Attached files
file | filename |
---|---|
EX-32.A - EXHIBIT 32A - INFRAX SYSTEMS, INC. | opticon10q123109x321_21910.htm |
EX-32.B - EXHIBIT 32B - INFRAX SYSTEMS, INC. | opticon10q123109x322_21910.htm |
EX-31.B - EXHIBIT 31B - INFRAX SYSTEMS, INC. | opticon10q123109x312_21910.htm |
EX-31.A - EXHIBIT 31A - INFRAX SYSTEMS, INC. | opticon10q123109x311_21910.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: December 31,
2009 (Second Quarter)
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For
the transition period from ________________to
________________
|
COMMISSION
FILE NUMBER 000-52488
INFRAX SYSTEMS,
INC.
(Exact
name of Registrant as specified in charter)
NEVADA
|
20-2583185
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification Number)
|
449 Central Avenue, Suite
105, St. Petersburg, Florida 33701
(Address
of principal executive offices) (ZIP Code)
813-305-7118
(Registrant's
telephone no., including area code)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o Nox
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of February 12, 2010 was 142,592,432 shares.
Transitional
Small Business Disclosure Format (Check one):
Yes o No x
TABLE
OF CONTENTS
PART
I
|
FINANCIAL
INFORMATION
|
PAGE
|
Item
1
|
Condensed
Consolidated Financial Statements
|
3 |
Condensed
Consolidated Balance Sheets as of December 31, 2009
(unaudited) and June 30, 2009
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three and Six Months
Ended Ended December 31, 2009 and 2008, and for the Period from
October 22, 2004 (inception) to December 31, 2009
(unaudited)
|
4
|
|
Condensed
Consolidated Statements of Changes in Stockholders’ Deficit for the Period
from October 22, 204 (inception) to December 31, 2009
(unaudited)
|
5
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended December
31, 2009 and 2008, and for the Period from October 22, 2004 (inception) to
December 31, 2009 (unaudited)
|
6
|
|
Condensed
Consolidated Notes to Financial Statements (unaudited)
|
7
|
|
Item
2
|
Management's
Discussion and Analysis or Plan of Operation
|
19
|
Item
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
25
|
Item
4
|
Controls
and Procedures
|
25
|
Item
4 T
|
Controls
and Procedures
|
25
|
PART
II
|
OTHER
INFORMATION
|
|
Item
1
|
Legal
Proceedings
|
26
|
Item
1A
|
Risk
Factors
|
26
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
26
|
Item
3
|
Defaults
Upon Senior Securities
|
26
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
26
|
Item
5
|
Other
Information
|
27
|
Item
6
|
Exhibits
|
27
|
Signatures | 27 |
-
2 -
Infrax
Systems, Inc.
|
||||||||
(Formerly
OptiCon Systems, Inc.)
|
||||||||
(A
Development Stage Enterprise)
|
||||||||
Condensed
Consolidated Balance Sheets
|
||||||||
December
31,
|
June
30,
|
|||||||
ASSETS
|
2009
|
2009
|
||||||
Current
assets
|
(Unaudited)
|
|||||||
Cash
and cash equivalents
|
$ | - | $ | 1,996 | ||||
Accounts
receivable, net
|
1,995 | 49,215 | ||||||
Loan
receivable - related party
|
560 | - | ||||||
Deferred
contract costs
|
- | 26,696 | ||||||
Prepaid
expenses
|
- | 2,000 | ||||||
Total
current assets
|
2,555 | 79,907 | ||||||
Property
and equipment, net
|
3,084 | 3,206 | ||||||
Intangible
assets, net
|
190,612 | 212,206 | ||||||
Investment
in related party
|
21,503 | - | ||||||
Other
assets
|
2,552 | - | ||||||
Total
assets
|
$ | 220,306 | $ | 295,319 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
Current
liabilities
|
||||||||
Bank
overdraft
|
$ | 1,856 | $ | - | ||||
Accounts
payable
|
39,928 | 27,835 | ||||||
Deferred
revenue
|
- | 49,215 | ||||||
Accrued
expenses
|
588,252 | 372,441 | ||||||
Note
payable
|
6,000 | 6,000 | ||||||
Loan
and note payable – related parties
|
160,027 | 59,050 | ||||||
Total
current liabilities
|
796,063 | 514,541 | ||||||
Stockholders’
deficit
|
||||||||
Preferred
stock, $.001 par value, 50,000,000 shares authorized, none
issued
|
- | - | ||||||
Common
stock, $.001 par value, 250,000,000 shares authorized,
141,238,402
|
||||||||
and
139,874,296 shares issued and outstanding
|
141,238 | 139,874 | ||||||
Additional
paid-in capital
|
1,912,287 | 1,866,593 | ||||||
Subscription
receivable
|
(350 | ) | (350 | ) | ||||
Deficit
accumulated during the development stage
|
(2,628,932 | ) | (2,225,339 | ) | ||||
Total
stockholders' deficit
|
(575,757 | ) | (219,222 | ) | ||||
Total
liabilities and stockholders' deficit
|
$ | 220,306 | $ | 295,319 |
The
accompanying notes are an integral part of these financial
statements.
-
3 -
Infrax
Systems, Inc.
|
||||||||||||||||||||
(Formerly
OptiCon Systems, Inc.)
|
||||||||||||||||||||
(A
Development Stage Enterprise)
|
||||||||||||||||||||
Condensed
Consolidated Statements of Operations
|
||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||
For
Period from
|
||||||||||||||||||||
October
22, 2004
|
||||||||||||||||||||
For
the Six Months Ended
|
For
the Three Months Ended
|
(inception)
to
|
||||||||||||||||||
--------------December
31,--------------
|
--------------December
31,--------------
|
December
31,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||||||||||||||||
Net
sales
|
$ | 1,995 | $ | - | $ | 1,995 | $ | - | $ | 1,995 | ||||||||||
Cost
of goods sold
|
- | - | - | - | - | |||||||||||||||
Gross
profit
|
1,995 | - | 1,995 | - | 1,995 | |||||||||||||||
Operating
expenses
|
||||||||||||||||||||
Salaries
and benefits
|
251,942 | 45,231 | 227,327 | 22,616 | 1,807,522 | |||||||||||||||
Consulting
services
|
41,540 | 190,700 | 5,388 | 79,533 | 460,038 | |||||||||||||||
Other
general and administrative
|
79,754 | 15,661 | 58,965 | 14,363 | 250,735 | |||||||||||||||
Allocable
software costs
|
- | - | - | - | (115,111 | ) | ||||||||||||||
Legal
and accounting
|
26,000 | 40,000 | 3,500 | 25,000 | 179,363 | |||||||||||||||
Operating
loss
|
399,236 | 291,592 | 295,180 | 141,512 | 2,582,547 | |||||||||||||||
Non
operating income (expense)
|
||||||||||||||||||||
Interest
expense
|
(5,355 | ) | (4,608 | ) | (2,779 | ) | (3,757 | ) | (47,585 | ) | ||||||||||
Equity
in losses of investee
|
(997 | ) | - | (997 | ) | - | (997 | ) | ||||||||||||
Miscellaneous
income
|
- | - | - | - | 202 | |||||||||||||||
(6,352 | ) | (4,608 | ) | (3,776 | ) | (3,757 | ) | (48,380 | ) | |||||||||||
Net
loss
|
$ | (403,593 | ) | $ | (296,200 | ) | $ | (296,961 | ) | $ | (145,269 | ) | $ | (2,628,932 | ) | |||||
Net
loss per share
|
||||||||||||||||||||
Basic
|
$ | (0.003 | ) | $ | 0.004 | $ | (0.002 | ) | $ | (0.002 | ) | |||||||||
Diluted
|
$ | (0.003 | ) | $ | 0.004 | $ | (0.002 | ) | $ | (0.002 | ) | |||||||||
Weighted
average common shares outstanding
|
||||||||||||||||||||
Basic
|
140,197,611 | 71,668,501 | 140,520,926 | 78,142,494 | ||||||||||||||||
Diluted
|
140,197,611 | 71,668,501 | 140,520,926 | 78,142,494 |
The
accompanying notes are an integral part of these financial
statements.
