272,953, or 44.26%, than in the comparable twelve-month period of fiscal 2005. This was primarily the result of decreases in orders and sales of products into the business retail markets.


We were organized under the name Technology Consulting Partners, Inc., or TCP, in September 2001. At the time of TCP’s incorporation, its intention was to provide high technology consulting services to its clients. Through September 30, 2003, most of TCP’s efforts were devoted to organizing the company and raising approximately $120,000 in a private offering. On December 15, 2003, TCP entered into an agreement and plan of merger with TechnoConcepts Inc., a Nevada corporation, or TCI Nevada, under which TCP acquired all of the issued and outstanding shares of capital stock of TCI Nevada in exchange for shares of TCP representing a controlling interest in TCP. This transaction was completed on February 17, 2004. TCP acquired TCI Nevada primarily for TCI Nevada’s intellectual property (and other intangible assets), including pending, expired provisional and issued patents, trademarks, certain maskrights, semiconductor devices, and prototype hardware and software, which underlie our True Software Radio™ technology. At the time of this acquisition, the acquired assets had a book value of approximately $7.0 million, net of an adjustment of approximately $1.0 million to the initial valuation of such assets related to the expired provisional patents and trademarks. We have taken an impairment charge equal to the full book value of the other intellectual property and intangible assets acquired in the transaction, as of the fiscal year ended September 30, 2005. The impairment charge reflects the absence of revenue-generating contracts following our conducting demonstrations of the True Software Radio™ technology to potential industry partners in July 2005. At the time we conducted those demonstrations, we had hoped to generate funding from prospective partners to further our research and development efforts to produce commercial products utilizing the technology.

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In June 2005, we acquired the assets and significant liabilities of Asanté Technologies Inc. in exchange for 1,161,170 shares of our common stock, valued at $4.306 per share, such that the aggregate value of the transaction was $5 million. In October 2005, we restructured Asanté, merging it into RegalTech Inc., a publicly traded Delaware corporation. RegalTech's name was changed to Asanté Networks Inc. (PNK:ASTN). We own shares of Asanté Networks’ preferred stock, which are convertible into eighty five (85%) percent of Asanté Networks common stock on a non-dilutable basis.

In December 2005, we formed Jinshilin Techno Ltd. as a wholly owned subsidiary, based in Shanghai, to provide marketing, sales and technical support for our True Software Radio™ technology in China.


According to a publicly available forecast by the World Semiconductor Trade Statistics organization, or WSTS, in October 2006, the global semiconductor market was expected to reach $247 billion by the end of 2006. The WSTS forecast predicts that the worldwide market will grow by 8.6% in 2007 and 12.1% in 2008, with Asia-Pacific as the fastest growing regional market, with a continuously growing demand for electronic products such as PCs, digital consumer appliances and mobile communications. We believe that more and better wireless receivers and transmitters will be required to operate these electronic products, which include mobile phones, personal digital assistants (PDAs), Bluetooth and WiFi-enabled laptop and handheld computers, and other consumer devices. For example, the automotive industry now requires more wireless receiver and transmitter microchips for their communications, navigation and “infotainment” components, including telematics, GPS, multimedia systems, audio systems, rear seat entertainment and gaming, in addition to AM/FM/XM radio tuners. We believe that the dramatic increase of these and other wireless applications presents growing opportunities for our reconfigurable microchips that can serve multiple purposes.

Global sales of mobile phones are expected to experience another year of strong growth in 2007, with estimated consumer demand for 1.1 billion phones, according to a survey done by The Gartner Group, which was published in the International Herald Tribune, November 22, 2006. Gartner estimates there will be 2.6 billion mobile phones in use by the end of 2009. While consumer demand for mobile phones grows, the handset electronics and wireless infrastructure is still supported by competing protocols, frequencies, data rate standards and other incompatible transceiver technologies, making multi-band multi-mode technology a virtual necessity. Further, ultra-wideband services will begin to penetrate the mobile phone market in 2007, rising to an annual penetration rate of 20% by 2011, according to a July 2006 report from IMS Research. We believe that True Software Radio™ microchips, providing software-reconfigurable multi-band, multi-mode, and ultra-wideband capabilities, will provide the single-chipset solution that the market will need.

Product Development

 True Software Radio™

In August 2006, we produced our first engineering run of wireless transmitter and receiver microchips, based on our True Software Radio™ technology. On November 29, 2006, we announced the finalization of the product datasheet that will serve as the baseline for our initial commercial production run of the True Software Radio™ wireless receiver and transmitter chips. The datasheet was based on the completion of parametric characterization of the first silicon germanium (SiGe) microchips we fabricated. The characterization process measured the function and performance parameters of the transmitter and receiver chips as they operated continuously across multiple frequency bands. We are now in position to offer the True Software Radio™ (TSR™) TC-RX1000ES / TC-TX1000ES 0.18µ SiGe transceiver chip sets, which convert full-spectrum data from RF to digital signals and digital to RF signals. The part number suffix ES indicates engineering samples, which can be used by original design manufacturers (ODMs) and original equipment manufacturers (OEMs) to develop their applications and products. We believe these microchips will provide the key to flexible software defined radio (SDR) systems.

"Software radio" and “software defined radio” are industry terms which refer to wireless receivers and transmitters that can be controlled and reconfigured by software commands and that can process radio signals digitally for better performance. However, in today's wireless devices, only the RF signal processing (information interpretation) can be performed digitally. Wireless transmitters and receivers still utilize conventional analog transceiver circuitry based on technology first developed in the early 1900s. Existing SDR systems rely on single and multiband RF transceivers that do not cover a wide and continuous frequency range. Our True Software Radio™ technology makes it possible for wireless transmitters and receivers, as well as the radio signal processing, to be fully controlled and reconfigured by software commands across a wide range of frequencies and frequency bands. Our patented and patent-pending True Software Radio™ technology is an advanced delta-sigma microchip architecture that converts RF signals directly into digital data for the wireless receiver and directly from digital data into radio signals for the wireless transmitter. We believe that direct conversion wireless technology will replace current conventional analog transceiver circuitry, providing fully software-controlled single-transceiver wireless devices that can operate across different networks and frequency bands, in multiple modes and with multiple wireless standards, with higher resolution and greater bandwidth than conventional circuitry. True Software Radio™ microchips replace the analog front end, intermediate frequency (I/F) processing, analog-to-digital conversion (ADC), and digital filtering sections of today’s conventional wireless transmitters and receivers. Because the technology simplifies design and reduces component costs, we believe that True Software Radio™ is an ideal platform for OEMs and ODMs to develop new wireless broadband, mobile data, cellular, and other next-generation wireless applications.


2

 Set-top Boxes

On April 21, 2006, Jinshilin Techno acquired IPTV set-top box technology through license agreements with Jinshilin Technologies Development Company Ltd. Jinshilin Techno also designs and sells products for Internet Television (IPTV), Stream Media Protocol Processing, and Broadcasting Software for IPTV-Set-Top Boxes. We expect future generation set-top boxes to support multi-protocol wireless connectivity with television, DVD players and other multi-media appliances, by integrating True Software Radio™ into Jinshilin Techno's IPTV-STB. In July 2006, we received final approval for the subsidiary from the People’s Republic of China.

In-Stat, a provider of research, market analysis and forecasts, projects that China’s IPTV market will experience a gradual but solid increase from 2006 to 2010, with annual unit shipments of digital cable set-top boxes projected to grow to 12 million in 2010. We believe we are poised to take advantage of this projected demand. In September 2006, Jinshilin Techno entered into a three-year agreement of cooperation with Shanghai Forest Electronics Technology Co. Ltd., or Shanghai Forest. On November 20, 2006, Jinshilin Techno provided 60 set-top boxes to Shanghai Forest which were integrated into a demonstration network built by Shanghai Forest, together with Shanghai Alcatel Network Support System Company Inc., for the Television and Broadcast Bureau. As of December 15, 2006, the demonstration network had successfully completed all scheduled demonstrations and tests.

 Asanté Networks’ Product Offerings

Asanté Networks’ solutions consist of the IntraCore® and FriendlyNET® product families, integrating voice, data, and video over wireless and wired networks with unified management and authentication. In April 2006, Asanté announced the release of its most advanced, state-of-the-art 2-chip switch solution, the IntraCore® 38480. The IntraCore® 38480 provides no frame loss and full-wire speed with minimized latency. Designed to be a space-saver in the rack and wiring closet, it can also eliminate cross switch traffic. With 96-gigabit switching fabric, the IntraCore 38480 supports full-wire speed on all ports. It has advanced traffic control based on L2-L7 data of incoming frames. Asanté Networks is also pursuing discussions with several network equipment manufacturers regarding the establishment of a strategic business partnership for the design, development, marketing and sales of equipment through Asanté Networks’ distribution channels.

Sales and Marketing

True Software Radio 

We are working to develop relationships with a number of industry leading OEMs and ODMs to design True Software Radio™ technology into next-generation components and products, in order to incorporate our proprietary technology into a large variety of consumer, industrial, and government applications. To that end, we have signed a number of nonbinding memoranda of understanding (MOUs) with, and provided demonstrations to, various Asian manufacturers and distributors of telecommunications equipment, including a preliminary nonbinding MOU with an Asian distributor of electronic components and consumer products, signed in December 2006. This MOU provides for both parties to collaborate in developing and marketing True Software Radio™ based reconfigurable wireless communications systems, which are fully software-programmable in both the base-band processing and the RF processing sections.

The distributor expects to introduce us to customers who need to develop reconfigurable wireless communications systems. Both the distributor and we plan to collaborate on proposals for providing technical support and to design and develop customer products incorporating True Software Radio™. The distributor expects to initially target the inclusion of the True Software Radio™ RF microchips in cellular phone components for a major ODM and for other potential customers yet to be identified. In addition, we and the distributor expect to provide support for a number of potential customers’ feasibility studies for multi-mode terminals and for automotive infotainment and communication applications, including telematics, navigation, GPS, and multimedia systems, audio systems, and rear seat entertainment, gaming, and radio tuners.

We are also in very preliminary discussions directly with a major U.S.-based manufacturer in the radio manufacturing industry, an Asian-based manufacturer of high definition (HD) radios, and two developers of reconfigurable, multi-mode digital signal processing circuits. True Software Radio™ has been included in a number of proposals to the U.S. Defense Advanced Research Projects Agency (DARPA), and we continue to demonstrate our technology to major U.S. defense contractors.

IPTV Set-top Boxes

Jinshilin Techno is cooperating with Shanghai Alcatel Network Support System Co., Inc. to jointly develop, produce and distribute IPTV set-top boxes. Alcatel advised us that it chose the Jinshilin Techno set-top box after evaluating many other companies possessing similar technologies because the Jinshilin Techno set-top box provided a good image and multiple functions at low cost. In addition, Alcatel noted that the set-top box can comply with various protocol standards. We understand that Alcatel expects to purchase the Jinshilin Techno set-top boxes, integrate them into Alcatel’s network and sell the set-top boxes to China Telecom, the largest broadband network service provider in China. We also understand that Alcatel plans to include Jinshilin’s set-top box in product sales to Europe and regions in Asia other than mainland China.

3

Jinshilin Techno is also cooperating with Shanghai Forest in the deployment of IPTV for in-home television service to two million rural residents of the Henan Province. Shanghai Forest is working on the project with the Television and Broadcast Bureau of the Henan Province. The project contemplates the initial deployment of 100,000 set-top boxes by the end of July 2007, with a total of two million units to be provided by the end of 2009. Jinshilin Techno provided 60 set-top boxes to Shanghai Forests, which were integrated into a demonstration network built by Shanghai Forests, in cooperation with Alcatel Network Support System Company Inc., for the Television and Broadcast Bureau. As of December 15, 2006, the demonstration network had successfully completed all scheduled demonstrations and tests.

Manufacturing and Production

True Software Radio

We have established a business relationship with Jazz Semiconductor, an independent wafer foundry located in Newport Beach, California, to fabricate the True Software Radio™ microchips. Fabrication of the first engineering run of our microchips was completed in August 2006. We anticipate additional engineering runs prior to our first commercial production run, now expected in the first half of 2007. Jazz Semiconductor offers successive generations of its SiGe BiCMOS microchip fabrication process, which supports the features that facilitate our reconfigurable, frequency agile designs.

In the fourth quarter of calendar 2006, we finalized the preliminary product datasheet that will serve as the baseline for our initial commercial production run of our True Software Radio™ wireless receiver and transmitter microchips and the completion of the microchips’ parametric characterization. The characterization process measured the function and performance parameters of the microchips as they operated continuously across multiple frequency bands.

We have also entered into preliminary discussions with a large Taiwan-based semiconductor manufacturing company for the future production of our lower power microchip designs, using their CMOS microchip fabrication process.

IPTV Set-top Boxes

  In December 2006, Jinshilin Techno entered into an MOU with Changzhou Xingqiu Electronic Co., Ltd. (Xingqiu), a manufacturing company that concentrates on the design, sale and production of high-quality communication devices, high-volume electronics, and audio and video products. Xingqiu earned the ISO9001:2000 International Accreditation for strict and effective quality assurance, and for products that comply with international authority safety standards, such as America's UL and European Union's CE. The MOU establishes the framework in which Xingqiu will fabricate Jinshilin Techno's IPTV set-top box products. Xingqiu will finance and manufacture Jinshilin Techno's IPTV set-top boxes in accordance with delivery requirements and project specifications provided by Jinshilin Techno's customers. We believe that Xingqiu possesses the expertise and capacity to deliver Jinshilin Techno's products in a timely and cost effective manner. Further, Jinshilin Techno plans to work with Xingqiu to co-develop, market, and sell successive generations of IPTV set-top boxes, including those that will integrate the True Software Radio™ technology.

Technology

Our True Software Radio™ technology is a semiconductor architecture that defines the electrical conductivity of microchips and how the electrical conductivity is controlled, so that radio signals are converted directly into digital data by the wireless receiver and are converted directly from digital data into radio signals by the wireless transmitter. We believe that direct conversion wireless technology will replace current conventional analog transceiver circuitry, providing fully software-controlled single-transceiver wireless devices that can operate across different networks and frequency bands, in multiple modes and with multiple wireless standards. True Software Radio™ microchips can replace the analog front end, intermediate frequency (I/F) processing, analog-to-digital conversion (ADC), and digital filtering sections of today’s conventional wireless transmitters and receivers. Because the technology simplifies design and reduces component costs, we believe that True Software Radio™ is an ideal platform for original equipment manufacturers (OEMs) and original design manufacturers (ODMs) to develop new wireless broadband, mobile data, cellular, and other next-generation wireless applications.

Intellectual Property

  Under U.S. patent law, a “provisional patent application” is an application for patent filed in the U.S. Patent and Trademark Office, which will not mature into an issued patent unless a non-provisional application is filed within twelve months. A provisional patent application can establish an early effective filing date for subsequent non-provisional applications. The provisional filing also allows the term "Patent Pending" to be applied to the invention.

  From January through October 2006, we have filed both provisional and non-provisional patent applications with the U.S. Patent and Trademark Office, including:

 
·
a provisional patent application for the "Single Input, Single Output, Multi-Band RF Front End." The invention makes it possible for a single radio frequency, or RF, receiver microchip to replace multiple-tuned RF front end transceivers, reducing both cost and power consumption.


4


 
·
a provisional patent application for a new method to reduce power in high-speed digital wireless devices. The "Low Power, Low Voltage, Digitally Trim-able Active Back-termination LVDS driver" is a low voltage differential signaling (LVDS), low noise, low power, low amplitude circuit for high-speed (gigabits per second) data transmission. We anticipate that this invention can be used in the digital interface circuits of many high speed microchips, including digital wireless receivers and transmitters.

 
·
a patent application for the "Adaptive Narrowband Interference Canceller for Broadband Systems." This invention cancels unwanted radio signals that interfere with wireless reception, is fully software programmable, can be adapted for use in many digital radio receivers, and claims the benefit of a provisional patent filing in September 2005.

 
·
a provisional patent application for a proprietary innovation that dramatically reduces noise and distortion in high dynamic range RF amplifiers, enabling wireless devices to receive weak radio signals.

 
·
a patent application for a circuit that automatically eliminates quantization noise while adjusting to the correct frequency.
 
We currently have additional applications in process and anticipate future patent filings to establish a full family of patents, comprising the basis for our overall True Software Radio™ technology.

In addition to patent protection, we rely on the laws of trade secrets and of unfair competition to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through confidentiality agreements with prospective strategic partners, customers and suppliers. We also require proprietary information and/or inventors’ assignment and non-disclosure agreements from all of our employees and consultants. Although we intend to protect our rights vigorously, there can be no assurance that all these measures will be successful.

We believe that, because of the rapid pace of technological change in the wireless communications industry, patent and trade secret protections are extremely important - but they must also be supported by other dynamics such as expanding the knowledge, ability and experience of our personnel, new product introductions and continual product enhancements.

Competition

There are several companies that have successfully developed multiple-frequency front-end transceiver modules based upon integrating several analog circuits into a single integrated component. Certain companies have created integrated circuits with multiple radio transceivers that can work with multiple networks. Many of these companies have financial, technical, marketing, sales, manufacturing, distribution and other resources substantially greater than ours. However, the solutions offered by most of these companies are restricted to predefined frequencies and frequency bands and therefore are limited to specific protocols and standards. Further, if either the fixed frequency band(s) or fixed standard(s) changes, then a new hardware component has to be designed and installed, thus increasing the product and maintenance cost. This is similar in concept to designing a radio receiver that selects only two, three or four stations out of the full frequency band to listen to. By analogy, our True Software Radio™ microchips allow the radio to be tuned to any frequency in the band and in any frequency band, as determined by software programming that can be changed by a simple software upgrade or revision.

Certain competitors are developing methods to combine some of the discrete analog components and to enable portions of the circuit architecture to be software-programmed for filtering specific diverse signals. While this technology may provide greater programmability, it is nonetheless based on conventional superheterodyne (analog) architecture and therefore not truly frequency agile and still not fully programmable.

Another group of competitors are developing “Low-IF” and “Zero-IF” conversion technologies, to minimize or even eliminate intermediate frequency processing sections of the radio circuit. However, these competitors still use analog-based semiconductor architecture that is slower and less flexible than our True Software Radio™ microchip architecture. Because of the slower speed of the competitors’ microchips, these competitors are forced to use “undersampling” methods to convert the RF signal from analog to digital. We believe that “undersampling” inherently limits the resolution that can be achieved in digital signal produced by our “oversampling” direct conversion method. In other words, we believe that True Software Radio™ produces cleaner, quieter radio signals, as required by the wireless industry.

Another company is developing a superconductor microelectronic device for direct conversion of radio signals to digital, which may match or exceed the performance of the True Software Radio™ microchip. However, the method being developed requires a “compact cryocooler,” because the electronic components will have to be super-cooled to 4 degrees Kelvin to attain this level of performance. In contrast, True Software Radio™ requires no special environmental accommodations.
 
We plan to compete on the basis of product features, quality, reliability, price, and dedicated customer support. We believe our technology provides a significant competitive advantage with respect to each of these factors.

5

RISK FACTORS

We have not yet generated any revenues from the sale of our core True Software Radio™ or IPTV Set-Top Box products and we may not generate any significant revenues from these products.

Our limited historical performance may make it difficult for you to evaluate the success of our business to date and to assess its future viability. We are an early stage development company whose business is focused on the wireless communications industry. We may not achieve our objectives or be able to successfully implement our strategy. We may never be able to successfully commercialize our products. Accordingly, we may never generate significant revenues from these products. As noted in our financial statements included in this annual report, our independent auditors have noted that there is substantial doubt regarding our ability to continue as a going concern. In addition, our early stage of development means that we have less insight into how market and technology trends may affect our business. The revenue and income potential of our business is unproven and the market we are addressing is rapidly evolving. You should consider our business and prospects in light of the risks, expenses and challenges that we will face as an early-stage company seeking to develop and manufacture new products in a growing and rapidly evolving market.
 
We expect to continue to incur losses and experience negative cash flows.  

We expect to have significant operating losses and to record significant net cash outflow in the near term. Our business has not generated sufficient cash flow to fund the commercialization of our proprietary technology and our planned operations without resorting to external sources of capital. We anticipate that finishing product commercialization and establishing market share for our True Software Radio™ technology will require substantial capital and other expenditures. Since our inception, we have incurred net losses in each year of our operations. As a result of ongoing operating losses, we had an accumulated deficit of approximately $17.8 million as of September 30, 2006. We expect to incur substantial losses for the foreseeable future, and may never recognize significant revenues or become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future, which could materially decrease the market value of our common stock. We expect to continue to incur significant capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we seek to continue to research and develop our products, attempt to implement our business strategy, implement internal systems and infrastructure in conjunction with our growth, and hire additional personnel. We do not know whether we will ever recognize significant revenues and, if we do, whether revenues will grow rapidly enough to absorb these expenses.

 
We will need additional capital to fund our operations and finance our growth, and we may not be able to obtain it on terms acceptable to us or at all.

While we believe that our existing assets, anticipated debt and equity financing, and expected revenue growth should be sufficient to fund our operations in fiscal year 2007, it is quite likely that we will need additional capital to fund our operations and finance our growth. If we expand more rapidly than currently anticipated, if our working capital needs exceed our current expectations, or if we make acquisitions, we will need to raise additional capital from equity and/or debt sources. If we cannot obtain financing on terms acceptable to us or at all, we may be forced to curtail our planned business expansion and may be unable to fund our ongoing operations.

 
Our success depends on the acceptance and use of our True Software Radio™   technology.

Our success will depend, to a large extent, on the acceptance of our True Software Radio™ technology in a market that is only beginning to define itself. Our strategy is currently to consummate relationships with strategic partners that can facilitate our entry into a variety of markets in North America and Asia. Eventual success will also depend on our ability to deliver reliable products and services to interested wireless products/service providers on time and within required performance parameters. There can be no assurances that any market for our products and services will ever develop.

 
Adoption of a universal wireless telecommunications transmissions protocol may significantly diminish the need for our products and technology.
 
If a universal mobile telecommunications protocol, such as UMTS or W-CDMA, is adopted internationally for cellular communications, the industry may no longer need the capabilities of technologies such as True Software Radio™ to address competing wireless protocols. While True Software Radio™ would continue to provide frequency agility and a more efficient utilization of bandwidth, the demand for our technology may be significantly diminished, impacting anticipated sales and revenues.

Jinshilin Techno is conducting significant operations in China, and for at least an interim period, the majority of our consolidated revenues may be derived from these operations.
 
Our subsidiary, Jinshilin Techno, based in Shanghai, China, is in the process of seeking to develop, produce and distribute IPTV set-top boxes for the Chinese market. Jinshilin Techno has entered into commercial arrangements with third parties based in China. In the short term, we expect that these activities will represent the source of the majority of our revenues other than from the operations of Asanté ’ Networks.
 
Although the Chinese government owns the majority of productive assets in China, since 1979 the government has continued to implement economic reform measures that emphasize decentralization and encourage private economic activity. Many experts believe that China will continue to open its economy and increase enforcement of intellectual property rights; however, the government’s economic reform measures may be inconsistent or ineffectual, and there are no assurances that:

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·
we will be able to capitalize on the economic reforms;

 
·
the Chinese government will continue its pursuit of economic reform policies;

 
·
the economic policies, even if pursued, will be successful;

 
·
economic policies will not be significantly altered from time to time; and

 
·
business operations in China will not become subject to the risk of nationalization.

Negative impact upon economic reform policies or nationalization could result in a total investment loss in our subsidiary.

Further, because many reforms are unprecedented or experimental, they are expected to be refined and improved. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to further readjustment of the reform measures. This refining and readjustment process may negatively affect our operations.

