**U.S.
      Securities and Exchange Commission**


Washington,
      DC 20549





**FORM
      10-QSB**





**x** **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended June 30, 2007





**o** **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE**


**EXCHANGE
      ACT**





For
      the
      transition period from __________ to __________





*Commission
      File Number 000-13822*





**NAYNA
      NETWORKS, INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
            
            **83-0210455**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)





4699
      Old Ironsides Drive, Suite 420, Santa Clara, California 95054


(Address
      of principal executive offices)





Registrant's
      telephone number, including area code (408) 956-8000








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. x Yes o No





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date.





Common
      stock, par value $0.0001, 91,662,663 shares outstanding as of June 30,
      2007.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x








**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**NAYNA
      NETWORKS, INC.**


(a
      development stage enterprise)


**CONSOLIDATED
      BALANCE SHEET**


(in
      thousands, except share and per share data)


(Unaudited)





**June
                30,**
              **2007**
            
            **June
                30,**
              **2006****(Unaudited)****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            145
            
            $
            52Restricted
                cash
            
            
            
            
            
            44Accounts
                receivable, net of allowances of $374 for bad debts
            
            
            713
            
            
            478Prepaid
                expenses and other current assets
            
            
            99
            
            
            95Total
                current assets
            
            
            957
            
            
            668Property
                and equipment, net
            
            
            795
            
            
            95Goodwill
            
            
            20,538
            
            
            3,046Other
                assets
            
            
            419
            
            
            432Total
                assets
            
            $
            22,708
            
            $
            4,240**Liabilities
                and stockholders’ equity**Current
                liabilities:Accounts
                payable and current liabilities
            
            $
            21,308
            
            $
            5,818Notes
                payable
            
            
            1,020
            
            
            2,322Notes
                payable to related parties
            
            
            927Secured
                notes payable
            
            
            2,536
            
            
            464Derivative
                liability related to acquisitionConvertible
                debt derivatives
            
            
            2,709
            
            
            2,895Warranty
                liability
            
            
            13
            
            
            87Total
                current liabilities
            
            
            28,514
            
            
            11,586Long
                term liabilitiesDeferred
                gain, less current portionLong
                term capital lease, less current portion
            
            
            5Total
                long-term liabilities
            
            
            5Total
                liabilities
            
            
            28,519
            
            
            11,586**Stockholders’
                equity:**Common
                Stock: $0.001 par value, 1,000,000,000 shares authorized at March
                31, 2007
                and 47,829,463 shares issued and outstanding as of March 31,
                2007
            
            
            9
            
            
            4Additional
                paid-in-capital
            
            
            67,975
            
            
            60,709Deferred
                stock option compensation
            
            
            
            
            
            (530
            )Deficit
                accumulated during the development stage
            
            
            (73,795
            )
            
            (67,529
            )Total
                stockholders’ (deficit) equity
            
            
            (5,810
            )
            
            (7,346
            )Total
                liabilities and stockholders’ equity
            
            $
            22,708
            
            $
            4,240




See
      accompanied notes to these unaudited condensed consolidated financial
      statements








**NAYNA
      NETWORKS, INC.**


(a
      development stage enterprise)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(in
      thousands, except share and per share data)


(Unaudited)




**Three
                Months Ended June 30,**
            
            **Cumulative
                Period from February 10, 2000 (date of inception)
                to****2006**
            
            **2005**
            
            **June
                30, 2007**Revenues
            
            $
            4,779
            
            $
            19
            
            $
            5,812Cost
                of goods
            
            
            1,785
            
            
            48
            
            
            2,309Gross
                profit
            
            
            2,994
            
            
            (29
            )
            
            3,503Operating
                expenses:Research
                and development
            
            
            81
            
            
            485
            
            
            44,182Business
                development
            
            
            2,001
            
            
            115
            
            
            5,936General
                and administrative
            
            
            1,009
            
            
            889
            
            
            14,302Goodwill
                impairment
            
            
            (286
            )
            
            
            
            
            10,362Total
                operating expenses
            
            
            2,805
            
            
            1,499
            
            
            74,782Income
                (loss) from operations
            
            
            189
            
            
            (1,528
            )
            
            (71,279
            )Unrealized
                gain (loss) related to derivative and warrant liability
            
            
            2,583
            
            
            245
            
            
            (2,669
            )Interest
                expense, net
            
            
            19
            
            
            (97
            )
            
            1,095Gain
                (loss) on sale of assets
            
            
            
            
            
            53
            
            
            330Net
                income (loss)
            
            $
            2,753
            
            $
            (1,328
            )
            $
            (72,523
            )Weighted
                shares outstandingBasic
                and diluted
            
            
            70,697,554
            
            
            42,497,198Net
                income (loss) per share:Basic
                and diluted
            
            $
            0.039
            
            $
            (0.031
            )










See
      accompanied notes to these unaudited condensed consolidated financial
      statements











**NAYNA
      NETWORKS, INC.**


(a
      development stage enterprise)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(in
      thousands, except share and per share data)


(Unaudited)




**Six
                Months Ended June 30,**
            
            **Cumulative
                Period from February 10, 2000 (date of inception)
                to****2006**
            
            **2005**
            
            **June
                30, 2007**Revenues
            
            $
            5,332
            
            $
            336
            
            $
            5,812Cost
                of goods
            
            
            1,985
            
            
            317
            
            
            2,309Gross
                profit
            
            
            3,347
            
            
            19
            
            
            3,503Operating
                expenses:Research
                and development
            
            
            193
            
            
            1,200
            
            
            44,182Business
                development
            
            
            2,135
            
            
            288
            
            
            5,936General
                and administrative
            
            
            1,915
            
            
            2,286
            
            
            14,302Goodwill
                impairment
            
            
            (286
            )
            
            
            
            
            10,362Total
                operating expenses
            
            
            3,956
            
            
            3,733
            
            
            74,782Income
                (loss) from operations
            
            
            (609
            )
            
            (3,754
            )
            
            (71,279
            )Unrealized
                gain (loss) related to derivative and warrant liability
            
            
            12,414
            
            
            784
            
            
            (2,669
            )Interest
                expense, net
            
            
            118
            
            
            (214
            )
            
            1.095Gain
                (loss) on sale of assets
            
            
            
            
            
            105
            
            
            330Net
                income (loss)
            
            $
            11,923
            
            $
            (3,080
            )
            $
            (72,523
            )Weighted
                shares outstandingBasic
                and diluted
            
            
            59,203,009
            
            
            40,255,219Net
                income (loss) per share:Basic
                and diluted
            
            $
            0.201
            
            $
            (0.008
            )










See
      accompanied notes to these unaudited condensed consolidated financial
      statements







**NAYNA
      NETWORKS, INC.**


(a
      development stage enterprise)


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(in
      thousands, except share and per share data)


(Unaudited)







**Cumulative****Period
                from****February
                10,****2000
                (date of****inception)
                to****3
                Months Ended June 30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            2,753
            
            $
            (1,328
            )
            
            (72,759
            )Adjustments
                to reconcile net loss to net cash used in operations:Depreciation
            
            
            23
            
            
            305
            
            
            2,312Gain (loss) on sale of property and equipment
            
            
            
            
            
            (53
            )
            
            784Impairment of goodwill and other intangible assets related to
                acquisitions
            
            
            (286
            )
            
            
            
            
            10,362Noncash charges related to stock options
            
            
            
            
            
            77
            
            
            1,244Noncash charges related to issuance of common stock for legal and
                professional services
            
            
            0
            
            
            
            
            
            843Noncash interest expense related to issuance of convertible
                debt
            
            
            (19
            )
            
            
            
            
            415Unrealized loss (gain) related to adjustment of derivative and warrant
                liability to fair value of underlying securities
            
            
            (2,583
            )
            
            (245
            )
            
            2,669Amortization of financing costs
            
            
            (119
            )
            
            19
            
            
            (138
            )Amortization of discount on warrants associated with equipment
                financing
            
            
            
            
            
            
            
            
            202Changes in operating assets and liabilities:Restricted
                cash
            
            
            
            
            
            
            
            
            (121
            )Accounts
                receivable
            
            
            12
            
            
            (242
            )
            
            (521
            )Prepaid
                expenses and other current assets
            
            
            226
            
            
            (46
            )
            
            (128
            )Other
                assets
            
            
            356
            
            
            55
            
            
            (213
            )Accounts
                payable and accrued liabilities
            
            
            5,894
            
            
            856
            
            
            32,172Net cash used in operating activities
            
            $
            6,257
            
            $
            (601
            )
            $
            (22,877
            )**Cash
                flows from investing activities:**Purchase of property and equipment
            
            $
            
            
            $
            (6
            )
            $
            (369
            )Proceeds from sale of property and equipment
            
            
            
            
            
            
            
            
            1,076Costs associated with acquisition of ProSAT
            
            
            (2,714
            )
            
            
            
            
            (22,366
            )Costs
                associated with acquisition of Xpeed, Inc.
            
            
            
            
            
            
            
            
            (3,685
            )Net cash provided (used) in investing activities
            
            $
            (2,714
            )
            $
            (6
            )
            $
            (25,344
            )**Cash
                flows from financing activities:**Loan proceeds
            
            $
            (580
            )
            $
            231
            
            $
            1,005Payments on capital lease obligations and loan facility
            
            
            
            
            
            
            
            
            (5,735
            )Proceeds from issuance of common stock, net of repurchases
            
            
            5
            
            
            4
            
            
            254Proceeds from issuance of Series A redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            -
            
            
            11,953Proceeds from issuance of Series B redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            -
            
            
            35,897Proceeds from issuance of Series D redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            
            
            
            3,399Proceeds from (payments to) issuance of convertible debt
            
            
            (5,742
            )
            
            
            
            
            (4,276
            )Proceeds from (payments to) issuance of secured notes
            
            
            2,473
            
            
            
            
            
            5,447Net cash provided (used) by financing activities
            
            $
            (3,844
            )
            $
            235
            
            $
            47,944Net
                decrease in cash and cash equivalents
            
            $
            (302
            )
            $
            (372
            )
            $Cash
                and cash equivalents at beginning of period
            
            $
            447
            
            $
            424
            
            $Cash
                and cash equivalents at end of period
            
            $
            145
            
            $
            52
            
            $**Non-cash
                financing activities**Conversion of preferred stock into common
            
            $
            
            
            $Shares issued upon conversion of debentures
            
            $
            687
            
            $Shares issued for purchase of intangibles
            
            $
            
            
            $Shares issued for services or settlement of claims
            
            $
            2,980
            
            $
            650





*Accompanied
      notes are an integral part of these financial statements.*







**NAYNA
      NETWORKS, INC.**


(a
      development stage enterprise)


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(in
      thousands, except share and per share data)


(Unaudited)







**Cumulative****Period
                from****February
                10,****2000
                (date of****inception)
                to****6
                Months Ended June 30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            $
            11,688
            