-
4 -
Infrax
Systems, Inc.
|
||||||||||||||||||||||||
(Formerly
OptiCon Systems, Inc.)
|
||||||||||||||||||||||||
(A
Development Stage Enterprise)
|
||||||||||||||||||||||||
Condensed
Consolidated Statement of Changes in Stockholders’ Deficit
|
||||||||||||||||||||||||
For
the Period October 22, 2004 (date of inception) through December 31,
2009
|
||||||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||||||
|
Accumulated
|
|||||||||||||||||||||||
Deficit
During
|
||||||||||||||||||||||||
Additional
|
the
|
|||||||||||||||||||||||
---------------Common---------------
|
Paid-in
|
Subscription
|
Development
|
|||||||||||||||||||||
Shares
|
Stock
|
Capital
|
Receivable
|
Stage
|
Total
|
|||||||||||||||||||
Balance
at October 22, 2004
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||
Issuance
of common shares in exchange for
|
||||||||||||||||||||||||
organization
efforts
|
240,857 | 241 | 15,759 | - | - | 16,000 | ||||||||||||||||||
Issuance
of common shares in
|
||||||||||||||||||||||||
exchange
for services
|
75,268 | 75 | 4,925 | - | - | 5,000 | ||||||||||||||||||
Net
(loss)
|
- | - | - | - | (21,000 | ) | (21,000 | ) | ||||||||||||||||
Balance
at June 30, 2005
|
316,125 | 316 | 20,684 | - | (21,000 | ) | - | |||||||||||||||||
Issuance
of common shares in exchange for
|
||||||||||||||||||||||||
Opticon
software and other assets
|
1,264,500 | 1,265 | 98,736 | - | - | 100,000 | ||||||||||||||||||
Issuance
of common stock purchase
|
||||||||||||||||||||||||
warrants
in exchange for services
|
- | - | 17,999 | - | - | 17,999 | ||||||||||||||||||
Net
(loss)
|
- | - | - | (656,885 | ) | (656,885 | ) | |||||||||||||||||
Balance
at June 30, 2006
|
1,580,625 | 1,581 | 137,418 | - | (677,885 | ) | (538,886 | ) | ||||||||||||||||
Issuance
of common stock purchase
|
||||||||||||||||||||||||
warrants
in exchange for services
|
- | - | 16,499 | - | - | 16,499 | ||||||||||||||||||
Net
(loss)
|
- | - | - | (724,492 | ) | (724,492 | ) | |||||||||||||||||
Balance
at June 30, 2007
|
1,580,625 | 1,581 | 153,917 | - | (1,402,377 | ) | (1,246,879 | ) | ||||||||||||||||
Stock
dividend
|
99,118 | 99 | (99 | ) | - | - | - | |||||||||||||||||
Issuance
of common shares in exchange
|
||||||||||||||||||||||||
for
services
|
9,000 | 9 | 26,991 | - | - | 27,000 | ||||||||||||||||||
Conversion
of accrued expenses to common stock
|
- | - | 1,042,827 | - | - | 1,042,827 | ||||||||||||||||||
Sale
of stock for cash
|
17,500 | 18 | 332 | - | - | 350 | ||||||||||||||||||
Subscription
receivable
|
17,500 | 17 | 333 | (350 | ) | - | - | |||||||||||||||||
Discount
on conversion feature of debenture
|
- | - | 281,401 | - | - | 281,401 | ||||||||||||||||||
Amortization
of conversion feature of debenture
|
- | - | (281,401 | ) | - | - | (281,401 | ) | ||||||||||||||||
Fractional
shares issued
|
65 | - | - | - | - | - | ||||||||||||||||||
Net
(loss)
|
- | - | - | - | (372,042 | ) | (372,042 | ) | ||||||||||||||||
Balance
at June 30, 2008
|
1,723,808 | 1,724 | 1,224,301 | (350 | ) | (1,774,419 | ) | (548,744 | ) | |||||||||||||||
Issuance
of common shares on conversion
|
||||||||||||||||||||||||
of
(2) debentures and accrued interest
|
68,330,134 | 68,330 | 273,322 | - | - | 341,652 | ||||||||||||||||||
Issuance
of common shares in exchange
|
||||||||||||||||||||||||
for
cancellation of debt
|
400,000 | 400 | 5,450 | - | - | 5,850 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
1,000,000 | 1,000 | 39,000 | - | - | 40,000 | ||||||||||||||||||
Discount on conversion feature of convertible note
|
- | - | 203,000 | - | - | 203,000 | ||||||||||||||||||
Amortization
of conversion feature of convertible note
|
- | - | (203,000 | ) | - | - | (203,000 | ) | ||||||||||||||||
Fractional
shares issued
|
4 | - | - | - | - | - | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
2,111,724 | 2,112 | 40,888 | - | - | 43,000 | ||||||||||||||||||
Issuance
of common shares on the conversion
|
||||||||||||||||||||||||
of
(3) convertible promissory notes
|
12,000,000 | 12,000 | 48,000 | - | - | 60,000 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
226,626 | 226 | 5,774 | - | - | 6,000 | ||||||||||||||||||
Issuance
of common shares on the conversion of a
|
||||||||||||||||||||||||
convertible
promissory note
|
4,000,000 | 4,000 | 16,000 | - | - | 20,000 | ||||||||||||||||||
Issuance
of common shares in exchange for convertible
|
||||||||||||||||||||||||
notes
and accrued interest
|
50,000,000 | 50,000 | 200,000 | - | - | 250,000 | ||||||||||||||||||
Issuance
of common shares in exchange for rent
|
82,000 | 82 | 13,858 | - | - | 13,940 | ||||||||||||||||||
Net
(loss)
|
- | - | - | - | (450,920 | ) | (450,920 | ) | ||||||||||||||||
Balance
at June 30, 2009
|
139,874,296 | 139,874 | 1,866,593 | (350 | ) | (2,225,339 | ) | (219,222 | ) | |||||||||||||||
Issuance
of common shares in exchange for services
|
55,925 | 56 | 2,944 | - | - | 3,000 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
363,636 | 363 | 16,909 | - | - | 17,272 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
420,000 | 420 | 25,480 | - | - | 25,900 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
270,000 | 270 | 18,630 | - | - | 18,900 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
181,818 | 182 | 10,273 | - | - | 10,455 | ||||||||||||||||||
Issuance
of common shares in exchange for services
|
72,727 | 73 | 3,200 | - | - | 3,273 | ||||||||||||||||||
Adjustment
of accrued salaries due to shares issued
|
- | - | (31,742 | ) | - | - | (31,742 | ) | ||||||||||||||||
Net
(loss)
|
- | - | - | - | (403,593 | ) | (403,593 | ) | ||||||||||||||||
Balance
at December 31, 2009 (unaudited)
|
141,238,402 | $ | 141,238 | $ | 1,912,287 | $ | (350 | ) | $ | (2,628,932 | ) | $ | (575,757 | ) |
The
accompanying notes are an integral part of these financial
statements.