China's economy has a high growth rate, has experienced high rates of inflation, and the rate of inflation may continue to increase. In response, the Chinese government has taken measures to restrain its expansive economy. These measures have included restrictions on the availability of domestic credit (including credit available from manufacturers), reducing the purchasing capability of certain customers, and limited re-centralization of the approval process for purchases of some foreign products. These measures alone may not succeed in slowing down the economy’s perceived excessive expansion or in controlling inflation, and may result in severe disturbances in the Chinese economy. The Chinese government may adopt additional measures to further combat inflation, including the establishment of freezes or restraints on certain projects or markets.

To date, reforms to China's economic system have not adversely impacted our operations and are not expected to adversely impact our operations in the foreseeable future. However, there can be no assurance that the reforms to China's economic system will continue or that we will not be adversely affected by changes in China's political, economic and social conditions and by changes in policies of the Chinese government, such as changes in laws and regulations, measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and remittance abroad, and reduction in tariff protection and other import restrictions.

Because we are conducting significant operations in China, for an interim period the majority of our consolidated revenues may be in Chinese renminbi (RMB), with a comparatively lesser amount in U.S. dollars. Thus, our revenues and operating results may be impacted by exchange rate fluctuations in the RMB against the U.S. dollar.

Until July 2005, the RMB was tied to the dollar. At that time, the People’s Bank of China, the central bank, adopted a new exchange-rate regime for the RMB, allowing a managed float.

In September 2006, the rate of appreciation of the RMB accelerated significantly from its previous pace. The People’s Bank of China is reported to be in favor of a faster rate of appreciation, and therefore the rate of appreciation may continue to be relatively rapid. Exchange rate volatility may rise and the current trading bands against the U.S. dollar may be widened, also leading to a faster rate of appreciation. A higher-value RMB may mean that we would report lower U.S. dollars for the revenue anticipated.

We have not tried to reduce our exposure to exchange rate fluctuations by using hedging transactions. However, we may choose to do so in the future. The availability and effectiveness of any hedging transactions may be limited and we may not be able to successfully hedge our exchange rate risks. Accordingly, we may experience economic losses and negative impacts on future earnings and equity as a result of these foreign exchange rate fluctuations.
 
 
One or more competitors may develop products and/or gain market acceptance before we do.

The global wireless telecommunications market is intensely competitive and is subject to rapid technological change, evolving industry standards and regulatory developments. Our potential competitors include many large domestic and international companies that have substantially greater financial, manufacturing, technological, marketing, distribution and other resources, installed customer bases, and long-standing relationships with customers. If we fail to execute our strategy in a timely or effective manner, our competitors may be able to seize the marketing opportunities we have identified. Our business strategy is complex and requires that we successfully and simultaneously complete many tasks, including but not limited to the successful completion of our technology commercialization effort, continuing to establish strategic alliances with wireless telecommunications providers, the introduction of our new True Software Radio™ technology and products to the market, establishment of quality fabricators to support sales of the products, delivery of our products and services on-time and within required specifications, and continued maintenance, upgrade and improvement of our technology. There can be no assurance that we will be able to successfully execute all elements of our strategy.


7

 

 
The wireless telecommunications infrastructure market may grow more slowly than we expect or may experience a downturn, and it is possible that our True Software Radio™ and IPTV Set Top Box products may never achieve market acceptance..
 
Growth in demand for and acceptance of our new products is highly uncertain. We believe that many of our potential customers may not be fully aware of the benefits of True Software Radio™ or our IPTV Set Top Box technology or may choose to acquire other products or services. It is possible that our True Software Radio™ and our IPTV Set Top Box products and services may never achieve market acceptance. If the market for our products does not develop or grows more slowly than we currently anticipate, our business, financial condition, and operating results would be materially adversely affected.
 
We rely substantially on our intellectual property in developing our True Software Radio TM products. Third parties have filed a lawsuit challenging our acquisition of and rights to the intellectual property. An unfavorable outcome could prevent us from fully utilizing our technology.
 
On December 30, 2005, a lawsuit, which named the Company as an additional defendant, was filed in the Superior Court, State of California, for the County of Los Angeles (Case No. BC345311). The plaintiffs were investors in Fiber Optic Techno Inc, a company which sold certain assets to TCI Nevada in May 2003, including a pending patent application and two expired provisional patent applications relating to True Software RadioTM technology. The plaintiffs allege that the sale was for less than fair consideration and constitutes a fraudulent conveyance by Fiber Optic Techno. They seek to set aside the transaction and assert claims for compensatory and punitive damages. At the time we purchased the assets, the pending patent application was in contention at the U.S. Patent and Trademark Office and also was the subject of state court litigation brought by different plaintiffs. We litigated these intellectual property issues and eventually obtained a dismissal. The U.S. Patent and Trademark Office subsequently issued U.S. Patent No. 6,748,025 to the Company in June 2004. The parties to the lawsuit have engaged in substantial written discovery and limited deposition discovery. Mediation was unsuccessful, and we are contesting the case vigorously. Our demurrer attacking the sufficiency of the plaintiffs' First Amended Complaint is expected to be heard in February 2007, The litigation has been expensive and time-consuming and may divert resources from our core business. If the litigation results in an unfavorable outcome and we are unable to license the technology or to
develop an alternative technology, we may be unable to fully utilize our technology, and the results of our operations could therefore be negatively impacted.
 
 
We may be unable to protect our intellectual property adequately, which could cause us to lose any competitive advantage afforded by our intellectual property.

Our ability to compete effectively against competing technologies will depend, in part, on our ability to protect our current and future proprietary technology, product designs and manufacturing processes through a combination of patent, copyright, trademark, trade secret and unfair competition laws. We may not be able to adequately protect our intellectual property and may need to defend our intellectual property against infringement claims, either of which could result in the loss of our competitive advantage and materially harm our business and profitability.

Third parties may claim that we are infringing their intellectual property rights. Any claims made against us regarding patents or other intellectual property rights could be expensive and time consuming to resolve or defend, would divert our management and key personnel from our business operations and may require us to modify or cease marketing our products or services, develop new technologies or products/services, acquire licenses to proprietary rights that are the subject of an infringement claim or refund to our customers all or a portion of the amounts they paid for infringing products. If such claims are asserted, we cannot assure you that we would prevail or be able to acquire any necessary licenses on acceptable terms, if at all. In addition, we may be requested to defend and indemnify certain of our customers and resellers against claims that our products infringe the proprietary rights of others. We may also be subject to potentially significant damages or injunctions against the sale of certain products/services or use of certain technologies.

Although we believe that our intellectual property rights are sufficient to allow us to develop our technology and to sell our planned products/services without violating the valid proprietary rights of others, we cannot assure you that our technologies or products/services do not infringe the proprietary rights of third parties or that third parties will not initiate infringement actions against us.
 
 
We plan to expand rapidly and managing our growth may be difficult.  

Our business may grow rapidly both geographically and in terms of the number of products and services we offer. We cannot be sure that we will successfully manage such growth, if it occurs. If sufficient working capital cannot is not available, or if we are not successful in raising additional capital to execute our business strategy and grow the depth and breadth of our wireless products and services, we may be forced to discontinue our operations.
 
8


 
 
Future expansion of our operations internationally will require significant management attention and financial resources, and our efforts to expand internationally may not succeed.

We plan to attempt to sell our products in China and in other countries across the globe, but we have limited direct experience marketing and distributing our products internationally. To successfully expand our business internationally, we must expand our international operations, recruit international sales and support personnel and develop international distribution channels. This expansion will require significant management attention and financial resources and may not be successful. Our success in growing our business internationally may also depend on our ability to comply with foreign government rules and regulations and U.S. export and import laws with which we have limited familiarity and experience.

 
The failure to attract and retain key personnel could adversely affect our business.

Our ability to implement our business strategy and our future success depends largely on the continued services of our current employees, including Antonio E. Turgeon, our Chief Executive Officer, who have critical industry or customer experience and relations. Some of our key personnel are not bound by an employment agreement. The loss of the technical knowledge and management and industry expertise of any of these key personnel could have a material adverse impact on our future prospects. In addition, members of our current management team believe that once we are sufficiently capitalized we will need to recruit new executive managers to help us execute our business strategy and new employees to help manage our planned growth. Competition for executive and other skilled personnel in the wireless communications industry is intense, and we may not be successful in attracting and retaining such personnel. Our business could suffer if we were unable to attract and retain additional highly skilled personnel or if we were to lose any key personnel and not be able to find appropriate replacements in a timely manner.


9


 
Our management team may not be able to successfully implement our business strategies.

If we are able to successfully execute our business strategies, we will likely experience rapid growth in the scope of our operations and the number of our employees, which is likely to place a significant strain on our senior management team and other resources. In addition, we may encounter difficulties in effectively managing the budgeting , forecasting and other process control issues presented by this rapid growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.

 
We are in default under the terms of our outstanding 7% secured convertible debentures.
 
On November 17, 2004, we issued 7% secured convertible debentures in the aggregate principal amount of $3,775,000. On November 17, 2006, the principal amounts, together with accrued and unpaid interest, on the then outstanding debentures became due and payable. As of this date, debentures in the aggregate principal of $250,000 were outstanding. The holders of debentures in the aggregate principal amount of $3,525,000 had previously either converted their debentures into shares of our common stock or exchanged their debentures for subordinated promissory notes that are scheduled to mature beginning in May 2007 and continuing through December 2007. We have been unable to pay the amounts owing with respect to the outstanding debentures as of the maturity date. As such, we are in default under the terms of our outstanding debentures and the holders of such debentures have the right to exercise their rights and remedies provided under the debentures, the related securities purchase agreement, the related security agreement or any document or instrument delivered in connection with or pursuant to the debentures. In that regard, the holders of the outstanding debentures (acting in concert) have the right to take possession of all of our assets and operate our business, and to seek to enforce the payment of the amounts due and payable. If the debenture holders exercise any of their rights and remedies, we may be required, among other things, to repay the amounts due, which would leave us with little or no working capital in our business. This would have a material adverse effect on our continuing operations.

 
We have other outstanding debt obligations secured by our assets and a default of those obligations could adversely affect our financial and operating results.

Effective May 30, 2006, we entered into a series of secured promissory notes in an aggregate amount of $8,359,520, subordinated to our existing 7% secured convertible debentures and certain accounts receivable facilities. These notes will mature on the date that is the earlier of (i) one year from the date of issuance of each secured subordinated promissory note, (ii) the date on which we consummate the closing of our next equity financing or series of equity financings which in the aggregate total is no less than $7,000,000 or (iii) the sale of the Company or sale of substantially all of the Company's assets any time prior to the maturity date. The holders may declare the notes immediately due and payable upon the occurrence of any of the following events of default: (i) our failure to pay the principal when due, (ii) our material breach of any of the covenants or conditions made in the note purchase agreement or the other transaction documents, (iii) the Company's filing of a voluntary bankruptcy proceeding, or (iv) the filing of an involuntary bankruptcy petition against the Company that is not dismissed or discharged within 180 days. If any of these events of default were to occur and the note holders exercise any of their rights and remedies, we could be required, among other things, to repay the amounts due, which would leave us with little or no working capital in our business. This would have a material adverse effect on our continuing operations.

 
The large number of our shares eligible for public sale could cause our stock price to decline.

The market price of our common stock could decline as a result of the resale of the shares of common stock issuable upon conversion of the debentures and the exercise of the warrants issued in our November 2004 private placement or the perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate.

 
The issuance of (i) the shares to be issued upon conversion of our 7% secured convertible debentures and upon the conversion of convertible preferred stock and (ii) the shares to be issued upon the exercise of the warrants issued in connection with the debentures, the secured subordinated promissory notes, and the unsecured promissory notes now payable on demand will all cause the current holders of our common stock to suffer substantial dilution of their interests in us.
 
As of September 30, 2006, the number of shares of our common stock issuable upon conversion of our 7% secured convertible debentures and our convertible preferred stock amounted to an aggregate of 35,503,000, of which the conversion of preferred stock into 34,703,000 shares common stock is subject to substantial restrictions as set forth in the applicable certificates of designation of the various series of preferred stock. The number of shares of our common stock issuable upon the exercise of warrants issued in connection with our debentures, our secured subordinated promissory notes and our unsecured promissory notes amounted to an aggregate of 16,635,723, of which 15,862,603 shares are subject to Rule 144 restrictions and 773,120 shares would be unrestricted. The weighted average exercise price of these warrants is $1.15, and the average remaining contractual life of these warrants is 3.8 years. We are obligated to file and have declared effective by the SEC a registration statement registering the resale of 3,560,000 of these shares. The resale of these shares will increase the number of our publicly traded shares, which could depress the market price of our common stock, and thereby affect the ability of our stockholders to realize the current trading price of our common stock. Moreover, the mere prospect of the resale of these shares could depress the market price for our common stock.

10

 Our stock price can be extremely volatile, and there is no assurance there will be an active market for our stock.  

Our common stock is traded on the OTC Bulletin Board. There can be no assurance of an active public market for the common stock, or that the market price for the common stock will not decline below its current price. Such price may be influenced by many factors, including, but not limited to, investor perception of us and our industry and general economic and market conditions. The trading price of the common stock could be subject to wide fluctuations in response to announcements of our business developments or our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock. In addition, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. We may be involved in securities class action litigation in the future. This litigation often results in substantial costs and a diversion of management’s attention and resources.
 
 
Trading on the OTC Bulletin Board may be sporadic because it is not a stock exchange, and stockholders may have difficulty selling our shares.

Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with an OTC Bulletin Board company’s operations or business prospects. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on the Nasdaq. Accordingly, you may have difficulty reselling any of the shares you purchase from the selling security holders.

 
If we fail to remain current in the filing with the SEC of our periodic reports under the Securities Exchange Act of 1934, our common stock could cease to be eligible to trade on OTC Bulletin Board, which would limit the ability of broker-dealers to sell shares of our common stock and the ability of stockholders to sell our shares in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) , and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, shares of our common stock could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

 
Our common stock is subject to the “penny stock” rules of the SEC and the trading market in shares of our common stock is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our common stock.

Rule 15g-9 under the Exchange Act defines “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination and that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
  
 
We do not expect to pay dividends on our common stock.

We have not declared dividends on our common stock since our incorporation and we have no present intention of paying dividends on our common stock. We are also restricted by the terms of certain debt and other agreements as to the declaration of dividends.
 
11

 
ITEM 2. DESCRIPTION OF PROPERTY 

Our executive offices are located in 3,200 square feet of office space located at 14945 Ventura Blvd, Suite 300, Sherman Oaks, California. This space is held under a one year and four and one half (4.5) months lease that commenced on August 1, 2006, and provides for monthly rental payments of $8,750.00. These facilities house our executive offices as well as certain administrative operations. Management believes that our present offices are adequate to meet our immediate current needs.  

One of our engineering offices is located in 7,410 square feet of office space located at 6060 Sepulveda Blvd, Suite 202, Van Nuys, California. This space is held under a three-year lease that commenced on March 1, 2005, and provides for monthly rental payments of $13,543. These facilities house our engineering offices as well as certain product development operations. Additional engineering offices are located in 1,202 square feet of office space located at 2182 DuPont Dr., Suites #13 & 15, Irvine, California. This space is held under a month-to-month term that commenced on August 1, 2006, and ends upon thirty days (30) days written notice to terminate said lease. This lease provides for monthly rental payments of $2,283.80. These facilities house additional engineering offices as well as certain product development operations. Management believes that our present engineering offices are adequate to meet our immediate current needs.
 
Asanté Networks Inc., our subsidiary, leases approximately 7,000 square feet of office space in San Jose, Ca. This space is held pursuant to a twenty five (25) month lease that commenced on November 1, 2006 and provides for monthly rental payments of $7,591.23. Asanté uses this facility as executive offices as well as sales and administrative offices.

Techno (Hong Kong) Limited, our subsidiary, leases approximately 846 square feet of office space in Hong Kong at a monthly rent of US $1,604 pursuant to a three year lease that commenced in August 2005. We use this facility for product development operations as well as administrative offices.

Jinshilin Techno Ltd., another subsidiary, leases approximately 4,309 square feet of office space in Shanghai, China at a monthly rent of US $3,729 pursuant to a two year lease that commenced in July 2006. These facilities house our executive offices as well as certain administrative operations. Management believes that our present offices are adequate to meet our immediate current needs.  
 

We are subject to legal proceedings from time to time in the ordinary course of our business. As of September 30, 2006, we were not aware of any pending or threatened legal proceedings that could, in management’s opinion, have a material adverse impact on operations, assets or financial condition.

  On December 30, 2005, a lawsuit, which named the Company as an additional defendant, was filed in the Superior Court, State of California, for the County of Los Angeles (Case No. BC345311) for nonpayment of promissory notes issued to the plaintiffs by the primary defendant, Fiber Optic Techno, Inc. (formerly TechnoConcepts Inc.), a California corporation, which sold some of its assets to the Company in May 2003 for a fair consideration. The plaintiffs seek to set aside the transaction, as a fraudulent transfer, and assert claims for compensatory and punitive damages. The assets purchased by the Company included all rights to the TechnoConcepts trademark and to the then-pending patent application for the Direct Conversion Delta Sigma Receiver. At the time the assets were purchased by the Company, the patent application was in contention at the U.S. Patent and Trademark Office and also was the subject of State Court litigation brought by different plaintiffs, which litigation has since been dismissed. The U.S. Patent and Trademark Office issued U.S. Patent No. 6,748,025 to the Company for the Direct Conversion Delta Sigma Receiver in June 2004. On or about April 13, 2006, the State Court action (Case No. BC345311) was removed to the United States Bankruptcy Court, Central District of California (BK No. SV 06-10520-MT), by petition of the plaintiffs. On June 14, 2006, on motion made by the Company, the Bankruptcy Court remanded the case back to the State Court. The parties have engaged in substantial written discovery and limited deposition discovery. A mediation was unsuccessful, and the Company has instructed its attorneys to contest the case vigorously. The Company’s demurrer attacking the sufficiency of plaintiffs’ First Amended Complaint is expected to be heard in February 2007.
On December 19, 2006, a lawsuit was filed in the Superior Court, State of California, for the County of Sacramento (Case No. AS05420) against Asanté Technologies, Inc., Asanté Acquisition Corporation, and the Company for nonpayment of legal fees incurred by Asanté Technologies prior to and in connection with the acquisition of that company’s assets and business by TechnoConcepts. Judgment is sought in the amount of $98,069 plus attorneys’ fees and costs. The Company intends to defend against this lawsuit and to dispute the amount of fees owed.

There can be no assurance that the ultimate resolution of these matters will not have a material adverse effect on our business or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On May 18, 2006, by written consent of a majority of the holders of the outstanding shares of common stock and equivalents entitled to vote, the Company’s articles of incorporation were amended to increase the number of authorized shares to 100,000,000 and the number of preferred shares to 10,000,000.
12

PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock commenced trading in the over-the-counter market on December 23, 2003, and prices for the common stock were quoted on the OTC Electronic Bulletin Board (“OTCBB”) under the symbol “TCPT.” No trading took place during the fiscal year ended September 30, 2003.

Prior to the merger of Technology Consulting Partners Inc. and TechnoConcepts Inc., a Nevada corporation, in February 2004, there was no established trading market in our common stock and trading therein was sporadic.

In February 2004, we changed our name to “TechnoConcepts, Inc.” and the trading symbol of our common stock was changed to “TCPS.”

The following table sets forth the high and low bid prices of our common stock in the over-the-counter market for the periods indicated. The bid prices represent prices between dealers, and do not include retail markups, markdowns or commissions, and may not represent actual transactions.
QUARTER ENDED 
 
HIGH BID
 
LOW BID
 
 
 
 
 
 
 
December 31, 2004
 
$
4.90
 
$
3.25
 
 
         
March 31, 2005
 
$
5.55
 
$
3.50
 
 
         
June 30, 2005
 
$
5.00
 
$
3.56
 
 
         
September 30, 2005
 
$
4.59
 
$
3.05
 
 
         
December 31, 2005
 
$
3.65
 
$
1.70
 
 
         
March 31, 2006
 
$
2.93
 
$
1.70
 
 
         
June 30, 2006
 
$
2.50
 
$
1.70
 
 
         
September 30, 2006
 
$
2.01
 
$
1.23
 

As of January 13, 2007, there were approximately 975 holders of record of our common stock.
 


We have not paid any cash dividends on our common stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our common stock will be paid in the future.

Recent Sales of Unregistered Securities

Convertible Notes/Debentures

Initial and Subsequent Notes

In November and December 2003, we entered into various unsecured convertible note agreements with private investors for the receipt of an aggregate of $333,675, in consideration for our issuance of promissory notes (the “Initial Notes”). These notes carried an interest rate of between 8% and 11% per annum, with all interest and principal due in April 2004. At the time of maturity, the notes were converted into 765,715 shares of our common stock.

In January and February 2004, we entered into various unsecured convertible note agreements with private investors for the receipt of an aggregate of $905,000, in consideration for our issuance of promissory notes (the “Subsequent Notes” and together with the Initial Notes, the “Notes”). In November 2004, we issued additional Subsequent Notes in an aggregate amount of $200,000. The Subsequent Notes carried an interest rate of 10% per annum payable quarterly in cash or stock, with all interest and principal due on January 31, 2005. The notes were convertible into shares of our common stock at any time after June 30, 2004. All of the Subsequent Notes have been converted into 694,571 shares of our common stock.

13

7% Secured Convertible Debentures and Warrants

On November 17, 2004, we entered into a securities purchase agreement, a registration rights agreement, and a security agreement with certain institutional investors. Under the purchase agreement, we sold 7% secured convertible debentures in the aggregate principal amount of $3,775,000, warrants exercisable for a total of 608,000 shares of our common stock and shares of our Series B preferred stock (described below). One half of such warrants were exercisable at $3.50 per share and one half of such warrants were exercisable at $4.00 per share. Due to a subsequent financing which triggered an anti-dilution adjustment, the number of shares of our common stock for which the warrants can be exercised increased to 3,060,000 and the exercise price was adjusted to $1.00. The gross proceeds from the offering of the 7% secured convertible debentures, the warrants and the shares of Series B preferred stock were approximately $7,013,675 in cash and other consideration. Net proceeds to the Company from this transaction were approximately $3,442,000, after the payment of commissions and expenses. In connection with this transaction, we paid commissions to Duncan Capital, LLC, as placement agent, in the approximate amount of $332,550 and also issued warrants exercisable for 120,800 shares of our common stock at $2.50 per share, 24,160 shares at $3.50 per share and 24,160 shares at $4.00 per share to Duncan Capital.
 
Under the terms of the agreements relating to the issuance and sale of our 7% secured convertible debentures, the debentures were convertible into shares of our common stock at $2.50 per share. Interest was due quarterly on the last day of each calendar quarter and, at our discretion, could be paid in cash or shares of our common stock assuming certain conditions were satisfied (including, that the shares of our common stock issuable upon conversion of the debentures were registered for resale to the public with the Securities and Exchange Commission). On the first day of each month commencing on December 1, 2005, the Company was required to redeem one-twelfth of the original principal amount of the 7% secured convertible debentures.

The 7% secured convertible debentures were due and payable on November 17, 2006. During fiscal 2006, certain debenture holders notified us that they were exercising their conversion right, and as a result, debentures in the aggregate principal amount of $1,275,000 were converted into 510,000 shares of our common stock. Also during fiscal 2006, certain debenture holders notified us that they were willing to exchange their debentures for secured subordinated promissory notes (described below) and, as a result, debentures in the aggregate principal amount of $1,250,000 were exchanged for our secured subordinated promissory notes. Subsequent to September 30, 2006, additional debenture holders notified us that they were willing to exchange their debentures for our secured subordinated promissory notes and, as a result, debentures in the aggregate principal amount of $1,000,000 were also exchanged. Debentures in the aggregate principal amount of $250,000 remained outstanding as of November 17, 2006. As of the date of this report, we have not paid the principal and interest due with respect to those debentures and are, accordingly, in default. We are also in default because (i) our registration statement, required under the registration rights agreement associated with the debentures, has not been declared effective, and (ii) the Company did not redeem the debentures as required commencing on December 1, 2005. Therefore, the holders of the outstanding debentures can elect to require us to pay a mandatory repayment amount equal to at least 130% of the outstanding principal amount, plus all other accrued and unpaid amounts under such debentures. The terms of a separate security agreement provide that, upon the occurrence of an event of default which is not cured, the debenture holders (acting in concert) have the right to take possession of all of our assets, to operate our business and to exercise certain other rights provided in the security agreement associated with the debentures.

