United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2010
or
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ______________ to ________________
Commission
File Number: 0-24857
Teleconnect
Inc.
(Exact
name of registrant issuer as specified in its charter)
|
Florida
|
|
90-0294361
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
|
|
Oude Vest
4
4811 HT
Breda
The
Netherlands
(Address
of principal executive offices)
Registrant’s
telephone number, including area code:
011-31-
06-30048023
___________________________
N/A
_________________________________
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company in
Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
Smaller
reporting company
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
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes
o
No
o
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 4,953,700 shares of common stock at
May 11, 2010.
TELECONNECT
INC.
INDEX
|
PART
|
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
|
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of March
|
|
|
|
31,
2010 (unaudited) and September 30, 2009
|
3-4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for
|
|
|
|
the
three and six months ended March 31, 2010 and 2009
|
|
|
|
(Unaudited)
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for
|
|
|
|
the
three and six months ended March 31, 2010 and
2009
|
|
|
|
(Unaudited)
|
6
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
7
|
|
|
|
|
|
Item
|
2.
|
Management's
Discussion and Analysis of Financial Condition and
|
|
|
|
|
Results
of Operations
|
10
|
|
|
|
|
|
|
Item
|
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
12
|
|
|
|
|
|
|
Item
|
4.
|
Controls
and Procedures
|
13
|
|
|
|
|
|
|
PART
|
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
|
1.
|
Legal
Proceedings
|
14
|
|
|
|
|
|
|
Item
|
1A.
|
Risk
Factors (not applicable)
|
14
|
|
|
|
|
|
|
Item
|
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
14
|
|
|
|
|
|
|
Item
|
3.
|
Defaults
Upon Senior Securities
|
14
|
|
|
|
|
|
|
Item
|
4.
|
Submission
of Matters to a Vote of Security Holders (not applicable)
|
14
|
|
|
|
|
|
|
Item
|
5.
|
Other
Information
|
14
|
|
|
|
|
|
|
Item
|
6.
|
Exhibits
|
14
|
|
|
|
|
|
|
Signatures
|
15
|
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELECONNECT, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
March
31,
2010
|
|
|
September
30,
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,703
|
|
|
$
|
15,652
|
|
|
Accounts
receivable - trade
|
|
|
3,961
|
|
|
|
2,911
|
|
|
Due
from Giga Matrix Holding B.V.
|
|
|
381,909
|
|
|
|
530,992
|
|
Inventory,
work in progress (net of reserve for slow moving inventory
of
$136,857 and $139,109 at March 31, 2010 and September 30,
2009,respectively)
|
|
|
1,152,707
|
|
|
|
1,419,522
|
|
|
Prepaid
taxes
|
|
|
14,999
|
|
|
|
-
|
|
|
Prepaid
expenses
|
|
|
7,331
|
|
|
|
6,994
|
|
|
Asset
of discontinued operations
|
|
|
-
|
|
|
|
632,804
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,573,610
|
|
|
|
2,608,875
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
9,175
|
|
|
|
14,574
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
Investment
in Giga Matrix Holdings B.V.
|
|
|
-
|
|
|
|
-
|
|
|
Goodwill
|
|
|
419,092
|
|
|
|
455,283
|
|
|
Long-term
notes receivable (net of allowance for bad debts
of
$590,224 and $591,010 in March 31, 2010 and September 30, 2009,
respectively)
|
|
|
53,916
|
|
|
|
58,572
|
|
|
Assets
of discontinued operations
|
|
|
-
|
|
|
|
628,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,055,793
|
|
|
$
|
3,765,332
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
TELECONNECT, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
PAGE 2 of
2
|
|
|
March
31,
|
|
|
September
30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
98,017
|
|
|
$
|
106,155
|
|
|
Accrued
liabilities
|
|
|
92,692
|
|
|
|
101,406
|
|
|
Notes
payable
|
|
|
161,748
|
|
|
|
175,716
|
|
|
Income
Taxes payable
|
|
|
130,000
|
|
|
|
130,000
|
|
|
Loans
from related parties
|
|
|
2,491,776
|
|
|
|
2,274,440
|
|
|
Liabilities
of discontinued operations
|
|
|
-
|
|
|
|
4,377,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,974,233
|
|
|
|
7,164,986
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
|
|
|
|
|
|
Preferred
stock; par value of $0.001, 5,000,000 shares
authorized,
no shares outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock; par value of $0.001, 500,000,000 shares authorized,