-
5 -
Infrax
Systems, Inc.
|
||||||||||||
(Formerly
OptiCon Systems, Inc.)
|
||||||||||||
(A
Development Stage Enterprise)
|
||||||||||||
Condensed
Consolidated Statements of Cash Flows
|
||||||||||||
(Unaudited)
|
||||||||||||
For
Period from
|
||||||||||||
October
22, 2004
|
||||||||||||
Six
Months Ended
|
(inception)
|
|||||||||||
-------------December
31,-----------
|
December
31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
Flows From Operating Activities
|
||||||||||||
Net
(Loss) from continuing operations
|
$ | (403,593 | ) | $ | (296,200 | ) | $ | (2,628,932 | ) | |||
Adjustments
to reconcile earnings from continuing
operations;
|
||||||||||||
Depreciation
and amortization
|
15 | 1,073 | 10,175 | |||||||||
Issuance
of common stock in exchange for services
|
47,058 | 83,000 | 233,346 | |||||||||
Equity
loss of investee
|
997 | - | 997 | |||||||||
Change
in working capital components:
|
||||||||||||
Accounts
receivable
|
47,220 | - | (1,995 | ) | ||||||||
Prepaid
expenses
|
2,000 | 9,600 | - | |||||||||
Deferred
contract costs
|
26,696 | - | - | |||||||||
Bank
overdraft
|
1,856 | 94 | 1,856 | |||||||||
Accounts
payable
|
12,093 | (329 | ) | 39,928 | ||||||||
Accrued
expenses
|
215,811 | 168,103 | 1,930,233 | |||||||||
Deferred
revenue
|
(49,215 | ) | - | - | ||||||||
Net
cash (used) in operating activities
|
(99,062 | ) | (34,659 | ) | (414,392 | ) | ||||||
Cash
Flows From Investing Activities
|
||||||||||||
Purchase
of property and equipment
|
(799 | ) | - | (8,259 | ) | |||||||
Capitalization
of software development costs
|
- | - | (113,112 | ) | ||||||||
Cash
paid for deposits
|
(2,552 | ) | 625 | (2,552 | ) | |||||||
Net
cash (used) in investing activities
|
(3,351 | ) | 625 | (123,923 | ) | |||||||
Cash
Flows From Financing Activities
|
||||||||||||
Proceeds from the sale of common stock
|
- | - | 350 | |||||||||
Loan payable
|
- | - | 12,000 | |||||||||
Repayment
of loan payable
|
- | - | (6,000 | ) | ||||||||
Loan
receivable - related party
|
(560 | ) | - | (560 | ) | |||||||
Loan
payable – related parties
|
100,977 | 34,034 | 532,525 | |||||||||
Net
cash provided from investing activities
|
100,417 | 34,034 | 538,315 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
(1,996 | ) | - | - | ||||||||
Cash
And Cash Equivalents
|
||||||||||||
Beginning
of year
|
1,996 | - | - | |||||||||
End
of year
|
$ | 0 | $ | - | $ | - | ||||||
Supplemental
Disclosures on nterest and
|
||||||||||||
Income
Taxes Paid:
|
||||||||||||
Interest
paid for the period
|
$ | - | $ | - | $ | - | ||||||
Income
taxes paid for the period
|
$ | - | $ | - | $ | - | ||||||
Supplemental
Scheduleof Noncash Investing
|
||||||||||||
And
Financing Activities:
|
||||||||||||
Issuance
of common stock in exchange for debenture and accrued
interest
|
$ | - | $ | 401,652 | $ | 671,651 | ||||||
Issuance
of common stock in exchage for accounts payable
|
$ | - | $ | 5,850 | $ | 5,850 | ||||||
Issuance
of common stock for software and other assets
|
$ | - | $ | - | $ | 105,000 | ||||||
Investment
in affiliate by trasfer of software
|
$ | 22,500 | $ | - | $ | 22,500 | ||||||
Sale
of stock subscription
|
$ | - | $ | - | $ | 350 |
The
accompanying notes are an integral part of these financial
statements.
-
6 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
1. Basis
of Presentation and History of the Company
(a)
Basis of Presentation
The
consolidated condensed balance sheet as of December 31, 2009, the condensed
consolidated statements of operations, condensed statements of cash flows and
condensed statements of stockholders’ deficit for the respective periods
presented, have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures, normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been condensed or omitted as allowed by
such rules and regulations, and the Company believes that the disclosures are
adequate to make the information presented not misleading. The results of
operations for the three and six months ended December 31, 2009 are not
necessarily indicative of results expected for the full year ending June 30,
2010. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position at December 31, 2009, and the results of operations, changes in cash
flows, and changes in stockholders’ deficit for all periods presented, have been
made. These financial statements should be read in conjunction with
our audited financial statements and notes thereto included in our annual report
on Form 10-K filed with the SEC on October 5, 2009.
(b) Subsequent
Events
The
Company has evaluated subsequent events that occurred after December 31,
2009 through the date that the financial statements were issued on February 19,
2010.
(c) History of the
Company
Effective
December 2, 2009, the Company changed its name from OptiCon Systems, Inc. to
Infrax Systems, Inc.
Infrax
Systems, Inc., formerly OptiCon Systems, Inc. (“the Company”) was formed as a
Nevada corporation on October 22, 2004. On July 29, 2005, the
stockholders of the Company entered into an agreement to exchange 100% of the
outstanding common stock of the Company, for common and preferred stock of
FutureWorld Energy, Inc. (formerly Isys Medical, Inc.), a publicly traded
company, at which time, the Company became a wholly owned subsidiary of
FutureWorld.
FutureWorld
Energy, Inc. (“FutureWorld”), Infrax’s parent company, announced its intention
to spin off Infrax through the payment of a stock dividend. In
connection with the proposed spin off, Infrax’s board of directors approved a
stock dividend of 99,118 shares to FutureWorld, its sole
shareholder. On August 31, 2007, FutureWorld paid a stock dividend to
its stockholders, consisting of 100% of the outstanding common stock of the
Company, at the rate of one share of Infrax’s stock for every two shares they
own of FutureWorld. As of that date, Infrax Systems ceased being a
subsidiary of FutureWorld.