8% Promissory Notes and Warrants

During October, 2005 and April, 2006, we issued 8% promissory notes in the aggregate principal amount of $665,000 and $285,000, respectively. As part of the consideration, we issued 5-year warrants to purchase an aggregate of 469,000 shares of our common stock at an exercise price of $3.00 per share, with each purchaser of the promissory notes receiving a pro rata share of the warrant pool consistent with the principal amount of the notes purchased. The promissory notes matured two months after the date of issuance, and now are due upon demand. We paid a finder’s fee of 10% of the gross proceeds upon maturity of these notes.

8% Secured Subordinated Promissory Notes

Effective as of May 30, 2006, we entered into a series of note purchase agreements with a number of investors, including certain investors in our 7% secured convertible debentures who agreed to exchange such debentures for secured subordinated promissory notes issued and sold under such note purchase agreements. To secure the Company's obligations under the note purchase agreements, we granted a security interest in all of our assets (including, without limitation, our intellectual property) in favor of the investors, subordinated to the security interest of the holders of our 7% secured convertible debentures and certain accounts receivable facilities. The security interest terminates upon payment or satisfaction of all of our obligations under the agreements.

Under the note purchase agreements, we issued to the investors our secured subordinated promissory notes in the aggregate principal amount of $8,359,520. The secured subordinated promissory notes carry an interest rate of 8% per annum. These notes will mature on the date that is the earliest of (i) one year from the date of issuance of the applicable secured subordinated promissory note, (ii) the date on which we consummate the closing of our next equity financing or series of equity financings which in the aggregate total no less than $7,000,000, or (iii) the sale of the Company or sale of substantially all of the Company's assets any time prior to the maturity date. We may, at our option, prepay any of the secured subordinated promissory notes in whole or in part without penalty.

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Under the terms of the secured subordinated promissory notes, the holders may declare the notes immediately due and payable upon the occurrence of any of the following events of default: (i) our failure to pay the principal when due, (ii) our material breach of any of the covenants or conditions made in the note purchase agreements, the secured subordinated promissory notes or the other transaction documents, (iii) the Company's filing of a voluntary bankruptcy proceeding, or (iv) the filing of an involuntary bankruptcy petition against the Company that is not dismissed or discharged within 180 days.

As part of the consideration for the sale of these notes, we issued 5-year warrants to purchase shares of our common stock at an exercise price of $1.00, with each note purchaser to receive a pro rata share of the warrant pool of warrants. The warrants issued are exercisable for an aggregate of 8,359,520 shares of our common stock.

Subsequent to September 30, 2006, we and an investor in the secured subordinated promissory notes agreed to the exchange of $2,250,000 in principal amount of the secured subordinated promissory notes held by such investor into 1,500,000 shares of our common stock.

Series A Preferred Stock

On February 17, 2004, we completed our acquisition of TechnoConcepts, Inc., a Nevada corporation, and issued 1,970,000 shares of our common stock and 16,000 shares of our Series A preferred stock pursuant to the Agreement and Plan of Merger by and between Technology Consulting Partners Inc. and TechnoConcepts Inc., dated December 15, 2003.

Designation and Amount; Rank. 16,000 shares of our preferred stock have been designated as “Series A” preferred stock. The shares of Series A preferred stock are divided into Series A-1 and Series A-2. Shares of Series A preferred stock have no par value per share, have a face amount of $1,000 per share, and rank senior to our Series B preferred stock and our common stock.

Dividends. Shares of Series A-1 preferred stock do not bear dividends. Shares of Series A-2 preferred stock bear dividends, payable quarterly at the rate of five per cent per annum or $50.00 per share. Such dividends are payable in cash or common stock, as our Board of Directors shall determine.

Conversion . Each share of Series A preferred stock is convertible, at the option of the holder thereof, at any time after January 31, 2006, into a number of shares of common stock determined by dividing the aggregate face amount of the shares to be converted by the conversion price, which shall be an amount equal to the lesser of (i) 100% of the average of the closing bid prices for our common stock occurring during the five trading days immediately prior to the date of conversion, and (ii) $.50 per conversion share. The number of shares of our common stock to be issued upon conversion is subject to anti-dilution protection in the event of certain dilutive issuances by the Company. Notwithstanding the foregoing, shares of Series A-1 preferred stock can only be converted upon the satisfaction of a number of conditions precedent, including the filing and issuance of certain patents and that we have gross revenues in any fiscal year of at least $75,000,000 as disclosed in a periodic report filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. The shares of Series A preferred stock are also subject to mandatory conversion upon the occurrence of certain events.
 
Conversion at Maturity. On the date three (3) years following the issue date of the shares of Series A preferred stock (i.e., February 17, 2007), such shares are to be automatically converted into the number of shares of our common stock equal to the face amount per shares divided by the conversion price then in effect; provided that, with respect to the shares of Series A-l preferred stock, the conditions precedent (other than the minimum revenue condition) shall have been satisfied. If, on the maturity date, (i) we do not have a sufficient number of authorized and unissued shares of our common stock to issue shares of common stock upon conversion of the Series A preferred shares, (ii) our common stock is not actively traded on the Nasdaq market, or (iii) a mandatory redemption event (as described below) has occurred and is continuing, each holder of shares of Series A preferred stock has the option, upon written notice, to retain its rights as a holder of such Series A preferred shares. If the patent conditions have not been satisfied on the maturity date, then the holders of Series A-1 preferred stock will not be entitled to convert their preferred shares until the earlier of: (a) the satisfaction of the patent conditions or (b) five years from the issue date of the shares of Series A-1preferred stock. Currently the only patent condition that remains unsatisfied is that a patent must issue for the benefit of the Company based on the patent application filed on the Direct Conversion Delta-Sigma Receiver (application number PCT/US00/02665).


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Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of any subsequently issued series of preferred stock or holders of our common stock, an amount per share equal to the sum of $1,000 for each outstanding share of Series A preferred stock plus accrued and unpaid dividends (as adjusted for stock dividends, stock distributions, splits, combinations or recapitalizations).

Voting Rights. The holders of the Series A preferred stock have the right to vote with the common stock on all matters submitted to a vote of stockholders, as if the Series A preferred shares were converted to shares of common stock on the record date.

Mandatory Redemption. The shares of Series A preferred stock are redeemable, at the option of the holders, for the greater of (x) 125% of the face value of such shares, plus all accrued and unpaid dividends and (y) an amount determined by dividing (A) the sum of the face value of such shares, plus all accrued and unpaid dividends by (B) the conversion price in effect on the date upon which a mandatory redemption is triggered and multiplying the resulting amount by the average closing bid price for shares of our common stock for the five trading days immediately preceding the mandatory redemption date, if: (i) we fail to issue shares of common stock to a holder upon conversion of any preferred shares, and such failure continues for ten (10) business days; (ii) we breach, in a material respect, any material term or condition of our articles of incorporation or any other agreement with the holders and such breach continues for a period of five (5) business days after written notice to us; or (iii) any material representation or warranty made by us in any agreement, document, certificate or other instrument delivered to the holders of Series A preferred stock prior to the date of issuance is inaccurate or misleading in any material respect as of the date such representation or warranty was made due to voluntary action undertaken by us or a failure by us to take action.

Series B Preferred Stock

On November 17, 2004, we entered into a securities purchase agreement with an institutional investor, under which we agreed to sell, and the institutional investor agreed to purchase, 800 shares of our Series B preferred stock and warrants exercisable for a total of 320,000 shares of our common stock for consideration valued at $2,000,000. The warrants are identical to the warrants issued to the purchasers of our 7% secured convertible debentures.

Designation and Amount; Rank. 800 shares of our preferred stock have been designated as “Series B” preferred stock. Shares of Series B preferred stock have no par value per share, have a face amount of $2,500 per share, and rank senior to shares of common stock and to any subsequently issued series of preferred stock, but junior to shares of Series A preferred stock.

Dividends. Shares of Series B preferred stock bear dividends, payable quarterly at the rate of ten (10%) per cent per annum or $250.00 per share. Such dividends are payable in cash or common stock, as our board of directors may determine.

Conversion. Each share of Series B preferred stock is convertible, at the option of the holder thereof, at any time into 1,000 shares of our common stock, subject to certain anti-dilution adjustments. The shares of Series B preferred stock are automatically converted into shares of our common stock on the third anniversary of the issuance date unless the shares of our common stock are not then quoted on the Nasdaq market.

Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock by reason of their ownership thereof, but after payment in full of any liquidation preference amounts payable to the holders of Series A preferred stock, an amount per share equal to the sum of $2,500 for each outstanding share of Series B preferred stock plus accrued and unpaid dividends (as adjusted for stock dividends, stock distributions, splits, combinations or recapitalizations).

Voting Rights. The holders of the Series B preferred stock have the right to vote with the holders of our common stock on all matters submitted to a vote of stockholders, as if the Series B preferred shares were converted to shares of common stock on the record date.

Mandatory Redemption. The shares of Series B preferred stock are redeemable, at the option of the holders, for 125% of the face value, plus all accrued and unpaid dividends, if: (i) we fail to issue shares of our common stock to a holder upon conversion of any preferred shares, and such failure continues for ten (10) business days; (ii) we breach, in a material respect, any material term or condition of our articles of incorporation or any other agreement, document, certificate or other instrument delivered in connection with the preferred stock securities purchase agreement under which the shares of Series B preferred stock were originally issued and if such breach continues for a period of five (5) business days after written notice thereof to us; or (iii) any material representation or warranty made by us in any agreement, document, certificate or other instrument delivered to the institutional investor purchasing the Series B preferred stock prior to the date of issuance is inaccurate or misleading in any material respect as of the date such representation or warranty was made due to voluntary action undertaken by us or a failure by us to take action.
 
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Series B-1 Preferred Stock

In November 2005, we negotiated a private placement of convertible preferred stock. Under the negotiated terms, we sold 2,203 shares of Series B-1 preferred stock, convertible into 2,203,000 shares of our common stock, at a purchase price of $2,500 per share for total gross proceeds of $5,505,506.  The Series B-1 preferred has a dividend rate of 8% per annum, payable quarterly either in cash or through the issuance of common stock at the option of our board of directors. As part of this transaction, we also issued five-year warrants to purchase 880,000 shares of the Company's common stock, one-half of the warrants at an exercise price of $3.00 per share and the remaining half at an exercise price of $4.00 per share.
 
Designation and Amount; Rank. Shares of Series B-1 preferred stock have no par value per share, have a face amount of $2,500 per share, and rank senior to shares of common stock and to any subsequently issued series of preferred stock, but junior to shares of Series A and Series B preferred stock.

 Dividends. Shares of Series B-1 preferred stock bear dividends at the rate of eight percent (8%) per annum, or $200.00 per share, payable on a quarterly basis. Such dividends are payable in cash or in shares of our common stock (at the then current market price), as our board of directors may determine.
 
Conversion. Each share of Series B-1 preferred stock is convertible, at the option of the holder thereof, at any time into 1,000 shares of our common stock, subject to certain anti-dilution adjustments. Provided there is an effective registration statement covering the resale of the shares of common stock into which the shares of Series B-1 preferred stock is convertible, the shares of Series B-1 preferred stock are automatically converted into shares of our common stock on the date when the market price of our common stock exceeds $5.00 for twenty (20) consecutive trading days.
 
Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B-1 preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, but after payment in full of any liquidation preference amounts payable to the holders of Series A and Series B preferred stock, an amount per share equal to the sum of $2,000 for each outstanding share of Series B-1 preferred stock plus accrued and unpaid dividends (as adjusted for stock dividends, stock distributions, splits, combinations or recapitalizations).
 
Voting Rights. The holders of the Series B-1 preferred stock have no voting rights.
 
Common Stock and Warrants Exercisable for Shares of Common Stock


In June 2005, we issued to a financial advisor warrants to purchase 100,000 shares of our common stock at an exercise price of $3.75 per share. The warrants are exercisable for a three-year period.

In September 2005, we issued to a financial advisor warrants to purchase 75,000 shares of our common stock at an exercise price of $4.50 per share. The warrants are exercisable for a three-year period.
 
In September 2005, we issued to consultants warrants to purchase 40,000 shares of our common stock at an exercise price of $3.375 per share. The warrants are exercisable for a three-year period.

In September 2005, we issued to a financial advisor warrants to purchase 10,000 shares of our common stock at an exercise price of $6.00 per share. The warrants are exercisable for a three-year period.

In September 2005, in conjunction with the establishment of a credit facility, we issued warrants to purchase 150,000 shares of our common stock at an exercise price of $3.85 per share. The warrants are exercisable for a three-year period.

During the year ended September 30, 2006, we issued 825,092 shares of common stock for consulting fees provided by third parties. The value of each share issuance was determined using the closing price of our common stock on the date of issuance.
 
In issuing the securities discussed above, we relied upon the exemption from registration afforded by Section 4(2) of the Act, in that: (a) the securities (other than those issued pursuant to the acquisition of TechnoConcepts, Inc., a Nevada corporation) were sold to a limited number of sophisticated accredited investors, (b) the securities were sold without any general solicitation or public advertising, and (c) the investors in such securities provided us with representations customary for a private placement of securities.

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The preferences, limitations and relative rights with respect to Series A, Series B, and Series B-1 preferred stock are summarized above. The preferences, limitations and relative rights of the Series A, Series B, and Series B-1 preferred stock are contained in their entirety in our articles of incorporation, which is an exhibit to this annual statement.

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this annual report on Form 10-KSB for the fiscal year ended September 30, 2006. Except for the historical information contained herein, the discussion in this Form 10-KSB contains certain forward looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-KSB should be read as being applicable to all related forward statements wherever they appear in this Form 10-KSB. Our actual results could differ materially from those discussed here.

General

We are engaged in the business of designing, developing, manufacturing and marketing wireless communications semiconductors.

We are in the process of attempting to commercialize proprietary technology that we refer to as True Software Radio™. True Software Radio™ is an advanced delta-sigma semiconductor architecture that converts radio frequency, or RF, signals directly into digital data. The technology is designed to dramatically improve the way that wireless signals are received and transmitted by making possible device-to-device communication across otherwise incompatible networks and competing wireless standards (e.g., CDMA, TDMA, GSM, GPRS, G3, Bluetooth, WiFi, WiMAX, WiBro, etc.), creating true convergence for the wireless industry. “Software radio" is an industry term, referring to wireless receivers and transmitters that can be controlled and reconfigured by software commands and that can process radio signals digitally for better performance. To date, we have not generated any revenues from the sale of such microchips or the licensing of rights to the underlying technology. We are currently in the process of seeking to arrange financing to further our efforts to commercialize this technology.

Through our wholly-owned subsidiary, Jinshilin Techno Ltd., or Jinshilin Techno, formed in December 2005 and based in Shanghai, China, we are seeking to provide marketing, sales and technical support for our True Software Radio™ technology in China. On April 21, 2006, Jinshilin Techno acquired Internet Protocol television (IPTV) set-top box (STB) technology through license agreements with Jinshilin Technologies Development Company Ltd. Jinshilin Techno currently offers an IPTV set-top box that features Voice over Internal Protocol, or VOIP, capability and can receive IP data transmissions through the household electrical power grid. Jinshilin Techno expects that future generation set-top boxes will support multi-protocol wireless connectivity with television, DVD players and other multi-media devices, by integrating True Software Radio™ into IPTV set-top boxes.

We also own a controlling interest in Asanté Networks Inc., based in San Jose, California. Asanté provides Ethernet networking solutions for Apple Computer and the small-to-medium business retail markets, offering the IntraCore® and FriendlyNET® product families, integrating voice, data, and video over wireless and wired networks with unified management and authentication. In fiscal 2006, Asanté Networks’ net sales were lower by $2,272,953, or 44.26%, than in the comparable twelve-month period of fiscal 2005. This was primarily the result of decreases in orders and sales of products into the business retail markets.

Restatement of Previously Issued Financial Statements and Review by the Securities and Exchange Commission

On March 24, 2005, the staff of the Securities and Exchange Commission’s Division of Corporate Finance (the “Staff”) notified us that they had reviewed our registration statement on Form SB-2 filed May 3, 2005, our annual report on Form 10-KSB for the fiscal year ended September 30, 2004 (as amended), our quarterly report on Form 10-QSB for the quarterly period ended December 31, 2004 (as amended), and our reports on Form 8-K during our fiscal year 2004. They provided us with comments and requested our response to their questions and additional information. During the succeeding 18 months, we corresponded with the Staff, and they also reviewed our other filings, including: our Form 8-K filed May 2, 2005, our Amendment No. 1 to the registration statement on Form SB-2, our annual report on Form 10-QSB for the fiscal year ended September 30, 2005, and our quarterly reports on Forms 10-QSB for the quarterly periods ended March 31, 2005, June 30, 2005 and December 31, 2005. As a result of our correspondence with the Staff and after consultation with our registered independent accounting firm, Seligson & Giannattasio LLP, and with the concurrence of the audit committee of our Board of Directors, management determined that the recognition and reporting of certain intellectual property and other intangible assets, including goodwill, should be restated in our previously issued consolidated financial statements to, among other things, record material impairment charges to certain intellectual property and other intangible assets, as well as to goodwill. Management also concluded that further evaluation of our policies concerning the recognition and reporting of those assets would be required. As part of that evaluation, the Company engaged a third-party accounting firm, Squar, Milner, Miranda & Williamson LLP, to assist us in our determination of the appropriate interpretation and application of U.S. generally accepted accounting principles (“US GAAP”) related to accounting for assets acquired in a business combination to be used in research and development activities, goodwill and other intangible assets. In January 2007, based in part on our discussions with the Staff and with the concurrence of our independent registered accounting firm, we concluded our review of our policies regarding the recognition and reporting of intellectual property and other intangible assets, including goodwill, under US GAAP. With the concurrence of the audit committee of our Board of Directors and as authorized by resolution of our Board of Directors, management determined to make adjustments to:
 
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·
the Company’s audited consolidated financial statements as of September 30, 2005 and 2004, and for each of the fiscal years in the two-year period ended September 30, 2005; and

 
·
the Company’s unaudited interim consolidated financial statements for each of the quarterly periods in the fiscal years ended September 30, 2005 and 2004, and for each of the first three quarters of the fiscal year ended September 30, 2006.

The accompanying financial statements have been corrected and adjusted as follows:

 
1)
a consultancy expense of $1,169,429 has been recorded in the quarterly period ended December 31, 2003, that was originally recorded in the quarterly period ended March 31, 2004;

 
(2)
an adjustment of approximately $1.0 million has been made to the initial valuation of the assets acquired in connection with the acquisition of TCI Nevada. The Company originally recorded this amount as Other Assets under Intellectual Property and Patents in the interim financial statements included in its quarterly report on Form 10-QSB for the period ended March 31, 2004, and subsequently carried it as such on its books;

 
(3)
all other intellectual property and other intangible assets acquired in connection with the acquisition of TCI Nevada, with an aggregate book value of approximately $7.0 million, have been entirely written off as of September 30, 2005; the Company first recorded this amount as Other Assets under Intellectual Property and Patents in the interim financial statements included in its quarterly report on Form 10-QSB for the period ended March 31, 2004, and subsequently carried it as such on its books; and

 
(4)
goodwill in an incremental amount of $5,663,629 has been written off as of September 30, 2005; such goodwill had been recorded in connection with Company’s acquisition of all of the assets of Asanté Technologies, Inc. in June 2005, and then carried on the Company’s books as Other Assets under Goodwill.
 
Reasons for the Adjustment and Restatement of Previously Issued Financial Statements

With respect to item (1) above, the Company’s management determined that the consultancy expense should have been recorded in the quarterly period ended December 31, 2003, the period in which the Company agreed to issue shares of its common stock in consideration for the related consulting services, rather than the period in which the shares were issued.

With respect to items (2) and (3), the Company acquired the intellectual property and other intangible assets in question in connection with the acquisition of TCI Nevada. That transaction was accounted for as a “reverse acquisition.” The Company determined that TCI Nevada’s initial capitalization of those assets (in connection with TCI Nevada’s acquisition of such assets in May 2003) was unaffected by the transaction. The assets consist principally of semiconductor circuit “architecture.” Semiconductor “architecture” refers to the structural design of semiconductor material, which determines the electrical conductivity of the semiconductor materials and how the electrical conductivity is controlled. Management has concluded that:

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·
The Company should have adjusted the initial valuation, at the time of the completion of the acquisition in February 2004, of the two expired provisional patents, with a book value of $0.9 million, because such provisional patents were part of an ongoing research and development effort at the time of the reverse acquisition.

 
·
The Company should have adjusted the initial valuation, at the time of the completion of the acquisition in February 2004, of the acquired trademarks, with a book value of approximately $0.1 million, as such trademarks had no significant “brand value” and were unlikely to make a significant direct contribution to future cash flows.

 
·
The Company should have recorded an impairment charge equal to the full book value of the other intellectual property and intangible assets, approximately $7.0 million, as of September 30, 2005, as a result of the absence of revenue-generating contracts following the Company’s demonstrations of the technology in July 2005 for potential industry partners, from whom it was hoped that funding would be obtained for further research and development projects to produce commercial products utilizing the technology.

With respect to item (4) above, the Company’s audited consolidated financial statements as of and for the fiscal year ended September 30, 2005, reflect the recording of an impairment charge of $529,162 with respect to the goodwill recorded in connection with the acquisition of all of the assets of Asanté Technologies, Inc. in June 2005. The Company has determined that it should have recorded an impairment charge equal to the full book value of the goodwill at that time, in the amount of $6,192,791, based on the recognizable trend, as of September 30, 2005, of declining net sales of this business.
 
Plan of Operations

We plan to design, develop and, using foundry partners, manufacture application specific integrated circuits (ASICs), microchips, chipsets and other electronic components based on our proprietary technology and to license these products to major telecommunications equipment suppliers for integration into their wireless communications products. As a development stage company, we have not yet commercialized our proprietary technology, but we believe we are making good progress in doing so. We are in the process of developing relationships with a number of major wireless communications companies, in order to incorporate our proprietary technology across a broad spectrum of consumer, industrial, and government applications.
 
We have not earned any revenues to date on our core True Software Radio™ technology. Our strategy is to become a leading provider of wireless communication technology by offering True Software Radio™ ASICs and chipsets to major telecommunications equipment and component suppliers for integration into their wireless communications products.

We intend to continue to seek to establish strategic relationships with both component manufacturers and “total solution” providers. We believe that incorporation of our True Software Radio™ technology will enable prospective industry partners to provide less expensive service along with seamless roaming and global interoperability, thereby enabling new and enhanced services and applications such as mobile e-commerce, position location, mobile multimedia web browsing, including music and video downloads, public safety and homeland security. Elements of our strategy include:

Selling to the Portable Device Market

We anticipate opportunities in the portable device market (defined here as the aggregation of handsets, PDAs, and other niche wireless access devices), which include:

 
·
sales of True Software Radio™ “engines” (essentially very small wireless “motherboards”) to portable device manufacturers;

 
·
non-recurring engineering fees for integration services to large manufacturers that want to adopt True Software Radio™ technology into their products and license fees based upon units sold under their own brand names (embedded products); and

 
·
OEM licensing agreements for physical/data link layer software to handset manufacturers.
 
We have not entered into definitive agreements of the type referred to above as of the date of this report.