4,953,700 shares
outstanding as of March 31, 2010
and
September 30, 2009
|
|
|
4,954
|
|
|
|
4,954
|
|
|
Additional
paid-in capital
|
|
|
31,511,257
|
|
|
|
31,511,257
|
|
|
Accumulated
deficit
|
|
|
(29,462,572
|
)
|
|
|
(31,992,430
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(2,972,079
|
)
|
|
|
(2,923,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' deficit
|
|
|
(918,440
|
)
|
|
|
(3,399,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,055,793
|
|
|
$
|
3,765,332
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
TELECONNECT,
INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
For
the three months ended
|
|
|
For
the six months ended
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
111
|
|
|
$
|
95,061
|
|
|
$
|
234,510
|
|
|
$
|
150,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
13,773
|
|
|
|
107,417
|
|
|
|
183,906
|
|
|
|
163,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
(LOSS) INCOME
|
|
|
(13,662
|
)
|
|
|
(12,356
|
)
|
|
|
50,604
|
|
|
|
(13,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
224,049
|
|
|
|
351,115
|
|
|
|
599,649
|
|
|
|
587,840
|
|
|
Depreciation
|
|
|
761
|
|
|
|
7,717
|
|
|
|
1,454
|
|
|
|
15,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
224,810
|
|
|
|
358,832
|
|
|
|
601,103
|
|
|
|
603,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(238,472
|
)
|
|
|
(371,188
|
)
|
|
|
(550,499
|
)
|
|
|
(616,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
10,417
|
|
|
|
7,509
|
|
|
|
17,951
|
|
|
|
15,018
|
|
|
Loss
on investment
|
|
|
(103,503
|
)
|
|
|
(44,626
|
)
|
|
|
(103,503
|
)
|
|
|
(44,626
|
)
|
|
Interest
expense - related parties
|
|
|
(4,154
|
)
|
|
|
(19,293
|
)
|
|
|
(8,584
|
)
|
|
|
(53,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERTIONS BEFORE INCOME TAXES
|
|
|
(335,712
|
)
|
|
|
(427,598
|
)
|
|
|
(644,635
|
)
|
|
|
(699,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE DISCONTINUED OPERATIONS
|
|
|
(335,712
|
)
|
|
|
(427,598
|
)
|
|
|
(644,635
|
)
|
|
|
(699,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
|
114,737
|
|
|
|
3,174,493
|
|
|
|
37,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) INCOME
|
|
$
|
(335,712
|
)
|
|
$
|
(312,861
|
)
|
|
$
|
2,529,858
|
|
|
$
|
(662,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED (LOSS) INCOME PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
From
discontiued operations
|
|
|
-
|
|
|
|
0.03
|
|
|
|
0.64
|
|
|
|
0.01
|
|
|
Total
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
COMMON AND COMMON
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUIVALENT
SHARES OUTSTANDING
|
|
|
4,953,700
|
|
|
|
3,787,089
|
|
|
|
4,953,700
|
|
|
|
3,551,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
COMPONENTS OF COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(335,712
|
)
|
|
$
|
(312,861
|
)
|
|
$
|
2,529,858
|
|
|
$
|
(662,293
|
)
|
|
Foreign
currency translation adjustment
|
|
|
41,649
|
|
|
|
501,492
|
|
|
|
(73,703
|
)
|
|
|
614,180
|
|
|
Tax
effect on currency translation
|
|
|
(14,161
|
)
|
|
|
(170,507
|
)
|
|
|
25,059
|
|
|
|
(208,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
(LOSS) INCOME
|
|
$
|
(308,224
|
)
|
|
$
|
18,124
|
|
|
$
|
2,481,214
|
|
|
$
|
(256,934
|
)
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
TELECONNECT,
INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
FOR
THE SIX MONTHS ENDED MARCH 31,
|
|
(Unaudited)
|
|
|
|
2010
|
|
|
2009
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
2,529,858
|
|
|
$
|
(662,293
|
)
|
|
Adjustments
to reconcile net income (loss) to
|
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,454
|
|
|
|
15,629
|
|
|
Loss
on equity investments
|
|
|
103,503
|
|
|
|
44,626
|
|
|
Bad
debt expense
|
|
|
17,900
|
|
|
|
-
|
|
|
Gain
on sale of subsidiaries
|
|
|
(3,200,137
|
)
|
|
|
-
|
|
|
Change
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
|
(1,281
|
)
|
|
|
44,953
|
|
|
Accrued
interest receivable
|
|
|
(17,900
|
)
|
|
|
-
|
|
|
Inventory
|
|
|
153,974
|
|
|
|
(43,736
|
)
|
|
Prepaid
expenses
|
|
|
(893
|
)
|
|
|
(8,448
|
)
|
|
Prepaid
taxes
|
|
|
(14,999
|
)
|
|
|
16,464
|
|
|
Accounts
payable
|
|
|
300
|
|
|
|
(79,913
|
)
|
|
Accrued
liabilities and income taxes payable
|
|
|
(653
|
)
|
|
|
22,024
|
|
|
Operating
cash flows from discontinued operations
|
|
|
-
|
|
|
|
(179,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(428,874