On August
11, 2009, the Company organized Infrax Systems SA (Pty) Ltd., a South African
company, as a wholly owned subsidiary. On August 12, 2009, the
Company organized PowerCon Energy Systems, Inc., a Nevada corporation, as a
wholly owned subsidiary, and on October 8, 2009, PowerCon issued Mr. Sam Talari,
one of the Company’s directors, majority shares in PowerCon, at which time
PowerCon ceased being a wholly owed subsidiary.
-
7 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
(d) Development Stage
Enterprise
Since its
inception, the Company has been in the development stage, dedicated to selling
and/or licensing a fiber optic management software system under the name OptiCon
Network Manager, originally developed, and acquired from Corning Cable System,
Inc. through a related company, FutureTech Capital, LLC. The Company
expects to continue to incur significant operating losses and to generate
negative cash flow from operating activities while developing its customer base
and establishing itself in the marketplace
The
Company's ability to eliminate operating losses and to generate positive cash
flow from operations in the future will depend upon a variety of factors, many
of which it is unable to control. If the Company is unable to
implement the Company’s business plan successfully, it may not be able to
eliminate operating losses, generate positive cash flow, or achieve or sustain
profitability, which would materially adversely affect its business, operations,
and financial results, as well as its ability to make payments on its debt
obligations.
2. Summary
of Significant Accounting Policies
(a)
Principles of Consolidation
The
consolidated financial statements include the accounts and operations of Infrax
Systems, Inc., and its wholly owned subsidiary, Infrax Systems SA (Pty) Ltd.
(collectively referred to as the “Company”). Accordingly, the assets
and liabilities, and expenses of this company have been included in the
accompanying condensed consolidated financial statements, and intercompany
transactions have been eliminated.
(b)
Deconsolidation of a Subsidiary
On August
12, 2009, the Company organized PowerCon Energy Systems, Inc., a Nevada
corporation, as a wholly owned subsidiary with the transfer of the R-4 software
architecture in exchange for 3,000,000 shares of PowerCon’s common
stock. On October 8, 2009, PowerCon issued Mr. Sam Talari, one of the
Company’s directors, 16,0000,000 shares of PowerCon in connection with a private
placement, at which time PowerCon ceased being a wholly owed
subsidiary.
(c)
Loss per Share
Basic EPS
is calculated by dividing the loss available to common shareholders by the
weighted average number of common shares outstanding during each
period. Diluted EPS is similarly calculated, except that the
denominator includes common shares that may be issued subject to existing rights
with dilutive potential, except when their inclusion would be
anti-dilutive.
Based on
an estimated current value of the Company’s stock being equal to or less than
the exercise price of the warrants, none of the shares assumed issued upon
conversion of the warrants, nor any of the stock assumed issued under the
Company's 2004 Non statutory Stock Option Plan, or its 2009 Employees and
Consultants Stock Incentive Plan are included in the computation of fully
diluted loss per share, since their inclusion would be
anti-dilutive.
-
8 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
(d) Revenue
Recognition
The
Company is principally in the business of licensing fiber optic management
software, OptiCon Network Manager. Revenue from licensing the
software is recognized upon installation and acceptance of the software by
customers. When a software sales arrangement includes rights to
customer support, the portion of the license fee allocated to such support is
recognized ratably over the term of the arrangement, normally one
year. Revenue from professional services arrangements will be
recognized in the month in which services are rendered over the term of the
arrangement.
Revenue
associated with software sales to distributors is recognized, net of discounts,
when the Company has performed substantially all its obligations under the
arrangement. Until such time as substantially all obligations under
the arrangement are met, software sales are recognized as deferred
revenue. Costs and expenses associated with deferred revenue are also
deferred. When a software sales arrangement includes a commitment to
provide training, services or materials, the Company estimates and records the
expected costs of the training, services or materials.
(e)
Fair Value of Financial Instruments
The
following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
•
|
Cash and Cash Equivalents,
Accounts Receivable, Loan from Related Party, Prepaid Expenses, Bank
Overdraft, Accounts Payable, and Accrued
Expenses :
|
|
The
carrying amount reported in the balance sheets for these items
approximates fair value because of the short maturity of these
instruments.
|
||
•
|
Notes
Payable and Loans and Notes Payable to Related Parties:
|
|
The
carrying value of notes payable and loans and notes payable to related
parties approximates fair value as each of the notes payable carries an
interest rate commensurate with commercial borrowing rates available to
the Company.
|
||
As
of December 31, 2009 and June 30, 2009, the fair values of the Company’s
financial instruments approximate their historical carrying
amount.
|
(f) Impact of Recently Issued Accounting
Pronouncements
We have
reviewed accounting pronouncements and interpretations thereof that have
effectiveness dates during the periods reported and in future periods. We
believe that the following impending standards may have an impact on our future
filings. The applicability of any standard is subject to the formal review of
our financial management and certain standards are under
consideration.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (“Codification”). The Codification is the
single source for all authoritative Generally Accepted Accounting Principles
(“GAAP”) recognized by the FASB to be applied for financial statements issued
for periods ending after September 15, 2009. The implementation
of the Codification did not impact our financial statements or disclosures other
than references to authoritative accounting literature are now made in
accordance with the Codification.
-
9 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
In May
2009, the FASB issued guidance under ASC 855 “Subsequent Events” which
established general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. This guidance requires the Company to disclose the
date through which the Company has evaluated subsequent events and the basis for
the date. The guidance was effective for interim periods which ended after
June 15, 2009. See Note 1, “Basis of Presentation,” for disclosure of the
date to which subsequent events are disclosed.
In June
2008, the FASB issued authoritative guidance as required by the “Derivative and
Hedging” ASC Topic 815-10-15-74 in Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock, The objective
is to provide guidance for determining whether an equity-linked financial
instrument (or embedded feature) is indexed to an entity’s own stock and it
applies to any freestanding financial instrument or embedded feature that has
all the characteristics of a derivative, for purposes of determining whether
that instrument or embedded feature qualifies for the first part of the scope
exception. This Issue also applies to any freestanding financial instrument that
is potentially settled in an entity’s own stock, regardless of whether the
instrument has all the characteristics of a derivative. We currently have
warrants that embody terms and conditions that require the reset of their strike
prices upon our sale of shares or equity-indexed financial instruments at
amounts less than the conversion prices. These features will no longer be
treated as “equity” once it becomes effective. Rather, such
instruments will require classification as liabilities and measurement at fair
value. Early adoption is precluded. This standard did not have a material impact
on the financial statements.
In
March 2008, the FASB issued guidance under ASC 815 “Derivatives and Hedging”.
The guidance is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments;
(b) how derivative instruments and related hedged items are accounted for
and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years beginning after November 15, 2008, with early adoption
encouraged. This standard did not have a material impact on the
financial statements.
In
December 2007, the FASB issued revised guidance under ASC 805 “Business
Combinations”, which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. ASC 805 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of ASC 805 did not have a material impact on the
Company’s financial position, results of operations or cash flows because the
Company has not been involved in any business combinations during the six months
ended December 31, 2009.
