PINX:TLCO Teleconnect Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

PINX:TLCO (Teleconnect Inc): Fair Value Estimate
Premium
PINX:TLCO (Teleconnect Inc): Consider Buying
Premium
PINX:TLCO (Teleconnect Inc): Consider Selling
Premium
PINX:TLCO (Teleconnect Inc): Fair Value Uncertainty
Premium
PINX:TLCO (Teleconnect Inc): Economic Moat
Premium
PINX:TLCO (Teleconnect Inc): Stewardship
Premium
 

 

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 June 30, 2012

 

or

 

¨ 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- (0)6 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 ¨

 

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  ¨   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer ¨ Accelerated filer   ¨
Non-accelerated filer   ¨ 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  ¨   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 registrant's classes of common stock, as of the last practicable date: August 14, 2012: 8,167,415 shares of common stock, $.001 par value

 

 
 

 

TELECONNECT INC.

 

INDEX

 

PART I. FINANCIAL INFORMATION  
       
Item 1. Financial Statements:  
       
    Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and September 30, 2011 3
       
    Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2012 and 2011 (Unaudited) 5
       
    Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and 2011 (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 13
       
Item 4. Controls and Procedures 14
       
PART II. OTHER INFORMATION  
       
Item 1. Legal Proceedings 14
       
Item 1A. Risk Factors 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 14
       
Item 5. Other Information 15
       
Item 6. Exhibits 15
       
Signatures      15

 

2
 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

TELECONNECT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   September 30, 
   2012   2011 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS:          
Cash and cash equivalents  $25,179   $117,145 
Accounts receivable - trade   62,643    109,565 
Other receivables   280    57,419 
Inventory, work in process (net of reserve for slow moving inventory of $118,060 and $91,982 at June 30, 2012 and September 30, 2011,respectively)   109,023    151,682 
Prepaid taxes   20,188    88,616 
Prepaid expenses   21,604    33,215 
           
Total current assets   238,917    557,642 
           
PROPERTY AND EQUIPMENT, NET   2,508,741    3,198,123 
           
OTHER ASSETS:          
Due from Giga Matrix Holding, B.V.   530,817    601,832 
Investment in Giga Matrix Holdings B.V.   -    - 
Goodwill   391,451    419,838 
Patents and tradenames, net   2,705,818    3,207,546 
Long-term notes receivable (net of allowance for bad debts of $529,908 and $568,336 at June 30, 2012 and September 30, 2011, respectively)   -    - 
           
   $6,375,744   $7,984,981 

 

The accompanying notes are an integral part of these financial statements.

 

3
 

 

TELECONNECT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,
2012
   September 30,
2011
 
   (Unaudited)     
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable - trade  $218,262   $414,270 
Accounts payable - related parties   246,755    130,290 
Accrued liabilities          
Related parties   486,177    41,849 
Other   178,572    184,467 
Notes payable   491,010    297,066 
Loans from related parties   9,237,843    9,597,184 
           
Total current liabilities   10,858,619    10,665,126 
           
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, 6,499,133 shares outstanding at June 30, 2012 and September 30, 2011, respectively, 1,172,297 shares subscribed and unissued ($1,048,904) at June 30, 2012 and 100,000 shares ($98,250) at September 30, 2011   7,671    6,599 
Additional paid-in capital   34,529,349    33,579,766 
Accumulated deficit   (36,272,166)   (33,282,158)
Accumulated other comprehensive loss   (2,747,729)   (2,984,352)
           
Total stockholders' deficit   (4,482,875)   (2,680,145)
           
   $6,375,744   $7,984,981 

 

The accompanying notes are an integral part of these financial statements.

 

4
 

 

TELECONNECT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

 

   For the three months ended   For the nine months ended 
   June 30,   June 30, 
   2012   2011   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
SALES  $7,328   $16,430   $119,194   $36,344 
                     
COST OF SALES   59,478    69,879    184,592    218,755 
                     
GROSS LOSS   (52,150)   (53,449)   (65,398)   (182,411)
                     
OPERATING EXPENSES:                    
Selling, general and administrative expenses   474,939    560,054    1,686,732    2,200,715 
Depreciation and amortization   312,753    324,813    954,535    869,575 
                     
