10KSB/A 1 v065067_10ksba.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB
Amendment No. 1
(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
  11
 
 
 
 
 
 
ITEM 3.
LEGAL PROCEEDINGS
  12
 
 
 
 
 
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  12
 
 
 
 
PART II
 
 
 
 
 
 
 
 
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
  23
 
 
 
 
 
 
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  23
 
 
 
 
 
 
ITEM 8A.
CONTROLS AND PROCEDURES
  23
 
 
 
 
 
 
ITEM 8B.
OTHER INFORMATION
  24
 
 
 
 
 
PART III
 
 
 
 
 
 
 
 
ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON
  24
 
 
 
 
 
 
ITEM 10.
EXECUTIVE COMPENSATION
  30
 
 
 
 
 
 
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  31
 
 
 
 
 
 
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  34
 
 
 
   
 
ITEM 13.
EXHIBITS
  35
 
 
 
 
 
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  38
 
 
 
 
SIGNATURES
  39


 
 
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.
 
1



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 relationship 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.
 
Employees

As of September 30, 2006, the Company had 52 full-time employees and 3 independent contractors. We intend to recruit and hire qualified additional personnel as needed to execute our strategy. None of our current employees are represented by labor unions or are subject to collective bargaining agreements We believe that our relationship with our employees is excellent.
 
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.
 
6

 
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:

 
·
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.

 
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.
 
8


 
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.
 
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.  
 
11


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.
 
14


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).

15

 

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.

16

 
 
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.
 
17


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:

 
·
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

18

 
 
·
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:

 
·
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.
 
19

 
 
·
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.

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;
 
20

 

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

 
·
strategic business relationships 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 business relationships 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 business relationships 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 initiatives include:

 
·
strategic business relationships;

 
·
licensing arrangements; and

 
·
sales through distributors and OEMS.
 
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.

21

 

Results of Operations

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.
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.

22

 
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.
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, the related statements of operations, changes in shareholders’ deficit and cash flows for the periods ended September 30, 2006 and 2005. 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, and the result of its operations and its cash flows for the periods ended September 30, 2006 and 2005 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.

/s/ Seligson & Giannattasio, LLP
Seligson & Giannattasio, LLP
White Plains, NY
January 16, 2007

F-1

 
 
And Subsidiaries
Consolidated Balance Sheet  
 
 
 
September 30,
2006
 
ASSETS
 
 
 
Current assets:
     
Cash
 
$
932,690
 
Accounts receivable, net of allowance for doubtful
     
accounts of $60,632
   
197,863
 
Inventory, net of reserves of $444,000
   
244,114
 
Prepaid expenses
   
180,883
 
 
     
Total current assets
   
1,555,550
 
 
     
Fixed assets, net
   
979,868
 
 
     
Other assets:
     
Deposits
   
104,439
 
Debt issuance costs, net
   
9,226
 
 
     
Total assets
 
$
2,649,083
 
 
See accompanying notes to consolidated financial statements  
 
F-2

 
 
TechnoConcepts, Inc.
And Subsidiaries
Consolidated Balance Sheet

 
 
September 30,
 
 
 
2006
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
     
Convertible notes payable,
     
net of unamortized debt issuance costs of $68,899
 
$
1,181,101
 
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
 
Capital Leases payable
   
13,667
 
Accounts payable
   
2,956,876
 
Accrued expenses payable
   
1,975,902
 
Due to related parties
   
715,825
 
 
     
Total current liabilities
   
9,884,976
 
 
     
Minority interest
   
614,122
 
 
     
Shareholders' deficit:
     
Series A Preferred stock, no par value, 10,000,000
     
shares authorized, 16,000 shares
     
issued and outstanding
   
16
 
Series B Preferred, no par value, 3,100 authorized, 3,003
     
issued and outstanding,
   
7,505,506
 
Common stock, no par value, 100,000,000
     
shares authorized 28,376,734 shares
     
issued and outstanding
   
28,377
 
Additional paid-in capital
   
33,446,615
 
Accumulated deficit
   
(48,830,529
)
Total shareholders' deficit
   
(7,850,015
)
 
     
Total liabilities and shareholders' deficit
 
$
2,649,083
 
 
See accompanying notes to consolidated financial statements.