            $
            (3,080
            )
            
            (72,759
            )Adjustments
                to reconcile net loss to net cash used in operations:Depreciation
            
            
            (1,997
            )
            
            677
            
            
            2,312Gain (loss) on sale of property and equipment
            
            
            
            
            
            (105
            )
            
            784Impairment of goodwill and other intangible assets related to
                acquisitions
            
            
            (286
            )
            
            
            
            
            10,362Noncash charges related to stock options
            
            
            566
            
            
            
            
            
            1,244Noncash charges related to issuance of common stock for legal and
                professional services
            
            
            0
            
            
            178
            
            
            843Noncash interest expense related to issuance of convertible
                debt
            
            
            (118
            )
            
            122
            
            
            415Unrealized loss (gain) related to adjustment of derivative and warrant
                liability to fair value of underlying securities
            
            
            (12,414
            )
            
            (784
            )
            
            2,669Amortization of financing costs
            
            
            (220
            )
            
            19
            
            
            (138
            )Amortization of discount on warrants associated with equipment
                financing
            
            
            
            
            
            
            
            
            202Changes in operating assets and liabilities:Restricted
                cash
            
            
            44
            
            
            
            
            
            (121
            )Accounts
                receivable
            
            
            (478
            )
            
            (451
            )
            
            (521
            )Prepaid
                expenses and other current assets
            
            
            (37
            )
            
            (15
            )
            
            (128
            )Other
                assets
            
            
            74
            
            
            87
            
            
            (213
            )Accounts
                payable and accrued liabilities
            
            
            28,229
            
            
            910
            
            
            32,172Net cash used in operating activities
            
            $
            25,050
            
            $
            (2,442
            )
            $
            (22,877
            )**Cash
                flows from investing activities:**Purchase of property and equipment
            
            $
            882
            
            $
            (11
            )
            $
            (369
            )Proceeds from sale of property and equipment
            
            
            
            
            
            
            
            
            1,076Costs associated with acquisition of ProSAT
            
            
            (22,366
            )
            
            
            
            
            (22,366
            )Costs
                associated with acquisition of Xpeed, Inc.
            
            
            
            
            
            
            
            
            (3,685
            )Net cash provided (used) in investing activities
            
            $
            (21,484
            )
            $
            (11
            )
            $
            (20,399
            )**Cash
                flows from financing activities:**Loan proceeds
            
            $
            (580
            )
            $
            703
            
            $
            1,005Payments on capital lease obligations and loan facility
            
            
            
            
            
            
            
            
            (5,735
            )Proceeds from issuance of common stock, net of repurchases
            
            
            5
            
            
            20
            
            
            254Proceeds from issuance of Series A redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            -
            
            
            11,953Proceeds from issuance of Series B redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            -
            
            
            35,897Proceeds from issuance of Series D redeemable convertible preferred
                stock,
                net of issuance costs
            
            
            
            
            
            
            
            
            3,399Proceeds from (payments to) issuance of convertible debt
            
            
            (5,742
            )
            
            
            
            
            (4,276
            )Proceeds from (payments to) issuance of secured notes
            
            
            2,473
            
            
            
            
            
            5,447Net cash provided (used) by financing activities
            
            $
            (3,844
            )
            $
            723
            
            $
            47,944Net
                decrease in cash and cash equivalents
            
            $
            (279
            )
            $
            (1,138
            )
            $Cash
                and cash equivalents at beginning of period
            
            $
            424
            
            $
            1,782
            
            $Cash
                and cash equivalents at end of period
            
            $
            145
            
            $
            52
            
            $**Non-cash
                financing activities**Conversion of preferred stock into common
            
            $
            
            
            $Shares issued upon conversion of debentures
            
            $
            37
            
            $
            2,339Shares issued for purchase of intangibles
            
            $
            
            
            $
            1,150Shares issued for services or settlement of claims
            
            $
            2,980
            
            $
            674





*Accompanied
      notes are an integral part of these financial statements.*





**NOTE
      1: THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**








**The
      Company**





Nayna
      Networks, Inc., (the “Company” or “Nayna”), is engaged in the development of
      next-generation broadband access networking solutions, also known as Ethernet
      in
      the First Mile for the secure communications market and its principal product
      is
      ExpressSTREAM. Through its recent acquisition, ProSAT Communications, LLC,
      (ProSAT) the company now provides residential broadband satellite solutions.
      The
      company, together with the companies it has acquired, has raised more than
      $65
      million in venture capital investment over the six years of its existence,
      substantially all of which has been spent on research and development
      activities. The current company was formed in April 2005 as a result of a merger
      and plan of reorganization between Rescon Technology Corporation (“Rescon”), a
      Nevada corporation and publicly traded company and Nayna Networks, Inc., a
      Delaware corporation and a private company (“Nayna Delaware”). Following the
      merger, Rescon Technology Corporation changed its name to Nayna Networks, Inc.
      (“Nayna”)





The
      Company has incurred losses since its inception, however, the recent acquisition
      of ProSAT has allowed the Company to achieve profitability. The Company
      anticipates that it will be able to generate sufficient cash flows from
      operations to support its operations. In order to fund its growth opportunities,
      the Company plans to raise additional capital during 2007. Failure to generate
      sufficient cash flows from operations, raise additional financing or reduce
      certain discretionary spending could have a material adverse effect on the
      Company’s ability to continue as a going concern and to achieve its intended
      business objectives. The accompanying financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





**Development
      Stage**





Although
      the Company has commenced its principal operations, it has not achieved a
      sufficient level of sales and market demand to become an established operating
      enterprise prior to the acquisition of ProSAT. Therefore, as per the Statement
      of Financial Accounting Standards (“SFAS”) No.7, “Accounting and Reporting by
      Development Stage Enterprises”, the Company was classified as a development
      stage enterprise. For this quarterly report, the Company is presenting its
      financial statements in accordance with Statement of Financial Accounting
      Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage
      Enterprises”. Successful completion of the Company’s developmental program and,
      ultimately, the attainment of profitable operations are dependent upon future
      events, including future financing, successfully completing product development,
      and achieving a sufficient level of sales and market demand to become an
      established operating enterprise. The acquisition of ProSAT will cause an
      evaluation of the Company’s status as a development stage enterprise. However,
      there can be no assurance that the Company will be able to maintain profitable
      operations.





**Basis
      of Presentation**





The
      accompanying condensed consolidated financial statements are unaudited, as
      permitted pursuant to the rules and regulations of the Securities and Exchange
      Commission (the "Commission"). Certain information and disclosures normally
      included in financial statements prepared in accordance with accounting
      principals generally accepted in the United States have been condensed or
      omitted. These interim condensed consolidated financial statements include
      all
      adjustments, which in the opinion of management, are necessary in order to
      make
      the condensed consolidated financial statements not misleading.





The
      information contained herein has been prepared by the Company in accordance
      with
      the rules of the Commission. The financial information contained herein as
      of
      June 30, 2007, for the three months and six months ended June 30, 2007 and
      2006,
      and for the cumulative period from February 10, 2000 (date of inception) to
      June
      30, 2007 is unaudited. The condensed consolidated financial statements reflect
      all adjustments, consisting of only normal recurring accruals, which are, in
      the
      opinion of management, necessary for a fair statement of the results of the
      interim periods presented. The results of the Company's operations for any
      interim period are not necessarily indicative of the results of the Company's
      operations for any other interim period or for a full year.





***All
      amounts set forth in these Notes to the Condensed Consolidated Financial
      Statements are in thousands (`000s), except share and per share data (except
      where specifically noted otherwise*** *)* ***.***





**Revenue
      Recognition**





The
      Company’s revenue recognition policy is consistent with applicable revenue
      recognition guidance and interpretations, including the requirements of Emerging
      Issues Task Force Issue No. 00-21 (“EITF 00-21”), Revenue Arrangements with
      Multiple Deliverables, Statement of Position 97-2 (“SOP 97-2”), Software Revenue
      Recognition, Statement of Position 81-1 (“SOP 81-1”) Accounting for Performance
      of Construction-Type and Certain Production Type Contracts, Staff Accounting
      Bulletin No. 104 (“SAB 104”), Revenue Recognition, and other applicable revenue
      recognition guidance and interpretations.




The
      Company records revenue when all four of the following criteria are met: (i)
      persuasive evidence that an arrangement exists; (ii) delivery of the products
      and/or services has occurred; (iii) the selling price is fixed or determinable,
      and (iv) collectibility is reasonably assured. Cash received in advance of
      revenue recognition is recorded as deferred revenue.







Revenue
      arrangements with multiple deliverables are evaluated to determine if the
      deliverables can be divided into more than one unit of accounting. An item
      can
      generally be considered a separate unit of accounting if all of the following
      criteria are met:




The
      delivered item(s) has value to the customer on a standalone basis; there is
      objective and reliable evidence of the fair value of the undelivered item(s);
      and if the arrangement includes a general right of return relative to the
      delivered item(s), delivery or performance of the undelivered item(s) is
      considered probable and substantially in the control of the
      Company.




Items
      which do not meet these criteria are combined into a single unit of accounting.
      If there is objective and reliable evidence of fair value for all units of
      accounting, the arrangement consideration is allocated to the separate units
      of
      accounting based on their relative fair values. In cases where there is
      objective and reliable evidence of the fair value(s) of the undelivered item(s)
      in an arrangement but no such evidence for one or more of the delivered item(s),
      the residual method is used to allocate the arrangement consideration. In cases
      in which there is not objective and reliable evidence of the fair value(s)
      of
      the undelivered item(s), the Company defers all revenue for the arrangement
      until the period in which the last item is delivered.




For
      revenue arrangements with multiple deliverables, upon shipment, devices, the
      Company has fair value for all remaining undelivered elements and recognizes
      the
      residual amount within the arrangement as revenue for the delivered items as
      prescribed in EITF 00-21. Revenues for the Company’s arrangements that include
      multiple elements are allocated to each undelivered element based on the fair
      value of each element. Fair value is determined based on the price charged
      when
      each element is sold separately and/or the price charged by third parties for
      similar services.




Net
      revenues from services such as customer support are initially deferred and
      then
      recognized on a straight-line basis over the term of the contract. Net revenues
      from services such as installations, equipment repairs, refurbishment
      arrangements, training and consulting are recognized as the services are
      rendered.





**Allowance
      for doubtful accounts**





The
      Company records its allowance for doubtful accounts based upon its assessment
      of
      various factors. The Company considers historical experience, the age of the
      accounts receivable balances, the credit quality of its customers, current
      economic conditions and other factors that may affect customers’ ability to pay
      to determine the level of allowance required. ******





**Principals
      of Consolidation**





The
      consolidated financial statements have been prepared in accordance with
      accounting policies generally accepted in the United States of America and
      include the Company and its wholly owned subsidiaries. All inter-company
      transactions have been eliminated.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions. These estimates and assumptions affect the reported
      amounts of assets, liabilities, revenues, expenses and disclosures of contingent
      assets and liabilities at the date of the financial statements. Significant
      estimates include revenue recognition, inventory valuation, useful lives and
      the
      valuation of long-lived assets. Actual results could differ from these
      estimates. Additionally, a change in the facts and circumstances surrounding
      these estimates could result in a change to the estimates and could impact
      future results.