In
December 2007, the FASB issued guidance under ASC 810
“Consolidation”. This guidance establishes new accounting and
reporting standards for the Non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance will change the classification
and reporting for minority interest and non-controlling interests of variable
interest entities. The guidance requires the minority interest and
non-controlling interest of variable interest entities to be carried as a
component of stockholders’ equity. Accordingly we will reflect non-controlling
interest in our consolidated variable interest entities as a component of
stockholders’ equity. This guidance is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15, 2008
and earlier adoption is prohibited. The Company adopted this guidance beginning
July 1, 2009. The Company does not have Variable Interest Entities
consolidated in its financial statements. Disclosure of a
non-controlling interest has been made on the Company’s financial
statements.
-
10 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
In July
2006, the FASB issued guidance under ASC 740 “Income Taxes”. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements. It prescribes a recognition threshold and
measurement attribute for financial statement disclosure of tax positions taken,
or expected to be taken, on a tax return. The adoption of this guidance did not
have any impact on our financial statements.
Other
recent accounting pronouncements issued by the FASB, the American Institute of
Certified Public Accountants, and the Securities and Exchange Commission did not
or are not believed by management to have a material impact on the Company's
present or future financial statements.
3. Going
Concern
For the
six months ended December 31, 2009, the Company incurred a loss of
$403,593. For the period October 22, 2004 (date of inception) through
December 31, 2009, the Company incurred a cumulative net loss of
$2,628,932. At of December 31, 2009, the Company had negative working
capital of $793,508, and $0 in cash with which to satisfy any future cash
requirements. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company depends upon capital to be
derived from future financing activities such as loans from its officers and
directors, subsequent offerings of its common stock or debt financing in order
to operate and grow the business. There can be no assurance that the Company
will be successful in raising such capital. The key factors that are not within
the Company's control and that may have a direct bearing on operating results
include, but are not limited to, acceptance of the Company’s business plan, the
ability to raise capital in the future, to continue receiving funding from its
officers, directors and shareholders, the ability to expand its customer base,
and the ability to hire key employees to grow the business. There may be other
risks and circumstances that management may be unable to predict.
4. Property
and Equipment
Property
and equipment consists of the following:
December
31,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
Computer
equipment
|
$ | 9,386 | $ | 8,587 | ||||
Software
|
3,873 | 3,873 | ||||||
|
13,259 | 12,460 | ||||||
Accumulated
depreciation
|
10,175 | 9,254 | ||||||
Property
and equipment, net
|
$ | 3,084 | $ | 3,206 |
For the three and six months ended December 31, 2009, and for the period from October 22, 2004 (inception) to cember 31, 2009, the total depreciation expense charged to operations totaled $15, $15, and $10,175, respectively.
-
11 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
5. Investments
in Related Party
Equity
method accounting consisted of the following as of December 31, 2009 and June
30, 2009:
Equity method investees:
|
Voting
Ownership
|
Investment
Cost
|
Equity in
Earnings
|
December
31, 2009
|
June
30
2009
|
|||||||||||||||
PowerCon
Energy Systems, Inc.
|
20.0%
|
|
$
|
22,500
|
$
|
(997)
|
|
$
|
21,503
|
$
|
-
|
|
\
|
Effective
October 8, 2009, the investment in PowerCon was deconsolidated pursuant to the
requirements set forth in the Codification of Accounting Standards. This
guidance requires that the Company record at fair value, on the date of
deconsolidation, any remaining interest in the equity
investment. Accordingly, the Company has recorded its interest in
PowerCon at its fair value which amounts to $22,500. The Company recognized no
gain or loss on deconsolidation of its investment in
PowerCon.
6. Accrued
Expenses
Accrued
expenses consist of the following:
December
31,
|
June
30,
|
|||||||
2009
|
2009
|
|||||||
Accrued
and deferred Salaries
|
$ | 334,141 | $ | 124,167 | ||||
Accrued
vacation
|
12,618 | 17,835 | ||||||
Payroll
tax liabilities
|
52,034 | 43,789 | ||||||
Accrued
consulting
|
118,150 | 109,150 | ||||||
Accrued
legal
|
50,500 | 45,000 | ||||||
Accrued
payroll tax penalties
|
8,431 | - | ||||||
Accrued
software training
|
- | 20,000 | ||||||
Accrued
commissions
|
- | 5,790 | ||||||
Accrued
interest
|
12,378 | 6,710 | ||||||
$ | 588,252 | $ | 372,441 | |||||
7. Related
Parties Disclosures
(a)
Employment Agreements
Saed (Sam)
Talari
Effective
August 1, 2009, the Company entered into a three-year employment agreement with
Saed (Sam) Talari, one of the Company’s directors. The agreement is
automatically renewed for successive one-year periods. The Agreement
provides for (a) a base salary of $15,000 per month, (b) four weeks vacation
within one year of the starting date, and (c) all group insurance plans and
other benefit plans and programs made available to the Company’s management
employees. Mr. Talari waived the increase in salary for the months of August and
September 2009.
-
12 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
Sadruddin
Currimbhoy
On
October 1, 2007, the Company entered into a one-year Employment Agreement with
Mr. Sadruddin Currimbhoy, our former Chief Executive Officer. Mr.
Currimbhoy had taken a leave of absence and on November 21, 2008 he resigned as
Chief Executive Officer, at which time Mr. Sam Talari became Acting Chief
Executive Officer of the Company.
Cristino L.
Perez
On
October 1, 2009, the Company entered into a new three-year employment agreement
with Cristino L. Perez, one of the Company’s directors and Chief Financial
Officer. The agreement is automatically extended for successive one
one-year periods, unless previously terminated. The Agreement
provides for (a) a base salary of $5,000 per month ($3,000 payable in S-8 shares
at Mr. Perez’ option, $2,000 deferred until December 31, 2009 or deferred until
a later date, or payable in S-8 shares; (b) a bonus as determined by
the Board; (c) an option to purchase 225,000 shares of the Company common stock
at $0.08 per share to be granted over a 3 years based on the achievement of
goals and objectives established by the Board; (d) three weeks vacation
per year; and (e) all group insurance plans and other benefit plans
and programs made available to the Company’s management
employees.
Malcolm F.
Welch
On
October 6, 2009, the Company entered into a one-year employment agreement with
Malcolm F. Welch, one of the Company’s directors and Co-Chairman of the
Board. The agreement is automatically extended for successive one
one-year periods, unless previously terminated. The Agreement
provides for (a) a base salary of $7,000 per month ($5,000 payable in S-8
shares, $2,000 deferred until December 31, 2009, or deferred until a later date,
or payable in S-8 shares ; (b) a bonus based on the level of funding the Company
achieves through December 31, 2010; (c) an option to purchase 375,000 shares of
the Company common stock at $0.08 per share to be granted over a 3 years based
on the achievement of goals and objectives established by the Board; (d) two
weeks vacation during first year, four weeks vacation thereafter, and (e) all
group insurance plans and other benefit plans and programs made available to the
Company’s management employees.