|
)
|
|
|
(830,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Advances
to equity investment
|
|
|
-
|
|
|
|
(47,003
|
)
|
|
Proceeds
from disposal of equipment
|
|
|
2,786
|
|
|
|
-
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
|
(3,287
|
)
|
|
Investing
activities of discontinued operations
|
|
|
-
|
|
|
|
106,445
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
2,786
|
|
|
|
56,155
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Loan
proceeds from related parties
|
|
|
401,506
|
|
|
|
628,316
|
|
|
Payments
on capital leases
|
|
|
-
|
|
|
|
(23,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
401,506
|
|
|
|
604,411
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE
|
|
|
21,633
|
|
|
|
139,472
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(2,949
|
)
|
|
|
(30,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
BEGINNING OF YEAR
|
|
|
15,652
|
|
|
|
48,342
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH,
END OF YEAR
|
|
$
|
12,703
|
|
|
$
|
18,116
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH TRANSACTIONS:
|
|
|
|
|
|
|
Common
stock issued for conversion of debt and accrued interest
|
|
$
|
-
|
|
|
$
|
2,111,271
|
|
See accompanying Notes to
Condensed Consolidated Financial
Statements.
TELECONNECT,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March
31, 2010
1.
BASIS OF PRESENTATION
The accompanying unaudited condensed
consolidated financial statements of Teleconnect, Inc. (the “Company”) have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) for interim financial information and pursuant
to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended
March 31, 2010
are not
necessarily indicative of the results that may be expected for the full
year.
The
condensed consolidated financial statements include the accounts of Teleconnect,
Inc. and its subsidiary PhotoWizz BV (“MediaWizz”) for the three and six months
ended March 31, 2010 and Teleconnect Spain, Teleconnect Telecom and Recarganet
for the period beginning October 1, 2009 and ending November 25, 2009; date at
which these subsidiaries were sold. For the three and six months
ended March 31, 2009 the consolidated financial statements include the accounts
of the Company and its subsidiaries ITS Europe, Teleconnect Spain, Teleconnect
Telecom, PhotoWizz BV (“MediaWizz”), and Recarganet. All significant
inter-company balances and transactions have been eliminated.
The balance sheet at September 30,
2009
has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements.
For
further information, refer to the consolidated financial statements and notes
thereto included in the Company’s annual report on Form 10-K for the year ended
September 30, 2009.
The
carrying amounts of cash, accounts (and related party) receivables, accounts
payable and notes payable, are considered by management to be their estimated
fair values due to their short term or contractual maturities.
We have evaluated subsequent events
that have occurred since March 31, 2010
through May 12,
2010.
2.
RECENTLY ISSUED ACCOUNTING STANDARDS
In
December 2009, the FASB issued amendments to
existing accounting
guidance to address the elimination of the concept of a qualifying special
purpose entity. The amendment also replaces the quantitative-based risks and
rewards calculation for determining which enterprise has a controlling financial
interest in a variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a variable interest
entity and the obligation to absorb losses of the entity or the right to receive
benefits from the entity. Additionally, the amendment provides more timely and
useful information about an enterprise’s involvement with a variable interest
entity. The Company adopted this guidance in the first quarter of 2010, and it
did not have a material impact on our financial condition, results of operations
or cash flows.
3.
DISCONTINUED OPERATIONS
In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect Spain. The sale
of ITS Europe to certain employees and officers of Teleconnect Spain for €1 and
the assumption of ITS Europe debts was completed on May 14,
2009. Teleconnect Spain, Teleconnect Telecom and Recarganet were
officially sold on November 25, 2009, resulting in a gain on the sale of
subsidiaries of $3,200,137.
Due to
continuing losses at Teleconnect Spain, the Company considered the 10% interest
retained to be impaired and assigned no value to it.