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Selling to the Base Station Market 

We believe that True Software Radio™ technology will contribute to the obsolescence of conventional wireless technology. The True Software Radio™ transceiver is capable of providing at least three times the capacity of a conventional unit, making the per-channel cost equal to roughly one-third. We anticipate revenue generation from the base station market primarily from four sources:
 
 
·
base station transceiver hardware sales;

 
·
licensing of base station software for physical and data link layer processing to infrastructure makers;

 
·
strategic partnerships for international deployment of base station systems; and

 
·
non-recurring engineering (NRE) fees for the development of custom interfaces to our physical/data link layer software to government agencies and to their contractors.
 
We have not entered into definitive agreements of the type referred to above as of the date of this report.
 
Public Safety 

Our True Software Radio™ technology can provide seamless communications between various local public safety and other government agencies that otherwise may not be able to “talk” to one another during an emergency. We are actively seeking strategic partnerships with contractors that are involved in providing interoperability wireless communication for State and Federal public safety and emergency agencies and for the Department of Homeland Security. We have not entered into definitive agreements for any such strategic partnerships as of the date of this report.

Accelerating Growth through Partnering and Acquisition 

Because the highly competitive wireless communication technology marketplace is changing rapidly, the Company wishes to broaden and build depth in our planned product/service lines as quickly as possible. We also recognize the need to achieve critical mass with a global presence in order to establish a leadership position in the market. To that end, our strategic initiatives include:

 
·
preemptively developing partnerships and relationships with processor companies, and wireless communication service providers, emphasizing multiple protocol capabilities and supporting multi-vendor purchase strategies by service providers;

 
·
preemptively developing strategic partnerships with one or more major digital signal processor suppliers;

 
·
developing and maintaining an integrated development team with system, hardware, and software/firmware expertise;

 
·
preemptively developing partnerships and relationships with RF semiconductor service providers and distributing high volume components on an OEM (remarked) basis through one or more of these firms;

 
·
licensing older designs while continuing to develop new hardware and software; and

 
·
developing leading edge software and firmware.
 
We also recognize that consummating strategic acquisitions can help expand our geographic presence, and obtain specialized management and technical talent. To this end, we will consider acquiring companies that will help enable us to accelerate growth, accelerate technical development and commercialization of True Software Radio™, add complementary product and service lines, diversify us into new markets, expand our geographic presence, acquire capable management, gain new technical capabilities, and/or gain a larger share of the existing market.

We have no agreement or understanding to acquire any company as of the date of this report.

To date, we have expended substantial amounts to commercialize our products through research and development and have received patents and are in the process of applying for additional patents for our products. We expect these expenditures for research and development to continue for the indefinite future as we seek to commercialize, improve and adapt our products.
 
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Results of Operations

Fiscal year ended September 30, 2006 compared to fiscal year ended September 30, 2005

Revenues
 
Net sales for the year ended September 30, 2006 were $2,908,924, an increase of $1,910,663 as compared to $898,261 of net sales for the year ended September 30, 2005. Sales were generated by our subsidiary, Asanté Networks Inc. The increase is attributable to owning Asanté Networks the entire fiscal year. However, Asanté Networks’ net sales for fiscal 2006 were lower by $2,272,953, or 44.26%, than in the previous twelve-month period. This was primarily the result of decreases in orders and sales of products into the business retail markets, caused in part by obsolescence of the subsidiary’s products. Overall sales revenues continue to be subject to heavy competitive pressures negatively impacting selling prices of networking products and causing the delay of product deliveries from vendors. 

Cost of   Sales and Gross Profit
 
Cost of sales for the year ended September 30, 2005, was $1,976,537. Cost of sales for the year ended September 30, 2005 was $858,284. The increase of $1,118,253 in fiscal 2006 was a direct result of owning Asanté Networks for the entire fiscal year.

Gross profit for fiscal 2006 was $832,387 as compared to $39,977 for the fiscal year ended September 30, 2005, an increase of $792,410. Our gross profit as a percentage of net sales was 29.63% as compared to 4.5% for the year ended September 30, 2005.

General and Administrative Expenses
 
We incurred general and administrative expenses of $15,239,939 in fiscal 2006, an increase of $6,636,356 over the fiscal year ended September 30, 2005, in which we incurred $8,603,583 of such expenses. This increase is a direct result of increased overhead expenses including investor relations, investment banking fees, consulting costs, engineering costs, research and development costs and professional fees and expenses incurred by Asanté Networks for the entire fiscal year.

Off Balance Sheet Arrangements
 
During the year ended September 30, 2006, we did not engage in any off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.
Fiscal year ended September 30, 2005 compared to the nine months ended September 30, 2004

Revenues

Net sales for the year ended September 30, 2005 were $898,261. Sales were generated by our wholly owned subsidiary, Asanté Acquisition Corporation, subsequent to the acquisition on June 2, 2005. Overall sales revenues continue to be subject to heavy competitive pressures negatively impacting selling prices of networking products and delay of products from vendors. 

Cost of   Sales and Gross Profit

Cost of sales for the year ended September 30, 2005, was $858,284. Gross profit for the same period was $39,971. The Company's gross profit as a percentage of net sales was 4.5%. Management feels this will increase due to a different sales mix in the upcoming quarter with increased sales of products with better gross profit.

General and Administrative Expenses

We incurred General and Administrative expenses of $ 8,603,583, an increase of $ 8,191,644 over the nine months ended September30, 2004, in which we incurred $411,939 of such expenses. This increase is a direct result of increased overhead expenses including investor relations, investment banking fees, consulting costs, engineering costs, research and development costs and professional fees and expenses incurred by our subsidiary Asanté Acquisition Corporation. Included in this increase was $1,217,321 of non cash items.

Off Balance Sheet Arrangements

During the year ended September 30, 2005 the Company did not engage in any off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.

22

Liquidity and Capital Resources

To date, we have been a primarily a development stage company and have generated revenues during the fiscal year ending September 30, 2006, only from the operations of our subsidiary, Asanté Networks Inc. As of September 30, 2006, our assets totaled $3,093,083 consisting of $932,690 in cash, $197,863 in accounts receivable, $688,114 in inventory (including reserves of $444,000) and $180,883 in prepaid expenses. Our liabilities totaled $9,884,976, consisting of $1,250,000 from our 7% convertible debentures that are in default, $8,359,520 of secured subordinated notes payable that are scheduled to become due and payable beginning in May 2007 and continuing through December 2007, $950,000 of unsecured notes payable on demand, $13,667,000 of capital leases payable, $2,956,876 of accounts payable, $1,975,902 of expenses payable, and $715,825 of notes due to related parties.

Subsequent to September 30, 2006, some of the holders of our 7% secured convertible debentures notified us that they wanted to exchange their debentures for our secured subordinated promissory notes, and as a result, debentures with an aggregate principal amount of $1,000,000 were so exchanged, such that immediately following such exchange debentures in the aggregate principal amount of $250,000 remained outstanding. We are currently negotiating with the holders of the debentures that remain outstanding a settlement and satisfaction for the default condition.

We have incurred a cumulative loss from operations of $48,830,529; have negative working capital of $8,329,426 and negative cash flow from operations of $11,453,733. We anticipate incurring capital expenditures of approximately $1,000,000 during the fiscal year ending September 30, 2007. We expect our operating cash requirements will also be significant throughout fiscal year 2007, as we continue our research and development efforts, and attempt to execute on our business strategy. The amount and timing of cash requirements will depend on our completion of commercial products, market acceptance of our products and the resources we devote to researching and developing, marketing, selling and supporting our products. Moreover, the responsibilities of a public company will require the Company to meet certain legal and accounting requirements and to incur related expenses. In addition to the normal risks associated with an unproven business venture, there can be no assurance that our business plan will be successfully executed, even if adequate financing is secured.

Since November 2003, we have financed our operations primarily through private sales of preferred convertible securities in the amount of $7,505,506 and the debt described above. Subsequent to September 30, 2006, we have sought additional debt and equity financing. As we raise additional funds through the issuance of equity securities and equity securities equivalents, the percentage ownership of our existing stockholders is reduced. If we are unable to raise sufficient funds on acceptable terms we may not succeed in executing our strategy and achieving our business objective. In particular, we could be forced to limit our product development and marketing activities, forego attractive business opportunities and we may lose the ability to respond to competitive pressures. There can be no assurance that sufficient funding will be obtained to keep the Company operating over the next twelve months. Nor can any assurance be made that the Company will generate substantial revenues or that the business operations will prove to be profitable. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements reflect ongoing losses, negative cash flows from operating activities, negative working capital and shareholders’ deficit. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Net Operating Loss

We have accumulated approximately $$27,400,000 of net operating loss carry forwards as of September 30, 2006, which may be offset against taxable income and income taxes in future years through 2026. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carry forwards in 2026. No tax benefit has been reported in the financial statements for the year ended September 30, 2006, because we believe there may be a chance that the carry forward will expire unused. Accordingly, the potential tax benefit of the loss carry forward is offset by a valuation allowance of the same amount.
 
23

ITEM 7. FINANCIAL STATEMENTS
 
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and
Board of Directors
TechnoConcepts, Inc.
Van Nuys, CA

We have audited the accompanying balance sheet of TechnoConcepts, Inc. and subsidiaries as of September 30, 2006, 2005 and 2004, the related statements of operations, changes in shareholders’ deficit and cash flows for the periods 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 audits 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 the audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TechnoConcepts, Inc. and subsidiaries as of September 30, 2006, 2005 and 2004 and the result of its operations and its cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has had significant recurring losses. The realization of a major portion of its assets is dependent upon its ability to meet its future financing requirements, and the success of future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.

As disclosed in Note 2 to the consolidated financial statements, the accompanying financial statements for the years ended September 30, 2005 and 2004 have been restated.

/s/ Seligson & Giannattasio, LLP
Seligson & Giannattasio, LLP
White Plains, NY
May 11, 2007
 
F-1

And Subsidiaries
Consolidated Balance Sheets 
 
 
 
September 30,
2006
 
September 30, 2005 (restated)
 
September 30, 2004 (restated)
 
ASSETS
 
 
         
Current assets:
 
 
         
Cash
 
$
932,690
   
190,669
   
66,558
 
Accounts receivable, net of allowance for doubtful
                 
accounts of $60,632, $90,040 and $0 respectively
   
197,863
   
318,202
     
Inventory, net of reserves of $444,000, $534,851 and $0 respectively
   
244,114
   
499,543
     
Prepaid expenses
   
180,883
   
328,723
   
727
 
 
                 
Total current assets
   
1,555,550
   
1,337,137
   
67,285
 
 
                 
Fixed assets, net
   
979,868
   
383,525
   
28,743
 
 
             
Other assets:
                 
Intellectual Property
               
6,990,000
 
Deposits
   
104,439
   
77,251
   
0
 
Debt issuance costs, net
   
9,226
   
250,762
   
82,875
 
 
                 
Total assets
 
$
2,649,083
   
2,048,675
   
7,168,903
 
 
See accompanying notes to consolidated financial statements  
 
F-2

TechnoConcepts, Inc.
And Subsidiaries
Consolidated Balance Sheets

   
September 30,
 
September 30,
 
September 30, 
 
 
 
2006
 
2005 (Restated)
 
2004 (Restated)
 
 
 
 
         
 
 
         
 
 
 
         
Current liabilities:
 
 
         
Convertible notes payable,
 
 
         
net of unamortized debt issuance costs of $68,899
 
$
1,181,101
 
$
0
 
$
0
 
Notes payable,
                 
net of unamortized debt issuance costs of $5,791,763
   
2,567,757
             
Notes payable
                 
net of unamortized debt issuance costs of $476,152
   
473,848
             
Note payable
         
750,000
   
921,985
 
Line of credit
         
331,639
       
Current portion of capital leases
         
10,567
       
Capital leases payable
   
13,667
             
Accounts payable
   
2,956,876
   
2,163,838
   
9,000
 
Accrued expenses payable
   
1,975,902
   
1,076,336
   
258,989
 
Customer deposits
         
278,806
       
Due to related parties
   
715,825
   
263,698
   
160,000
 
 
               
Total current liabilities
   
9,884,976
   
4,874,884
   
1,349,974
 
                     
Capital leases payable less current maturities
         
17,123
       
Convertible note payable
net of unamortized debt issuance costs of $1,872,673
         
1,902,327
       
                     
Total liabilities
   
9,884,976
   
6,794,334
   
1,349,974
 
                     
Minority interest
   
614,122
             
 
               
Shareholders' equity (deficit):
               
Series A Preferred stock, no par value, 10,000,000
               
shares authorized, 16,000, 16,000 and 32,000 shares
               
issued and outstanding, respectively
   
16
   
16
   
32
 
Series B Preferred, no par value, 3,100 authorized, 3,003
               
shares issued and outstanding, respectively
   
7,505,506
   
2,000,000
   
0
 
Common stock, no par value, 100,000,000
               
shares authorized 28,376,734, 27,015,035 and 24,852,671 shares
               
issued and outstanding, respectively
   
28,377
   
27,015
   
24,852
 
Additional paid-in capital
   
33,446,615
   
20,490,380
   
8,739,540
 
Subscriptions receivable
         
0
   
(4,008
)
Accumulated deficit
   
(48,830,529
)
 
(27,263,070
)
 
(2,941,487
)
                     
Total shareholders' equity (deficit)
   
(7,850,015
)
 
(4,745,659
)
 
5,818,929
 
 
               
Total liabilities and shareholders' equity (deficit)
 
$
2,649,083
   
2,048,675
   
7,168,903
 
 
See accompanying notes to consolidated financial statements.
 
F-3

TechnoConcepts, Inc.
Consolidated Statements of Operations
 
 
 
Year Ended
 
Year Ended
 
 Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 September 30,
 
   
2006
 
2005 (Restated)
 
 2004 (Restated)
 
Revenues:
 
 
 
 
      
Net Sales
 
$
2,808,924
 
$
898,261
 
$
0
 
 
             
Cost of goods sold
   
1,976,537
   
858,284
   
0
 
 
             
Gross Profit
   
832,387
   
39,977
   
0
 
 
             
Operating Expenses:
             
 
               
General and administrative
   
15,239,939
   
8,603,583
   
411,939
 
 
             
Loss before other income (expense) and income taxes
   
(14,407,552
)
 
(8,563,606
)
 
(411,939)
)
 
             
Other income (expense):
             
Interest expense, net
   
(7,086,904
)
 
(2,164,142
)
 
(252,162)
)
Impairment of goodwill
   
--
   
(6,192,791
)
 
0
 
Impairment of intellectual property
   
--
   
(6,990,000
)
 
0
 
 
             
Minority interest
   
135,878
   
--
       
 
               
Loss before income taxes
   
(21,358,578
)
 
(23,910,539
)
 
(664,101)
)
 
               
Income taxes
   
800
   
1,600
   
0
 
 
               
Net loss
   
(21,359,378
)
 
(23,912,139
)
 
(664,101)
)
 
               
Dividends on preferred stock
   
517,525
   
100,000
   
0
 
 
             
Net loss available to common shareholders
 
$
(21,876,903
)
$
(24,012,139
)
 
($664,101)
)
 
             
 
               
Weighted shares outstanding:
             
Basic
   
27,527,784
   
26,378,677
   
19,424,421
 
Diluted
   
27,527,784
   
26,378,677
   
19,424,421
 
 
               
Loss per share available to common shareholder:
             
Basic
 
$
(.79
)
$
(.91
)
 
(0.03
)
Diluted
 
$
(.79
)
$
(.91
)
 
(0.03
)
 
See accompanying notes to consolidated financial statements
 
F-4

 
TechnoConcepts Inc.
And Subsidiaries
Comprehensive Statement of Shareholders’ Deficit
 
                             
Accumulated
 
     
preferred stock
   
Common Stock
   
Paid-In
   
Subscriptions
   
Deficit
 
     
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Receivable
   
(Restated)
 
Balances, September 30, 2004
   
32,000
 
$
32
   
24,852,671
 
$
24,852
 
$
9,048,984
 
$
(4,008
)
$
(2,240,931
)
Prior period adjustments
                             
Adjustment to purchase price
                                           
of assets of TechnoConcepts
                                           
(CA)
   
   
   
   
   
(1,010,000
)
 
   
 
Adjustment of valuation of
                                           
shares issued for consulting
                                           
fees
   
   
   
   
   
700,556
   
   
(700,556
)
Adjusted balance September
                                           
30, 2004
   
32,000
   
32
   
24,852,671
   
24,852
   
8,739,540
   
(4,008
)
 
(2,941,487
)
Collection of subscription
                                           
receivable
   
   
   
   
   
   
4,008
   
 
Beneficial conversion
                                           
feature from the issuance
                                           
of convertible debentures
   
   
   
   
   
3,329,200
   
   
 
Shares issued for:
                                           
 
                                           
Preferred shares
   
800
   
2,000,000
   
   
   
   
   
 
Conversion of
                                           
debentures
   
   
   
771,480
   
771
   
1,232,854
   
   
 
 
                                           
Consulting services
   
   
   
229,713
   
230
   
909,483
   
   
 
 
                                           
Effect of merger
   
   
   
1,161,170
   
1,162
   
4,998,838
   
   
 
 
                                           
Issuance of warrants for
                                           
services rendered
   
   
   
   
   
971,005
   
   
 
Retirement of preferred
                                           
shares
   
(16,000
)
 
(16
)
 
   
   
16
   
   
 
Dividends on preferred
                                           
Stock
   
   
   
   
   
   
   
(100,000
)
 
                                           
Net loss
   
   
   
   
   
   
   
(23,912,139
)
Balances, September 30,
                                           
2005
   
16,800
 
$
2,000,016
   
27,015,034
 
$
27,015
 
$
20,180,936
 
$
 
$
(26,953,626
)
Issuance of warrants for
                                           
services rendered
   
   
   
   
   
8,999,515
   
   
 
Conversion of debentures
   
   
   
518,108
   
518
   
1,293,572
   
   
 
 
                                           
Preferred shares issued
   
2,203
   
5,505,506
   
   
   
   
   
 
Shares issued for
                                           
consulting services
   
   
   
825,092
   
825
   
1,519,050
   
   
 
Shares issued for employee
                                           
Bonuses
   
   
   
15,500
   
16
   
38,269
   
   
 
Shares issued for stock
                                           
option exercise
   
   
   
3,000
   
3
   
1,497
   
   
 
 
                                           
Cost of stock options
   
   
   
   
   
1,413,776
   
   
 
 
                                           
Dividends
   
   
   
   
   
   
   
(517,525
)
 
                                           
Net Loss
   
   
   
   
   
   
   
(21,359,378
)
Balances, September 30,
                                           
2006
   
19,003
 
$
7,505,522
   
28,376,734
 
$
28,377
 
$
33,446,615
   
 
$
(48,830,529
)
 
See accompanying notes to consolidated financial statements.
F-5

TechnoConcepts, Inc.
And Subsidiaries
Consolidated Statements of Cash Flows
 
                     
     
September 30,
2006
   
September 30,
2005 (Restated)
   
September 30,
2004(Restated)
 
                     
Cash flows from operating activities:
                   
                     
Net loss
 
$
(21,359,378
)
$
(23,912,139
)
$
(664,101
)
Adjustments to reconcile net loss from operations to
             
net cash used in operating activities:
             
Depreciation
   
131,736
   
50,097
   
1,556
 
Amortization of debt costs
   
4,776,910
   
1,740,618
   
201,268
 
Shares issued for services
   
1,519,050
   
1,880,718
   
--
 
Stock option expense
   
1,413,775
   
--
   
--
 
Impairment of goodwill
   
--
   
6,192,791
   
--
 
Impairment of intellectual property
   
--
   
6,990,000
       
Minority interest
   
614,122
   
--
       
Shares issued for bonus
   
38,268
   
--
       
Changes in operating assets and liabilities:
                   
Accounts receivable
   
120,339
   
419,773
       
Inventory
   
255,429
   
403,009
       
Other assets
   
120,652
   
(375,725
)
 
(727
)
Accounts payable
   
793,038
   
97,456
   
21,452
 
Accrued expenses
   
122,326
   
728,258
   
(395,096
)
 
                   
Net cash flows from operating activities
   
(11,453,733
)
 
(5,785,144
)
 
(835,648
)
 
                   
Cash flows from investing activities:
                   
Net Borrowings from related parties
   
452,127
   
(152,451
   
--
 
Acquisition of fixed assets
   
(728,079
)
 
(348,663
)
 
(28,559
)
 
               
 
Net cash flows from investing activities
   
(275,952
)
 
(501,114
)
 
(28,559
)
 
                   
Cash flows from financing activities:
                   
Proceeds from notes payable
   
7,310,365
   
4,525,000
   
905,000
 
Debt acquisition costs
   
--
   
(445,800
)
 
--
 
Proceeds from preferred shares
   
5,505,503
   
2,000,000
   
--
 
Net borrowings from bank
   
(331,639
   
331,639
   
--
 
Repayment of long-term debt
   
(14,023
   
(4,478
)
 
--
 
Stock subscription received
   
--
   
4,008
   
--
 
Stock options exercised
   
1,500
   
--
       
 
                   
Net cash flows from financing activities
   
12,471,706
   
6,410,369
   
905,000
 
 
                   
Net change in cash and cash equivalents
   
742,021
   
124,111
   
40,793
 
Cash and cash equivalents, beginning of period
   
190,669
   
66,558
   
25,765
 
                     
Cash and cash equivalents, end of period
   
932,690
 
$
190,669
 
$
66,558
 
                     
Supplemental cash flow information:
                   
Interest paid
   
--
 
$
--
 
$
--
 
Income taxes paid
   
800
 
$
800
 
$
--
 
Non-cash investing and financing activities
               
 Shares issued in payment of consulting fees
   
         
464,348
 
Shares issued for conversion of debt
   
518,108
   
1,233,625
   
316,675
 
 
See accompanying notes to consolidated financial statements.
 
F-6


TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Nature of the business - TechnoConcepts, Inc. (the “Company”) is in the business of designing, developing, manufacturing, and marketing wireless communications semiconductors. The Company has begun manufacturing wireless transmitter and receiver microchips, based on its proprietary technology, and produced its first engineering run in August 2006. The proprietary technology, which the Company calls True Software Radio™, is designed to dramatically improve the way that wireless signals are received and transmitted, by making possible device-to-device communication across otherwise incompatible networks and competing wireless standards (e.g., CDMA, TDMA, GSM, GPRS, G3, Bluetooth, WiFi, WiMAX, WiBro, etc.), creating true convergence for the wireless industry.

In April 2005, Asanté Acquisition Corp. (“Acquisition Corp.”) was formed in the State of California as a wholly owned subsidiary of the Company. Acquisition Corp. was formed primarily to acquire the assets of Asanté Technology Corp. On October 17, 2005, Asanté Acquisition Corp. completed reorganization with RegalTech Inc. (“RegalTech”), a publicly traded Delaware corporation. The reorganization provided for the merger of Asanté Acquisition Corp. and RegalTech, pursuant to the companies’ Agreement and Plan of Reorganization dated August 31, 2005. RegalTech's name was subsequently changed to Asanté Networks Inc. Asanté Networks maintains a 52-53 week fiscal year ending on the Saturday closest to September 30.

In May 2005, Technoconcepts (Hong Kong) Ltd. (“Techno HK”) was formed in the Republic of China as a wholly owned subsidiary. The Company plans to perform production design and application-specific engineering and to provide product support in Asia for the Company’s semiconductor products at this subsidiary.