**Inventory
      Valuation**





As
      a
      development stage enterprise, the Company expenses all inventories to research
      and development until such time as commercial revenues may
      commence.





**Impairment
      of Long-Lived Assets**





The
      Company evaluates its long-lived assets, including property and equipment,
      for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. When the sum of the present
      value of future net cash flows expected to result from the use of the asset
      and
      its eventual disposition is less than its carrying amount, an impairment loss
      would be measured based on the discounted cash flows compared to the carrying
      amount.





**Cash
      and Cash Equivalents**





For
      purposes of the statement of cash flows, the Company considers all instruments
      with an original maturity of three months or less to be cash
      equivalents.





**Property
      and Equipment**





Property
      and equipment are stated at cost less accumulated depreciation. Depreciation
      expense is determined using the straight-line method over the estimated useful
      lives of the respective assets, which are generally three to five years for
      computers, equipment and furniture. Depreciation on leasehold improvements
      is
      provided using the straight-line method over the shorter of the estimated useful
      lives of the improvements or the lease term. Expenditures for maintenance and
      repairs are charged to operating expense as incurred. Upon retirement or sale,
      the original cost and related accumulated depreciation are removed from the
      respective accounts, and the gains and losses are included in other income
      or
      expense. The Company evaluates its long-lived assets, including property and
      equipment, for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable.





**Goodwill
      and other intangible assets**





In
      July
      2001, the FASB issued Statement of Financial Accounting Standards No. 142,
      "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 requires goodwill
      to be tested for impairment on an annual basis and between annual tests in
      certain circumstances, and written down when impaired, rather than being
      amortized as previous accounting standards required. Furthermore, SFAS 142
      requires purchased intangible assets other than goodwill to be amortized over
      their useful lives unless these lives are determined to be
      indefinite.




Intangible
      assets other than goodwill are carried at cost less accumulated amortization.
      Intangible assets are generally amortized on a straight-line basis over the
      useful lives of the respective assets, generally two to seven years. Long-lived
      assets and certain identifiable intangible assets to be held and used are
      reviewed for impairment whenever events or changes in circumstances indicate
      that the carrying amount of such assets may not be recoverable. Determination
      of
      recoverability is based on an estimate of undiscounted future cash flows
      resulting from the use of the asset and its eventual disposition. Measurement
      of
      any impairment loss for long-lived assets and certain identifiable intangible
      assets that management expects to hold and use is based on the amount the
      carrying value exceeds the fair value of the asset.




Goodwill
      is carried at cost. Goodwill is not amortized but is subject to an annual test
      for impairment at the reporting unit level (operating segment) and between
      annual tests in certain circumstances. The performance of the test involves
      a
      two-step process. The first step of the impairment test involves comparing
      the
      fair value of the Company’s reporting units with the reporting unit’s carrying
      amount, including goodwill. The Company generally determines the fair value
      of
      its reporting units using the expected present value of future cash flows,
      giving consideration to the market valuation approach. If the carrying amount
      of
      a reporting unit exceeds the reporting unit’s fair value, the Company performs
      the second step of the goodwill impairment test to determine the amount of
      impairment loss, if any.





**Business
      and Credit Risk**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of cash, cash equivalents invested in deposits and trade
      receivables. The Company has not experienced any losses on its deposits of
      cash
      and cash equivalents. Management believes that the institutions are financially
      sound and, accordingly, minimal credit risk exists. The carrying values reported
      in the balance sheets for cash, cash equivalents and trade receivables
      approximate their fair values.





**Research
      and Development**





The
      Company accounts for research and development costs in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 2, “Accounting for Research and
      development Costs,” and, accordingly, the Company expenses research and
      development costs when incurred.







**Income
      Taxes**





The
      Company recognizes deferred tax assets and liabilities for operating loss
      carryforwards, tax credit carryforwards and the estimated future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases. Deferred tax assets and liabilities are measured using enacted tax rates
      in effect for the year in which the temporary differences are expected to be
      recovered or settled. A valuation allowance is recorded to reduce the carrying
      amounts of net deferred tax assets if there is uncertainty regarding their
      realization.





**Stock-Based
      Compensation**





Prior
      to
      January 1, 2006, the Company accounted for employee stock-based compensation
      using the intrinsic value method supplemented by pro forma disclosures in
      accordance with Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees” (“APB 25”) and SFAS No. 123, “Accounting for
      Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting
      for Stock-Based Compensation - Transition and Disclosure - an amendment of
      FASB
      Statement No. 123” (“SFAS 148”). Under the intrinsic value method, the recorded
      stock-based compensation expense was related to the amortization of the
      intrinsic value of stock options and other stock-based awards issued by the
      Company. Options granted with exercise prices equal to the grant date fair
      value
      of the Company’s stock have no intrinsic value and therefore no expense was
      recorded for these options under APB 25.





Effective
      January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective
      approach and accordingly prior periods have not been restated to reflect the
      impact of SFAS 123(R). Under SFAS 123(R), stock-based awards granted prior
      to
      its adoption are expensed over the remaining portion of their service period.
      These awards are expensed under an accelerated amortization approach using
      the
      same fair value measurements which were used in calculating the expense under
      SFAS 123. For stock-based awards granted on or after January 1, 2006, the
      Company records stock-based compensation expense on a straight-line basis over
      the requisite service period, generally one to four years. SFAS 123(R) required
      that the deferred stock-based compensation on the consolidated balance sheet
      on
      the date of adoption be netted against additional paid-in-capital. As of
      December 31, 2005, there was a balance of $684 of deferred stock-based
      compensation that was netted against additional paid-in-capital on January
      1,
      2006.





SFAS
      123R
      requires forfeitures to be estimated at the time of grant and revised, if
      necessary, in subsequent periods if actual forfeitures differ from initial
      estimates. Stock-based compensation expense was recorded net of estimated
      forfeitures for the three months ended March 31, 2007 such that expense was
      recorded only for those stock-based awards that are expected to vest. Total
      stock-based compensation for the three months ended June 30, 2007 was
      $233.





**Income
      (loss) per common share**





Income
      (loss) per common share is calculated based on the consolidated net income
      (loss) for the period divided by the weighted average number of common shares
      outstanding as of June 30, 2007 and 2006. Common stock equivalents are not
      included, as their effect would be antidilutive.





**Reclassifications**





Certain
      amounts relating to the prior year’s consolidated balance sheets have been
      reclassified to conform to the current year presentation.





**Recent
      Accounting Pronouncements**




In
      May
      2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No.
      154,
      "Accounting Changes and Error Corrections, a replacement of APB Opinion No.
      20
      and FASB Statement No. 3." SFAS 154 requires retrospective application to prior
      periods' unaudited financial statements for changes in accounting principle,
      unless it is impracticable to determine either the period-specific effects
      or
      the cumulative effect of the change. SFAS 154 also requires that retrospective
      application of a change in accounting principle be limited to the direct effects
      of the change. Indirect effects of a change in accounting principle, such as
      a
      change in non-discretionary profit-sharing payments resulting from an accounting
      change, should be recognized in the period of the accounting change. SFAS 154
      also requires that a change in depreciation, amortization, or depletion method
      for long-lived, non-financial assets be accounted for as a change in accounting
      estimate affected by a change in accounting principle. SFAS 154 is effective
      for
      accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. Early adoption is permitted for accounting changes
      and
      corrections of errors made in fiscal years beginning after the date this
      Statement is issued. The Company does not expect the adoption of this SFAS
      to
      have a material impact on its consolidated financial position, results of
      operations or cash flows.




On
      February 16, 2006 the FASB issued SFAS 155, "Accounting for Certain Hybrid
      Instruments," which amends SFAS 133, "Accounting for Derivative Instruments
      and
      Hedging Activities," and SFAS 140, "Accounting for Transfers and Servicing
      of
      Financial Assets and Extinguishments of Liabilities." SFAS 155 allows financial
      instruments that have embedded derivatives to be accounted for as a whole
      (eliminating the need to bifurcate the derivative from its host) if the holder
      elects to account for the whole instrument on a fair value basis. SFAS 155
      also
      clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This
      statement is effective for all financial instruments acquired or issued in
      fiscal years beginning after September 15, 2006. The Company does not expect
      its
      adoption of this new standard to have a material impact on its financial
      position, results of operations or cash flows.





In
      June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes— an
      Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the
      accounting for uncertainty in income tax positions. This Interpretation requires
      that the Company recognize in its financial statements the impact of a tax
      position if that position is more likely than not of being sustained on audit,
      based on the technical merits of the position. The provisions of FIN 48 became
      effective for the Company on January 1, 2007, with the cumulative effect of
      the
      change in accounting principle, if any, recorded as an adjustment to opening
      retained earnings. The Company is currently evaluating the impact of adopting
      FIN 48 and its impact on its financial position, cash flows, and results of
      operations.








In
      September 2006, the Securities and Exchange Commission (“SEC”) released SAB No.
      108, “Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108
      provides interpretive guidance on the SEC’s views on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. The Company adopted SAB 108 during
      the
      fourth quarter of 2006. The adoption did not have a material impact on the
      Company’s financial position, cash flows, or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”), which clarifies the definition of fair value, establishes guidelines for
      measuring fair value, and expands disclosures regarding fair value measurements.
      SFAS 157 does not require any new fair value measurements and eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      SFAS 157 will be effective for the Company on January 1, 2008. The Company
      is
      currently evaluating the impact of adopting SFAS 157 but does not believe that
      the adoption of SFAS 157 will have a material impact on its financial position,
      cash flows, or results of operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities
      to choose to measure many financial instruments and certain other items at
      fair
      value that are not currently required to be measured at fair value. SFAS 159
      will be effective for the Company on January 1, 2008. The Company is currently
      evaluating the impact of adopting SFAS 159 on its financial position, cash
      flows, and results of operations.








**NOTE
      2: ACQUISITIONS**





***Reverse
      takeover of Nayna Networks, Inc. (a Delaware
      corporation)***





In
      April
      2005, the Company purchased intangible assets in connection with the acquisition
      of Nayna Networks, Inc. a Delaware corporation, and as purchase consideration
      issued 32,249,947 shares of common stock. The results of operations of the
      acquired company have been included in the condensed consolidated financial
      statements since that date.





SFAS
      NO.
      141 requires that all business combinations be accounted for by the purchase
      method and accordingly, it requires acquisition cost to be determined and
      allocated to assets acquired and liabilities assumed. Subsequent to the
      acquisition, the acquisition has been valued, by a third party, using the
      time-based value of the stock of Rescon as a basis, at $3,712. Since the company
      did not acquire any assets or liabilities of Rescon, the value assigned to
      the
      acquisition was allocated to intangible asset.