Summarized
financial information (which consists principally of Teleconnect Spain) included
in discontinued operations is as follows for the period October 1, 2009 to
November 25, 2009, and the three and six month period ended March 31, 2009,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1, 2009
|
|
|
|
|
|
|
|
|
|
|
to
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
|
November 25, 2009
|
|
|
March 31, 2009
|
|
|
March 31, 2009
|
|
|
Sales
|
|
$
|
586,479
|
|
|
$
|
979,188
|
|
|
$
|
1,839,108
|
|
|
Cost
of sales
|
|
|
364,021
|
|
|
|
742,304
|
|
|
|
1,389,698
|
|
|
Gross
profit
|
|
|
222,458
|
|
|
|
236,884
|
|
|
|
449,410
|
|
|
Selling,
general and administrative expenses
|
|
|
218,695
|
|
|
|
429,715
|
|
|
|
752,960
|
|
|
Depreciation
|
|
|
7,466
|
|
|
|
9,126
|
|
|
|
34,854
|
|
|
Operating
loss
|
|
|
(3,703
|
)
|
|
|
(201,957
|
)
|
|
|
(338,404
|
)
|
|
Gain
on sale
|
|
|
3,200,137
|
|
|
|
-
|
|
|
|
-
|
|
|
Other
(expense) income
|
|
|
(21,941
|
)
|
|
|
316,694
|
|
|
|
375,893
|
|
|
Income
from discontinued operations
|
|
$
|
3,174,493
|
|
|
$
|
114,737
|
|
|
$
|
37,489
|
|
The net
liabilities of discontinued operations (which consists principally of
Teleconnect Spain), which are included in the consolidated balance sheets as
assets and liabilities of discontinued operations, consist of the following at
March 31, 2010 compared to September 30, 2009:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
23,938
|
|
|
Accounts
receivable - trade, net of allowance
|
|
|
|
|
|
|
|
|
|
for
doubtful accounts of $714,782 at September 30, 2009
|
|
|
-
|
|
|
|
385,914
|
|
|
Accounts
receivable - other
|
|
|
-
|
|
|
|
207,953
|
|
|
Inventory
|
|
|
-
|
|
|
|
12,631
|
|
|
Prepaid
expenses
|
|
|
-
|
|
|
|
2,368
|
|
|
Current
assets of discontinued operations
|
|
|
-
|
|
|
|
632,804
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipement, net
|
|
|
-
|
|
|
|
385,820
|
|
|
Vendor
deposits
|
|
|
-
|
|
|
|
242,208
|
|
|
Other
assets of discontinued operations
|
|
|
-
|
|
|
|
628,028
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
-
|
|
|
|
1,372,068
|
|
|
Accrued
liabilities
|
|
|
-
|
|
|
|
189,246
|
|
|
Taxes
payable
|
|
|
-
|
|
|
|
342,231
|
|
|
Notes
payable
|
|
|
-
|
|
|
|
146,430
|
|
|
Due
to related parties
|
|
|
-
|
|
|
|
259,181
|
|
|
Deferred
income
|
|
|
-
|
|
|
|
2,068,113
|
|
|
Liabilities
of discontinued operations
|
|
|
-
|
|
|
|
4,377,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
liabilities of discontinued operations
|
|
$
|
-
|
|
|
$
|
3,116,437
|
|
Substantially
all interest expense is allocated to the ongoing operations of the parent
company.
4.
LOANS FROM RELATED PARTIES
During
the six months ended March 31, 2010 and 2009 the Company obtained approximately
$402,000 and $628,000 respectively, in additional short term loans from
shareholders, net of currency translation adjustments. These loans bear interest
between 4% and 8% annually, are unsecured and due upon demand.
5.
INCOME TAXES
The
Company has not recorded any income tax expense or benefit for the three and six
months ended March 31, 2010 and 2009. For the six months ended March 31, 2010
taxable income was offset by the use of net operating losses from prior periods.
For the three and six months ended March 31, 2009 the Company recorded an income
tax valuation allowance equal to the benefit of any income tax carryforward
because of the uncertain nature of realization.
6.
LOSS ON INVESTMENT
The
Company accounts for its investment in Giga Matrix Holding, BV (“Giga”),
including amounts due from Giga, under the equity method and recognized losses
of $103,503 and $44,626 for the six months ended March 31, 2010 and 2009,
respectively. The Company has advances to Giga $485,412 and $530,992
at March 31, 2010 and 2009, respectively, with the $103,503 of current year
losses reserved against the balance at March 31, 2010.
7.