In
November 2009, the Company issued Mr. Welch 181,818 shares of its common stock
in exchange for services under his employment agreement. Also in
November 2009, the Company filed a registration statement with the Securities
and Exchange Commission on Form S-8 on behalf of Mr. Welch registering 272,727
shares of common stock.
Paul J.
Aiello
Effective
October 19, 2009, the Company entered into a three-year employment agreement
with Paul J. Aiello, the Company’s Chief Executive Officer. The
agreement is automatically extended for successive one-year periods, unless
previously terminated. The Agreement provides for (a) a base salary
of $14,000 per month, ($10,000 payable in S-8 shares, $4,000 deferred until
December 31, 2009, or deferred until a later date, or payable in cash or in S-8
shares; (b) a bonus based on the level of funding the Company achieves
through December 31, 2010; (c) an option to purchase 750,000 shares of the
Company’s common stock at $0.08 per share to be granted over 3 years
based on the achievement of goals and objectives established by the Board; (d)
two weeks vacation during first year, four weeks vacation thereafter, and (e)
all group insurance plans and other benefit plans and programs made available to
the Company’s management employees.
-
13 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
In
November 2009, the Company issued Mr. Aiello 363,636 shares of its common stock
in exchange for services under his employment agreement. Also in
November 2009, the Company filed a registration statement with the Securities
and Exchange Commission on Form S-8 on behalf of Mr. Aiello, registering 545,455
shares of common stock. Subsequent to December 31, 2009, the Company
issued Mr. Aiello 800,000 shares its common stock for services under his
employment agreement, 181,819 shares already registered under his Form S-8, and
618,181 under the Company’s 2009 Employees and Consultants Stock Compensation
Plan.
Terisue
Lander
On
October 6, 2009, the Company entered into a three-year employment agreement with
Terisue Lander, one of the Company’s directors and Executive Vice-President and
Chief Operating Officer. The agreement is automatically extended for
successive one one-year periods, unless previously terminated. The
Agreement provides for (a) a base salary of $12,000 per month ($9,000 payable in
S-8 shares, $3,000 deferred until December 31, 2009, deferred until a later
date, or payable in S-8 shares; (b) a $9,000 sign on bonus; (c) a bonus based on
the level of funding the Company achieves through December 31, 2010; (d) an
option to purchase 720,000 shares of the Company common stock at $0.08 per share
to be granted over a 3 years based on the achievement of goals and objectives
established by the Board; (e) two weeks vacation during first year, four weeks
vacation thereafter, and (f) all group insurance plans and other benefit plans
and programs made available to the Company’s management
employees.
In
October 2009, the Company issued Ms. Lander 270,000 shares of its common stock
in exchange for services under her employment agreement. Also in
October 2009, the Company filed a registration statement with the Securities and
Exchange Commission on Form S-8 on behalf of Ms. Lander registering the 270,000
shares of common stock.
As of
December 31, 2009 and June 30, 2009, the accrued compensation under these
employment agreements, and employment arrangements with other employees was
$334,141 and $107,000 respectively, and accrued vacation pay for the same
periods were $12,618 and 17,835 respectively.
(b) Loan from Related
Parties
On
September 6, 2005, Mr. Sam Talari, one of the Company’s directors, agreed to
make advances to the Company as an interim unsecured loan for operational
capital up to a maximum of $350,000, evidenced by a master promissory note
(“Master Note”), with interest at the rate of 5% per annum, based on amounts
advanced from time to time, payable annually. The Master Note is
convertible into shares of the Company’s common stock at $.005 per
share.
On
October 3, 2009, the Company agreed to split a portion of the remaining balance
on the Master Note into two (2) $25,000 convertible notes, with interest at the
rate of 5% per annum, and convertible into shares of the Company’s common stock
at 40% discount to the 5-day average bid price per share.
Since
September 6, 2005, and subsequent number of conversions of a portion of the note
to common stock, Mr. Talari has continued making advances to the Company on the
Master Note. At December 31, 2009 and June 30, 2009, the outstanding
balance due to Mr. Talari on the Master Note is $247,775 and $51,248
respectively. In addition, the Company has accrued interest due to Mr. Talari on
this loan in the amount of $2,521 and $300 at December 31, 2009 and June 30,
2009 respectively.
-
14 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
During
the year ended June 30, 2008, FutureWorld Energy, Inc. Infrax’s former parent
company, paid expenses on behalf of the Company and made cash
advances. Most of these expenses were paid, and the advances made, by
FutureWorld Energy at the time Infrax was still a subsidiary, and are included
in Loan & Note Payable –
Related Parties on the balance sheet. At December 31, 2009 and June 30,
2009, the amount owed to FutureWorld Energy on this promissory note was $7,802
and $7,802 respectively, and has accrued interest of $345 and $31
respectively.
8. Stock
Options and Warrants
On
December 2, 2005, the Company granted two unrelated individuals Series A
Warrants to purchase 2,192 shares, at an adjusted average exercise price of
$34.60. All of the Warrants expire on November 11,
2011. All of the Warrants granted were non-qualified fixed price
warrants.
9. Stock
Option Plan
On
October 22, 2004, the Company adopted a 2004 Non-statutory Stock Option Plan
(“Option Plan”) for the benefit of its key employees (including officers and
employee directors), consultants and affiliates. The Option Plan is intended to
provide those persons who have substantial responsibility for the management and
growth of the Company with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, encouraging them to continue
in employment.
On
October 2, 2009 the Board of Directors authorized additional shares under this
plan bringing the total authorized to 5,000,000 shares of the Company's common
stock to be set aside, which may be issued under the Option Plan. As
of December 31, 2009, no options have been granted thus no shares have yet been
issued under the Option Plan.
10. Stock
Compensation Plan
On
October 2, 2009, the Company adopted a 2009 Employees and Consultants Stock
Compensation Plan (“Stock Plan”) for the benefit of employees and consultants
(including officers and employee directors). The Stock Plan is intended to
provide those persons who have substantial responsibility for the management and
growth of the Company with additional incentives and an opportunity to obtain or
increase their proprietary interest in the Company, encouraging them to continue
in employment, and to pay independent consultants that perform services to the
Company. The Board of Directors authorized 5,000,000 shares of the Company's
common stock to be set aside, which may be issued under the Stock
Plan.
On
November 24, 2009, the Company filed a registration statement on Form S-8 with
the Securities and Exchange Commission registering the 5,000,000 shares (S-8
shares) under the Stock Plan.
Under
employment agreement of four employees, the Company is committed to pay a
portion of the employees’ compensation in S-8 shares. Furthermore, if
upon the sale of such shares, the net proceeds received by the employee is not
sufficient to cover the designated portion of the compensation, the Company
would be required to issue additional S-8 shares as to allow the employee to
receive net proceeds equal to the designated compensation amount.
During
the quarter ended December 31, 2009, the Company issued a total of 1,308,181
shares to a consultant, and to the four employees for services rendered to the
Company under their employment agreements, of which 210,000 shares were issued
to one employee under the Stock Plan. At December 31, 2009, the
Company is required to issue 2,974,322 S-8 shares to these employees under their
respective employment agreements. Therefore, at December 31,
2009, there remain 4,790,000 shares available for future issuance under the
Stock Plan, and 1,815,678 shares after the issuance of the required
shares.