Based
      on
      the impairment tests performed using present value of future cash flows, the
      value of intangible asset acquired in April 2005 was considered impaired as
      of
      December 31, 2005. Accordingly, the Statement of Operations for the year ended
      December 31, 2005, included a charge of $3,712 for impairment of intangible
      asset.




***Acquisition
      of Depthcom 7, Inc. (“DC7”)***




In
      March
      2005, the Company acquired DC7, a privately owned shell company with no assets
      and liabilities. The merger was part of a fund-raising transaction structured
      to
      get private investment in Nayna Delaware. The Company issued 9,250,000 shares
      of
      common stock in anticipation of receiving funding promptly after the
      acquisition.




The
      shares issued have been recorded in accordance with the principles outlined
      in
      SFAS 123. The fair value of services received in this share-based transaction
      is
      more reliably measurable than the fair value of the shares issued. The
      management’s estimate of the fair value of services received is $0.93. In the
      first quarter of 2007, the Company received $100 and considers the matter
      closed.





***Acquisition
      of*** ***Abundance
      Networks, LLC***





On
      January 20, 2006, the Company completed the acquisition of substantially all
      of
      the assets, including all of its intellectual property and all outstanding
      capital stock of its wholly-owned subsidiary, Abundance Networks (India) Pvt.
      Ltd., or ANI India, and certain of the liabilities, including approximately
      $600
      of bank debt of ANI India, of Abundance Networks, LLC, or ANI, pursuant to
      the
      terms of an Asset Purchase Agreement. ANI India is now a wholly-owned subsidiary
      of the Company known as Nayna Networks Broadband, Inc. ANI had been a privately
      held company located in Shelton, Connecticut, that provided Ethernet over
      SONET/SDH, enterprise-class network products and services.





Under
      the
      terms of the Asset Purchase Agreement, substantially all of ANI's assets and
      certain of its liabilities were transferred to a wholly-owned subsidiary of
      the
      Company, and the Company issued shares of its common stock to ANI. At the
      closing, Nayna issued ANI 1,150,000 shares (the "Initial Issue") plus the number
      of shares obtained by dividing $500 by the average of the closing prices of
      the
      Company’s common stock during the twenty consecutive trading days ending one day
      prior to the closing date, as traded on the OTCBB, the actual shares issued
      were
      1,020,408 shares of common stock, or a total of 2,170,408. 350,000 of the shares
      (the "Indemnification Shares") are being held in escrow for fifteen months
      to
      satisfy any indemnification claims by the Company during such period (the
      "Indemnification Period"). Up to an additional 1,750,000 shares (the "Earnout
      Shares") may be issued to ANI, based on achievement of certain revenue and
      earnings milestones. If (a) on the one-year anniversary of the closing, the
      Original Issue shares do not have an average closing price of at least $2.00
      per
      share, or (b) on the conclusion of the Indemnification Period, the
      Indemnification Shares do not have an average closing price of at least $2.00
      per share, or (c) on the date that any of the Earnout Shares become due and
      issuable, any such Earnout Shares do not have an average closing price of at
      least $2.00 per share, such issuances are subject to a true-up calculation,
      whereby, the total number of shares issued may be adjusted by multiplying the
      original number of shares issued by $2.00 and dividing by the average of the
      closing prices of Nayna's common stock during the twenty consecutive trading
      days ending one day prior to the date of the adjustment , as traded on the
      OTCBB
      (or other national exchange) (each such adjustment, a
      "True-up").







On
      April
      17, 2007, the Company and Abundance entered into Amendment
      No. 2 to the Asset Purchase Agreement by and among us, Abundance Networks,
      Inc.,
      a Delaware corporation and wholly-owned subsidiary, Abundance Networks, LLC,
      a
      Delaware limited liability company and Abundance Networks (India) Pvt Ltd,
      an
      India private limited company which provides that we will issue 4,500,000 shares
      to Abundance in full satisfaction of all remaining obligations to issues stock
      under the original Asset Purchase Agreement. In
      that
      second amendment, the Parties agreed to delete the section in the Agreement
      that
      called for Nayna to issue more shares to Abundance in order to true up the
      Initial shares if the Average Closing Price of Nayna Common Stock for the
      twenty-day period prior to January 20, 2007 was not $2.00. The Parties also
      agreed to delete the section in the Agreement that called for Nayna to issue
      more shares to Abundance in order to true up the Indemnification shares if
      the
      Average Closing Price of Nayna Common Stock for the twenty-day period prior
      to
      April 20, 2007 was not $2.00. The Parties also agreed to delete the section
      in
      the Agreement that called for Nayna to issue more shares to Abundance if certain
      revenue and margin targets were met for the period January 20, 2006 through
      March 31, 2007. The Parties agreed that, in return, Nayna would issue Abundance
      4,500,000 shares of Nayna Common Stock on or before April 30, 2007. These shares
      were issued on April 27, 2007.




In
      connection with acquisition of Abundance **,** as
      of
      December 31, 2006, the Company recorded an additional $573 liability attributed
      to the changes in the fair market value for the True-Up shares that may be
      potentially issued, resulting in aggregate value of goodwill of $4,228.


As
      of
      December 31, 2006, the company also recorded charge of $1,103 in its
      Consolidated Statement of Operations for impairment of goodwill.





***Acquisition
      of ProSAT, LLC***





On
      March
      23, 2007, pursuant to the terms of a Membership Purchase Agreement, Nayna
      acquired all of the outstanding membership interests of Professional Satellite
      & Communications, LLC, (“ProSAT”), a privately held California limited
      liability company. Under the terms of the Membership Purchase Agreement, the
      Company agreed to issue 16 million restricted shares of common stock to the
      members of ProSAT. 2 million of which are being held in escrow for fifteen
      months to satisfy any indemnification claims by the Company during such period.
      The Company also agreed to issue 2 million shares in the form of stock options
      to current ProSAT employees.





As
      a
      result of the acquisition the Company has booked $17.4 million of goodwill
      and
      has issued the 18 million shares of common stock.





***Acquisition
      of Alarmco, LLC***





On
      March
      23, 2007, pursuant to the terms of a Membership Interest Purchase Agreement,
      Nayna acquired all of the outstanding membership interests of Alarmco, LLC,
      a
      privately held California limited liability closely associated with ProSAT.
      Under the terms of the Membership Purchase Agreement, the Company agreed to
      issue one thousand restricted shares of common stock to the members of Alarmco.





**NOTE
      3: PROPERTY AND EQUIPMENT**





Property
      and equipment consisted of the following at June 30, 2007 and June 30,
      2006:





**June
                30,**
              **2007**
            
            **June
                30,**
              **2006**Computer
                equipment
            
            
            1,558
            
            
            692Computer
                software
            
            
            1,360
            
            
            1,360Furniture
                and fixtures
            
            
            2
            
            
            22,820
            
            
            2,054Accumulated
                depreciation and amortization
            
            
            (2,025
            )
            
            (1,991
            )$
            795
            
            $
            95





**NOTE**  **4:
      NOTES PAYABLE**




***Notes
      Payable***




Notes
      payable at June 30, 2007 and 2006 consist of the following:




Jun.
                30, 2007
            
            Jun.
                30, 2006Short
                term bridge loan from accredited investors, interest payable at 8%
                per
                annum. In addition, the Company issued to the investors warrants
                to
                purchase 283,325 shares of common stock, none of which were exercised
                up
                to June 30, 2007.
            
            $
            680
            
            $
            580Short
                term bridge loan from related parties due June 30, 2007, interest
                payable
                at 8% per annum. In addition, the Company issued to the investors
                warrants
                to purchase 467,665 shares of common stock, none of which were exercised
                up to June 30, 2007. On June 26, 2007, the related parties agreed
                to
                convert this loan and the warrants into 3,997,354 shares of the Company’s
                common stock.
            
            
            0
            
            
            580Accrued
                interest on bridge loan
            
            
            144
            
            
            93Notes
                payable in connection with unsettled claims from acquisition of Xpeed
                in
                April 2003, unsecured ($85 due to related parties).
            
            
            310
            
            
            310Notes
                payable in connection with assumption of liability upon acquisition
                of
                Abundance Networks, Inc., unsecured
            
            
            179
            
            
            179Note
                payable to a foreign bank in connection with assumption of liability
                upon
                acquisition of Abundance Networks, Inc. and its foreign subsidiary.
                The
                note accrued interest at the rate of 15% and was secured by all the
                assets
                of the foreign subsidiary and the personal guarantees of several
                related
                parties. The bank foreclosed on the loan, and the Company now owes
                the
                balance to the related parties since the bank exercised its
                guarantees.
            
            
            691
            
            
            580Notes
                payable to six of nine convertible bond holders as a result of settlement
                agreements. These notes are secured by the Company’s intellectual
                property.
            
            
            2,536Total
                notes payable
            
            
            4,540
            
            
            2,322Less:
                current maturity
            
            
            (4,540
            )
            
            (2,322
            )$
            -
            
            $









In
      connection with above notes issued in 2005, the Company issued 750,990 warrants
      to purchase shares of common stock to the bridge loan investors. The warrant
      prices are fixed and were determined by using the average volume weighted share
      price for the ten (10) trading days prior to the receipt of the funding and
      range from $0.71 per share to $2.08 per share and expire three years from the
      date of the note. The fair value of the warrants was estimated using the
      Black-Scholes option pricing model and was recorded as warrant liability in
      accordance with the guidance under EITF 00-19. Assumptions used to value these
      warrants included that all warrants would be exercised on their respective
      expiration dates, using annualized volatility rate of 100%, and using risk
      free
      interest rate of 4.71%. As of June 30, 2007, warrant liability included the
      estimated fair value of these warrants of $9.





***Convertible
      Debentures***




On
      March
      27, 2006, the Company converted its convertible debt of $2,339 into 2,338,786
      shares of common stock at the conversion price of $1.00 per share. The
      conversion price exceeded the fair market value of the shares; therefore, the
      excess of $1,731 was recorded as a gain on conversion of debt in additional
      paid-in capital. Of the total shares issued 888,786 shares of common stock
      were
      issued to a related party.




***Callable
      Secured Convertible Notes***




In
      November 2005, the company entered into a securities purchase agreement which
      provides for the purchase and sale of callable secured convertible notes and
      warrants. Under the securities purchase agreement, the company will receive
      up
      to $4,800 upon issuance of a corresponding amount of the company’s 8% callable
      secured convertible notes and warrants to purchase up to an aggregate of
      2,400,000 shares of common stock. The conversion of the debt to common stock
      of
      the Company is at the option of the holder and may be exercised at any time.
      The
      notes were accompanied by a Registration Rights Agreement.