EARNINGS (LOSS) PER SHARE
Basic
earnings per share amounts are computed based on the weighted average number of
shares outstanding on that date during the applicable periods. Stock options for
1,000,000 shares that were outstanding at March 31, 2009 have not been included
in diluted earnings per share as their inclusion would have been
anti-dilutive. There were no stock options outstanding as of March
31, 2010.
The
following reconciles the components of the earnings (loss) per share computation
for the three months ended March 31:
|
|
|
2010
|
|
|
2009
|
|
|
Basic
and diluted (loss) income per share computation
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(335,712
|
)
|
|
$
|
(427,598
|
)
|
|
Net
income (loss) from discontinued operations
|
|
$
|
-
|
|
|
$
|
114,737
|
|
|
Net
(loss) income
|
|
$
|
(335,712
|
)
|
|
$
|
(312,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares Outstanding
|
|
|
4,953,700
|
|
|
|
3,787,089
|
|
|
Basic
and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
(0.11
|
)
|
|
From
discontinued operations
|
|
$
|
(0.00
|
)
|
|
$
|
0.03
|
|
|
Total
|
|
$
|
(0.07
|
)
|
|
$
|
(0.08
|
)
|
The
following reconciles the components of the earnings (loss) per share computation
for the six months ended March 31:
|
|
|
2010
|
|
|
2009
|
|
|
Basic
and diluted (loss) income per share computation
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(644,635
|
)
|
|
$
|
(699,782
|
)
|
|
Net
income (loss) from discontinued operations
|
|
$
|
3,174,493
|
|
|
$
|
37,489
|
|
|
Net
(loss) income
|
|
$
|
2,529,828
|
|
|
$
|
(662,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares Outstanding
|
|
|
4,953,700
|
|
|
|
3,551,995
|
|
|
Basic
and diluted (loss) income per share:
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.13
|
)
|
|
$
|
(0.20
|
)
|
|
From
discontinued operations
|
|
$
|
0.64
|
|
|
$
|
0.01
|
|
|
Total
|
|
$
|
0.51
|
|
|
$
|
(0.19
|
)
|
In November 2009, the Company’s shareholders
approved a 1-for-100 reverse stock split of the Company’s common
stock. This reverse stock split has been reflected
retroactively for all periods presented in these condensed consolidated
financial statements.
8.
SUBSEQUENT EVENTS
On May 3,
2010 the Company signed a letter of intent to acquire 100% of Hollandsche
Exploitatie Maatschappij BV (HEM) in The Netherlands. The purchase price
contemplated by the letter of intent is 12% of the outstanding common stock of
the Company, post emission. Both parties agreed to pursue a
Company shareholder’s meeting by the end of June, 2010 to approve a
final
purchase agreement. HEM, established in 2007, developed an age
validation system, “Ageviewers”, which utilizes the Company’s products in its
processes.
9
. GOING CONCERN
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company’s recent losses and cash
requirements, among other things, may indicate the Company will be unable to
continue as a going concern for a reasonable period of
time. Management is currently controlling expenses and conserving
cash while exploring possible sales of equity and/or debt financing to improve
the Company’s working capital position. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to attain a
satisfactory level of profitability and obtain suitable and adequate financing.
There can be no assurance that management's plan will be
successful.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
Caution
Regarding Forward-Looking Statements
The
following information may contain certain forward-looking statements that are
not historical facts. These statements represent our expectations or beliefs,
including but not limited to, statements concerning future acquisitions, future
operating results, statements concerning industry performance, capital
expenditures, financings, as well as assumptions related to the foregoing.
Forward-looking statements may be identified by the use of forward-looking
terminology such as “may,” “shall,” “will,” “could,” “expect,” “estimate,”
“anticipate,” “predict,” “should,” “continue” or similar terms, variations of
those terms or the negative of those terms. Forward-looking statements are based
on current expectations and involve various risks and uncertainties that could
cause actual results and outcomes for future periods to differ materially from
any forward-looking statement or view expressed herein. Our financial
performance and the forward-looking statements contained in this report are
further qualified by other risks including those set forth from time to time in
documents filed by us with the SEC.
INTRODUCTION
At the
time of this filing, we derive our revenues from continuing operations primarily
from the sale of multimedia kiosks and hardware components to retail chains.
These kiosks and components can be applied to different functions such as
recharging prepaid telephone cards. Our revenues and operating results in the
near future will depend upon the continued adoption and use of the services
provided by the multimedia kiosks and components supplied by Mediawizz. The rate
of adoption is influenced significantly over the longer term by government laws
and mandates, performance and pricing of our products/services, relationships
with the public and other factors.