-
15 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
11. Income
Taxes
The
Company has not recognized an income tax benefit for its operating losses
generated through December 31, 2009 based on uncertainties concerning the
Company’s ability to generate taxable income in future periods. The
tax benefit is offset by a valuation allowance established against deferred tax
assets arising from operating losses and other temporary differences, the
realization of which could not be considered more likely than not. In
future periods, tax benefits and related deferred tax assets will be recognized
when management considers realization of such amounts to be more likely than
not.
12. Commitments
and Contingencies
(a)
Employment Agreements
Francis E.
Vegliante
Effective
October 6, 2009, the Company entered into a three-year employment agreement with
Francis E. Vegliante as Senior Vice-President of International Sales and
Services. The agreement is automatically extended for successive
one-year periods, unless previously terminated. The Agreement
provides for (a) a base salary of $7,000 per month. The first three
months compensation will be non-refundable, and for all subsequent months
compensation will be a refundable draw against future
commissions. The first three months compensation will be deferred
until December 31, 2009, or deferred until a later date, or payable in cash or
in S-8 shares at the time; (b) 10% commission on collected contract billing,
limited to $300,000 during the first year of employment, (c) a bonus based on
the level of funding the Company achieves through December 31, 2010; (d) an
option to purchase 600,000 shares of the Company common stock at $0.08 per share
to be granted over a 3 years based on the achievement of goals and objectives
established by the Board; (e) one week vacation after six month of employment,
four weeks vacation thereafter, and (f) all group insurance plans and other
benefit plans and programs made available to the Company’s management
employees.
David
McCarthy
Effective
October 6, 2009, the Company entered into a three-year employment agreement with
David McCarthy as Vice-President of Corporate Development. The
agreement is automatically extended for successive one-year periods, unless
previously terminated. The Agreement provides for (a) a base salary
of $10,000 per month, ($7,000 payable in S-8 shares, $3,000 deferred until
December 31, 2009, or deferred until a later date, or payable in cash or in S-8
shares at the time); (b) a sign on bonus equal to one month salary, (c) a bonus
based on the level of funding the Company achieves through December 31, 2010;
(d) an option to purchase 225,000 shares of the Company common stock at $0.08
per share to be granted over a 3 years based on the achievement of goals and
objectives established by the Board; (e) one week vacation after six month of
employment, four weeks vacation thereafter, and (f) all group insurance plans
and other benefit plans and programs made available to the Company’s management
employees.
During
October, November and December 2009, the Company issued Mr. McCarthy 420,000
shares of its common stock in exchange for services under her employment
agreement. In October 2009, the Company filed a registration
statement with the Securities and Exchange Commission on Form S-8 on behalf of
Mr. McCarthy registering the 210,000 shares of his common stock. The
additional 210,000 shares were issued under the Company’s 2009 Employees and
Consultants Stock Compensation Plan.
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16 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
John
Verghese
Effective
December 1, 2009, the Company entered into a letter agreement with John Verghese
as Director of Product Development. The letter agreement is an
interim step while an employment agreement is negotiated and
executed. The terms of the employment agreement are still being
negotiated. The letter agreement provides for (a) a base salary of
$3,000 per month in the form of S-8 shares, (b) an option to purchase 360,000
shares of the Company common stock at $0.05 per share to be granted over a 3
years based on the achievement of goals and objectives established by the
Board. ; (c) two weeks vacation during first year of employment, and
(d) all group insurance plans and other benefit plans and programs made
available to the Company’s management employees.
(b)
Rental Agreement
On August
1, 2009, the Company terminated its lease agreement with Muse River Corporation,
and entered into a 5-year commercial lease with Caroline DeVale, an unrelated
individual, to rent approximately 1,625 square feet of executive offices and
computer center in St. Petersburg, Florida at rent of $1,930 a month, including
Florida sales taxes. The future minimum rental for each of the next
four years is $23,160, and for the fifth year is $13,510.
Rent
expense for the three and six months ended December 31, 2009, and for the period
from October 22, 2004 (date of inception) through December 31, 2009 amounted to
$5,642, $11,432 and $55,876 respectively. Rent expense for the three
and six months ended December 31, 2008 amounted to $6,497 and $9,659
respectively.
13. Foreign
Currency Translation
The
balance sheets of the Company's foreign subsidiaries are translated at
period-end rates of exchange, and the statements of earnings are translated at
the weighted-average exchange rate for the period. Gains or losses resulting
from translating foreign currency financial statements are included in
accumulated other comprehensive income (loss) in the consolidated statements of
stockholders' equity and comprehensive income. At December 31, 2009 no foreign
currency translation was conducted due to the immaterial nature of its
subsidiary’s balance sheet.
-
17 -
Infrax
Systems, Inc.
(Formerly
OptiCon Systems, Inc.)
(A
Development Stage Enterprise)
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Months Ended December 31, 2009 and the Period
from
October
22, 2004 (Date of Inception) through December 31, 2009
(Unaudited)
14. Subsequent
Events
(a)
Issuance of Common Stock
On
January 15, 2010, the Company agreed to issue Mr. Sam Talari 1,500,000 shares of
the Company’s common in exchange for the cancellation of $45,000 of accrued
salary owed to Mr. Sam Talari. The number of shares issued was
determined based on the market price of $.03 per share on January 15, 2010. The
Board agreed to issue these shares from shares previously authorized under the
Company’s 2009 Employees and Consultants Stock Compensation Plan.
On
January 11, 2010 and February 10, 2010, the Company issued John Verghese, one of
its non-executive employees 120,000 and 107,143 shares respectively, of the
Company’s common stock in exchange for services under the employee’s employment
agreement.
On
January 11, 2010 and February 10, 2010, the Company issued Paul J. Aiello, the
Company’s CEO 800,000 and 357,143 shares respectively, of the Company’s common
stock in exchange for services under the employee’s employment
agreement. These shares were issued from shares available under the
Company’s 2009 Employees and Consultants Stock Compensation
Plan.
(b)
Note Assignment and Stock Conversion
On
January 27, 2010, Mr. Sam Talari assigned one of the $25,000 convertible
promissory notes owed to him by the Company to Eventus Capital, Inc., an
unrelated entity. On February 3, 2010, the Company agreed to convert
the promissory note assigned to Eventus Capital into 1,860,119 shares of the
Company’s common stock at a conversion price of $.01344 per share.
(c)
Employment Agreement
Effective
February 1, 2009, the Company entered into a letter agreement with S. Kahn as
Manager of Product Development. The letter agreement is an interim
step while an employment agreement is negotiated and executed. The
terms of the employment agreement are still being negotiated. The
letter agreement provides for (a) a base salary of $1,500 per month deferred for
90 days or payable in the form of S-8 shares or cash thereafter, (b) an option
to purchase 450,000 shares of the Company common stock at $0.03 per share to be
granted over a 3 years based on the achievement of goals and objectives
established by the Board.