F-3

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

F-4

 
 
TechnoConcepts Inc.
And Subsidiaries
Comprehensive Statement of Shareholders’ Deficit
 
 
 
preferred stock
 
Common Stock
 
Paid-In
 
Subscriptions
 
Accumulated 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)
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(21,359,378
)
$
(23,912,139
)
Adjustments to reconcile net loss from operations to
             
net cash used in operating activities:
             
Depreciation
   
131,736
   
50,097
 
Amortization of debt costs
   
4,776,910
   
1,740,618
 
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
)
Accounts payable
   
793,038
   
97,456
 
Accrued expenses
   
122,326
   
728,258
 
 
             
Net cash flows from operating activities
   
(11,453,733
)
 
(5,785,144
)
 
             
Cash flows from investing activities:
             
Net Borrowings from related parties
   
452,127
   
(152,451
)
Acquisition of fixed assets
   
(728,079
)
 
(348,663
)
 
             
Net cash flows from investing activities
   
(275,952
)
 
(501,114
)
 
             
Cash flows from financing activities:
             
Proceeds from notes payable
   
7,310,365
   
4,525,000
 
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
 
 
             
Net change in cash and cash equivalents
   
742,021
   
124,111
 
Cash and cash equivalents, beginning of period
   
190,669
   
66,558
 
 
             
Cash and cash equivalents, end of period
 
$
932,690
 
$
190,669
 
 
             
Supplemental cash flow information:
             
Interest paid
 
$
 
$
 
Income taxes paid
 
$
800
 
$
800
 
 
             
Non-cash investing and financing activities
             
 
             
Shares issued for conversion of debt
   
518,108
   
1,233,625
 
 
See accompanying notes to consolidated financial statements.

F-6

 
 
TechnoConcepts, Inc.
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 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 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 at September 30, 2006 are comprised as follows:

Furniture and fixtures
 
$
271,469
 
Computer and office equipment
   
2,412,401
 
Computer Software
   
673,887
 
Leasehold improvements
   
248,228
 
 
   
3,605,985
 
Accumulated depreciation
   
2,626,117
 
 
 
$
979,868
 
 
Computer and office equipment under capital leases totaled $41,532.
 
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

Licenses
 
$
66,007
 
Consulting fees
   
53,789
 
Equipment rental
   
35,822
 
Inventory
   
13,237
 
Insurance
   
6,096
 
Other
   
5,932
 
 
 
$
180,883
 
 

Raw materials
 
$
94,755
 
Finished goods
   
593,359
 
 
   
688,114
 
Less: reserve for obsolescence
   
(444,000
)
 
 
$
244,114
 

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:
 
Loan Fees
 
$
285,000
 
Director Fees
   
50,000
 
Interest
   
801,557
 
Dividends
   
617,525
 
Commissions
   
94,108
 
Vacation Pay
   
10,314
 
Warranty
   
73,688
 
Taxes
   
18,966
 
Other
   
24,744
 
 
       
Total
 
$
1,975,902
 
 
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,
 
 
 
2006
 
2005
 
Basic weighted average shares outstanding
   
27,527,784
   
26,378,677
 
Dilutive effect of stock options
   
   
 
Dilutive effect of warrants
   
   
 
Diluted weighted average shares outstanding
   
27,527,784
   
26,378,677
 

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 and 2005: 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,
 
Year ended
September 30,
 
 
 
2006
 
2005 (Restated)
 
 
 
 
 
 
 
Net loss available to common shareholders, as restated
 
$
(21,876,903
)
$
(24,012,139
)
Effect of stock options, net of tax (prior to adoption of FAS 123R)
   
(325,135
)
 
(1,166,173
)
Proforma net loss available to common shareholders
 
$
(22,202,038
)
$
(25,178,312
)
Proforma diluted loss per share available to common shareholders
 
$
(.81
)
$
(.95
)

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 years ended September 30, 2005 and the nine months ended September 30, 2004
 
 
2005
 
2004
 
 
 
As Previously
 
 
 
As Previously
 
 
 
 
 
Reported
 
As Restated
 
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
 
 
 
As Previously
 
 
 
 
 
Reported
 
As Restated
 
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