During
      2005, the Company received $2,974 ($3,200 net of financing costs) and issued
      1,600,000 five year $1.00 warrants, none of which have been exercised. The
      terms
      of the notes provide for full payment on or before the third anniversary date
      of
      issuance, with interest at the rate of 8% per annum. The company has the option
      to prepay (i) all of the outstanding principal and unpaid interest at any time
      if the common stock is trading at or below $0.75 per share and (ii) portion
      of
      the outstanding principal and unpaid interest at any time if the common stock
      is
      trading at or below $1.12 per share. The notes are convertible into common
      shares at the lesser of $0.68 or 55% of the market price of the Company’s common
      stock, as defined. Additionally, the notes are secured by intellectual
      properties owned by the company.





On
      May
      14, 2007, the Company entered into Satisfaction and Release Agreements
      (“Agreements”) with the six of the nine holders of the callable secured
      convertible notes and warrants (the “Lenders”). Under these Agreements, the
      Lenders and the Company have agreed that the Lenders shall accept an aggregate
      amount of $2,536 as settlement in satisfaction of the amounts owed to the
      Lenders. $380 (15%) of the aggregate amount is payable within 30 days of the
      date of the Agreements, and the remaining $2,156 is payable within 180 days
      of
      the date of the Agreements. As of June 30, 2007, the Company has not made its
      required payment of $380. In addition, the Company agrees to honor and the
      Lenders agrees to limit the exercise of their right of conversion to a number
      of
      shares which when combined with all shares obtained upon conversion of the
      Loan
      Documents by all of its affiliates (including any past conversions by each
      Lender or its affiliates) will not exceed, for each of the six Lenders, 4.99%
      of
      the total issued and outstanding shares of the Company as of December 31, 2006.
      The total amount of shares issued to the six Lenders was 7,630,091. The Lenders
      also agreed to waive any past, existing and future defaults under the original
      loan documents for a period of 180 days from the date of the Agreements.





The
      value
      of the notes held by the remaining three note holders is $600. The Company
      is
      working on Satisfaction and Release Agreements with these note
      holders.




**NOTE
      4: RELATED PARTY TRANSACTIONS**




Prior
      to
      the reverse merger in April 2005, Nayna Delaware settled liabilities of $906
      assumed in connection with an acquisition in 2003 to a member of the Board
      of
      Directors of Nayna Delaware and his affiliates, by paying $334 in cash in 2004
      and issuing convertible notes of $589 in 2005. Nayna Delaware also borrowed
      $300
      in 2004 from the same related party upon issuance of convertible debt and $580
      in 2005 as a part of bridge loan. The related party converted all of the bridge
      loan into common stock on June 26, 2007.







As
      of
      June 30, 2007 and 2006, the following debts were owed to the related
      party:





March
                31, 2007
            
            March
                31, 2006Notes
                payable
            
            $
            136
            
            $
            675Convertible
                debentures
            
            
            -
            
            
            889




**NOTE
      5: LEASES**





On
      July
      31, 2005, the Company's lease on 180 Rose Orchard Way, San Jose, CA expired.
      The
      Company signed a six month lease for the premises located at 4699 Old Ironsides
      Drive, Santa Clara, California, which the Company now occupies as its primary
      headquarters. In February 2006 the Company extended that lease through April
      2007.





In
      June
      2005, the Company sold some equipment to a leasing company and immediately
      executed a 24 month operational lease. The sale and leaseback resulted in net
      sale proceeds of $631 and a gain of $422. Under the terms of the lease the
      Company has agreed to pay, on a quarterly basis, $179 over the term of the
      lease. At the end of the lease the Company has the right to return the
      equipment, negotiate a re-lease, or purchase the equipment at fair market
      value.





Gain
      of
      $422 is being recognized over the term of lease, with $52 being recognized
      in
      current period and $240 being deferred over the remaining term as of September
      30, 2006.





The
      company has defaulted in making the quarterly lease payments since April 1,
      2006
      and the matter is now in litigation. As of March 31, 2007, lease payments
      outstanding under this operating lease are $79, net of sale proceeds to be
      released at the end of lease term $771 and prepaid rent of $179.





On
      April
      12, 2007, the Company entered into a Settlement Agreement and Release (the
      Agreement’) with the leasing company. Under the terms of the Agreement, the
      Company agreed to pay the sum of $30 to satisfy all outstanding amounts due
      under the term of the lease. As of June 30, 2007, $10 of the agreed upon
      settlement amount is past due.








**NOTE
      6: NET EARNINGS (LOSS) PER SHARE**





Basic
      Earnings (Loss) per Share ("EPS") excludes dilution and is computed by dividing
      net income or loss attributable to common stockholders by the weighted-average
      number of common shares outstanding for the period. Diluted EPS reflects the
      potential dilution that could occur if securities or other contracts to issue
      common stock (convertible notes, warrants to purchase common stock and common
      stock options using the treasury stock method) were exercised or converted
      into
      common stock. Potentially dilutive securities are excluded from the diluted
      EPS
      computation in loss periods as their effect would be anti-dilutive.





**NOTE
      7: COMMON STOCK (in actual amounts)**





As
      of
      June 30, 2007, there were 91,662,663 shares of Common Stock issued and
      outstanding.








**NOTE
      8: SUBSEQUENT EVENTS**





***Resignations
      of Naveen S. Bisht, Tsuyoshi Taira and William Boller***





On
      June
      26, 2007, the Board of Directors of Nayna Networks, Inc. accepted the
      resignation of Naveen S. Bisht as President, CEO and member of the Board of
      Directors and the resignation of Tsuyoshi Taira as Chairman and member of the
      Board of Directors. On July 3, 2007, the Board accepted the resignation of
      William Boller as a member of the Board of Directors. The Board has appointed
      Suresh R. Pillai as President and a member of the Board of Directors. The Board
      is actively seeking additional individuals to serve as members of the
      Board.





***Notice
      of Termination of DIRECTV contract with ProSAT***





On
      July
      2, 2007, ProSAT received a notice of termination from DIRECTV, for whom ProSAT
      acts as an authorized commissioned retailer and authorized commissioned customer
      referral contractor. This business association represented over 95% of the
      revenue to ProSAT for the period ended June 30, 2007. The Company is currently
      formulating its plans relative to the ProSAT subsidiary.





**NOTE
      9: GOING CONCERN**





The
      accompanying financial statements have been prepared in conformity with
      generally accepted accounting principles in the United States of America, which
      contemplate continuation of the Company as a going concern. However, the Company
      has incurred losses since its inception and has current liabilities in excess
      of
      current assets. The Company does not have sufficient cash on hand to continue
      its operations in the manner they have historically been conducted. These
      factors raise substantial doubt about the ability of the Company to continue
      as
      a going concern. In this regard, management is proposing to raise any necessary
      additional funds not provided by operations through loans or through additional
      sales of its common stock. There is no assurance that the Company will be
      successful in raising this additional capital or in achieving profitable
      operations. The financial statements do not include any adjustments that might
      result from the outcome of these uncertainties.








**Item
      2. Management's Discussion and Analysis or Plan of
      Operations**





This
      Quarterly Report on Form 10-QSB, including the following sections, contains
      forward-looking statements. Any statements contained in this Form 10-QSB that
      are not statements of historical fact may be deemed to be forward-looking
      statements. Without limiting the foregoing, words such as "may," "will,"
      "expect," "believe," "anticipate," "estimate" or "continue" or comparable
      terminology are intended to identify forward-looking statements. These
      statements, by their nature, involve substantial risks and uncertainties, and
      the cautionary statements set forth below and those set forth herein under
      the
      caption entitled "Risk Factors" identify important factors that could cause
      actual results to differ materially from those predicted in any such
      forward-looking statements. Investors should not place any undue reliance on
      any
      such forward looking statements and are cautioned that actual results may differ
      materially from those projected in the forward-looking statements as a result
      of
      certain risk factors identified in this Quarterly Report on Form 10-QSB and
      other filings we have made, and may make, with the Securities and Exchange
      Commission.





Any
      forward-looking statements made by us do not reflect the potential impact of
      any
      future acquisitions, mergers, dispositions, joint ventures or investments the
      Company may make. The Company does not assume, and specifically disclaims,
      any
      obligation to update any forward-looking statements, and these statements
      represent the Company's current outlook only as of the date given.





The
      following discussion should be read in conjunction with the condensed financial
      statements and notes thereto included elsewhere in this report, as well as,
      the
      financial statements and notes thereto included in the Company's Annual Report
      on Form 10-KSB for the year ended December 31, 2006 filed with the Commission
      on
      April 27, 2007, and amended on April 30, 2007, and other filings that the
      Company may make, from time to time, with the Commission.





**OVERVIEW**




Headquartered
      in Santa Clara, CA, Nayna Networks, Inc., ("Nayna" or the "Company") is a
      hardware and software development company that designs, develops and markets
      next generation broadband access solutions, also known as Ethernet in the First
      Mile ("EFM") for the secure communications market. The acquisition of
      Professional Satellite & Communications, LLC, (“ProSAT”) will provide a new
      line of products and services that Nayna expects will complement its existing
      terrestrial based offerings. ProSAT is a leading third party marketing and
      customer acquisition vehicle for DirecTVTM throughout the United States. ProSAT
      offers standard and high definition television equipment installation. It is
      an
      authorized reselling partner of DirecTV’s satellite TV services including
      premium channel offerings. DirecTV is one of the top two leading satellite
      services providers in the United States.





Nayna
      was
      formed as a result of a merger and plan of reorganization (the "Merger") between
      ResCon Technology Corporation ("Rescon") and Nayna Networks, Inc. ("NNI").
      On
      April 1, 2005, NNI merged into Rescon in a stock-for-stock transaction. As
      a
      result of the Merger, Rescon continued as the surviving corporation, assumed
      the
      operations and business plan of NNI, the stockholders of NNI became stockholders
      of Rescon, and Rescon changed its name to Nayna Networks, Inc. (trading symbol
      NAYN.OB).





On
      January 20, 2006, pursuant to the terms of an Asset Purchase Agreement, Nayna
      completed the acquisition of substantially all of the assets (including all
      tangible assets, intellectual property, contractual rights and employees and
      all
      outstanding capital stock of its wholly-owned subsidiary, Abundance Networks
      (India) Pvt. Ltd.) and certain of the liabilities (including approximately
      $600
      of bank debt of its India subsidiary) of Abundance Networks, LLC, a privately
      held company that had been located in Shelton, Connecticut, that had provided
      Ethernet over SONET/SDH, enterprise-class network products and services. The
      business formerly operated by Abundance Networks is now operated as a subsidiary
      of Nayna named Nayna Networks Broadband, Inc. Abundance Networks Indian
      subsidiary has been renamed Nayna Networks (India) Private Limited and is now
      a
      wholly-owned subsidiary of Nayna Networks Broadband, Inc.