Total operating expenses   787,692    884,867    2,641,267    3,070,290 
                     
LOSS FROM OPERATIONS   (839,842)   (938,316)   (2,706,665)   (3,252,701)
                     
OTHER INCOME (EXPENSES):                    
Interest income   -    20    20    57 
Gain on bargain purchase   -    -    -    1,487,531 
Loss on investment   (7,642)   (8,852)   (25,467)   (30,614)
Other income   448    -    21,453    - 
Interest expense - related parties   (93,778)   (1,171)   (279,349)   (5,873)
                     
LOSS BEFORE INCOME TAXES   (940,814)   (948,319)   (2,990,008)   (1,801,600)
                     
BENEFIT FROM INCOME TAXES   -    -    -    80,000 
                     
NET LOSS  $(940,814)  $(948,319)  $(2,990,008)  $(1,721,600)
                     
BASIC AND DILUTED LOSS PER SHARE:  $(0.13)  $(0.16)  $(0.42)  $(0.29)
                     
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING   7,521,511    5,991,789    7,191,844    5,835,946 
                     
THE COMPONENTS OF COMPREHENSIVE LOSS:                    
Net Loss  $(940,814)  $(948,319)  $(2,990,008)  $(1,721,600)
Foreign currency translation adjustment   333,902    (24,087)   358,520    (173,439)
Tax effect on currency translation   (113,527)   8,189    (121,897)   58,969 
                     
COMPREHENSIVE LOSS  $(720,439)  $(964,217)  $(2,753,385)  $(1,836,070)

 

The accompanying notes are an integral part of these financial statements.

 

5
 

 

TELECONNECT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2012 AND 2011

 

   2012   2011 
   (Unaudited)   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(2,990,008)  $(1,721,600)
Adjustments to reconcile net loss to Net cash used in operating activities:          
Depreciation and amortization   954,535    869,575 
Stock-based compensation   -    67,552 
Inventory allowance   33,693    142,978 
Loss on equity investments   25,467    30,614 
Gain on bargain purchase   -    (1,487,531)
Change in operating assets and liabilities          
Accounts receivable - trade   39,514    22,956 
Accounts receivable - other   53,257    76,737 
Inventory   (1,290)   66,793 
Prepaid expenses   9,365    (76,791)
Prepaid taxes   62,436    (20,074)
Accounts payable   (42,723)   96,069 
Accrued liabilities and income taxes payable   453,735    (204,991)
           
Net cash used in operating activities   (1,402,019)   (2,137,713)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Repayments on loans to Giga Matrix   41,314    - 
Purchase of patents   (14,484)   - 
Purchase of fixed assets   (169,124)   (197,678)
           
Net cash used in investing activities   (142,294)   (197,678)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from sale of common stock   950,655    - 
Payments on notes payable   -    (4,808)
Loan proceeds   214,030    - 
Loan proceeds from related parties   289,570    2,604,616 
           
Net cash provided by financing activities   1,454,255    2,599,808 
           
EFFECT OF EXCHANGE RATE   (1,908)   (68,990)
           
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   (91,966)   195,427 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   117,145    17,420 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $25,179   $212,847 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS          
           
112,584 shares of common stock issued for compensation  $-   $67,552 
675,505 shares of common stock issued for acquistion  $-   $709,280 
250,000 shares of common stock issued to accrued interest  $-   $348,741 

 

The accompanying notes are an integral part of these financial statements.

 

6
 

 

TELECONNECT INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012

 

1.BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

 

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 nine months ended June 30, 2012 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 subsidiaries PhotoWizz BV (“MediaWizz”), Wilroot B. V. (“Wilroot”) and Hollandsche Exploitatie Maatschappij (“HEM”). All significant inter-company balances and transactions have been eliminated.

 

The balance sheet at September 30, 2011 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, 2011.

 

Revenue Recognition -

 

The Company recognizes revenue from the sale of multimedia hardware components in the period in which title has passed and services have been rendered. The Company recognizes revenue from narrowcasting and age validation services when services have been rendered and realization is assured.

 

2.BUSINESS COMBINATION

 

On October 15, 2010, the Company completed its acquisition of 100% of Wilroot and its wholly owned subsidiary HEM (“Wilroot/HEM”). Previously, Wilroot/HEM and the Company agreed for the purpose of the transaction to transfer effective control of Wilroot/HEM to the Company as of October 1, 2010. The Company issued 675,505 shares of its restricted common stock valued at $709,280 along with the assumption of debt and other liabilities of $7,740,102 for a total purchase consideration of $8,449,382.