Our
revenues from discontinued operations are primarily from the sale of our
long-distance telecommunication services. On November 25, 2009 we completed the
sale of the discontinued operations.
Today,
our existing revenues generated by Mediawizz may be impacted by other factors
including the length of our sales cycle, the timing of sales orders, budget
cycles of our customers, competition, the timing and introduction of new
versions of our products, the loss of, or difficulties affecting, key personnel
and distributors, changes in market dynamics or the timing of product
development or market introductions. These factors have impacted our historical
results to a greater extent than has seasonality. Combinations of these factors
have historically influenced our growth rate and profitability significantly in
one period compared to another, and is expected to continue to influence future
periods, which may compromise our ability to make accurate
forecasts.
Cost of
sales included in discontinued operations consists primarily of the costs
associated with carriers which supply the telecom services for the Company to
resell. We relied on third parties to offer the majority of the services we had
in our portfolio. Accordingly, a significant portion of our cost of sales
consists of payments to these carriers. Cost of sales included in continuing
operations consists of customer support costs, training and professional
services expenses, and parts for the terminals; which consist of small display
screens, metallic housings, PC’s, switches, small cameras similar to webcams,
electronic components, cables, power supplies and software licenses amongst
other items.
Our gross
profit has been and will continue to be affected by a variety of factors,
including competition, the mix and average selling prices of products,
maintenance and services, new versions of products, the cost of equipment,
component shortages, and the mix of distribution channels through which our
products are sold. Our gross profit will be adversely affected by price declines
if we are unable to reduce costs on existing products or to introduce new
versions of products with higher margins.
Selling,
general and administrative expenses consist primarily of salaries and related
expenses for executive, finance, accounting, legal and human resources
personnel, professional fees and corporate expenses. We expect general and
administrative expenses to stabilize in the short term in absolute dollars as we
will employ fewer hours to maintain the Company’s current status with its SEC
filings than to bring the Company current in 2009. Major efforts today are
focused on preparing the Company to be compliant with Sarbanes-Oxley Section
404.
On May 3,
2010 the Company signed a letter of intent to acquire 100% of Hollandsche
Exploitatie Maatschappij BV (HEM) in The Netherlands. The purchase price
contemplated by the letter of intent is 12% of the outstanding common stock of
the Company, post emission. Both parties agreed to pursue a
Company shareholder’s meeting by the end of June, 2010 to approve a final
purchase agreement. HEM, established in 2007, developed an age
validation system, “Ageviewers”, which utilizes the Companies products in its
processes.
BALANCE SHEET COMPARISON AT
MARCH 31, 2010 AND SEPTEMBER 30, 2009
Assets:
Total assets
at March 31, 2010 decreased $1,709,539 or 45.4% to $2,055,793 compared to
$3,765,332 at September 30, 2009. This decrease is due to the sale of
discontinued operations which accounts for approximately $1,261,000 of this
difference as well as to the collection of accounts receivable during the
period; a reduction of inventory at Mediawizz due to recording a provision for
slow moving products and recognition of loss from equity investment of
approximately $104,000.
Liabilities:
Current
liabilities at March 31, 2010 decreased by $4,190,753 or 58.5% to $2,974,233
compared to $7,164,986 at September 30, 2009. This decrease is due
primarily to the elimination of approximately $4,377,000 of liabilities
associated with the discontinued operations.
COMPARISON OF THE THREE
MONTHS ENDED MARCH 31, 2010 AND 2009
(CONTINUING OPERATIONS)
We
incurred a net loss of $335,712
for
the three months ended March 31, 2010 as compared to a net loss of $312,861
($427,598 from continuing operations) during the comparable period in 2009. A
comparison of revenues and expenses for the two periods is as
follows:
REVENUES
Sales for
the three months ended March 31, 2010, decreased by 99.9%, or $94,950, to $111
from $95,061 for the quarter ended March 31, 2009. The decrease in sales is
attributed to the fact that the Company did not ship any kiosks during the
quarter as a customer of a current 150 kiosk order requested a delay in shipping
additional units. Company management also was focusing energy on marketing the
kiosks to a 550 store association of liquor stores in The Netherlands for use in
age verification. The Company also discontinued sales of calling
credit through the kiosks early in the quarter to focus energies on the age
verification market for the kiosks. Revenues during 2009 were
primarily derived from the sales of kiosks and the sales of calling credit
through kiosks that Mediawizz custom built and installed in supermarkets for a
Netherlands customer.