On
      March
      23, 2007, pursuant to the terms of a Membership Purchase Agreement, Nayna
      acquired all of the outstanding membership interests of Professional Satellite
      & Communications, LLC, (“ProSAT”), a privately held California limited
      liability company and Alarmco, LLC, a privately held California limited
      liability closely associated with ProSAT. The businesses formally operated
      by
      ProSAT and Alarmco are now operated as subsidiaries of Nayna. These financial
      statements for the period ended June 30, 2007 include financials for ProSAT
      from
      April 1, 2007 to June 30, 2007. On July 2, 2007, ProSAT received a notice of
      termination from DIRECTV, for whom ProSAT acts as an authorized commissioned
      retailer and authorized commissioned customer referral contractor. This business
      association represented over 95% of the revenue to ProSAT for the period ended
      June 30, 2007. The Company is currently formulating its plans relative to the
      ProSAT subsidiary.





**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AS COMPARED TO THE THREE
      MONTHS ENDED JUNE 30, 2006**





**Revenues,
      Cost of Sales and Gross Profit**





The
      Company recognized revenue of $4,779 in the three months ended June 30, 2007
      and
      $19 in the three months ended June 30, 2006. Cost of Goods for the three months
      ended June 30, 2007 was $1,785 versus $48 for the same period in 2006. Gross
      profit for the three months ended June 30, 2007 and June 30, 2006 was $2,994
      and
      ($29), respectively. The revenue cost of goods and net profit were primarily
      from the Nayna’s newly acquired subsidiary, ProSAT.










**Operating
      Expenses**





Operating
      expenses include research and development, business development, general and
      administrative, and goodwill impairment expenses. Total
      operating expenses for three months ended June
      30 ,
      2007 and June
      30 ,
      2006 were $885 and $2.3 million, respectively. This decrease of $1.4 million
      resulted primarily from the following:





Research
      and development expenditures decreased $401 from $485 in the second quarter
      of
      2006 to $81 in the second quarter of 2007 as a result of a decrease in salaries
      and wages and other associated expenses.





Business
      development expenditures increased $1,886 from $115 in the second quarter of
      2006 to $2,001 in the second quarter of 2007 as a result of the sales and
      marketing efforts of the ProSAT subsidiary.


General
      and administration expenditures increased $110 from $899 in the second quarter
      of 2006 to $1,009 in the second quarter of 2007 as a result of the incorporation
      of G&A expenses from ProSAT.





In
      the
      second quarter of 2007, there was an adjustment in the goodwill associated
      with
      the ProSAT acquisition that resulted in a decrease of ($286) in the amount
      of
      goodwill impaired.





**Other
      Expenses**





Other
      expenses include the unrealized gain or loss related to the adjustment of
      derivative and warrant liability to the fair value of the underlying securities,
      net interest expense and any gain or loss on the sale of assets. Other expenses
      for the three months ended June 30, 2007 and June 30, 2006, were ($2,564) and
      $200 respectively.





**Unrealized
      Gain or Loss Related to the Adjustment of Derivative and Warrant
      Liability**





For
      the
      three months ended June 30, 2007, we had unrealized gains related to derivative
      and warrant liabilities of $2,583 as compared to $245 for the same period in
      2005. These gains resulted from the November 2005 securities purchase agreement
      which provides for the purchase and sale of convertible notes and warrants,
      and
      is the result of a rise in the average price of the Company’s stock over the
      period. This agreement and its accounting treatment for the three months ending
      June 30, 2006 are described below under Liquidity and Capital
      Resources.





**Net
      Interest Expense**





Net
      interest expense for the three months ended June 30, 2007 and June 30, 2006,
      was
      $19 and $(97), respectively. This increase of $116 was primarily due to interest
      earned on deposits by the ProSAT subsidiary.





**Gain
      (loss) on sale of assets**





There
      was
      no gain or loss on the sale of assets during three months ended June 30, 2007.
      There was a gain of $53 in the three months ended June 30, 2006. This gain
      was
      from the sale and lease back of certain equipment in 2005.





**Net
      Income (Loss)**





As
      a
      result of the foregoing factors, for the three months ended June 30, 2007,
      the
      Company incurred net income of $2.753 million versus a net loss of ($1,328)
      for
      the three months ended June 30, 2006.





Factoring
      out the gain resulting from the derivative and warrant liability, net income
      for
      the three months ended June 30, 2007 is $170. This net income is primarily
      the
      result of the Company’s ProSAT acquisition.





**Liquidity
      and Capital Resources**





As
      of
      June 30, 2007, the Company has cash and cash equivalents on hand of $145. The
      loss of the DIRECTV contract will impact the Company’s cash flow going forward.
      The Company expects to raise additional capital in 2007 to fund its
      operations.





**Risk
      Factors**





Our
      business is subject to certain risks and uncertainties, each of which could
      materially adversely affect our business, financial condition, cash flows and
      results of operations.





**LOSS
      OF OUR DIRECTV CONTRACT WILL SIGNIFICANTLY IMPACT OUR
      BUSINESS.**





The
      loss
      of our contract with DIRECTV will have a significant impact on our business.
      We
      will have to reorient the ProSAT operation to other sales opportunities and
      manage our cash flow so that we can support the entire business until these
      opportunities, and opportunities on the telecom side of the business, are
      realized.





**FAILURE
      TO RAISE ADDITIONAL CAPITAL WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR ABILITY
      TO FUND OUR GROWTH OPPORTUNITIES.**




We
      anticipate that our currently available funds are sufficient to meet our needs
      for working capital, capital expenditures and business expansion until the
      end
      of September 2007. Thereafter, we will need to raise additional funds. We have
      also been in discussions with investment advisors in an effort to raise
      additional funds. We cannot assure you that that additional capital will be
      available on terms acceptable to us, or at all. If we are unable to raise
      sufficient capital we will not be able to continue operations or to achieve
      our
      business objectives.





**ACQUISITIONS
      MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR
      BUSINESS.**





We
      may
      make additional acquisitions or investments in complementary businesses,
      products, services or technologies on an opportunistic basis when we believe
      they will assist us in carrying out our business strategy. Growth through
      acquisitions has been a successful strategy used by other networking equipment
      companies. We plan to use this as a strategy to grow our business and are in
      discussions with a number of parties relating to any such acquisition or
      investment. If we buy a company, then we could have difficulty in assimilating
      that company's personnel and operations. In addition, the key personnel of
      the
      acquired company may decide not to work for us. An acquisition could distract
      our management and employees and increase our expenses. Furthermore, we may
      have
      to incur debt or issue equity securities to pay for any future acquisitions,
      the
      issuance of which could be dilutive to our existing stockholders.





Past
      Nayna acquisitions include Xpeed Networks for its Passive Optical Networking
      (PON) products, Abundance Networks for its SONET/SDH products and ProSAT for
      its
      residential broadband satellite solutions. In these cases the purpose was to
      expand Nayna’s product offerings within the broadband access market place. In
      connection with the acquisitions, we have encountered some difficulties
      including, combining infrastructures (such as email systems), changing work
      flows (such as project management and reviews of products under development)
      and
      need for simplification of management reporting. Future acquisitions may present
      greater difficulties relating to the integration of newly acquired
      companies.





**OUR
      COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND THE CURRENT MARKET FOR
      OUR COMMON STOCK IS LIMITED.**





The
      market price of our common stock will likely be highly volatile as the stock
      market in general, and the market for small cap and micro cap technology
      companies in particular, has been highly volatile. You may not be able to resell
      your shares of our common stock following periods of volatility because of
      the
      market's adverse reaction to volatility. We cannot assure you that our stock
      will trade at the same levels of other stocks in our industry or that our
      industry stocks in general will sustain their current market
      prices.





Factors
      that could cause such volatility may include, among other things:




·
            actual
                or anticipated fluctuations in our quarterly operating
                results;·
            announcements
                of technological innovations;








·
            changes
                in financial estimates by securities analysts;·
            conditions
                or trends in the network control and management
                industry;·
            changes
                in the market valuations of other such industry related companies;
                and·
            the
                acceptance of market makers and institutional investors of the Company
                and
                our stock.





In
      addition, our stock is currently traded on the NASD O-T-C Bulletin Board and
      it
      is uncertain that we will be able to successfully apply for listing on the
      American Stock Exchange or the NASDAQ National or Small Cap Markets in the
      foreseeable future due to our inability to satisfy their respective listing
      criteria. Failure to list our shares on any of the American Stock Exchange
      or
      the NASDAQ National or Small Cap Markets will impair the liquidity of our common
      stock.





**THE
      APPLICATION OF THE "PENNY STOCK REGULATION" COULD ADVERSELY AFFECT THE MARKET
      PRICE OF OUR COMMON STOCK.**





Our
      securities may be deemed a penny stock. Penny stocks generally are equity
      securities with a price of less than $5.00 per share other than securities
      registered on certain national securities exchanges or quoted on the NASDAQ
      Stock Market, provided that current price and volume information with respect
      to
      transactions in such securities is provided by the exchange or system. Our
      securities may be subject to "penny stock rules" that impose additional sales
      practice requirements on broker-dealers who sell such securities to persons
      other than established customers and accredited investors (generally those
      with
      assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
      together with their spouse). For transactions covered by these rules, the
      broker-dealer must make a special suitability determination for the purchase
      of
      such securities and have received the purchaser's written consent to the
      transaction prior to the purchase. Additionally, for any transaction involving
      a
      penny stock, unless exempt, the "penny stock rules" require the delivery, prior
      to the transaction, of a disclosure schedule prescribed by the Commission
      relating to the penny stock market. The broker-dealer also must disclose the
      commissions payable to both the broker-dealer and the registered representative
      and current quotations for the securities. Finally, monthly statements must
      be
      sent disclosing recent price information on the limited market in penny
      stocks.





Consequently,
      the "penny stock rules" may restrict the ability of broker-dealers to sell
      our
      securities and may have the effect of reducing the level of trading activity
      of
      our common stock in the secondary market. The foregoing required penny stock
      restrictions will not apply to our securities if such securities maintain a
      market price of $5.00 or greater. We can give no assurance that the price of
      our
      securities will reach or maintain such a level.





**SALES
      OF OUR COMMON STOCK BY THE HOLDERS OF THE CONVERTIBLE NOTES AND WARRANTS MAY
      LOWER THE MARKET PRICE OF OUR COMMON STOCK AND PURCHASERS OF COMMON STOCK MAY
      EXPERIENCE SUBSTANTIAL DILUTION.**




We
      are
      authorized to issue up to 1,000,000,000 shares of common stock. As of June
      30,
      2007, 5,967,480 shares of common stock were reserved under the 2000 Stock Option
      Plan, 5,000,000 shares of common stock were reserved under the 2006 Executive
      Stock Option Plan, 755,565 shares of common stock were reserved for issuance
      upon exercise of our outstanding warrants and options other than those issued
      in
      connection with the notes and debentures, and an additional 70,892,808 shares
      of
      common stock were reserved for issuance upon conversion of the notes and
      debentures and exercise of the warrants issued in connection with the notes
      and
      bridge loans. As of June 30, 2007, there were 91,662,663 shares of common stock
      outstanding. Of these outstanding shares, 16,389,353 shares were freely tradable
      without restriction under the Securities Act of 1933, as amended, unless held
      by
      affiliates.