 

The acquisition was accounted for as a purchase transaction. As required by the applicable guidance in effect at the time of the acquisition, the Company valued all assets and liabilities acquired at their fair values on the date of acquisition. Accordingly, the assets and liabilities of the acquired entity were recorded at their estimated fair values at the date of the acquisition. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, and based on their estimated fair values.

 

   October 15, 2010 
Wilroot/HEM
 
     
Current assets  $411,480 
Amount due from Teleconnect, Inc   1,684,605 
Amount due from MediaWizz   456,744 
Total current assets   2,552,829 
Ageviewers software   3,257,659 
Property and equipment   350,485 
Terminal and kiosk hardware design   690,347 
Patents and processes   2,003,044 
Tradenames   1,082,549 
Net assets   9,936,913 
      
Purchase consideration   8,449,382 
      
Excess of net assets over purchase consideration (bargain purchase)  $1,487,531 

 

In the quarter ended September 30, 2011, the Company adjusted the purchase allocation resulting in a final excess of net assets over purchase consideration (bargain purchase) of $1,434,694.

 

7
 

 

The fair value of the net assets acquired was in excess of the consideration paid by the Company, resulting in a "bargain purchase gain." Upon the determination that the Company was going to recognize a gain related to the bargain purchase, the Company reassessed its valuation assumptions utilized as part of the acquisition accounting. No adjustments to the acquisition accounting valuations were identified as a result of management’s reassessment. The bargain purchase gain is included in the other income (expenses) in the condensed consolidated financial statements for the nine months ended June 30, 2011. The events and circumstances allowing the Company to acquire Wilroot/HEM at a bargain were related to the ability of Wilroot/HEM to have access to public equity markets to raise funding for the rollout of Ageviewers in The Netherlands and the liquidity provided to the stockholders of Wilroot/HEM by gaining stock in the Company.

 

There is $30,756 of revenues and $2,366,730 of operating losses from Wilroot/HEM included in the condensed consolidated financial statements for the period October 15, 2010 to June 30, 2011.

 

3. LITIGATION AND CONTINGENT LIABILITIES

 

In the normal course of its operations, the Company may, from time to time, be 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 amounts recorded in the consolidated financial statements.

 

4. NOTES PAYABLE

 

During February, March and May 2012 the Company received a total of $214,030 in bridge loans from a potential investor. The loans are due on demand and do not accrue interest.

 

4. EQUITY TRANSACTIONS

 

During the nine months ended June 30, 2012, the Company sold 1,072,297 shares of its common stock for $950,654 to qualified investors; these shares were subscribed but unissued as June 30, 2012. Subsequent to June 30, 2012 all of these shares have been issued.

 

5. INCOME TAXES

 

The Company recorded $80,000 of tax benefit for the nine months ended June 30, 2011 due to the abatement of penalties and interest related to fiscal year 2007. The Company continues to record an income tax valuation allowance equal to the benefit of any remaining income tax carry-forwards due to the uncertain nature of its realization.

 

6. 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.

 

The following reconciles the components of the loss per share computation for the three months ended June 30:

 

   2012   2011 
Basic and diluted loss per share computation          
Numerator:          
Net loss  $(940,814)  $(948,319)
           
Denominator:          
Weighted average common shares outstanding   7,521,511    5,991,789 
           
Basic and diluted loss per share:  $(0.13)  $(0.16)

 

The following reconciles the components of the loss per share computation for the nine months ended June 30:

 

   2012   2011 
Basic and diluted loss per share computation          
Numerator:          
Net loss  $(2,990,008)  $(1,721,600)
           
Denominator:          
Weighted average common shares outstanding   7,191,844    5,835,946 
           
Basic and diluted (loss) income per share:  $(0.42)  $(0.29)

 

8
 

 

7. GIGA MATRIX HOLDING

 

Giga Matrix Holding, BV (“Giga” ) performs market surveys and provides broadcasting of in-store commercial messages using the age validation equipment between age checks. The Company accounts for its investment in Giga, including amounts due from Giga, under the equity method. Pursuant to accounting guidance, the Company has combined its investment in Giga and amounts due from Giga for purposes of determining the amount of losses to be recognized under the equity method, accordingly, the Company recognized $7,642 and $8,852 in losses on its equity investment during the three months ended June30, 2012 and 2011, respectively and $25,467 and $30,614 during the nine months ended June 30, 2012 and 2011, respectively.