COST OF
SALES
Cost of
sales decreased 87.2% or $93,644 to $13,773 during the three months ended March
31, 2010 from $107,417 during the same period in 2009. The decrease in cost of
sales is directly related to the decrease in sales, however there were some
excess capacity costs associated with the discontinued sales of calling credit
during the period.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
Selling,
general and administrative expenses decreased by 36.2 % to $224,049 during the
three months ended March 31, 2010 as compared to $351,115 for the comparable
period in 2009. This decrease in selling, general and administrative
expenses is primarily due to the reduction of additional outside professional
services related to the Company’s delinquent regulatory filings in
2009.
COMPARISON OF THE THREE
MONTHS ENDED MARCH 31, 2010 AND 2009 (DISCONTINUED
OPERATIONS)
The
discontinued operations were sold on November 25, 2009 and had no activity
during the three month ended March 31, 2010.
COMPARISON OF THE SIX MONTHS
ENDED MARCH 31, 2010 AND 2009
(CONTINUING OPERATIONS)
We
incurred net income of $2,529,858 ($644,635 loss from continuing operations
offset by income of $3,174,493 from discontinued operations) for the six months
ended March 31, 2010 as compared to a net loss of $662,293 ($699,782 from
continuing operations) during the comparable period in 2009. A comparison of
revenues and expenses for the two periods is as follows:
REVENUES
Sales for
the six months ended March 31, 2010, increased by 56.0%, or $84,175, to $234,510
from $150,335 for the comparable period in 2009. The increase in sales is
attributed to the fact that 2009 revenues primarily were derived from the sales
of kiosks and calling credit through kiosks that Mediawizz custom built and
installed in supermarkets for a Netherlands customer. Where the sales
of calling credit in these supermarkets formerly was organized through both
service desks and kiosks, in 2009, the sales at these service desks were
discontinued thus generating more traffic and increasing sales through the
kiosks. While sales of the calling credit had been increasing during the first
quarter it was determined in the current quarter that the margins from those
sales were unacceptable and sales of calling credit was discontinued. Also,
Mediawizz delivered a new lot from a previously agreed 150 terminal-order,
during the first quarter, but due to customer request, further deliveries were
deferred until later in the year. Company management also was
focusing energy on marketing the kiosks to a 550 store association of liquor
stores in The Netherlands for use in age verification which slowed production of
the kiosks during the second quarter.
COST OF
SALES
Cost of
sales increased 12,4% or $20,223 to $183,906 during the six months ended March
31, 2010 from $163,683 for the comparable period in 2009. The increase in cost
of sales is associated to the increase in sales (56.0%), however, the fact that
the cost of sales increased less than the sales is partly due to efficiencies
gained in our assembly process and operations of kiosks. In addition, the main
factor influencing this comparison is the increase in sales of calling credit
which has a much lower associated cost of sales than the assembly of the kiosk
hardware.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
Selling,
general and administrative expenses decreased by 1.0 % to $581,749 during the
six months ended March 31, 2010 as compared to $587,840 for the comparable
period in 2009. This decrease in selling, general and administrative
expenses is primarily due to the reduction of additional outside professional
services related to the Company’s delinquent regulatory filings in
2009.
COMPARISON OF THE SIX MONTHS
ENDED MARCH 31, 2010 AND 2009 (DISCONTINUED OPERATIONS)
We
incurred $3,174,493 of net income from discontinued operations for the six
months ended March 31, 2010 as compared to a net income of $37,489 during the
comparable period in 2009. The discontinued operations were sold on November 25,
2009 resulting in a gain of approximately $3,200,000. Revenues, Cost
of Sales and Selling, General and Administrative expenses decreased from the
prior comparable period due to the fact the entities were sold during the first
two months of the current fiscal year.
LIQUIDITY AND CAPITAL
RESOURCES
At March
31, 2010 and September 30, 2009, Teleconnect Inc. had negative working capital
of approximately $1,400,000 and $4,556,000, respectively. The
improvement is primarily due to the effect of the sale of the discontinued
operations which provided a gain on the sale of approximately
$3,200,000.
The
ability of the Company to satisfy its obligations and to continue as a going
concern will depend in part upon its ability to raise funds through the sale of
additional shares of its Common Stock, increasing borrowing, and in part upon
its ability to reach a profitable level of operations. The Company’s financial
statements do not reflect adjustments that might result from its inability to
continue as a going concern and these adjustments could be material
The
Company’s capital resources have been provided primarily by capital
contributions from stockholders, stockholders’ loans, the conversion of
outstanding debt into Common Stock of the Company, and services rendered in
exchange for Common Stock.