As
      of
      June 30, 2007, $600,000 of the principal amount of callable secured convertible
      notes were issued and outstanding. The notes are convertible into such number
      of
      shares of common stock as is determined by dividing the principal amount thereof
      by the lesser of the (a) then current variable conversion price and (b) $0.68
      per share. If converted on June 30, 2007, the $600,000 principal amount of
      notes
      would have been convertible into 24,512,019 shares of our common stock, but
      this
      number of shares could prove to be significantly greater in the event of a
      decrease in the trading price of the common stock.




Purchasers
      of common stock will experience substantial dilution of their investment upon
      conversion by the investors of a material portion of the notes. The notes are
      not registered and may be sold only if registered under the Securities Act
      of
      1933, as amended, or sold in accordance with an applicable exemption from
      registration, such as Rule 144. The shares of common stock into which the notes
      may be converted are being registered pursuant to the currently filed
      registration statement.


**THE
      RATE AT WHICH THE NOTES MAY BE CONVERTED MAY RESULT IN THE NOTE HOLDERS
      ACQUIRING A SUBSTANTIALLY GREATER NUMBER OF SHARES THAN CURRENTLY ANTICIPATED,
      RESULTING IN FURTHER DILUTION TO PURCHASERS OF COMMON
      STOCK.**




Because
      the notes are convertible at a floating rate based on a substantial discount,
      equal to the average of the lowest three inter-day trading prices during the
      twenty trading days immediately prior to the date the conversion notice is
      sent,
      discounted by forty-five percent, the lower the stock price at the time the
      holder converts, the more common shares the holder will receive. Furthermore,
      there is no limit on how low the conversion price can be, which means that
      there
      is no limit on the number of shares that we may be obligated to issue. This
      will
      result in further dilution to the purchasers of our common stock. To the extent
      the convertible note holders convert and then sell their common stock upon
      conversion of the notes, the common stock price may decrease due to the
      additional shares in the market, allowing the convertible note holders to
      convert their convertible notes into even greater amounts of common stock,
      the
      sales of which would further depress the stock price.










**IF
      THE PRICE OF OUR COMMON STOCK DECLINES AS THE CONVERTIBLE NOTE HOLDERS CONVERT
      AND SELL THEIR SHARES INTO THE MARKET, THE CONVERTIBLE NOTE HOLDERS OR OTHERS
      MAY BE ENCOURAGED TO ENGAGE IN SHORT SELLING OUR STOCK, FURTHER DEPRESSING
      THE
      PRICE OF OUR COMMON STOCK.**




The
      significant downward pressure on the price of the common stock as the
      convertible note holders convert and sell material amounts of common stock
      could
      encourage short sales by the convertible note holders or others. Short selling
      is t he selling of a security that the seller does not own, or any sale that
      is
      completed by the delivery of a security borrowed by the seller. Short sellers
      assume that they will be able to buy the stock at a lower amount than the price
      at which they sold it short. Significant short selling of a company’s stock
      creates an incentive for market participants to reduce the vale of that
      company’s common stock. If a significant market for short selling our common
      stock develops, the market price of our common stock could be further and
      significantly depressed.





**A
      DEFAULT BY US UNDER OUR 8% NOTES WOULD ENABLE THE HOLDERS OF OUR 8% NOTES TO
      TAKE CONTROL OF SUBSTANTIALLY ALL OF OUR ASSETS.**





Our
      8%
      notes are secured by a security agreement under which we pledged substantially
      all of our assets, including our goods, fixtures, equipment, inventory, contract
      rights and receivables. A default by us under the 8% notes would enable the
      holders to take control of substantially all of our assets. The holders of
      our
      8% notes have no operating experience in the industry that could force us to
      substantially curtail or cease our operations.







**OUR
      FAILURE TO COMPLY WITH THE TERMS OF THE CONVERTIBLE NOTES COULD LEAD TO AN
      ASSESSMENT OF LIQUIDATED DAMAGES BY THE HOLDERS OF THE CONVERTIBLE NOTES AND
      WARRANTS.**




Under
      the
      registration rights agreement, since the registration statement relating to
      the
      convertible notes and warrants was not declared effective by the Securities
      and
      Exchange Commission on or before March 17, 2006 or the investors cannot make
      sales under the registration statement for any period of time after the
      registration statement is declared effective, we are obligated to pay a
      registration default fee to the 8% note holders equal to the principal of the
      note outstanding multiplied by .02 multiplied by the sum of the number of
      additional months required for the registration statement to become effective
      (or on a pro rata basis). For example, if the registration statement became
      effective one (1) month after March 17, 2006, we would pay $5,000 for each
      $250,000 of outstanding note principal amount. If thereafter, sales could not
      be
      made pursuant to the registration statement for an additional period of one
      (1)
      month, we would pay an additional $5,000 for each $250,000 of outstanding note
      principal amount. Accordingly, failure to have the registration statement
      declared effective by June 17, 2006 has resulted in the assessment of liquidated
      damages in the amount of $768,000 and will continue to result in the assessment
      of $64,000 per month for each additional month until the registration statement
      is declared effective.




In
      addition, we have agreed to have authorized a sufficient number of shares of
      our
      common stock to provide for the full conversion of the notes and exercise of
      the
      warrants then outstanding and to register and have reserved at all times for
      issuance at least two times the number of shares that is the actually issuable
      upon full conversion of the notes and full exercise of the warrants.
      Accordingly, our failure to comply with this covenant could result in the
      assessment of additional liquidated damages against us.




Moreover,
      we are required to pay a penalty of $1,000 per day to the investors if we fail
      to deliver shares of our common stock upon conversion of the notes within five
      business days upon receipt of the conversion notice. In the event we default
      under the 8% notes, we have the ability to pay the resulting liquidated damages
      detailed above in shares of stock based on the conversion price of the notes.
      If
      we pay such liquidated damages in shares of stock, this may result in further
      dilution to our current investors.








**THE
      MARKET IN WHICH WE COMPETE IS SUBJECT TO RAPID TECHNOLOGICAL PROGRESS AND TO
      COMPETE SUCCESSFULLY WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS THAT ACHIEVE
      BROAD MARKET ACCEPTANCE.**





The
      network equipment market is characterized by rapid technological progress,
      frequent new product introductions, changes in customer requirements and
      evolving industry standards. If we do not regularly introduce new products
      in
      this dynamic environment, our product lines will become obsolete. Developments
      in routers and routing software could also significantly reduce demand for
      our
      products. Alternative technologies could achieve widespread market acceptance
      and displace the technology on which we have based our product architecture.
      We
      cannot assure you that our technological approach will achieve broad market
      acceptance or other technologies or devices will not supplant our own products
      and technology.




**OUR
      PRODUCTS MUST COMPLY WITH EVOLVING INDUSTRY STANDARDS AND COMPLEX GOVERNMENT
      REGULATIONS OR ELSE OUR PRODUCTS MAY NOT BE WIDELY ACCEPTED, WHICH MAY PREVENT
      US FROM GROWING OUR NET REVENUE OR ACHIEVING
      PROFITABILITY.**





The
      market for network equipment is characterized by the need to support industry
      standards as different standards emerge, evolve and achieve acceptance. We
      will
      not be competitive unless we continually introduce new products and product
      enhancements that meet these emerging standards. Our products must comply with
      various United States federal government regulations and standards defined
      by
      agencies such as the Federal Communications Commission, as well as standards
      established by various foreign governmental authorities and recommendations
      of
      the International Telecommunication Union (ITU) and the Institute of Electrical
      and Electronics Engineers (IEEE). If we do not comply with existing or evolving
      industry standards or if we fail to obtain timely domestic or foreign regulatory
      approvals or certificates, we will not be able to sell our products where these
      standards or regulations apply, which may prevent us from sustaining our net
      revenue or achieving profitability.





**OUR
      FUTURE PERFORMANCE WILL DEPEND ON THE SUCCESSFUL DEVELOPMENT, INTRODUCTION
      AND
      MARKET ACCEPTANCE OF NEW AND ENHANCED PRODUCTS.**





Our
      new
      and enhanced products must address customer requirements in a timely and
      cost-effective manner. In the past, we have experienced delays in product
      development and such delays may occur in the future. The introduction of new
      and
      enhanced products may cause our customers to defer or cancel orders for existing
      products. Therefore, to the extent customers defer or cancel orders in the
      expectation of new product releases, any delay in the development or
      introduction of new products could cause our operating results to suffer. The
      inability to achieve and maintain widespread levels of market acceptance for
      our
      current and future products may significantly impair our revenue
      growth.





**OUR
      LIMITED ABILITY TO PROTECT OUR PROPRIETARY INTELLECTUAL PROPERTY RIGHTS MAY
      ADVERSELY AFFECT OUR ABILITY TO COMPETE.**





We
      rely
      on a combination of patent, copyright, trademark and trade secret laws and
      restrictions on disclosure to protect our proprietary intellectual property
      rights. We cannot assure you that we have adequately protected our proprietary
      intellectual property or that other parties will not independently develop
      similar or competing products that do not infringe on our patents. We also
      enter
      into confidentiality or license agreements with our employees, consultants
      and
      corporate partners to protect our intellectual property. In addition, we control
      access to and limit the distribution of our software, documentation and other
      proprietary information. Despite our efforts to protect our proprietary
      intellectual property rights, unauthorized parties may attempt to copy or
      otherwise misappropriate or use our products or technology. If we are
      unsuccessful in protecting our proprietary intellectual property rights, our
      ability to compete may be adversely affected, thereby limiting our ability
      to
      operate our business profitably.





**OUR
      LIMITED ABILITY TO DEFEND OURSELVES AGAINST INTELLECTUAL PROPERTY INFRINGEMENT
      CLAIMS MADE BY OTHERS MAY ADVERSELY AFFECT OUR ABILITY TO
      COMPETE.**





Our
      industry is characterized by the existence of a large number of patents and
      frequent claims and related litigation regarding patent and other intellectual
      property rights. If we are found to infringe the proprietary rights of others,
      or if we otherwise settle such claims, we could be compelled to pay damages
      or
      royalties and either obtain a license to those intellectual property rights
      or
      alter our products so that they no longer infringe upon such proprietary rights.
      Such a license could be very expensive to obtain or may not be available at
      all.
      Similarly, changing our products or processes to avoid infringing the rights
      of
      others may be costly or impractical. Litigation resulting from claims that
      we
      are infringing the proprietary rights of others could result in substantial
      costs and a diversion of resources, and may limit our ability to operate our
      business profitably.