In December 2005, the Company formed Jinshilin Techno Ltd. ("Jinshilin Techno") as its wholly owned subsidiary based in Shanghai, China. The Company organized Jinshilin Techno to provide marketing, sales and technical support for True Software Radio(TM) technology in China. On April 21, 2006, Jinshilin Techno acquired IPTV Set Top Box (STB) technology through license agreements with Jinshilin Technologies Development Company Ltd. ("Jinshilin"). Jinshilin Techno develops new technology for Internet Protocol Television (IPTV), Stream Media Protocol Processing, and Broadcasting Software for IPTV-STB, IPTV-STB providing On-Line Family Real Time Payment Service. Jinshilin Techno expects future generation set-top boxes to support multi-protocol wireless connectivity with television, DVD players and other multi-media appliances, by integrating True Software Radio(TM) into Jinshilin's IPTV-STB. In July 2006, the Company received final approval from the People’s Republic of China for the subsidiary.
 
 
F-7

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)

Basis for Presentation- The consolidated financial statements include the accounts of the Company and its subsidiaries, Asanté Networks Inc., Jinshilin Techno and Techno HK. All material intercompany transactions have been eliminated in consolidation.
 
Pervasiveness of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Income taxes - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and tax basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.

Cash and Equivalents - The Company considers investments with an initial maturity of three months or less to be cash equivalents.
 

 
Leasehold improvements
 
Remaining lease term or useful life
 
 
Software
 
3 years
 
 
Equipment
 
5 to 7 years
 
 
Furniture and fixtures
 
5 to 7 years
 
 
Fixed assets are comprised as follows at September 30:
 
   
 2006
 
 2005 (restated)
 
 2004 (restated)
 
Furniture and fixtures
 
$
271,469
 
$
185,927
 
$
----
 
Computer and office equipment
   
2,412,401
   
2,410,535
   
30,451
 
Computer Software
   
673,887
   
64,427
   
----
 
Leasehold improvements
   
248,228
   
217,017
   
----
 
 
   
3,605,985
   
2,877,906
   
30,451
 
Accumulated depreciation
   
2,626,117
   
2,494,381
   
1,708
 
   
$
979,868  
$
383,525
 
$
28,743
 
 
 
Computer and office equipment under capital leases totaled $41,532 at September 30, 2006 and 2005. There were no computer and office equipment under capital leases at September 30, 2004.
 

F-8

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)
 
Prepaid expenses- The Company records as prepaid expenses amounts for which the Company has been required to pay for prior to when the related cost has been incurred.  The Company amortizes the related cost over the period the related product or service is incurred or the term of the related contract or agreement.
 
Prepaid expenses consist of the following at September 30,
 
     
2006
   
2005 (restated)
   
2004 (restated)
 
Licenses
 
$
66,007
 
$
----
 
$
----
 
Consulting fees
   
53,789
   
134,938
   
----
 
Equipment rental
   
35,822
   
77,251
   
----
 
Inventory
   
13,237
   
76,600
   
----
 
Insurance
   
6,096
   
----
   
----
 
Other
   
5,932
   
39,934
   
727
 
   
$
180,883
 
$
328,723
 
$
727
 
 
Inventory- Inventory is valued at the lower of cost (first-in first-out method) or market. Merchandise shipped from overseas is inventoried, and the corresponding liability recorded, upon the Company’s taking title to the inventory.   Appropriate adjustments of the inventory values are provided for slow moving and discontinued products based upon future expected sales and committed inventory purchases.

 
     
2006
   
2005 (restated)
   
2004 (restated)
 
Raw materials
 
$
94,755
 
$
91,122
   
----
 
Finished goods
   
593,359
   
943,272
   
----
 
 
   
688,114
   
1,034,394
   
----
 
Less: reserve for obsolescence
   
(444,000
)
 
(534,851
)
 
----
 
   
$
244,114
 
$
499,543
 
$
----
 
 
Bad debts - The carrying amount of the Company’s trade accounts receivable approximates fair value due to the short-term nature of the asset. Although the Company’s outstanding accounts receivable are exposed to credit risk, the Company maintains valuation allowances for estimated losses resulting from the inability to collect outstanding amounts due from its customers. The valuation allowances include specific amounts for those accounts that are likely to be uncollectible, such as customer bankruptcies and disputed amounts, and general allowances for accounts that management currently believes to be collectible but later become uncollectible. Estimates used to determine the valuation allowances are generally based on historical collection experience, current economic trends, credit-worthiness of customers, and changes in customer payment terms.


F-9

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 1- Summary of Significant Accounting Policies (continued)

Accounting for convertible debt securities - The Company has issued convertible debt securities with non-detachable conversion features. The Company has recorded the fair value of the beneficial conversion features and is amortizing them as interest expense over the term of the related debt.
 
Debt Issuance Costs - Debt issuance costs are the costs incurred relating to the convertible notes and debentures. The costs are amortized over the term of the related indebtedness.
 
Revenue recognition - Revenue from product sales to customers is recognized, including freight charges billed to customers, when a definite arrangement exists, the product has been shipped to the customer, acceptance terms, if any, have been fulfilled, no significant contractual obligations remain outstanding, the price is fixed or determinable, and collection is considered probable. Reserves are provided for estimated returns at the time the related revenue is recorded. Sales to distributors are generally subject to agreements allowing certain rights of return and price protection with respect to unsold merchandise held by the distributor. Reserves for distributor returns are established based on historical returns experience at the time the related revenue is recorded. Reserves for price protection are established based on actual price reduction programs. Additionally, the Company provides reserves for incentive rebates to distributors, warranty obligations and cooperative advertising at the time the related revenue is recorded.
Accrued Expense

Accrued expenses consist of the following at September 30:
 
     
2006
   
2005 (restated)
   
2004 (restated)
 
Loan Fees
 
$
285,000
 
$
----
 
$
----
 
Director Fees
   
50,000
   
160,000
   
----
 
Interest
   
801,557
   
134,595
   
53,904
 
Dividends
   
617,525
   
100,000
   
----
 
Commissions
   
94,108
   
92,598
   
----
 
Vacation Pay
   
10,314
   
68,755
   
----
 
Warranty
   
73,688
   
109,983
   
----
 
Taxes
   
18,966
   
1,600
   
----
 
Other
   
24,744
   
408,805
   
205,085
 
 
Total
 
$
1,975,902
 
$
1,076,336
 
$
258,989
 


F-10

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)

Concentration of credit risk - Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable. Accounts receivable are typically unsecured and are derived from worldwide distributor and customer revenues. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses; historically, such losses have been within management's expectations. The Company maintains substantially all its cash balances in a limited number of financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. At September 30, 2006, the Company had balances in excess of insured limits totaling $400,878.  
 
Research and development costs - Research and development costs are expensed as incurred. Research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. The Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility.
 
Software costs incurred after the establishment of technological feasibility have not been material to date and therefore have been expensed.

Loss per share - Earnings (loss) per share for the years ended September 30, 2006 and 2005 was computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding and also was adjusted for the assumed conversion of shares issuable upon the exercise of options and warrants in accordance with SFAS No. 128, “Earnings Per Share”. The Company had a net loss for the years ended September 30, 2006 and 2005 and, accordingly, potential dilutive common shares are excluded from this computation for each such year as the effect would be anti-dilutive. The total potential dilutive common shares excluded from this computation totaled 20,798,223 and 4,045,620 in the fiscal years ended September 30, 2006 and 2005, respectively. The reconciliation between basic and diluted average shares outstanding is as follows:
 
     
Year Ended
September 30,
   
Year Ended
September 30,
   
Year Ended
September 30,
 
     
2006
   
2005 (restated)
   
2004 (restated)
 
Basic weighted average shares outstanding
   
27,527,784
   
26,378,677
   
19,424,421
 
Dilutive effect of stock options
   
----
   
----
   
----
 
Dilutive effect of warrants
   
----
   
----
   
----
 
Diluted weighted average shares outstanding
   
27,527,784
   
26,378,677
   
19,424,421
 


F-11

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)

Stock-Based Compensation -  In October 1995, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”. Until January 1, 2006, the Company accounted for its stock-based compensation plans using the accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. As the Company was not required to adopt the fair value based recognition provisions prescribed under SFAS No. 123, as amended, it has elected only to comply with the disclosure requirements set forth in the statement which includes disclosing pro forma net income (loss) and earnings (loss) per share as if the fair value based method of accounting had been applied. For periods subsequent to January 1, 2006, the Company is required to report the fair value of each option grant as a component of operating expense.

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the fiscal years ended September 30, 2006, 2005 and 2004: expected volatility of between 92% and 117%, risk free interest rate of between 4.63% and 5.75%; and expected lives of 5 years.
 
The effects of applying SFAS No. 123, as amended, in the above pro forma disclosures are not indicative of future amounts as they do not include the effects of awards granted prior to fiscal 2006. Additionally, future amounts are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts.


F-12

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 1- Summary of Significant Accounting Policies (continued)

Stock Based Compensation- The pro forma net loss and loss per share consists of the following:
 
     
Year Ended
September 30,
2006
   
Year Ended
September 30,
2005 (restated)
   
Year Ended
September 30,
2004 (restated)
 
Net loss available to common shareholders, as restated
 
$
(21,876,903
)
$
(24,012,139
)
$
(664,101
)
Effect of stock options, net of tax (prior to adoption of FAS 123R)
   
(325,135
)
 
(1,166,173
)
 
(165,458
)
Proforma net loss available to common shareholders
 
$
(22,202,038
)
$
(25,178,312
)
$
(829,559
)
Proforma diluted loss per share available to common shareholders
 
$
(.81
)
$
(.95
)
$
(.04
)

Recently Issued Accounting Pronouncements
 
In February 2006, the FASB issued FASB Statement No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (“FASB No. 155”). FASB No. 155 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. FASB No. 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”
 
FASB No. 155:
 
 
a.
Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation
 
 
b.
Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133
 
 
c.
Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation
 
 
d.
Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives
 
 
e.
Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.
 
FASB No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of FASB No. 155 may also be applied upon adoption of FASB No. 155 for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of FASB No. 155. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. Provisions of FASB No. 155 may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis.
 
F-13


TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)
 
At adoption, any difference between the total carrying amount of the individual components of the existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument should be recognized as a cumulative-effect adjustment to beginning retained earnings. The cumulative-effect adjustment should be disclosed gross (that is, aggregating gain positions separate from loss positions) determined on an instrument-by-instrument basis. Prior periods should not be restated. The Company does not believe there will be any effect on the financial statements upon adopting FASB No. 155.
 
Recently Issued Accounting Pronouncements (continued)
 
In March 2006, the FASB issued FASB Statement No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140” (FASB Statement No. 156”). FASB No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. FASB No. 156 is effective for years beginning after September 15, 2006. The Company does not believe FASB No. 156 will have a material effect on the Company’s financial statements.
 
In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“FASB No. 157”). FASB No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. FASB No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice.
 
FASB No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. The Company is currently reviewing the potential effect of this statement on its financial statements.
 
In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132R” (“FASB No. 158”). This Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.
 

F-14

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 1- Summary of Significant Accounting Policies (continued)
 
An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The Company does not believe FASB No. 158 will have any material effect on its financial statements.
 
 
NOTE 2 RESTATEMENT AND RECLASSIFICATION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
 
The Company’s previously issued consolidated balance sheets, statements of operations, statements of shareholders’ equity (deficit) and cash flows for the fiscal years ended September 30, 2005 and 2004 have been restated to correct for certain accounting errors in the following areas:

Intellectual Property - Intellectual property consists of patents, copyrights and trademarks purchased from TechnoConcepts (CA). The Company had previously capitalized these costs as intangible assets. Following the receipt of, and responses to, a series of comment letters from the staff of the SEC’s Division of Corporation Finance, the Company has determined that certain expired provisional patents and trademarks included in these assets totaling $1,010,000 should have been recorded as an adjustment to the purchase price at the time of acquisition. The remaining portion of the assets, comprised primarily of chipsets based on patented technology totaling $6,990,000, has been expensed as of September 30, 2005 as a result of the inability to obtain definitive revenue-producing contracts based on the technology.

Goodwill- In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the rules, the pooling of interests method of accounting for acquisitions is no longer allowed and goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements.

The Company performed the annual tests at September 30, 2005, and determined there to be an impairment of the goodwill recorded in connection with the acquisition of all of the assets of Asanté Technologies, Inc in June 2005, totaling $529,162. Following the receipt of, and response to, a series of comment letters from the staff of the SEC’s Division of Corporation Finance, the Company has determined that it could have recognized the declining trend in revenues when performing its annual impairment test at September 30, 2005. The Company has therefore determined that the entire amount of the goodwill should have been impaired at that time.
 

F-15

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 2 Restatement and reclassification of previously issued financial statements (continued)

Consulting expenses- The Company had previously reported consulting expense paid through the issuance of stock, totaling approximately $468,000, during the quarter ended March 31, 2004.  In response to comment letters from the SEC, the Company determined that the services should have been valued at $1,169,429 and reported in the quarterly period ended December 31, 2003.
 
Restatement Impact on Consolidated Statement of Operations
For the year ended September 30, 2005 and the nine months ended September 30, 2004
 
     
2005
   
2004
 
     
As Previously
Reported
   
As Restated
   
As Previously
Reported
   
As Restated
 
Revenues
 
$
898,261
 
$
898,261
 
$
0
 
$
0
 
 
Cost of Sales
   
858,284
   
858,284
   
0
   
0
 
 
Gross Profit
   
39,977
   
39,977
   
0
   
0
 
 
   
   
   
   
 
Operating expenses:
   
   
   
   
 
General and administrative expenses
   
8,603,583
   
8,603,583
   
880,812
   
411,939
 
 
   
   
   
   
 
Loss before other income(expense)
   
   
   
   
 
and income taxes
   
(8,563,606
)
 
(8,563,606
)
 
(880,812
)
 
(411,939
)
 
   
   
   
   
 
Other income (expense)
   
   
   
   
 
Interest expense
   
(2,164,142
)
 
(2,164,142
)
 
(252,162
)
 
(252,162
)
Impairment of Goodwill
   
(529,162
)
 
(6,192,791
)
 
0
   
0
 
Impairment of intellectual property
   
0
   
(6,990,000
)
 
0
   
0
 
 
   
   
   
   
 
 
   
   
   
   
 
Loss before income taxes
   
(11,256,910
)
 
(23,910,539
)
 
(1,132,974
)
 
(664,101
)
 
   
   
   
   
 
Income taxes
   
1,600
   
1,600
   
0
   
0
 
 
   
   
   
   
 
Net loss
   
(11,258,510
)
 
(23,912,139
)
 
(1,132,974
)
 
(664,101
)
 
   
   
   
   
 
Dividends on preferred stock
   
100,000
   
100,000
   
0
   
0
 
 
   
   
   
   
 
Net loss available to common
   
   
   
   
 
shareholders
   
($11,358,510
)
 
($24,012,139
)
 
($1,132,974
)
 
($664,101
)
 
   
   
   
   
 
Basic and diluted shares outstanding
   
26,378,677
   
26,378,677
   
19,424,421
   
19,424,421
 
 
   
   
   
   
 
Basic and diluted loss per share
   
   
   
   
 
available to common shareholder
   
(0.43
)
 
(0.91
)
 
(0.06
)
 
(0.03
)
 

F-16

Restatement Impact on Consolidated Balance Sheet
As of September 30, 2005 and 2004
 
   
2005
 
2004
 
   
As Previously
Reported
 
As Restated
 
As Previously
Reported
 
As Restated
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
Cash
 
$
190,669
 
$
190,669
 
$
66,558
 
$
66,558
 
 
Accounts receivable
   
318,202
   
318,202
   
0
   
0
 
Inventory
   
499,543
   
499,543
   
0
   
0
 
Prepaid expenses
   
328,723
   
328,723
   
727
   
727
 
 
   
   
   
   
 
Total current assets
   
1,337,137
   
1,337,137
   
67,285
   
67,285
 
 
   
   
   
   
 
Fixed Assets
   
383,525
   
383,525
   
28,743
   
28,743
 
 
   
   
   
   
 
Other assets:
   
   
   
   
 
Intellectual property
   
8,000,000
   
0
   
8,000,000
   
6,990,000
 
Goodwill
   
5,663,629
   
0
   
0
   
0
 
Deposits
   
77,251
   
77,251
   
0
   
0
 
Debt issue costs
   
250,762
   
250,762
   
82,875
   
82,875
 
 
Total assets
 
$
15,712,304
 
$
2,048,675
 
$
8,178,903
 
$
7,168,903
 
 
Liabilities and Shareholders’ Deficit
       
 
     
                     
Current Liabilities
         
       
Line of Credit
 
$
331,639
 
$
331,639
 
$
0
 
$
0
 
Note Payable
   
750,000
   
750,000
   
921,985
   
921,985
 
Current portion of capital leases
   
10,567
   
10,567
   
0
   
0
 
Accounts payable
   
2,163,838
   
2,163,838
   
9,000
   
9,000
 
Accrued expenses
   
1,076,336
   
1,076,336
   
258,989
   
258,989
 
Customer deposits
   
278,806
   
278,806
   
0
   
0
 
Due to related parties
   
263,698
   
263,698
   
160,000
   
160,000
 
 
   
   
   
   
 
Total current liabilities
   
4,874,884
   
4,874,884
   
1,349,974
   
1,349,974
 
 
   
   
   
   
 
Capital leases payable less current maturities
   
17,123
   
17,123
   
0
   
0
 
Convertible note payable
   
1,902,327
   
1,902,327
   
0
   
0
 
 
   
   
   
   
 
Total liabilities
   
6,794,334
   
6,794,334
   
1,349,974
   
1,349,974
 
 
   
   
   
   
 
Shareholders’ Deficit
   
   
   
   
 
 
   
   
   
   
 
Series A Preferred stock
   
16
   
16
   
32
   
32
 
Series B Preferred stock
   
2,000,000
   
2,000,000
   
0
   
0
 
Common stock
   
27,015
   
27,015
   
24,852
   
24,852
 
Additional paid in capital
   
20,490,380
   
20,490,380
   
9,048,984
   
8,739,540
 
Subscriptions receivable
   
0
   
0
   
(4,008
)
 
(4,008
)
Accumulated deficit
   
(13,599,441
)
 
(27,263,070
)
 
(2,240,931
)
 
(2,941,487
)
 
   
   
   
   
 
Total shareholders’ deficit
   
8,917,970
   
(4,745,659
)
 
6,828,929
   
5,818,929
 
 
   
   
   
   
 
 
Total liabilities and shareholders’ deficit
 
$
15,712,304
 
$
2,048,675
 
$
8,178,903
 
$
7,168,903
 
 
F-17

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 2 Restatement and reclassification of previously issued financial statements (continued)

Restatement Impact on Cash Flows

As a result of the restatements, there would be no changes to the net cash flows from operating activities, investing activities or financing activities in the statements of cash flows for the year ended September 30, 2005 and the nine month period ended September 30, 2004.

Restatement Impact on Retained Deficit

As a result of the restatements, the retained deficit increased to $2,941,487 at September 30, 2004 and $26,953,626 at September 30, 2005.

Quarterly Financial Data (Unaudited)

The following financial data presents the effect of the restatements on the statement of operations for those periods affected by the restatements:
 

F-18

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 2 Restatement and reclassification of previously issued financial statements (continued)
 
Restatement Impact on Consolidated Statement of Operations
For the three months ended December 31, 2003 and March 31, 2004

 
 
December 31, 2003
 
March 31, 2004
 
 
 
As Previously
 
 
 
As Previously
 
 
 
 
 
Reported
 
As Restated
 
Reported
 
As Restated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
0
 
$
0
 
$
0
 
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Sales
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Profit
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
 
941,354
 
 
2,110,783
 
 
1,423,368
 
 
959,020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before other income (expense)
and income taxes
 
 
(941,354
)
 
(2,110,783
)
 
(1,423,368
)
 
(959,020
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
(743
)
 
(743
)
 
(1
)
 
(1
)
Impairment of Goodwill
 
 
0
 
 
0
 
 
0
 
 
0
 
Impairment of intellectual property
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before income taxes
 
 
(942,097
)
 
(2,111,526
)
 
(1,423,369
)
 
(959,021
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
(942,097
)
 
(2,111,526
)
 
(1,423,369
)
 
(959,021
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends on preferred stock
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss available to common
shareholders
 
 
($942,097
)
 
($2,111,526
)
 
($1,423,369
)
 
($959,021
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted shares outstanding
 
 
7,930,320
 
 
7,930,320
 
 
7,930,320
 
 
7,930,320
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted loss per share
available to common shareholder
 
 
(0.12
)
 
(0.27
)
 
(0.18
)
 
(0.12
)
 

F-19

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 3 PREFERRED STOCK

Series A preferred stock

The Company has designated 16,000 shares of the preferred stock as “Series A preferred stock”. The shares of Series A preferred stock are divided into Series A-1 and Series A-2. Shares of Series A preferred stock have no par value per share, a face value of $1,000 per share and rank senior to common stock and shares of Series B preferred stock.

Shares of Series A-1 preferred stock do not bear dividends. Shares of Series A-2 preferred stock bear dividends, payable quarterly at the rate of five percent per annum or $50.00 per share. Such dividends are payable in cash or common stock, as the Board of Directors shall determine.

Each share of Series A preferred stock is convertible, at the option of the holder thereof, at any time after January 31, 2006, into a number of shares of common stock determined by dividing the face value of the shares to be converted by the conversion price, which shall be an amount equal to the lesser of (i) 100% of the average of the closing bid prices for the Company’s common stock occurring during the five trading days immediately prior to the date of conversion, and (ii) $0.50 per conversion share. The number of shares of the Company’s common stock to be issued upon conversion is subject to anti-dilution protection in the event of certain dilutive issuances by the Company. Notwithstanding the foregoing, shares of Series A-1 preferred stock can only be converted upon the satisfaction of a number of conditions precedent, including that the Company have gross revenues in any fiscal year of at least $75,000,000 as disclosed in a periodic report filing with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The shares of Series A preferred stock are also subject to mandatory conversion upon the occurrence of certain events.
 
  In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock and of any subsequently issued series of preferred stock, an amount per share equal to the sum of $1,000 for each outstanding share of Series A preferred stock plus accrued and unpaid dividends (as adjusted for stock dividends, stock distributions, splits, combinations or recapitalizations).
 
F-20

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

Note 3- preferred stock (continued)

The holders of the Series A preferred stock have the right to vote on an as-converted basis with the common stock on all matters submitted to a vote of stockholders.

The shares of Series A preferred stock are redeemable, at the option of the holders, for the greater of (x) 125% of the face value of such shares, plus all accrued and unpaid dividends and (y) an amount determined by dividing (A) the sum of the face value of such shares, plus all accrued and unpaid dividends by (B) the conversion price in effect on the date upon which a mandatory redemption is triggered and multiplying the resulting amount by the average closing bid price for shares of our common stock for the five trading days immediately preceding the mandatory redemption date, if: (i) the Company fails to issue shares of common stock to a holder upon conversion of any preferred shares, and such failure continues for ten (10) business days; (ii) the Company breaches, in a material respect, any material term or condition of its articles of incorporation or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and such breach continues for a period of five (5) business days after written notice thereof to the Company; or (iii) any material representation or warranty made by the Company in any agreement, document, certificate or other instrument delivered to the holder of Series A preferred stock prior to the date of issuance is inaccurate or misleading in any material respect as of the date such representation or warranty was made due to voluntary action undertaken by us or a failure by the Company to take action.

Series B preferred stock

The Company has designated 800 shares of the preferred stock as "Series B preferred stock". Shares of Series B preferred stock have no par value per share, have a face value of $2,500 per share and rank senior to common stock and B-1 preferred stock but junior to shares of Series A preferred stock.
 
Shares of Series B preferred stock will bear dividends, payable quarterly at the rate of ten per cent per annum or $250.00 per preferred share. Such dividends shall be payable in cash or common stock, as the Board of Directors shall determine. At September 30, 2006, $300,000 has been accrued for dividends which have not been declared and paid.