The
Company intends to look for additional funding to pay debts and for working
capital. However, there is no assurance that such capital will be raised, and
the Company may seek bank financing and other sources of financing to complete
the payment of additional debt.
DISCONTINUED
OPERATIONS
In March
2009, the Company entered into an agreement to sell ITS Europe, Teleconnect
Spain, Teleconnect Telecom and Recarganet to certain employees and officers of
Teleconnect Spain with the Company retaining 10% of Teleconnect
Spain. The results of operations of these subsidiaries were reported
as “discontinued operations” and assets and liabilities have been separated on
the balance sheet. Going forward the Company will account for the 10% of
Teleconnect Spain by the cost method. The sale of ITS Europe to certain
employees and officers of Teleconnect Spain was completed on May 14,
2009. Teleconnect Spain, Teleconnect Telecom and Recarganet were
officially sold on November 25, 2009.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On
November 12, 2009, at a meeting of the shareholders of Teleconnect Inc, the
shareholders present, representing 94.69% of the outstanding shares of common
stock of the Company, agreed to sell the Spanish subsidiaries of the Company.
The stock purchase agreements were formalized on November 25, 2009 before
a public Spanish notary upon approval by the Company’s
shareholders. By disposing of the Spanish subsidiaries and
maintaining a 10% stake in Teleconnect Comunicaciones Spain, Teleconnect Inc is
relieved of its obligation to fund these companies while Teleconnect Inc. could
possibly benefit from future dividends, if so declared by Teleconnect
Comunicaciones Spain.
The
shareholders also approved a reverse split of the Company’s Common Stock in the
ratio of 1-for-100 at the November 12, 2009 shareholders’ meeting.
ITEM 4. CONTROLS AND PROCEDURES
The
Company's Chief Executive Officer and Chief Financial Officer/Principal
Accounting Officer (collectively, the Certifying Officers) are responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officers have concluded (based upon their evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are not effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.
The
Certifying Officers also have indicated that there were no significant changes
in the Company's internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation.
Management
is currently designing new internal controls and procedures to address our
material weaknesses which will be implemented in this fiscal year.
PART II
OTHER
INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the
normal course of its operations, the Company has been named in legal actions
seeking monetary damages. While the outcome of these matters cannot be estimated
with certainty, management does not expect, based upon consultation with legal
counsel, that they will have a material effect on the Company's business or
financial condition or results of operations.
ITEM
1A. RISK FACTORS
N/A
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the
shareholders meeting held on November 12, 2009 in Breda, The Netherlands, the
stockholders present approved the sale of 100 % of the Company’s interest in
Recarganet, and Teleconnect Telecom in addition to approximately 90% of its
interest in Teleconnect Comunicaciones SA. The stock purchase
agreements for the sale of Recarganet, Teleconnect Telecom and Teleconnect
Comunicaciones were formalized before a public Spanish notary on November 25,
2009. The gain from the sale of these subsidiaries is
$3,200,137.
At this
same shareholders meeting of November 12, 2009, the stockholders of the Company
voted in favor of a 1-for-100 reverse stock split of its common
stock. This reverse stock split has been reflected retroactively for
all periods presented in these financial statements.
ITEM
5. OTHER INFORMATION
None
Exhibit
3.1 Amendment to Articles of Incorporation is incorporated herein by
reference to Exhibit 3.1 to the Company’s Form 8-K dated November 12,
2009.
Exhibit
10 Agreement(s) to sell subsidiaries are hereby incorporated by
reference to the Exhibits to the definitive proxy statement of the Company dated
October 29, 2010.
31.1
Certification of Dirk L. Benschop, sole Director, Chief Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer
32.1
Certification of Dirk L. Benschop, sole Director, Chief Executive
Office, President, Treasurer, Chief Financial Officer and principal accounting
officer
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TELECONNECT
INC.
May 12,
2010
|
|
By:
|
/s/ Dirk
L. Benschop
|
|
|
Dirk
L. Benschop
|
|
|
Sole
Director, Chief Executive Office, President, Treasurer, Chief
Financial Officer and principal accounting
officer
|
INDEX TO EXHIBITS
Exhibit
|
No.
|
Description
|
|
|
|
|
31.1
|
Certification
of Dirk Benschop
|
|
|
|
|
32.1
|
Certification
of Dirk Benschop
|
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