 

As of June 30, 2012, the Company’s maximum exposure to further losses is limited to the amount due from Giga of $530,817.

 

The Company has analyzed its investment in Giga and determined that, while Giga is a variable interest entity the Company is not the primary beneficiary as the Company has no further financial obligations to support Giga, and therefore it is not required to be consolidated.

 

Results of operations of Giga for the nine months ended June 30, 2012 and 2011 are as follows:

 

   2012   2011 
   (Unaudited)   (Unaudited) 
Net loss  $(51,973)  $(62,477)

 

8. GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2012, the Company had a working capital deficit of $10,619,702 and a net loss of $2,990,008 for the nine months then ended. These factors raise substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. 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. Management has commitments from related parties for short-term financing and additional equity financing in relation to its private placement program. Management also expects additional financing through long-term borrowing and equity placements in the future. There can be no assurance that management's plan will be successful.

 

9
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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

 

The Company’s business model is based on an innovative age validation system which verifies a consumers’ age when purchasing a product that is restricted from minors such as alcohol or tobacco and our revenues are derived from the sale of multimedia terminals and hardware components to the suppliers of retail chains. These terminals and components can be also applied to different functions such as recharging prepaid telephone cards. Our revenues and operating results will depend in the future upon the success of the four pillars described in our business model which 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. The Company is not reliant on any one specific customer for revenues.

 

Today, our existing revenues 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 affected 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 are expected to continue to influence future periods, which may compromise our ability to make accurate forecasts.

 

On October 15, 2010, the Company completed the acquisition of HEM. HEM’s core business involves the age validation of consumers when purchasing products which cannot be sold to minors, such as alcohol or tobacco. The Company regards this age validation business as its new strategic direction. The Dutch companies acquired in 2007 (Giga Matrix, 49% and Mediawizz, 100%) complement this new service offering.  

 

Cost of sales 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 will continue to be affected by a variety of factors, including: the resistance to migrate from existing inefficient on-site age verification procedures, possible new competitors entering the market, 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 to which our products and services are sold.  Our gross profit will be adversely affected if relevant laws and regulations are not readily adopted by the retail chains or are not enforced by local government.

 

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 or increase slightly as the Company expands its points of sale in Europe as well as when it prepares itself to enter the U.S. market.

 

For further information refer to the Company’s annual report on Form 10-K for the year ended September 30, 2011.

 

BALANCE SHEET COMPARISON AT JUNE 30, 2012 AND SEPTEMBER 30, 2011

 

Assets: Total assets at June 30, 2012 decreased by $1,609,237 or 20.2% to $6,375,744 compared to $7,984,981 at September 30, 2011. This decrease is due primarily to the amortization and depreciation of patents, trade-names, property and equipment as well as collection of accounts receivable and refund of prepaid taxes and use of cash in operations during the nine months ended June 30, 2012.

 

10
 

 

Liabilities: Current liabilities at June 30, 2012 increased by $193,493 or nearly 1.8% to $10,858,619 compared to $10,665,126 at September 30, 2011 due to additional bridge loans and accrued management fees during the nine months ended June 30, 2012.

 

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011

 

We had a net loss of $940,818 for the three months ended June 30, 2012 as compared to net loss of $948,319 during the comparable period in 2011. A comparison of revenues and expenses for the two periods is as follows:

 

REVENUES

 

Revenues for the three months ended June 30, 2012 consisted of $7,328 as compared to $16,430 for the same period of the previous year due primarily to the decrease in revenues from kiosk sales and installation and service activities. The breakdown of 2012 revenues for the three months ended June 30, 2012 is as follows:, kiosk sales $5,807 and narrowcasting, installation and service, calling credit and other revenue of $1,535, revenues during 2011 primarily related to calling credits $7,064 but also to age verification $2,499, installation and service $3,796 and kiosk sales of $2,711.