Each share of Series B preferred stock is convertible, at the option of the holder thereof, at any time into 1,000 shares of common stock, subject to certain anti-dilution adjustments. The shares of Series B preferred stock are automatically converted into shares of common stock on the third anniversary of the issuance date unless the shares of the Company’s common stock are not quoted on the Nasdaq market.
 
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series B preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of the Company’s common stock by reason of their ownership thereof, an amount per share equal to the sum of  $2,500 for each outstanding share of Series B preferred stock plus accrued and unpaid dividends (as adjusted for stock dividends, stock distributions, splits, combinations or recapitalizations).
 
F-21

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

Note 3- preferred stock (continued)

The holders of the Series B preferred stock have the right to vote on an as-converted basis, with the holders of common stock on all matters submitted to a vote of stockholders.  

The shares of Series B preferred stock are redeemable, at the option of the holders, for 125% of the face value, plus all accrued and unpaid dividends, if: (i) the Company fails to issue shares of common stock to a holder upon conversion of any preferred shares, and such failure continues for ten (10) Business Days;  (ii) the Company breaches, in a material respect, any material term or condition of the Company’s articles of incorporation or any other agreement, document, certificate or other  instrument delivered in connection with the transactions contemplated by the preferred stock securities purchase agreement under which the Series B preferred stock was issued and such breach continues for a period of five (5) business days after written notice thereof to the Company; or (iii) any material representation or warranty made by the Company in any agreement, document, certificate or other instrument delivered to the investors in such shares prior to the date of issuance is inaccurate or misleading in any material respect as of the date such representation or warranty was made due to voluntary action undertaken by the Company  or a failure by the Company to take action.
 
Series B-1 preferred stock

2,300 shares have been designated as “Series B-1 preferred stock”. Shares of Series B-1 preferred stock have no par value per share, have a face amount of $2,500 per share, and rank senior to shares of common stock but junior to shares of Series A and Series B preferred stock.

Shares of Series B-1 preferred stock bear dividends, payable quarterly at the rate of eight (8%) per cent per annum or $200.00 per share. Such dividends are payable in cash or in shares of the Company’s common stock (at the then current market price), as the Board of Directors shall determine. Each share of Series B-1 preferred stock is convertible, at the option of the holder thereof, at any time into 1,000 shares of our common stock, subject to certain anti-dilution adjustments. Provided there is an effective registration statement covering the resale of the shares of common stock underlying the shares of Series B-1 preferred stock, the shares of Series B-1 preferred stock are automatically converted into shares of our common stock on the date when the market price of our common stock exceeds $5.00 for twenty (20) consecutive trading days.

 
The holders of the Series B-1 preferred stock have no voting rights.
 
F-22

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
Note 3- preferred stock (continued)

As of September 30, 2006, the Company sold 2,203 shares of Series B-1 Preferred (convertible to 2,203,000 shares of Common) at an aggregate purchase price of $5,505,506.

As of September 30, 2006, $617,525 has been accrued for dividends which have not been declared and paid.

NOTE 4 GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a cumulative loss from operations of $48,830,529, negative working capital of $8,329,426 and a negative cash flow from operations of $11,453,733, which raises doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company expects our cash requirements will be significant throughout its fiscal year 2007, as the Company continues its research and development efforts, and attempts to execute on its business strategy through working capital growth and capital expenditures. The amount and timing of cash requirements will depend on market acceptance of the Company’s products and the resources the Company devotes to researching and developing, marketing, selling and supporting its products

The Company believes that its current cash and cash equivalents on hand should be sufficient to fund our operations for at least the next two months. Thereafter, if current sources are not sufficient to meet the Company’s needs, the Company may seek additional equity or debt financing. In addition, any material acquisition of complementary businesses, products or technologies or material joint venture could require the Company to obtain additional equity or debt financing. There can be no assurance that such additional financing would be available on acceptable terms, if at all. If the Company raises additional funds through the issuance of equity securities the percentage ownership of the Company’s shareholders prior to such transaction(s) would be reduced. If the Company is unable to raise sufficient funds on acceptable terms, the Company may not succeed in executing its strategy and achieving its business objectives. In particular, the Company could be forced to limit its product development and marketing activities and forego attractive business opportunities, and the Company may lose the ability to respond to competitive pressures.

NOTE 5 CONVERTIBLE DEBENTURES

On November 17, 2004 the Company entered into a securities purchase agreement (the "Purchase Agreement"), a registration rights agreement, and a security agreement with certain institutional investors. Pursuant to the Purchase Agreement, the Company sold its 7% secured convertible debentures in the aggregate principal amount of $3,775,000 and warrants exercisable for a total of 608,000 shares of the Company’s common stock, one half of which are exercisable at $3.50 per share and one half of which are exercisable at $4.00 per share. The gross proceeds from the offering of the 7% secured convertible debentures, the warrants, and the shares of Series B preferred stock (see Note 3) were approximately $7,013,675 in cash and other consideration. Net proceeds to the Company from this transaction were approximately $3,442,000, after the payment of commissions and expenses. In connection with this transaction, the Company paid commissions to Duncan Capital, LLC, as placement agent, in the approximate amount of $332,550 and also issued warrants exercisable for 120,800 shares of the Company’s common stock at $2.50 per share, 24,160 shares at $3.50 per share and 24,160 shares at $4.00 per share to Duncan Capital.

In issuing the securities under the terms of the Purchase Agreement, the Company relied upon the exemption from registration afforded by Section 4(2) of the Act, in that: (a) the securities were sold to a limited number of sophisticated accredited investors, (b) the securities were sold without any general solicitation or public advertising, and (c) the purchasers provided the Company with representations customary for a private placement of securities.

The Company reflected the amortization of the discounts on these debentures as interest expense totaling $1,803,774 and $1,651,562 for the fiscal years ended September 30, 2006 and 2005 respectively.

Under the terms of the Purchase Agreement, the debentures were convertible into shares of the Company’s common stock at $2.50 per share. Interest was due quarterly on the last day of each calendar quarter and, at the Company’s discretion, could be paid in cash or shares of the Company’s common stock assuming certain conditions were satisfied (including, that the shares of the Company’s common stock issuable upon conversion of the debentures were registered for resale to the public with the Securities and Exchange Commission). On the first day of each month commencing on December 1, 2005, the Company was required to redeem one-twelfth of the original principal amount of the 7% secured convertible debentures.

F-23

 
The 7% secured convertible debentures were due and payable on November 17, 2006. During fiscal 2006, certain debenture holders notified the Company that they were exercising their conversion right, and as a result, debentures in the aggregate principal amount of $1,275,000 were converted into 510,000 shares of the Company’s common stock. Also during fiscal 2006, certain debenture holders notified the Company that they were willing to exchange their debentures for secured subordinated promissory notes (more fully described in Note 6) and, as a result, debentures in the aggregate principal amount of $1,250,000 were exchanged for the Company’s secured subordinated promissory notes.

As of September 30, 2006, the outstanding debentures consisted of the following:

Principal amount of 7% secured convertible debentures outstanding as of September 30, 2006
 
$
1,250,000
 
Less: unamortized conversion costs
   
(68,899
)
 
 
$
1,181,101
 

Subsequent to September 30, 2006, additional debenture holders notified the Company that they were willing to exchange their debentures for the Company’s secured subordinated promissory notes and, as a result, debentures in the aggregate principal amount of $1,000,000 were also exchanged. Debentures in the aggregate principal amount of $250,000 remained outstanding as of November 17, 2006.

As of the date of this report, the Company has not paid the principal and interest due with respect to the outstanding debentures and is, accordingly, in default. The Company is also in default because (i) the Company’s registration statement, required under the registration rights agreement associated with the debentures, has not been declared effective, and (ii) the Company did not redeem the debentures as required commencing on December 1, 2005. Therefore, the holders of the outstanding debentures can elect to require the Company to pay a mandatory repayment amount equal to at least 130% of the outstanding principal amount, plus all other accrued and unpaid amounts under such debentures. The terms of a separate security agreement provide that, upon the occurrence of an event of default which is not cured, the debenture holders (acting in concert) have the right to take possession of all of the Company’s assets, to operate the Company’s business and to exercise certain other rights provided in the security agreement associated with the debentures.
 
F-24

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

Note 5- Convertible Debentures (continued)

Under the Registration Rights Agreement, the Company agreed to file a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the debentures and upon exercise of the warrants by no later than January 20, 2005. On May 4, 2005, the Company filed with the SEC a registration statement on Form SB-2 for that purpose. By virtue of the delinquency, the Company became obligated to pay a penalty equal to 1% of the aggregate purchase price paid by each purchaser for the debentures, effective as of January 20, 2005, and an additional 1% on the 20th of each month thereafter until (and including) April 20, 2005. Any unpaid amount was to bear interest at a rate of 18% per annum. Under the Registration Rights Agreement, the Company also agreed to use its best efforts to cause the registration statement to be declared effective by the SEC as promptly as possible, but not later than 135 days following the closing date of the financing transaction. On July 15, 2005, the Registration Rights Agreement was amended to extend the period for the registration statement to be declared effective from 135 days to 300 days. However, the registration statement was not declared effective by the SEC within this extended 300-day period. Failure to have the registration statement declared effective resulted in the occurrence of an event of default under the debentures, effective September 13, 2005, which has not been cured as of the date hereof. Certain liabilities have therefore been incurred by the Company for failing to have the registration statement declared effective, in a timely manner. The Registration Rights Agreement also provides indemnification and contribution remedies to the purchasers of the debentures and warrants in connection with the resale of the shares of common stock underlying such securities pursuant to such registration statement.
 
F-25

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

Note 5- Convertible Debentures (continued)

 
NOTE 6 NOTES PAYABLE
 
Effective as of May 30, 2006 the Company entered into a series of Note Purchase Agreements with a number of investors, some of whom had previously invested in the Company. To secure the Company's obligations under the Note Purchase Agreements, the Company granted a security interest in all of its assets (including, without limitation, its intellectual property) in favor of the investors, subordinated to the Company's existing Convertible Debentures and certain accounts receivable facilities. The security interest terminates upon payment or satisfaction of all of the Company's obligations under the Note Purchase Agreements.

Effective as of May 30, 2006, the Company entered into a series of note purchase agreements with a number of investors, including certain investors in the Company’s 7% secured convertible debentures who agreed to exchange such debentures for secured subordinated promissory notes issued and sold under such note purchase agreements. To secure the Company's obligations under the note purchase agreements, the Company granted a security interest in all of its assets (including, without limitation, its intellectual property) in favor of the investors, subordinated to the security interest of the holders of the Company’s 7% secured convertible debentures and certain accounts receivable facilities. The security interest terminates upon payment or satisfaction of all of the Company’s obligations under the note purchase agreements.

Under the note purchase agreements, the Company issued to the investors its secured subordinated promissory notes in the aggregate principal amount of $8,359,520. The secured subordinated promissory notes carry an interest rate of 8% per annum... These notes will mature on the date that is the earliest of (i) one year from the date of issuance of the applicable secured subordinated promissory note, (ii) the date on which the Company consummates the closing of its next equity financing or series of equity financings which in the aggregate total no less than $7,000,000, or (iii) the sale of the Company or sale of substantially all of the Company's assets any time prior to the maturity date. The Company may, at its option, prepay any of the secured subordinated promissory notes in whole or in part without penalty.

Under the terms of the secured subordinated promissory notes, the holders may declare the notes immediately due and payable upon the occurrence of any of the following events of default: (i) the Company’s failure to pay the principal when due, (ii) the Company’s material breach of any of the covenants or conditions made in the note purchase agreements , the secured subordinated promissory notes or the other transaction documents, (iii) the Company's filing of a voluntary bankruptcy proceeding, or (iv) the filing of an involuntary bankruptcy petition against the Company that is not dismissed or discharged within 180 days.

As part of the consideration for the sale of these notes, the Company issued 5-year warrants to purchase shares of its common stock at an exercise price of $1.00, with each note purchaser to receive a pro rata share of the warrant pool of warrants. The warrants issued are exercisable for an aggregate of 8,359,520 shares of the Company’s common stock. At issuance, the warrants had an estimated fair value of $8,359,520. The fair value of each warrant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 112.93%; risk free interest rate of 7.0%; and expected lives of 5 years.

F-26

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 6 Notes Payable (continued)
 
 
As of September 30, 2006 the Notes payable consisted of the following:

Notes payable
 
$
8,359,520
 
Less: unamortized issuance costs
 
 
(5,791,763
)
 
 
$
2,567,757
 
 
Subsequent to September 30, 2006, the Company and an investor in the secured subordinated promissory notes agreed to the exchange if $2,250,000 in principal amount of the secured subordinated promissory notes held by such investor into 1,500,000 shares of the Company’s common stock.

NOTE 7 NOTES PAYABLE

During October, 2005 and April, 2006, the Company issued 8% promissory notes in the aggregate principal amount of $665,000 and $285,000, respectively. As part of the consideration, the Company issued 5-year warrants to purchase an aggregate of 469,000 shares of the Company’s common stock at an exercise price of $3.00 per share, with each purchaser of the promissory notes receiving a pro rata share of the warrant pool consistent with the principal amount of the notes purchased. At issuance, the warrants had an estimated fair value of $864,270. The fair value of each warrant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 91.19 to112.93%; risk free interest rate of 7.0%; and expected lives of 5 years.

The promissory notes matured two months after the date of issuance, and now are due upon demand. The Company paid a finder’s fee of 10% of the gross proceeds upon maturity of these notes.

As of September 30, 2006 the notes payable consisted of the following:
 
Notes payable
 
$
950,000
 
Less: unamortized issuance costs
 
 
(476,152
)
 
 
$
473,848
 
 
F-27

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 8 INCOME TAXES

At September 30, 2006, the Company has a net loss carry forward totaling approximately $27,400,000 that may be offset against future taxable income through 2026. No tax benefit has been reported in the financial statements, however, because the Company believes there is a chance that the carry forward will expire unused. Accordingly, the tax benefit of the loss carry forward has been offset by a valuation allowance of the same amount.    
 
Deferred income taxes are comprised of the following:  
 
     
September 30,
2006
   
September 30,
2005 (restated)
   
September 30,
2004 (restated)
Deferred tax assets
                 
Net operating loss
 
$
10,963,511
 
$
4,000,782
 
$
 645,996
Inventory reserve
 
 
177,600
   
213,940
   
----
Interest payable
 
 
320,622
   
53,838
   
103,098
Bad debt allowance
 
 
24,333
   
76,016
   
----
Other
 
 
784
   
----
   
63,693
Intellectual property
 
 
2,986,667
   
3,200,000
   
404,000
Goodwill
 
 
2,146,834
   
2,265,452
   
----
Total deferred tax assets
 
 
16,620,351
   
9,810,028
   
1,216,787
 
 
 
 
         
 
Less: valuation allowance
 
 
16,620,351
   
9,810,028
   
(1,216,787)
 
 
$
----
 
$
----
 
$
----

The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized. At such time, the allowance will either be increased or reduced. Reduction could result in the partial or complete elimination of the allowance if positive evidence indicates that the value of the deferred tax asset will not be realized. It is management’s position that the deferred tax asset be recorded when there is positive evidence it will be realized.

F-28

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

Note 8 - Income Taxes (continued)

Income tax expense is comprised of the following:  
 
   
 September 30,
 
 September 30,
 
September 30,
 
   
 2006
 
 2005 (restated)
 
2004 (restated)
 
Current:                
Federal
 
$
----
 
$
----
 
$
----
 
State
   
800
   
1,600
   
----
 
 
             
 
   
800
   
1,600
   
----
 
Deferred:
             
Federal
   
----
   
----
   
----
 
State
   
----
   
----
   
----
 
 
             
Total income tax expense
 
$
800
 
$
1,600
 
$
----
 
 
 
 
 
     
Year Ended
September 30,
2006
   
Year Ended
September 30,
2005 (restated)
   
Year Ended
September 30,
2004 (restated)
 
 
 
 
         
U.S. Federal income tax statutory rate
   
(34
)%
 
(34
)%
 
(34
)%
State income tax, net of federal income tax benefit
   
( 6
)%
 
( 6
)%
 
( 6
)%
Other- primarily net operating losses
   
40
%
 
40
%
 
40
%
 
   
----
%
 
----
%
 
----
%
 
NOTE 9 RELATED PARTY TRANSACTIONS
 
Certain officers have made interest-free advances to the Company. At September 30, 2006, the advances totaled $715,825.
NOTE 10 LEASE

The Company leases its various office facilities under operating leases that expire through 2009. Future minimum rentals on the leases are as follows:
 
Year ended September 30,
     
2007
 
$
460,636
 
2008
   
248,984
 
2009
   
16,866
 
 
 
$
726,486
 
 
 
F-29

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 11 ACQUISITION

On June 2, 2005, TechnoConcepts, Inc. (the "Company"), through its wholly-owned subsidiary, Asanté Acquisition Corp. acquired substantially all of the assets (collectively, the “Asanté Assets”) of Asanté Technologies, Inc. (“Asanté”). The acquisition of these assets was consummated pursuant to an Agreement and Plan of Acquisition among Asanté, the Company, and Asanté Acquisition Corp. dated as of February 25, 2005. In connection with the acquisition, Asanté Acquisition Corp. purchased the Asanté assets, which included certain patents, trademarks and other intellectual property right, along with cash and cash equivalents, accounts receivable, inventory, property, plant, equipment and other capital assets, in exchange for 1,161,170 restricted shares of the Company’s common stock.

An allocation of the purchase price at the date of acquisition is as follows:
 
 
 
 
Accounts receivable
 
$
737,975
 
Inventory
 
 
902,552
 
Other current assets
 
 
8,502
 
Fixed assets
 
 
56,216
 
Other assets
 
 
21,016
 
Goodwill
 
 
6,192,791
 
 
 
 
 
 
Total assets acquired
 
 
7,919,052
 
 
 
 
 
 
Cash overdraft
 
 
155,428
 
Accounts payable
 
 
2,180,760
 
Accrued expenses
 
 
273,297
 
Note payable
 
 
256,149
 
Other liabilities
 
 
21,250
 
Capital leases payable
 
 
32,168
 
 
 
 
 
 
Total liabilities assumed
 
 
2,919,052
 
 
 
 
 
 
Value of stock issued
 
$
5,000,000
 
 
On October 17, 2005, TechnoConcepts, Inc., through its wholly-owned subsidiary, Asanté Acquisition Corp. completed a reorganization with RegalTech Inc. (“RegalTech”), a publicly traded Delaware corporation. The reorganization provided for the merger of Asanté Acquisition Corp. and RegalTech, pursuant to the companies’ Agreement and Plan of Reorganization dated August 31, 2005. RegalTech’s name was changed to Asanté Networks, Inc. (“Asanté Networks”) and is trading on the Pink Sheets under the ticker symbol “ASTN”.
 
F-30

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006

NOTE 11 Acquisition (continued)

In connection with the merger, the Company received 15,000 shares of Series A nondilutable convertible preferred stock (the “preferred stock”) of Asanté Networks, which when converted will represent approximately eighty-five percent (85%) of the outstanding shares of Asanté Networks. Each share of preferred stock may be converted at any time after October 1, 2006 for 10,000 shares of common stock. The Company, as the holder of the preferred stock, shall have the same voting rights with respect to the business, management and affairs of Asanté Networks as if the preferred stock were converted to shares of common stock on the record date. The preferred stock bears dividends at an annual rate of $10.00 per share. In addition, Asanté Networks has effected a 10-for-1 forward split of its common shares. Since the Company has retained 85% of the voting shares, the Company continues to report Asanté as a subsidiary and reflects the remaining 15% as a minority interest.
 
NOTE 12 COMMON STOCK ISSUED FOR CONSULTING SERVICES
 
During the year ended September 30, 2006, the Company issued 825,092 shares of common stock for consulting fees provided by third parties. The value of each share issuance was determined using the closing price of the common stock of the Company on the date of issuance.

NOTE 13 WARRANTS

On November 17, 2004 the Company entered into a securities purchase agreement (the "Purchase Agreement"), a registration rights agreement, and a security agreement with certain institutional investors. Pursuant to the Purchase Agreement, the Company sold its 7% secured convertible debentures in the aggregate principal amount of $3,775,000 and warrants exercisable for a total of 608,000 shares of the Company’s common stock, one half of which are exercisable at $3.50 per share and one half of which are exercisable at $4.00 per share. The warrants are exercisable at any time until November 17, 2009. In connection with this transaction, the Company issued warrants to Duncan Capital, LLC, as placement agent, exercisable for 169,120 shares of the Company’s common stock, with warrants exercisable for 120,000 shares at $2.50 per share, warrants exercisable for 24,160 shares at $3.50 per share and warrants exercisable for 24,160 shares at $4.00 per share. Pursuant to certain anti-dilution terms of the warrants, adjustments to the exercise price and to the number of warrant shares were required upon the issuance of our 8% secured subordinated promissory notes in May 2006. Therefore, the number of warrant shares increased from 608,000 to 3,060,000 and the exercise price of these warrants was re-set to $1.00 per share.

During March 2005, the Company completed a private placement of 800 shares of Series B preferred stock at a price of $2,500 per share for $2 million. The Company also issued to the investors warrants to purchase an aggregate of 320,000 shares of common stock, one half of which were exercisable at $3.50 per share and one half of which were exercisable at $4.00 per share. The warrants are exercisable at any time until March 31, 2010. Pursuant to the anti-dilution terms of the warrants, adjustments to the exercise price and to the number of warrant shares were required upon the issuance of the Company’s 8% secured subordinated promissory notes. Therefore, the number of warrant shares increased from 320,000 to 1,120,000 and the exercise price of these warrants was re-set to $1.00 per share.

F-31

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 13 Warrants (continued)

In June 2005, the Company issued to a financial advisor warrants to purchase 100,000 shares of the Company’s common stock at an exercise price of $3.75 per share. The warrants are exercisable for the three- year period.

In September 2005, the Company issued to a financial advisor warrants to purchase 75,000 shares of the Company’s common stock at an exercise price of $4.50 per share. The warrants are exercisable for a three-year period.
 
In September 2005, the Company issued to consultants warrants to purchase 40,000 shares of the Company’s common stock at an exercise price of $3.75 per share. The warrants are exercisable for a three-year period.

In September 2005, the Company issued to a financial advisor warrants to purchase 10,000 shares of the Company’s common stock at an exercise price of $6.00 per share. The warrants are exercisable for a three-year period.

In September 2005, in conjunction with the establishment of a credit facility, the Company issued warrants to purchase 150,000 shares of the Company’s common stock at an exercise price of $3.85 per share. The warrants are exercisable for a three-year period.

During fiscal 2006, the Company completed a private placement of 2,203 shares of Series B-1 preferred stock at a price of $2500 per share for gross proceeds of $5,505,506. The Company also issued to the investors warrants to purchase an aggregate of 880,880 shares of common stock, with warrants exercisable for 440,000 shares at an exercise price of $3.00 per share and warrants exercisable for 400,000 shares at an exercise price of $4.00 per share. Pursuant to certain anti-dilution terms of these warrants, adjustments to the exercise price and to the number of warrant shares were required upon the issuance of our 8% secured subordinated promissory notes in May 2006. Therefore, the number of warrant shares increased from 880,880 to 3,083,083 and the exercise price of these warrants was re-set to $1.00 per share.
 
In October 2005 and April 2006, the Company entered into a series of note purchase agreements with a number of investors in the Company’s 8% promissory notes, In connection with this financing transaction, the Company issued to the investors warrants exercisable for an aggregate of 469,000 shares of the Company’s common stock at an exercise price per share of $3.00. The warrants are exercisable for a five-year period..
 
On May 30, 2006, the Company entered into a series of note purchase agreements with a number of investors in the Company 8% secured subordinated promissory notes. In connection with this financing transaction, the Company issued to the investors in the 8% secured subordinated promissory notes warrants exercisable for an aggregate of 8,359,520 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants are exercisable for a five-year period.
 