**OUR
      DEPENDENCE ON CONTRACT MANUFACTURERS FOR SUBSTANTIALLY ALL OF OUR MANUFACTURING
      REQUIREMENTS COULD HARM OUR OPERATING RESULTS.**





We
      rely
      on independent contractors to manufacture our products, such as Flextronics,
      which manufactures hardware (such as printed circuit boards - PCB(s) and
      mechanicals) for us. We do not have long-term contracts with any of these
      manufacturers. Delays in product shipments from contract manufacturers are
      not
      unusual. Similar or other problems may arise in the future, such as inferior
      quality, insufficient quantity of products or the interruption or discontinuance
      of operations of a manufacturer, any of which may limit our ability to operate
      our business profitably.





We
      do not
      know whether we will effectively manage our contract manufacturers or that
      these
      manufacturers will meet our future requirements for timely delivery of products
      of sufficient quality and quantity. We will continue to monitor the performance
      of our current contract manufacturers and if they are unable to meet our future
      requirements, we will need to transition to other manufacturers. We also intend
      to regularly introduce new products and product enhancements, which will require
      that we rapidly achieve volume production by coordinating our efforts with
      those
      of our suppliers and contract manufacturers. The inability of our contract
      manufacturers to provide us with adequate supplies of high-quality products
      or a
      reduction in the number of contract manufacturers may cause a delay in our
      ability to fulfill orders and may limit our ability to operate our business
      profitably.





**IF
      OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
      SIGNIFICANT UNEXPECTED EXPENSES AND LOSE SALES.**





Network
      equipment products frequently contain undetected software or hardware errors
      when new products, versions or updates of existing products are first released
      to the marketplace. We have experienced such errors in connection with prior
      product releases. We expect that such errors or component failures will be
      found
      from time to time in the future in new or existing products, including the
      components incorporated therein, after the commencement of commercial
      shipments.





These
      errors may have a material adverse effect on our business and may result in
      the
      following, among other things:




·
            significant
                warranty and repair costs;·
            diverting
                the attention of our engineering personnel from new product development
                efforts;·
            delaying
                the recognition of revenue; and·
            significant
                customer relations problems.





In
      addition, if our product is not accepted by customers due to defects, and such
      returns exceed the amount we accrued for defect returns based on our historical
      experience, our ability to operate our business profitably may be
      inhibited.





**IF
      PROBLEMS OCCUR IN A COMPUTER OR COMMUNICATIONS NETWORK, EVEN IF UNRELATED TO
      OUR
      PRODUCTS, WE COULD INCUR UNEXPECTED EXPENSES AND LOSE
      SALES.**





Our
      products must successfully interoperate with products from other vendors. As
      a
      result, when problems occur in a computer or communications network, it may
      be
      difficult to identify the sources of these problems. The occurrence of hardware
      and software errors, whether or not caused by our products, could result in
      the
      delay or loss of market acceptance of our products and any necessary revisions
      may cause us to incur significant expenses. The occurrence of any such problems
      would likely limit our ability to operate our business
      profitably.








**WE
      EXPECT THE AVERAGE SELLING PRICES OF OUR PRODUCTS TO DECREASE, WHICH MAY INHIBIT
      OUR ABILITY TO OPERATE OUR BUSINESS PROFITABLY.**





The
      network equipment industry has experienced a rapid erosion of average selling
      prices due to a number of factors, including competitive pricing pressures,
      promotional pricing, technological progress and lower selling prices as
      companies liquidated excess inventory resulting from the industry slowdown
      that
      began in the later part of 2000 and continued into 2004/2005. The industry
      slowdown has abated and we see the technological progress and global outsourcing
      as the main price drivers for looking into the future.





We
      anticipate that the average selling prices of our products will decrease in
      the
      future in response to the following, among other things:




·
            competitive
                global pricing pressures;·
            discounting
                in the sales/distribution channels; and·
            new
                product introductions by us or our
                competitors.





We
      may
      experience substantial decreases in future operating results due to the erosion
      of our average selling prices. We expect competitive pressures to remain high
      due to outsourcing and technological progress and uncertainty of the broader
      economy. To mitigate the effects of price erosion, we are implementing
      outsourcing plans to reduce our costs. Our acquisition of Abundance Networks,
      which offices in Mumbai India, directly addresses the globalization trend,
      provides us with direct access to lower cost engineering talent and a lower
      cost
      sales channel to greater India. Furthermore, we use contract manufacturers
      for
      the production of our products and thus we are well positioned to meet customer
      demand at market prices by building in low cost off shore
      locations.





**FAILURE
      TO SUCCESSFULLY EXPAND OUR SALES AND SUPPORT TEAMS OR EDUCATE THEM IN REGARD
      TO
      TECHNOLOGIES AND OUR PRODUCT FAMILIES MAY HARM OUR BUSINESS, FINANCIAL CONDITION
      AND OPERATING RESULTS.**





The
      sale
      of our products and services requires a sophisticated sales effort that
      frequently involves several levels within a prospective customer's organization.
      We may not be able to increase net revenue unless we expand our sales and
      support teams in order to address all of the customer requirements necessary
      to
      sell our products.





We
      cannot
      assure you that we will be able to successfully integrate new employees into
      our
      company or to educate current and future employees in regard to rapidly evolving
      technologies and our product families. A failure to do so may hurt our business,
      financial condition and operating results.





**WE
      MUST CONTINUE TO DEVELOP AND INCREASE THE PRODUCTIVITY OF OUR SALES AND
      DISTRIBUTION CHANNELS TO INCREASE NET REVENUE AND IMPROVE OUR OPERATING
      RESULTS.**





Our
      sales
      channel includes our own direct sales people, large original equipment
      manufacturer, system integrators, agents, resellers and distributors. Outside
      sales channels require us to develop and cultivate strategic relationships
      and
      allocate substantial internal resources for the maintenance of such
      relationships. We may not be able to increase gross revenues unless we expand
      our sales channel and support teams to handle all of our customer requirements
      in a professional manner. If we are unable to expand our sales channel and
      support teams in a timely manner, and/or manage them in all cases, our business,
      financial condition and operating results may be hurt.





In
      addition, many of our sales channel partners also carry products they make
      themselves or that are made by our competitors. We cannot assure you that our
      sales channel partners will continue to market or sell our products effectively
      or continue to devote the resources necessary to provide us with
      effective  sales,
      marketing and technical support. Their failure to do so may hurt our revenue
      growth and operating results.








**SHARES
      OF OUR TOTAL OUTSTANDING SHARES THAT ARE RESTRICTED FROM IMMEDIATE RESALE BUT
      MAY BE SOLD INTO THE MARKET IN THE FUTURE COULD CAUSE THE MARKET PRICE OF OUR
      COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING
      WELL.**







As
      of
      June 30, 2007, we had 91,662,663 shares of our common stock issued and
      outstanding of which 16,389,353 shares are freely tradable shares. Rule 144
      provides, in essence, that a person holding "restricted securities" for a period
      of one year may sell only an amount every three months equal to the greater
      of
      (a) one percent of a company's issued and outstanding shares, or (b) the average
      weekly volume of sales during the four calendar weeks preceding the
      sale.




The
      amount of "restricted securities" which a person who is not an affiliate of
      our
      company may sell is not so limited, since non-affiliates may sell without volume
      limitation their shares held for two years if there is adequate current public
      information available concerning our company. In such an event, "restricted
      securities" would be eligible for sale to the public at an earlier date. The
      sale in the public market of such shares of Common Stock may adversely affect
      prevailing market prices of our Common Stock and could impair our ability to
      raise capital.





**Item
      3. Controls and Procedures**





The
      Company's principal executive officer and principal financial officer (the
      "Certifying Officers") are responsible for establishing and maintaining
      disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
      and 15d-15(e). Such officers have concluded (based upon their evaluations of
      these controls and procedures as of the end of the period covered by this
      report) that the Company's disclosure controls and procedures are effective
      to
      ensure that information required to be disclosed by it in this report is
      accumulated and communicated to management, including the Certifying Officers
      as
      appropriate, to allow timely decisions regarding required
      disclosure.





The
      Certifying Officers have also indicated that there were no changes in the
      Company's internal controls over financial reporting or other factors during
      the
      period covered by this report, that has materially affected or is reasonably
      likely to materially affect, such controls subsequent to the date of their
      evaluation.







**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**







From
      time
      to time, we may be involved in litigation relating to claims arising out of
      our
      operations. As of the date of this report, we are not engaged in any legal
      proceedings that are expected, individually or in the aggregate, to have a
      material adverse effect on our business, financial condition or results of
      operations.




On
      November 17, 2005, Siemens Shared Services, LLC filed a law suit with the
      Superior Court of New Jersey in Middlesex County against us claiming damages
      of
      $216,000 plus interest and legal fees in connection with the non-payment of
      a
      portion of the debt we assumed in connection with our acquisition of Xpeed
      Communications, Inc. In the second quarter of 2007, the court ruled in favor
      of
      Siemens. The Company has accrued a liability of $225,000 for this
      matter.




On
      August
      18, 2006, Anthony Vassallo filed an application for entry of judgment on
      sister-state judgment against us for $349,000 in the Superior Court of the
      State
      of California, County of Santa Clara, based on a default entered against us
      in
      the Supreme Court of the State of New York, county of Nassau on August 3, 2004,
      prior to the reverse merger between Rescon Technologies Corporation and Nayna
      Networks, Inc. a Delaware corporation. On September 19, 2006 we filed a motion
      to vacate the entry of judgment, which was denied on November 2, 2006. We are
      currently negotiating a settlement with Mr. Vassallo. In addition, we are
      pursuing indemnification claims against Christian Nigohossian and Northeast
      Development Corporation, both of whom are contractually committed to indemnify
      us for such a liability based on agreements entered into at the time of the
      reverse merger.




The
      Company’s ProSAT subsidiary has several lawsuits pending from vendors from whom
      it contracted advertising. ProSAT is currently negotiating with these vendors.




ProSAT
      also had a class action lawsuit filed against it relative to claims by employees
      that ProSAT improperly deducted certain expenses from their wages prior to
      the
      merger with Nayna. ProSAT as entered into a settlement agreement and, as of
      August 2007, has satisfied all terms of the settlement agreement thus settling
      this matter.




ProSAT
      has entered into another settlement agreement with an investor who claimed
      ProSAT management did not follow through on an agreement relative to his
      investment. The settlement agreement involves a series of payments to this
      individual. ProSAT is in the process of making these payments.





**Item
      6. Exhibits**


**Exhibits.**





The
      following exhibits are included as part of this Quarterly Report on Form
      10-QSB:





Exhibit
                31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.Exhibit
                31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.Exhibit
                32.1
            
            Certification
                of Principal Executive Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.Exhibit
                32.2
            
            Certification
                of Principal Financial Officer Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.







**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**Nayna
                Networks, Inc.***Dated:
                August 20, 2007*
            *By:*
            */s/
                Suresh R. Pillai**Suresh
                R. Pillai, President*




*Dated:
                August 20, 2007*
            *By:*
            */s/
                Thomas Richtarich**Thomas
                Richtarich, CFO*