 

Current quarterly revenues were partially derived from the sales of calling credit through kiosks that Mediawizz custom built and installed in supermarkets for a Netherlands customer. Even though the Company decided to terminate calling credit business during the 2010 fiscal year, one contract continued to produce some revenue into the fiscal quarter ended June 30, 2012. Over the past year, the Company has focused on the installation of over 100 age verification points in stores and supermarkets to demonstrate the effectiveness of the system and the acceptance of its use by the general public.  The Company did not anticipate generating revenue from these 100 installations other than future income from advertising or professional services rendered. In accordance with its business plan, and after successfully creating the installed base of 100 installations, the Company is now leading its marketing efforts toward contracts that generate revenue from hardware and transaction fees as well. To date, for 70 of the 100 stores using Ageviewers, narrowcasting equipment has been installed leading to first income from this pillar. In addition, the sale of a vending solution for airports contributed to the sales revenue of our multimedia hardware again for this past quarter.

 

COST OF SALES

 

Cost of sales decreased for the three month period ended June 30, 2012 by $10,401 or 14.9% to $59,478 from $69,879 for the same period of the previous year. Cost of sales consisted of telecommunication costs of $15,784 (2011: $8,216), kiosk support costs of $9,563 (2011: $4,892), cost of machines $22,036 (2011: $0), calling credit costs $1,144 (2011: $7,376) and inventory write down of $10,961 (2011: $49,395).

 

The cost of sales are primarily derived from the cost of machines as well as from maintaining the contracts previously mentioned which provide the Company with the technical acceptance, market exposure and credibility required upon which to base the new service offering.  The allocation of such costs are in line with the Company’s strategic plan. These expenditures have been efficient in achieving the results to date in the area of technical adaptation to market requirements, market exposure and user acceptance. The Company expects its costs of sales to increase in line with the installations of Ageviewers in supermarkets under the new commercial conditions.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

Selling, general and administrative expenses have decreased by $85,115 or 15.2% to $474,939 during the three months ended June 30, 2012 as compared to $560,054 for the comparable period in 2011. This decrease in selling, general and administrative expenses is primarily due to the reduction in the cost of existing and ongoing professional services.

 

11
 

 

COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 2012 AND 2011

 

We had a net loss of $2,990,008 for the nine months ended June 30, 2012 as compared to a net loss of $1,721,600 during the comparable period in 2011. The difference is primarily due to the gain on bargain purchase of nearly $1,488,000 realized during fiscal 2011 in relation to the acquisition of HEM. Also, there was $84,960 of additional depreciation and amortization of property and equipment, patents, designs and trade-names in the current year. A comparison of revenues and expenses for the two periods is as follows:

 

REVENUES

 

Sales for the nine months ended June 30, 2012, increased by $82,850 or nearly 228% to $119,194 from $36,344 for the nine months ended June 30, 2011. The breakdown of 2012 revenues versus 2011 for this nine month period is as follows: age verification $525 (2011: $2,499), narrowcasting $3,827 (2011: $0), installation and service $24,955 (2011: $6,249), calling credits $11,869 (2011: $22,007), photo print services $646 (2011: $2,566), Kiosk sales $74,128 (2011; $2,711) and other revenue of $3,244 (2011: $312).

 

Over the past year, the Company has focused on the installation of over 100 age verification points in stores and supermarkets to demonstrate the effectiveness of the system and the acceptance of its use by the general public.  The Company did not anticipate generating revenue from these 100 installations other than future income from advertising or professional services rendered. In accordance with its business plan, and after successfully creating the installed base of 100 installations, the Company is now leading its marketing efforts toward contracts that create revenue from hardware and transaction fees as well. To date, for 70 of the 100 stores using Ageviewers, narrowcasting equipment has been installed leading to first income from this pillar. In addition, sale and delivery was completed of a vending solution for airports which contributed largely to the sales revenue of our multimedia hardware for this past quarter. Also, paid contracts were entered into with liquor stores leading to first revenue from the process of age verification itself.

 

COST OF SALES

 

Cost of sales decreased by $34,163 or nearly 16% to $184,592 during the nine months ended June 30, 2012 from $218,755 during the same period in 2011. Cost of sales consisted of telecommunication costs of $42,131 (2011: $31,283), kiosk support costs of $40,017 (2011: $22,141), cost of machines $56,130 (2011: $0), calling credit costs $11,791 (2011: $20,730), photo print costs $830 (2011: 1,622) and inventory write down of $33,693 (2011: $142,979).