At September 30, 2006, warrants exercisable for a total 16,635,723 shares of the Company’s common stock were outstanding. Of this amount, warrants exercisable for 15,622,603 shares of the Company’s common stock have an exercise price of $1.00, warrants exercisable for 220,800 shares have an exercise price of $2.50, warrants exercisable for 469,000 shares have an exercise price of $3.00, warrants exercisable for 24,160 shares have an exercise price of $3.50, warrants exercisable for 40,000 shares have an exercise price of $3.75, warrants exercisable for 150,000 shares have an exercise price of $3.85, warrants exercisable for 24,160 shares have an exercise price of $4.00, warrants exercisable for 75,000 shares have an exercise price of $4.50 and warrants exercisable for 10,000 shares have an exercise price of $6.00.

F-32

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 13 Warrants (continued)
 
The fair value weighted average of the exercise price of the warrants is $1.15. The weighted average exercise price for all outstanding warrants as of September 30, 2006 is $1.15 and the weighted average remaining contractual life of warrants outstanding is 3.8 years. The table below summarizes warrants outstanding as of September 30, 2006:
 
 
 
 
WARRANTS
 
WEIGHTED AVERAGE EXERCISE PRICE
 
 
 
 
 
 
 
Granted
 
 
1,193,120
 
$
1.15
 
Exercised
 
 
 
 
 
Canceled
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants outstanding and
 
 
 
 
 
 
 
exercisable at
 
 
 
 
 
 
 
September 30, 2005
 
 
1,193,120
 
$
1.15
 
 
 
 
 
 
 
 
 
Granted
 
 
15,442,603
 
$
1.15
 
Exercised
 
 
 
 
 
Canceled
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrants outstanding and
 
 
 
 
 
 
 
Exercisable at
 
 
 
 
 
 
 
September 30, 2006
 
 
16,635,723
 
$
1.15
 
 
NOTE 14 OPTIONS

In September 2005, the Company’s Board of Directors adopted the 2005 Equity Incentive Plan (the “2005 Plan”), pursuant to which up to 12,000,000 shares of common stock may be issued to officers, employees, non-employee directors, and consultants either through the award of restricted stock or through the exercise of grants of incentive stock options or nonqualified stock options. The exercise price of an option granted under the 2005 Plan generally may not be less than the fair market value of the Company’s common stock on the date of grant. Subject to the terms of the 2005 Plan, the Board of Directors is authorized to select optionees and to determine the number of shares covered by each option, its exercise price, a vesting schedule, and certain other terms.

F-33

TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
Note 14 Options (continued)
 
The fair value weighted average of the exercise price of the options outstanding as of September 30, 2006, is $2.67. The weighted average exercise price for all outstanding options as of September 30, 2006 is $2.67 and the weighted average remaining contractual life of warrants outstanding is 2.6 years. The table below summarizes options outstanding as of September 30, 2006:
 
 
 
Shares
 
Option Price Per Share
 
 
 
 
 
 
 
Options outstanding - September 30, 2004
 
 
600,000
 
$
0.50-$3.50
 
Granted
 
 
2,252,500
 
$
2.91-$3.50
 
Canceled
 
 
 
 
 
Exercised
 
 
 
 
 
 
 
 
 
 
 
 
 
Options outstanding - September 30, 2005
 
 
2,852,500
 
$
0.50-$3.50
 
Granted
 
 
1,365,000
 
$
1.62-$2.62
 
Canceled
 
 
(50,000
)
 
2.91
 
Exercised
 
 
(5,000
)
 
2.91
 
Options outstanding - September 30, 2006
 
 
4,162,500
 
$
0.50-$2.91
 
Options exercisable- September 30, 2006
 
 
1,693,425
 
$
0.50-$2.91
 
 
NOTE 15 FOREIGN SALES

During the year ended September 30, 2006, sales by region were broken down as follows:

US
91%
Europe
6%
Others
3%
 
F-34

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
 
NOTE 16 EMPLOYMENT AGREEMENTS

The Company has employment agreements with several of its key employees. The agreements are for terms of three years and are automatically extended unless the Company notifies the employee in writing 30 days prior to the anniversary date that the agreement will not be extended.
 
Each agreement calls for a base salary, which may be adjusted annually at the discretion of the Company's Compensation Committee of the Company’s Board of Directors, and also provides for the employee’s eligibility to participate in the Company’s benefit plans and incentive bonuses which are payable based upon the attainment of certain profitability goals. Among other provisions, the agreements include a non-compete clause for varying periods not exceeding three years following termination of employment.

The aggregate commitment for future salaries as of September 30, 2006 excluding bonuses and benefits is as follows:

Fiscal year ending September 30,

2007
 
$
829,667
2008
 
$
260,000
2009
 
$
66,667
NOTE 17 CAPITAL LEASE OBLIGATIONS

The Company leases a phone system under a capital lease. The lease calls for monthly payments of $1,463, has a length of 3 years with an interest rate of 10.58%

Future minimum lease payments are as follows:  
 
 
 
 
Year Ended
 
 
 
 
September 30
 
 
 
 
2007
 
 
 
$
14,109
 
 
 
 
 
 
less interest portion
 
 
442
 
 
 
 
 
 
Present value of net minimum lease payments
 
 
13,667
 
Less current portion
 
 
13,667
 
 
 
 
 
 
 
 
$
0
 
 
F-35

 
TechnoConcepts, Inc.
And Subsidiaries
Notes to Financial Statements
September 30, 2006
NOTE 18 SUBSEQUENT EVENTS

Separation and Release Agreement

In December 2006, the Company entered into a separation and release agreement with Richard T. Hines Consulting (“RTH Consulting”) and its principal, who was then serving as a member of the Company’s board of directors. Among other provisions, the agreement provides for the release of the Company’s obligations under a consulting agreement, entered into August 2004, under which RTH Consulting was to perform consulting services and strategic marketing to government and international agencies with general assistance in support of marketing the products of the Company for 18 months in exchange for $10,000 per month, plus options to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $5.75 per share. In addition, Mr. Hines resigned as a director, received a one-time payment of $108,691 and retained the ability to exercise previously granted options for the purchase of 90,000 shares of the Company’s common stock.

F-36

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  FINANCIAL DISCLOSURE

Not applicable
 
ITEM 8A. CONTROLS AND PROCEDURES 

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) that are designed to ensure that material information relating to the Company, and its consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding the required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Evaluation of disclosure controls and procedures

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year covered by this report.

Based on the foregoing, our chief executive officer and chief financial officer have concluded that, for the reasons set forth below, our disclosure controls and procedures were not adequate to ensure that the information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
 
Management’s annual report on internal control over financial reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“US GAAP”). Our internal control over financial reporting includes those policies and procedures that:
 
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is (i) a significant deficiency or (ii) a combination of significant deficiencies, which result(s) in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of their assigned functions. The terms “material weakness” and “significant deficiency” are used here as defined in the Public Company Accounting Oversight Board’s (PCAOB) Auditing Standard No. 2.
 
Our chief executive officer and chief financial officer conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2006, as required by Exchange Act Rule 13a-15(c). Our management’s evaluation and assessment of our internal control over financial reporting identified the following three material weaknesses.
 
 
(1)
As of March 31, 2004, our management did not have an accurate and complete understanding of US GAAP to properly record consultancy expenses associated with the issuance of the Company’s common stock. Consultancy expenses should have been recorded in the quarterly period in which the Company agreed to issue shares of its common stock in consideration for the related consulting services. As a result of this deficiency in our internal control over financial reporting, we have corrected the accounting as described in the notes to the consolidated financial statements appearing elsewhere in this Annual Report.
 
 
(2)
As of September 30, 2005, our management did not have an accurate and complete understanding of US GAAP to properly adjust the initial valuation of trademarks and expired provisional patents acquired in connection with the Company’s acquisition of TechnoConcepts, Inc., a Nevada corporation (“TCI Nevada”) in February 2004. At the time of the initial valuation of these assets, management should have recognized that the subject of the trademarks had no “brand” value and that the technology underlying the provisional patents was effectively part of an ongoing research and development effort at the time of their acquisition. As a result of this deficiency in our internal control over financial reporting, we were required to restate our consolidated financial statements as described in the notes to the consolidated financial statements appearing elsewhere in this annual report on Form 10-KSB.
  
24

 
 
(3)
As of September 30, 2005, our management did not have an adequate system for the operating unit’s management to recognize the declining trend of sales as of September 30, 2005, and to enable us to determine that the carrying amount of the operating unit’s goodwill exceeded the implied fair value of that goodwill by a greater amount. As a result of this deficiency in our internal control over financial reporting, we did not recognize the proper impairment loss for the period ending September 30, 2005. As a result of this deficiency in our internal control over financial reporting, we were required to restate our consolidated financial statements as described in the notes to the consolidated financial statements appearing elsewhere in this Annual Report.

Changes in internal control over financial reporting
 
We engaged a third-party accounting firm, Squar, Milner, Miranda & Williamson LLP, to assist the Company in its determination of the appropriate interpretation and application of US GAAP related to accounting for assets acquired in a business combination to be used in research and development activities, goodwill and other intangible assets. We are in the process of restructuring and reorganizing the operating unit’s management to ensure, among other things, early recognition and reporting of sales trends to management.
 
Other than as set forth above, there were no changes in our internal control over financial reporting during the year ended September 30, 2006, or subsequently, that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 8B. OTHER INFORMATION 

None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
The following table sets forth the names, ages and offices of our current executive officers and directors.
Name
  Age
Position
Antonio E. Turgeon
57
Chairman/CEO and Director
 
 
 
Dr. Feng Yuh Juang
53
Vice Chairman and Director
 
 
 
Ronald M. Hickling
47
Chief Technology Officer and Director
 
 
 
Michael Handelman
47
Chief Financial Officer
 
 
 
Eric Pommer
55
Vice President and General Counsel
 
 
 
Richard Hines
56
Director (1)
 
 
 
Michael Ussery
54
Director
 
 
 
George Lange
66
Director
 
 
 
John Mansfield
59
Director


25

 
(1)
In December 2006, the Company entered into a separation and release agreement with Richard T. Hines Consulting (“RTH Consulting”) and its principal, who was serving as a member of the Company’s board of directors. Among other conditions, the agreement provides for a consulting agreement between the Company and RTH Consulting whereby RTH Consulting would provide consulting services to the Company for 18 months in exchange for $10,000 per month plus option to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $5.75 per share. In addition, Mr. Hines resigned as a director, received a one-time payment of $108,691 and retained the ability to exercise previously granted options for the purchase of 90,000 shares of the Company’s common stock.
 
(2)
The following is a biographical summary of the business experience of our present directors and executive officers:

Antonio E. Turgeon , Chairman and CEO, age 57, has served the Company since February 18, 2004 and prior to such date served in a similar position with TCI Nevada from April 2003 until TCI Nevada’s acquisition by the Company on February 18, 2004. Mr. Turgeon has 30 years of international and domestic experience in computer and communications systems, software technology and applications services. Prior to joining TechnoConcepts, he was a principal in The Sunrise Group, a consulting firm that provided business development services to early stage high-tech companies. From 1994 to 1999 he served as an advisor to a Scandinavian-based venture capital firm, as well as executive vice president for Dolphin Interconnect Solutions, Inc., a portfolio company designing Gigabyte hardware interconnect and software technology for the high-availability, scalable, server clustering market. He was a founder and served as president and CEO of SOTA Electronics Inc. from 1988 to 1994, a company that designed communications security products and the world’s first PC managed universal applications Smartcard. From 1978 to 1988 he was president of Digital Applications Corporation, a company he founded to develop software and hardware applications for the aerospace industry. Mr. Turgeon holds a B.A. in Mathematics form the University of California, Los Angeles, an M.S. in Computer Science from West Coast University and completed coursework requirements for an M.S. in Applied Mathematics.

Dr. Feng Yuh (Richard) Juang, Vice Chairman, age 53, has served the Company since February 18, 2004. Dr. Juang received his Ph.D. in electrical engineering from the University of Michigan in Ann Arbor, his M.S. in Institute of Applied Physics at Chung-Yuan University in Taiwan and a B.S. in electronic engineering from Tamkang University, also in Taiwan. He has significant expertise in engineering, specifically in the areas of ultra high speed device design and development; high performance optical modulation and switching devices; 100GHz Modulation Doped FET design and development; low noise microwave amplifier; and wireless communications devices to the board. He has published more than 50 scientific articles in electronics, engineering and communications industry publications. Dr Jaung is the director of Ahoku Electronic Company in Taipei, Taiwan, ROC, an advisor for AceNet Technology, Inc. in Shenzhen, China, president of Rich Capital Group, of Fremont, California and the Vice President of Business Development at NeoAxiom Corporation, San Jose, California. He previously served as Vice President of Business Development at Acute Communications Corp. both in the U.S. and Taiwan. Prior to that he was Vice President of marketing and sales at Acer NeWeb Corp., Satellite Communications Department Manager at Microelectronic Technology Inc., head of the solid state electronic device department at Chung-Shan Institute of Science and Technology and Associate Professor at the Institute of Applied Physics, Chung-Yuan University.

26

 
Ronald M. Hickling, age 47, has served as the Company’s chief technology officer and as a director since November 2004. Mr. Hickling is the inventor of True Software Radio™ and founded the entity in 1991 that initially developed the Company’s True Software Radio™ technology. He was responsible for securing more than $1.1 million in Federal SBIR funds to develop the key technology elements of the Company’s True Software Radio™ products. He holds a master of science in electrical engineering from UCLA. He has more than 20 years of experience in communications systems and integrated circuits related to communications for U.S. defense and commercial contractors. Beginning in 1980, Mr. Hickling began his career with Hughes Space and Communications, a Hughes Aircraft company, developing circuits for satellite communications. In this capacity he developed customer integrated circuits using silicon CMOS (Complementary Metal-Oxide Semiconductor) and Bipolar technology, and actively participated in the early research and development efforts of using Gallium Arsenide (GaAs) digital circuits in spacecraft. During his tenure at Hughes, Mr. Hickling was appointed Group Head, in leading research projects, for GaAs digital circuits. Additional projects included Intelsat VI, Magellan, and Navstar/GPS and he also contributed to the Very High Speed Integrated Circuit Program (VHSIC). In 1984 he left Hughes to pursue commercial ventures. He joined start up Gigabit Logic in 1984 and headed development teams on numerous mixed-signal communications projects. He was involved in collaboration development efforts with contract clients such as DEC, Rockwell-Collins, Bell Communications Research and others. He has been awarded three patents and currently has two patents pending. He has published in numerous industry journals and is a member of the IEEE and Tau Beta Pi.

Michael Handelman, age 47, has served as the Company’s chief financial officer since November 2004. He has over 23 years of financial management experience. Prior to joining the Company, he held various senior executive positions for several publicly traded companies. He was chief financial officer and chief operating officer of Global Business Services, Inc., a publicly traded retail postal and business services company. Earlier, he was chief financial officer of Interglobal Waste Management Inc., a publicly traded manufacturing company in Camarillo, CA; vice president and chief financial officer of Janex International, a $32 million publicly traded children’s toy manufacturer; and vice president and chief financial officer of the Los Angeles Kings, a $45 million National Hockey League franchise. Mr. Handelman is a Certified Public Accountant and holds a B.S. in Accounting from the City University of New York.
 
Eric Pommer, age 55, has served as the General Counsel and Secretary of the Company since April 2005. He has over 25 years engaged in the management of various high-tech companies. Mr. Pommer received an MS in Systems Management from USC in 1989, a JD from Thomas Jefferson School of Law in 1977, and a BA from Pomona College in 1973. He is a member of the faculty of the Southern California Institute of Law. He has had directorships in several companies, including Geo InSight International, Broadband Telecom, and Pacific Investment Bank. He directly managed both RDT&E hardware projects and software development programs for such companies as Geo InSight International, Abex Aerospace, and Martin Marietta Aerospace. Mr. Pommer has been directly involved in management, operations, process design, strategic planning, regulatory compliance, employment relations, commercial transactions, and government contracts. In 1993, as outside counsel, Mr. Pommer negotiated the initial protection for the TechnoConcepts intellectual property.

Richard Hines, age 56, served as a director of the Company since December 2004 until December 2006. Prior to this, he served as an elected official in the South Carolina House of Representatives. He held various executive positions in the Reagan Administration in executive branch agencies such as the U.S. Department of Transportation and Interstate Commerce Commission. In the U.S. General Services Administration, he was the principal interface for the agency in charge of business and industry relations, as well as a catalyst for reform for acquisition policies within the government. After leaving the public sector, he became Vice-President of Electronic Data Systems, a billion dollar corporation with over 60,000 employees, where he was responsible for U.S. Government sales. He combined his talent and experience in the private and public sectors to form RTH Consulting in 1997. His history of political activism was, most recently, extended to aid the campaign of President Bush in the South Carolina Primary of the 2000 Presidential election. He continues to be involved in local, regional, and federal politics and has an active voice in the current Bush Administration. In April of this year, he participated in the Government Roundtable in Athens, Greece, where he spoke alongside former President Bush, Mikhail Gorbachev, and other European leaders, as well as prominent businessmen.    

27

 
Michael Ussery , age 54, has served as a director of the Company since August 2004. Prior to this he worked as an international public affairs advisor and business developer with extensive investments and financing experience in Eastern Europe. He is a former U.S. Ambassador to Morocco who has international private sector experience in marketing, negotiations, strategic planning, and project development; he held his title from 1988 thru 1992. In government he has held senior positions during the Libya conflict, Gulf War, Afghan War, and Mid-East peace process. Mr. Ussery has worked for more than 35 countries, and in the past decade he has worked with more than (60) companies and organizations including numerous Fortune 500 and top international corporations, and has advised foreign governments. Mr. Ussery has been a founder of five companies and two non-profit organizations, and is a veteran of seven presidential and congressional campaigns. He was a national fund raising Vice Chairman, policy contributor and Arkansas field manager of the 2000 Bush - Chaney Campaign. Mr. Ussery serves as a Co-Founder and chairs the Advisory Board of the Romania Moldova Direct Fund, and in Bulgaria he is a recent Co-Founder of InfoMed and Netcare Bulgaria. Appointed by the Virginia Governor, Mr. Ussery is one of seven Commissioners of Vint Hill Economic Development Authority, responsible for converting a U.S. military base into a commercial and residential development. In the field of education, Mr. Ussery is President and CEO of the Coordinating Council for The International University, a non- profit organization creating American higher education in developing countries. He has served on the Advisory Board and spoken at numerous prestigious colleges and universities across the U.S. including Yale, the University of South Carolina, VMI, the George Mason University and Newberry College.

George Lange, age 66, has served as a director of the Company since February 17, 2004. He also has been a Co-Founder of various companies, a business consultant and electronic engineer within aerospace, defense, and the consumer product industry. His multi-discipline experience covers product and business development, circuit and systems design engineer and operations and organizational staffing. He has assisted with company start-up activities, mergers and acquisitions, restructurings and fundings and has performed in an executive capacity. Clients have been diverse in size and types; Fortune 500 companies, individual inventors, and foreign businesses, including the Ford Motor Company Corporate offices, Control Data Corporation, Hughes Aircraft Company, Lockheed Corporation, Litton Industries, Plantronics Corporation, Teledyne Corporation, Coopers and Lybrand, JJ Barnicke, Bendix Electrodynamics and Ramo Corporation. He attended both Northrop Institute of Technology and the University of California at Los Angeles. He is involved in civic and community service activities applying his business skills to his elected government position appointments to City, County and State Agency Boards and various non-profit Organization Boards of Directors.

John Mansfield, age 59, has served as a director of the Company since February 17, 2004. He has earned valuable experience in several industries, including heavy equipment, property development and building, medical information technology and management, insurance, and financial advisory services. He operates Axis Capital LLC, a Georgia-based company that specializes in advisory services for companies in transition, including start-ups, turnarounds, new growth initiatives and mergers and acquisitions. He has assisted with strategic planning, business plan development, financial structuring and re-structuring for such conglomerates as JMJ Technologies, Admiralty Corporation, Accent Mortgage Corporation, and AlumniWorldwide.com, and many others. His history includes seven years in sales and marketing, including Director of Sales and Marketing for an international heavy equipment manufacturer, followed by 18 years operating businesses in land development and property management, including involvement in numerous syndicated investment transactions. He served for seven years as a Director of the Ontario (Canada) New Home Warranty Corporation and was a member of its executive committee and chairman of its audit committee. Following his board term, he was retained by the Corporation to perform advisory services. He currently serves as a Director of a publicly traded healthcare management company, American HealthChoice, and is chairman of its audit committee. Mr. Mansfield is a graduate of Wilfred Laurier University, Waterloo, Ontario, Canada.

Significant Employees

John Hwang, Member of the Office of the Chairman and Vice President of Business Development, began his career in the high tech industry as Vice President of Sales and Corporate Manager at Samsung America, Inc., where he helped Samsung to become number one in market share in monitors worldwide. He then was president of a number of other entrepreneurial high-tech companies, with successful sales increases achieved at each. Mr. Hwang earned his BS degree in economics from Rutgers University in 1985.

28

 
Dr. Oleg Panfilov, Chief Scientific Officer, received his Ph.D. degree from the Moscow Institute of Long Radio Communication in 1971 (Russia). Working in the fields of signal and data processing Dr. Panfilov held different positions from engineer to the director of laboratory. Since his immigration to the United States in 1979 he has worked as a senior math analyst in Bedford Research Associates, as a research scientist and staff engineer in Unisys Corporation, a senior consulting analyst in NCR, a distinguished member of technical staff in Motorola and as an independent consultant in the system design of Doppler radars, computer systems and networks as well as in wireless communication systems. Dr. Panfilov has devoted a considerable portion of his professional career to identifying prospective technologies providing the highest return on investments. The results of his research and findings have been published in over forty domestic and international publications and he is a frequent lecturer at international conferences on high performance computer systems, networks and communication systems.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon our review of Forms 3, 4 and 5 and amendments thereto furnished to us under Rule 16a-3(e) of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”) during the fiscal year ended September 30, 2006 and written representations received by us pursuant to Securities and Exchange Commission rules, none of our directors, officers, or any beneficial owner of more than 10 percent of any class of our equity securities failed to file, on a timely basis, any reports required by Section 16(a) of the Securities Exchange Act.
 
Director Independence

The Board believes that the interests of its shareholders are best served by having at least a majority of objective independent representatives on the Board.

In determining independence, the Board applies the standards established by the Nasdaq Stock Market. In conjunction with this report, the Board has evaluated all relationships between each director, and the Company and has made the following determinations with respect to the “independence” of each director:
 
Director
 
Status
Antonio Turgeon
 
Not independent
 
 
 
Dr. Feng Yuh Juang
 
Not independent
 
 
 
Richard Hines
 
Not Independent
 
 
 
Ronald Hickling
 
Not Independent
 
 
 
Michael Ussery
 
Independent
 
 
 
George Lange
 
Independent
 
 
 
John Mansfield
 
Independent

29

 
Based on the foregoing analysis, it was determined that a majority of our directors are not “independent” directors under the standards established by Nasdaq. The Company intends to take steps to appoint additional independent directors to our Board of Directors as soon as it is able to do so.

The Board will continually monitor the standards established for director independence under applicable law or listing requirements and will take all reasonable steps to assure compliance with those standards.
 
Committees of the Board

In order to facilitate the various functions of our Board of Directors, in February 2004, the Board created a standing Audit Committee and a standing Corporate Governance/Nominating Committee.

Audit Committee. The Audit Committee operates pursuant to a written charter that was adopted in February 2004. Under its charter, the Audit Committee is given the sole authority and responsibility for the appointment, retention, compensation and oversight of our independent auditors, including pre-approval of all audit and non-audit services to be performed by our independent auditors. The Board has determined that John Mansfield, the chairman of the Company’s Audit Committee, meets the Securities and Exchange Commission criteria of an audit committee financial expert.