 

This decrease in cost of sales is directly attributable to a significant decrease in the inventory write down somewhat offset by an increase in the cost of machines associated with the new installations as previously mentioned above.

 

The cost of sales are primarily derived from the cost of machines as well as from maintaining the contracts previously mentioned which provide the Company with the technical acceptance, market exposure and credibility required upon which to base the new service offering.  The allocation of such costs are in line with the Company’s strategic plan. These expenditures have been efficient in achieving the results to date in the area of technical adaptation to market requirements, market exposure and user acceptance. The Company expects its costs of sales to increase in line with the installations of Ageviewers in supermarkets under the new commercial conditions.

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

Selling, general and administrative expenses have decreased by $513,983 or 23.4% to $1,686,732 during the nine months ended June 30, 2012 as compared to $2,200,715 for the comparable period in 2011. This decrease in selling, general and administrative expenses is primarily due to the reduction of outside professional services related to the Company’s acquisition of HEM as well as a reduction in the cost of existing and ongoing professional services.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At June 30, 2012 and September 30, 2011, Teleconnect Inc. had negative working capital of approximately $10,620,000 and $10,107,000, respectively.  This decrease of working capital is primarily a result of our net loss of approximately $2,990,000 adjusted for depreciation and amortization of approximately $955,000 offset by approximately $951,000 raised through the sale of the Company’s common stock and approximately $358,000 in foreign currency translations losses during the nine months ended June 30, 2012.

 

The ability of the Company to satisfy its obligations and to continue as a going concern will depend on raising funds through the sale of additional shares of its common stock, increase borrowing, and 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 the sale of Common Stock.

 

12
 

 

The Company intends to look for additional equity 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 debt and for working capital.  

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

During the nine months ended June 30, 2012, the Company sold 1,072,297 shares of its common stock for $950,655 to qualified investors. These shares were issued subsequent to quarter end.

 

In February, March and May 2012 the Company received a total of $214,030 in bridge loans from a potential investor. The loans are due on demand and do not accrue interest.

 

13
 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures and internal controls that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures and internal controls, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures and internal controls.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  

 

As required by the Securities and Exchange Commission Rule 13a-15(e) and Rule 15d-15(e), we carried out an evaluation, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Controls over Financial Reporting

 

There have not been any changes in our internal controls over financial reporting during the nine months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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. During the third fiscal quarter of 2012, the Company continues its legal actions in The Netherlands against parties which owe money to the Company. In one of these cases, relating to the Company’s past telecommunications business, a party filed a counterclaim against the Company. There have been no new developments in this case. 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

 

None

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the nine months ended June 30, 2012, the Company sold 1,072,297 shares of its common stock for $950,655 to qualified investors; these shares are subscribed but unissued as of the date of filing.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

14
 

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

31.1   Certification of  Dirk L. Benschop, Director,  Chief  Executive Office, President, Treasurer
31.2   Certification of  Leslie G. Pettitt, Director, Chief Financial Officer and principal accounting officer
32.1   Certification of  Dirk L. Benschop and Leslie G. Pettitt

 

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.

 

    Teleconnect Inc.
     
Date: August 14, 2012 By: /s/ Dirk L. Benschop
    Dirk L. Benschop
    Director, Chief  Executive Officer, President and Treasurer
     
    Teleconnect Inc.
     
Date: August 14, 2012 By: /s/ Leslie G. Pettitt
    Leslie G. Pettitt
    Director, Chief  Financial Officer and principal accounting officer

 

INDEX TO EXHIBITS

 

Exhibit

 

No. Description
   
31.1 Certification of Dirk Benschop, Director, Chief  Executive Office, President, Treasurer
   
31.2

Certification of Leslie G. Pettitt, Director, Chief Financial Officer and principal accounting officer

   
32.1 Certification of Dirk Benschop and Leslie G. Pettitt

 

15

 

PINX:TLCO Teleconnect Inc Quarterly Report 10-Q Filling

Teleconnect Inc PINX:TLCO Stock - Get Quarterly Report SEC Filing of Teleconnect Inc PINX:TLCO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:TLCO Teleconnect Inc Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:TLCO Teleconnect Inc Quarterly Report 10-Q Filing - 3/31/2012  |  Next: PINX:TLLE Annual Report 10-K Filing - 5/31/2012