Corporate Governance/Nominating Committee. The Corporate Governance/Nominating Committee is responsible for implementing and carrying out appropriate processes by which nominees for election as directors are selected.

Committee assignments are re-evaluated annually and approved by our Board of Directors at its annual meeting that follows the annual meeting of stockholders.

Board Meetings and Executive Sessions

During the year ended September 30, 2006, our Board of Directors held four formal meetings.

By resolution adopted by our Board of Directors, commencing in 2004, the non-management members of the Board will meet on a regular basis, not less than twice annually, in executive session without management present. Executive sessions are to be led by a “Lead Director” designated by the non-management directors. An executive session is held in conjunction with each regularly scheduled Board meeting and other sessions may be called by the Lead Director in his or her own discretion or at the request of the Board.

Nomination of Directors

In assessing potential director nominees, the Corporate Governance/Nominating Committee is expected to look for candidates who possess a wide range of experience, skills, areas of expertise, knowledge and business judgment, high integrity and demonstrated superior performance or accomplishments in his or her professional undertakings. The Corporate Governance/Nominating Committee may utilize the services of a search firm to help identify candidates for director who meet the qualifications outlined above.

The Board will also consider for nomination as a director qualified candidates suggested by our shareholders. Shareholders can suggest qualified candidates for nomination as a director by writing to our corporate secretary at 6060 Sepulveda Blvd., Suite 202, Van Nuys, CA 91411. Submissions that are received that meet the criteria outlined above are forwarded to the Corporate Governance/Nominating Committee for further review and consideration.

Codes of Ethics

In February 2004, our Board of Directors adopted a Code of Business Ethics covering all officers, directors and employees. We require all employees to adhere to the Code of Business Ethics in addressing legal and ethical issues encountered in conducting their work. The Code of Business Ethics requires that our employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. All of our employees are required to certify that they have reviewed and understand the Code of Business Ethics.

30

 
In April 2004, our Board of Directors also adopted a separate Code of Business Ethics for our CEO and senior financial officers. This Code of Ethics supplements our general Code of Business Ethics and is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters. Any person wishing to receive, without charge, a copy of such code of ethics, should request the same by writing to our corporate secretary at 6060 Sepulveda Blvd., Suite 202, Van Nuys, CA 91411.

Contacting the Board

Any shareholder who desires to contact our Lead Director or the other members of our Board of Directors may do so by writing to: Board of Directors, TechnoConcepts, Inc. 6060 Sepulveda Blvd., Suite 202, Van Nuys, CA 91411. Communications received electronically or in writing are distributed to the Lead Director or the other members of the Board as appropriate depending on the facts and circumstances outlined in the communication received. For example, if any complaints regarding accounting, internal accounting controls and auditing matters are received, then they will be forwarded to the Chairman of the Audit Committee for review.

Compensation Committee Interlocks and Insider Participation

None of our executive officers served during 2006 as a member of our Board of Directors or compensation committee of any entity that has had one or more executive officers who served as a member of our Board of Directors or Compensation Committee.
 
ITEM 10. EXECUTIVE COMPENSATION

Compensation of Executive Officers

During the period beginning February 17, 2004, the date upon which the Exchange was consummated and ending September 30, 2004, no salary or any other compensation was paid to the Company’s Chief Executive Officer or any officer or employee of the Company for the services provided to us. During the Company’s fiscal year ending September 30, 2007, Antonio E. Turgeon, our President and Chief Executive Officer, will be paid a base salary of $240,000, Ronald M. Hickling, our Chief Technology Officer, will be paid a base salary of $168,000, Michael Handelman, our Chief Financial Officer, will be paid a base salary of $200,000, Eric Pommer, our Vice President and General counsel, will be paid a base salary of $125,000 and Dr. Feng Yuh Juang, our Vice Chairman, will be paid a base salary of $120,000.
Summary Compensation Table
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Compensation
 
 
 
 
 
Name and
Principal Position
 
Year
 
Salary
 
Bonus
 
Other
Annual
Compensation
 
All Other
Compensation
 
Antonio Turgeon ,
Chairman and
Chief Executive Officer
 
 
2006
2005
 
$
$
240,000
180,000
 
$
$
0
0
 
$
$
0
0
 
$
$
0
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ron Hickling ,
 
Chief Technology Officer
 
 
2006
2005
 
$
$
154,000
105,000
 
$
$
0
0
 
$
$
0
0
 
$
$
0
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Michael Handelman ,
Chief Financial
Officer
 
 
2006
2005
 
$
$
127,500
93,750
 
$
$
0
0
 
$
$
0
0
 
$
$
0
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dr Feng Yuh Juang ,
 
Vice Chairman
 
 
 
2006
2005
 
$
$
120,000
90,000
 
$
$
0
0
 
$
$
0
0
 
$
$
0
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eric Pommer ,
 
Vice President and General Counsel
 
 
2006
2005
 
$
$
125,000
81,667
 
$
$
0
0
 
$
$
0
0
 
$
$
0
0
 
 

31

 
Employment Contracts

As of September 30, 2006, we had a three year employment contract with Antonio Turgeon commencing on January 1, 2005 at an annual salary of $240,000. The Company also has a three year employment contract with Richard Juang commencing on January 1, 2005 at an annual salary of $120,000, and Ron Hickling commencing on January 1, 2005 at an annual salary of $140,000 that has been increased to $168,000 annually.

Compensation of Directors

Commencing in April 2004, each director who is not an employee is paid (1) an annual fee of $20,000, payable in quarterly installments, (2) $1,000 per day per meeting, including one travel day for each meeting for out-of-state directors, and (3) out-of-pocket expenses. The Company has also agreed to grant each non-employee director options to purchase 50,000 shares of our common stock upon the Company’s establishment of an option plan and 20,000 options following each subsequent shareholders meeting after which the director continues to serve. In addition, each non-employee director is paid $500 per meeting for each committee meeting attended. The Chair of the Audit Committee is paid an annual fee of $7,500. Other committee chairs are paid an annual fee of $1,000.

Equity Compensation Plan Information

In September 2005, the Company’s Board of Directors adopted the 2005 Equity Incentive Plan (the “2005 Plan”), pursuant to which up to 12,000,000 shares of common stock may be issued to officers, employees, non-employee directors, and consultants either through the award of restricted stock or through the exercise of incentive stock options or nonqualified stock options granted under the 2005 Plan. The exercise price of an option granted under the 2005 Plan generally may not be less than the fair market value of the Company’s common stock on the date of grant. Subject to the terms of the 2005 Plan, our Board of Directors is authorized to select optionees and to determine the number of shares covered by each option, its exercise price, a vesting schedule, and certain other terms.
 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS

The following tables sets forth information as of January 14, 2007, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of our common stock, Series A preferred stock, Series B preferred stock and Series B-1 preferred stock, respectively, held by (i) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, Series A preferred stock, Series B preferred stock and Series B-1 preferred stock, as applicable (ii) each director, (iii) each named executive officer, and (iv) all executive officers and directors as a group:

32

 
Common Stock
 
Name and Address of Beneficial Owner (1)
 
Number of
Shares
Beneficially Held
 
Percent of Class
Beneficially Held (2)
 
Directors and Officers
 
 
 
 
 
Antonio E. Turgeon (3)
 
 
3,482,976
 
 
10.07
%
Dr. Feng Yuh Juang (3)
 
 
876,103
 
 
2.53
%
Ronald M Hickling (3)
 
 
0
 
 
0.00
%
Michael Handelman (3)
 
 
273,500
 
 
0.79
%
Richard Hines (3)
 
 
90,000
 
 
0.26
%
Michael Ussery (3)
 
 
90,000
 
 
0.26
%
George Lange (3)
 
 
95,000
 
 
0.26
%
John Mansfield (3)
 
 
90,000
 
 
0.26
%
Eric Pommer (3)
 
 
95,500
 
 
0.28
%
All directors and executive officers as a group (9 persons)
 
 
4,508,317
 
 
14.71
%
5% Shareholders
 
 
 
 
 
 
 
Fiber Optic Techno Inc.
 
 
1,970,000 
 
 
6.94 
 %
1220-1/2 State Street 93101
 
 
 
 
 
 
 
Santa Barbara, CA
 
 
 
 
 
 
 
____________
*   Less than 1%

(1)      
Unless otherwise indicated, each beneficial owner has both sole voting and sole investment power with respect to the shares beneficially owned by such person, entity or group. The number of shares shown as beneficially owned include all options, warrants and convertible securities held by such person, entity or group that are exercisable or convertible within 60 days of January 14, 2007.

(2)      
The percentages of beneficial ownership as to each person, entity or group assume the exercise or conversion of all options, warrants and convertible securities held by such person, entity or group which are exercisable or convertible within 60 days, but not the exercise or conversion of options, warrants and convertible securities held by others shown in the table.

(3)      
Address is c/o TechnoConcepts, Inc., 6060 Sepulveda Blvd., Suite 202, Van Nuys, CA 91411.
Series A preferred stock

Name and Address of Beneficial Owner (1)
 
Number of Shares
Beneficially Held
 
Percent of Class
Beneficially Held (2)
 
Directors and Officers
 
 
 
 
 
Antonio E. Turgeon (3)
 
 
2,700
 
 
16.88
%
All directors and executive officers as a group (8 persons)
 
 
2,700
 
 
16.88
%
5% Shareholders
 
 
 
 
 
 
 
Fiber Optic Techno Inc.
 
 
4,000 
 
 
25 
1220-1/2 State Street
 
 
 
 
 
 
 
Santa Barbara, CA 93101
 
 
 
 
 
 
 
               
Developmental Technology Corp.
 
 
1,500 
 
 
9.38 
 %
64 Sunset Drive
 
 
 
 
 
 
 
North Bennington, Vermont 05257
 
 
 
 
 
 
 
               
Lee Holdings, Inc.
 
 
2,050 
 
 
12.81 
 %
3650 Jewel Cave Dr.
 
 
 
 
 
 
 
Las Vegas, Nevada 89122
 
 
 
 
 
 
 
 

33

 
(1)      
Unless otherwise indicated, each beneficial owner has both sole voting and sole investment power with respect to the shares beneficially owned by such person, entity or group. The number of shares shown as beneficially owned include all options, warrants and convertible securities held by such person, entity or group that are exercisable or convertible within 60 days of January 14, 2007

(2)      
The percentages of beneficial ownership as to each person, entity or group assume the exercise or conversion of all options, warrants and convertible securities held by such person, entity or group which are exercisable or convertible within 60 days, but not the exercise or conversion of options, warrants and convertible securities held by others shown in the table.

(3)      
Address is c/o TechnoConcepts, Inc., 6060 Sepulveda Blvd., Suite 202, Van Nuys, CA 91411.
Series B preferred stock

Name and Address of Beneficial Owner (1)
 
Number of Shares
Beneficially Held
 
Percent of Class
Beneficially
Held (2)
 
Directors and Officers
 
 
 
 
 
All directors and executive officers as a group (8 persons)
 
 
0
 
 
0
%
5% Shareholders
 
 
 
 
 
 
 
Triumph Research Partners, LLC
 
 
800 
 
 
 100
%
48 South Service Road
 
 
 
 
 
 
 
Melville, NY 11747
 
 
 
 
 
 
 
____________
 
(1)      
Unless otherwise indicated, each beneficial owner has both sole voting and sole investment power with respect to the shares beneficially owned by such person, entity or group. The number of shares shown as beneficially owned include all options, warrants and convertible securities held by such person, entity or group that are exercisable or convertible within 60 days of January 14, 2007

(2)      
The percentages of beneficial ownership as to each person, entity or group assume the exercise or conversion of all options, warrants and convertible securities held by such person, entity or group which are exercisable or convertible within 60 days, but not the exercise or conversion of options, warrants and convertible securities held by others shown in the table.
 
Series B-1 preferred stock

Name and Address of Beneficial Owner (1)
 
Number of Shares
Beneficially Held
 
Percent of Class
Beneficially
Held (2)
 
Directors and Officers
 
 
 
 
 
All directors and executive officers as a group (8 persons)
 
 
0
 
 
0
%
5% Shareholders
 
 
 
 
 
 
 
Triumph Research Partners, LLC
 
 
1,768
 
 
 80
%
48 South Service Road
 
 
 
 
 
 
 
Melville, NY 11747
 
 
 
 
 
 
 
Mirus Capital Management Ltd.
 
 
220
 
 
 10
%
CH-6422 Steinen
 
 
 
 
 
 
 
Switzerland
 
 
 
 
 
 
 
SDS Capital
 
 
195
 
 
9
%
53 Forest Ave Second Floor
 
 
 
 
 
 
 
Old Greenwich, CT. 06870
 
 
 
 
 
 
 
____________
 
(1)      
Unless otherwise indicated, each beneficial owner has both sole voting and sole investment power with respect to the shares beneficially owned by such person, entity or group. The number of shares shown as beneficially owned include all options, warrants and convertible securities held by such person, entity or group that are exercisable or convertible within 60 days of January 14, 2007

(2)      
The percentages of beneficial ownership as to each person, entity or group assume the exercise or conversion of all options, warrants and convertible securities held by such person, entity or group which are exercisable or convertible within 60 days, but not the exercise or conversion of options, warrants and convertible securities held by others shown in the table.

34

 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In December 2006, the Company entered into a separation and release agreement with Richard T. Hines Consulting (“RTH Consulting”) and its principal, who was then serving as a member of the Company’s board of directors. Among other provisions, the agreement provides for the release of the Company’s obligations under a consulting agreement entered into August 2004, under which RTH Consulting was to perform consulting services and strategic marketing to government and international agencies with general assistance in support of marketing the products of the Company for 18 months in exchange for $10,000 per month, plus options to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $5.75 per share. In addition, Mr. Hines resigned as a director, received a one-time payment of $108,691 and retained the ability to exercise previously granted options for the purchase of 90,000 shares of the Company’s common stock.
 
35

 
ITEM 13. EXHIBITS

Incorporated by reference
Exhibit
Number
 
Description of Exhibit
Filed
herewith
 
Form
Period
Ending
 
Exhibit
 
Filing Date
             
2.1
Agreement and Plan of Merger, dated December 15, 2003, between Technology Consulting Partners Inc. and TechnoConcepts Inc., a Nevada corporation
 
8-K
 
2.1
2/18/04
             
2.2
Agreement and Plan of Acquisition Among Asante Technologies, Inc., and TechnoConcepts, Inc. and Asante Acquisition Corp., dated January 29, 2005
X
       
             
2.3
Earn-Out Agreement, dated February 25, 2005, among Asante Technologies Inc., the Company and Asante Acquisition Corp.
 
8-K
 
2.02
6/9/05
             
2.4
Agreement and Plan of Reorganization, dated August 31, 2005, between RegalTech, Inc. and Asante Acquisition Corp.
 
8-K
 
2.1
10/21/05
             
3.1
Restated Articles of Incorporation of the Company
 
10-KSB/A
9/30/04
3.1
5/2/05
             
3.1.1
Articles of Amendment to Articles of Incorporation of Technology Consulting Partners, Inc., filed with the Colorado Secretary of State on April 8, 2004
X
       
             
3.1.2
Certificate of Designations to the Restated Articles of Incorporation, as amended, setting forth the terms of the Company’s Series A preferred stock
 
10-KSB/A
9/30/04
3.1
5/2/05
             
3.1.3
Certificate of Designations to the Restated Articles of Incorporation, as amended, setting forth the terms of the Company’s Series B preferred stock
 
10-KSB
9/30/04
3.1
1/14/05
             
3.1.4
Amendment to the Restated Articles of Incorporation, as amended, Certificate of Designations setting forth the terms of the Company’s Series B-1 preferred stock and authorizing additional shares
X
       
             
3.1.5
Certificate of Designations to the Restated Articles of Incorporation, as amended, setting forth the terms of the Company’s Series C preferred stock
X
       
             
3.2
Bylaws of the Company
 
10-KSB/A
9/30/04
3.2
5/2/05
             
4.1
Specimen stock certificate for common stock of the Company
X
       
             
4.2
Form of 7% Secured Convertible Debentures
 
10-KSB
9/30/04
4.1
1/14/05
             
4.3
Form of Warrant to purchase shares of the Company’s common stock issued and sold in conjunction with the 7% Secured Convertible Debentures
 
10-KSB
9/30/04
4.1
1/14/05
             
4.4
Form of Warrant to purchase shares of the Company’s common stock issued and sold in conjunction with the Company’s sale of 8% Promissory Notes from October 2005 through April 2006
X
       
             
4.5
Form of Warrant to purchase shares of the Company’s common stock issued and sold in conjunction with the Company’s sale of 8% Secured Subordinated Promissory Notes from May 2006 through December 2006
X
       
 
36

 
4.6
Warrant to purchase 100,000 shares of the Company’s common stock issued to Richstar Venture, Inc., a financial advisor, in June 2005
X
       
             
4.7
Warrant to purchase 75,000 shares of the Company’s common stock issued to Cyndel & Co. Inc., a financial advisor, in September 2005
X
       
             
4.8
Warrant to purchase 75,000 shares of the Company’s common stock issued to SDS Capital Group SPC, Ltd., in September 2005, in conjunction with the Company’s establishment of a credit facility
X
       
             
4.9
Warrant to purchase 75,000 shares of the Company’s common stock issued to Triumph Research Partners, in September 2005, in conjunction with the Company’s establishment of a credit facility
X
       
             
10.1
Subscription Escrow Agreement, among the Company and various investors
 
SB-2/A
 
10.1.1
8/28/02
             
10.2
Securities Purchase Agreement, dated November 17, 2004, among the Company and the investors in the Company’s 7% Secured Convertible Debentures and warrants exercisable for shares of the Company’s common stock
 
10-KSB
9/30/04
10.1.1
1/14/05
             
10.2.1
First Amendment to Securities Purchase Agreement, dated November 17, 2004, among the Company and the investors in the Company’s 7% Secured Convertible Debentures and warrants exercisable for shares of the Company’s common stock
 
10-KSB
9/30/04
10.1.2
1/14/05
             
10.3
Registration Rights Agreement, dated November 17, 2004, among the Company and the investors in the Company’s 7% Secured Convertible Debentures and warrants exercisable for shares of the Company’s common stock
 
10-KSB
9/30/04
10.2
1/14/05
             
10.4
Security Agreement, dated November 17, 2004, among the Company and the investors in the Company’s 7% Secured Convertible Debentures and warrants exercisable for shares of the Company’s common stock
 
10-KSB
9/30/04
10.3
1/14/05
             
10.5
Preferred Stock Purchase Agreement, dated November 17, 2004, between the Company and Triumph Research Partners LLC, pursuant to which the Company issued and sold 800 shares of its Series B preferred stock
 
10-KSB
9/30/04
10.4
1/14/05
             
10.6
Securities Purchase Agreement, dated November 17, 2005, among the Company and the investors in an aggregate of 2,203 shares of the Company’s Series B-1 preferred stock
X
       
             
10.7
Note Purchase Agreement, dated August 2, 2006, between the Company and the investors in an aggregate for up to $1,000,000 in subordinated convertible promissory notes
X
       
             
10.8
Note Purchase Agreement, dated May 2006 through November 2006, between the Company and the investors in an aggregate for up to $10,000,000 in Series A secured subordinated promissory notes
X
       
             
10.9
Employment Agreement, dated as of December 22, 2004, between the Company and Antonio Turgeon
X
       
             
10.10
Employment Agreement, dated as of September 15, 2004, between the Company and Dr. Feng Yuh (Richard) Juang
X
       
 
37

 
10.11
Employment Agreement, dated as of September 25, 2004, between the Company and Ronald M. Hickling
X
       
             
10.12
Executive Employee Agreement, dated January 24, 2007, between the Company and Richard Hahn
 
8-K
 
10.1
1/30/07
             
10.13
Confidentiality and Inventor’s Assignment Agreement, dated January 24, 2007, between the Company and Richard Hahn
 
8-K
 
10.1
1/30/07
             
10.14
Consulting Agreement, dated July 19, 2004, between the Company and Richard T. Hines
 
10-KSB/A
9/30/04
10.6
5/2/05
             
10.15
Separation and Release Agreement, dated December 7, 2006, among the Company, Richard T. Hines and Richard T. Hines Consulting, Inc.
 
8-K
 
10.1
12/14/06
             
10.16
The Company’s 2005 Equity Incentive Plan
X
       
             
10.17
Multi-Tenant Office Lease, dated December 20, 2004, between Electro Rent Corporation and the Company for the Company’s corporate headquarters at 6060 Sepulveda Blvd., Suite 202, Van Nuys, California 91411
X
       
             
10.17.1
Sublease, dated June 27, 2006, between Moon Mesa Media, LLC, and Sheryl Hardy (“sublessor”) and the Company for the premises at 14945 Ventura Boulevard, Suite 300, Sherman Oaks, California 91403
X
       
             
10.17.2
Office Building Lease, dated July 6, 2006, between JMA Trust, Michael Hirsh & Patricia Knapp and the Company for the premises at 2182 Dupont Drive, Irvine, California 92612
X
       
             
10.17.3
Lease Agreement, dated November 13, 2006, between Adaptec, Inc. and the Company for the premises at 673 South Milpitas Boulevard, Milpitas, California 95035
X
       
             
10.17.4
Lease Agreement, dated August 1, 2005, between Hong Kong Science & Technology Parks Corp. and the Company for the premises at the Innovation Center in Hong Kong Science Park in Hong Kong, China
X
       
             
10.17.5
English translation of Rental Agreement, dated June 20, 2006, between Joint Development Company of Hi-tech Park and China Jinshilin Techno Company Ltd. for the premises at the Technology Industry Building in Caohejing New Technology Development Zone, in Shanghai, China
X
       
             
14.1
The Company’s Code of Ethics for the Chief Financial Officer and Senior Financial Officers
 
10-KSB
9/30/04
10.4
1/14/05
             
21.1
Subsidiaries of the Company
 
SB-2/A
 
21
8/28/02
             
23.1
Consent of Seligson & Giannattasio, LLP
X
       
             
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
X
       
             
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
X
       
             
32
Rule 13a-14(b)/15d-14(b) Certification of Chief Executive Officer and Chief Financial Officer
X
       
 
38

 
Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the period covered by this report.
ITEM 14. 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 
 
2005 
 
 
 
 
 
Audit fees
 
 
53,015
 
Tax fees
 
 
756
 
All other fees
 
 
 
Total
 
 
53,771
 
 

 
2006
 
 
 
 
 
Audit fees
 
 
45,763
 
Tax fees
 
 
1,000
 
All other fees
 
 
 
Total
 
 
46,763
 
 
The Audit Committee developed a policy relating to the pre-approval of all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services.
 
39

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
TECHNOCONCEPTS, INC.
 
 
 
 
 
 
Dated: May 7, 2007
By:  
/s/ Antonio E. Turgeon
 
President and CEO
 
 
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures
 
Title
Date
/s/ Antonio E. Turgeon
 
Chairman of the Board, President and Chief Executive Office
 Principal Executive Officer
May 11, 2007
ANTONIO E. TURGEON
 
 
 
 
 
 
 
 
/s/ Michael Handelman
 
Chief Financial Officer and Principal Accounting and Financial
Officer
May 11, 2007
MICHAEL HANDELMAN
 
 
 
       
 
 
 Director
May 11, 2007
RONALD HICKLING
 
   
 
 
 
 
/s/ George Lange
 
Director
May 11, 2007
GEORGE LANGE
 
 
 
 
 
 
 
/s/ John Mansfield
 
Director
May 11, 2007
JOHN MANSFIELD
 
 
 
       
 
 
Director
May 11, 2007
DR. FENG YUH JUANG
 
   
 
 
 
 
 
 
Director
May 11, 2007
RICHARD HINES
 
 
 
 
 
 
 
/s/ Michael Ussery
 
Director
May 11, 2007
MICHAEL USSERY