-
18 -
Item
2. Management’s Discussion and Analysis or Plan of
Operation
The
following discussions should be read in conjunction with our financial
statements and the notes thereto presented in “Item 1 – Financial Statements”
and our audited financial statements and the related Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in our report
on Form 10-K for the fiscal year ended June 30, 2009. The information set forth
in this “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” includes forward-looking statements that involve risks and
uncertainties. Many factors could cause actual results to differ materially from
those contained in the forward-looking statements.
Name
Changes
Effective
December 2, 2009, with the majority shareholder’s approval, the name of the
Company was changed from OptiCon Systems, Inc. to Infrax Systems,
Inc.
Changes
in Management
On
October 5, 2009, Paul D. Lisenby, one of our directors resigned, and on the same
date Terisue Lander was elected as a director, Executive Vice-President and
Chief Operating Officer, and Malcolm F. Welch was elected as a director and
Co-Chairman of the Board.
On
October 16, 2009, the Board of Directors approved the appointment of Paul J.
Aiello to serve as our Chief Executive Officer and as a board member effective
October 19, 2009. Effective on October 19, 2009, Saed (Sam) Talari
resigned as our Acting Chief Executive Officer.
On
November 30, 209, the Board of Directors approved Terisue Lander’s change in
position with the Company from Executive Vice-President and Chief Operating
Officer to Executive Vice-President of Business Development to be more in line
with Ms. Lander’ role within the Company.
On
January 3, 2010 during the Company’s annual meeting of its shareholders, the
following directors were appointed for the following year: Paul J.
Aiello, Malcolm F. Welch, Saed (Sam) Talari, and Cristino L.
Perez. Ms. Terisue Lander was not re-elected to the
Board. On January 25, 2010 Ms. Lander resigned her position with the
Company.
Deconsolidation
of a Subsidiary
On August
12, 2009, PowerCon Energy Systems, Inc. (“PowerCon”) became a wholly owned
subsidiary of the Company by the issuance of 3,000,000 shares to the Company in
exchange for the rights to the R4PC software architecture limited to the power
industry. On October 8, 2009, PowerCon issued 16,000,000 shares of
its stock to Saed (Sam) Talari in exchange for a promissory note. At
that time, PowerCon ceased being a wholly owned subsidiary. The
accounts of the Company have been adjusted to reflect the effect of
deconsolidating PowerCon.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 1 to the
financial statements. However, certain accounting policies are particularly
important to the portrayal of our financial position and results of operations
and require the application of significant judgment by our management; as a
result they are subject to an inherent degree of uncertainty. In applying these
policies, our management uses its judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those
estimates are based on knowledge of our industry, historical operations, terms
of existing contracts, our observance of trends in the industry and information
available from other outside sources, as appropriate.
-
19 -
Our
critical accounting policies include:
·
|
Principals of
Consolidation -The consolidated financial statements include the
accounts and operations of the Infrax Systems, Inc., and its wholly owned
subsidiary Infrax Systems SA (Pty) Ltd. (collectively referred to as the
“Company”). Accordingly, the assets and liabilities, and
expenses of this company have been included in the accompanying
consolidated financial statements, and intercompany transactions have been
eliminated.
|
·
|
Revenue
Recognition
- We
recognize revenue from licensing our software upon the acceptance of the
software by customers. When a software sales arrangement
includes rights to customer support, the portion of the license fee
allocated to such support is recognized ratably over the term of the
arrangement, normally one year. Revenue from professional
services arrangements will be recognized in the month in which services
are rendered over the term of the
arrangement.
|
·
|
Long-Lived Assets - We
depreciate property and equipment and amortize intangible assets,
including software development costs over the respective assets’ estimated
useful life and periodically review the remaining useful lives of our
assets to ascertain that our estimate is still valid. If we determine a
useful life has materially changed, we either change the useful life or
write the asset down or if we determine the asset has exhausted its useful
life, we write the asset off
completely.
|
·
|
Capitalized Software
Development Costs - We capitalize software development costs
incurred subsequent to the establishment of technological feasibility and
amortize them over the estimated lives of the related products. We
discontinue capitalization of software when the software product is
available to be sold, leased, or otherwise marketed. Amortization of
software costs begins when the developed product is available for sale to
our customers. We amortize our software development costs over the
estimated economic life and estimated number of units of the product to be
sold.
|
·
|
Stock Based
Compensation - We recognize
stock-based compensation expense net of an estimated forfeiture rate and
therefore only recognize compensation cost for those shares expected to
vest over the service period of the award. Calculating
stock-based compensation expense requires the input of subjective
assumptions, including the expected term of the option grant, stock price
volatility, and the pre-vesting option forfeiture rate. We
estimate the expected life of options granted based on historical exercise
patterns. We estimate stock price volatility based on
historical implied volatility in our stock. In addition, we are
required to estimate the expected volatility rate and only recognize
expense for those shares expected to vest. We estimate the
forfeiture rate based on historical experience of our stock-based awards
that are granted, exercised or
cancelled.
|
Recent Accounting
Pronouncement
We have
reviewed accounting pronouncements and interpretations thereof that have
effectiveness dates during the periods reported and in future periods. We
believe that the following impending standards may have an impact on our future
filings. The applicability of any standard is subject to the formal review of
our financial management and certain standards are under
consideration.
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (“Codification”). The Codification is the
single source for all authoritative Generally Accepted Accounting Principles
(“GAAP”) recognized by the FASB to be applied for financial statements issued
for periods ending after September 15, 2009. The implementation
of the Codification did not impact our financial statements or disclosures other
than references to authoritative accounting literature are now made in
accordance with the Codification.
In May
2009, the FASB issued guidance under ASC 855 “Subsequent Events” which
established general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. This guidance required the Company to disclose the
date through which the Company has evaluated subsequent events and the basis for
the date. The guidance was effective for interim periods which ended after
June 15, 2009. See Note 1, “Basis of Presentation,” for disclosure of the
date to which subsequent events are disclosed.
-
20 -
In June
2008, the FASB issued authoritative guidance as required by the “Derivative and
Hedging” ASC Topic 815-10-15-74 in Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock. The objective
is to provide guidance for determining whether an equity-linked financial
instrument (or embedded feature) is indexed to an entity’s own stock and it
applies to any freestanding financial instrument or embedded feature that has
all the characteristics of a derivative, for purposes of determining whether
that instrument or embedded feature qualifies for the first part of the scope
exception. This Issue also applies to any freestanding financial instrument that
is potentially settled in an entity’s own stock, regardless of whether the
instrument has all the characteristics of a derivative. We currently have
warrants that embody terms and conditions that require the reset of their strike
prices upon our sale of shares or equity-indexed financial instruments at
amounts less than the conversion prices. These features will no longer be
treated as “equity” once it becomes effective. Rather, such instruments will
require classification as liabilities and measurement at fair value. Early
adoption is precluded. This standard did not have a material impact on the
financial statements.
In
March 2008, the FASB issued guidance under ASC 815 “Derivatives and Hedging”.
The guidance is intended to improve financial standards for derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments;
(b) how derivative instruments and related hedged items are accounted for
and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for
fiscal years beginning after November 15, 2008, with early adoption
encouraged. This standard did not have a material impact on the
financial statements.
In
December 2007, the FASB issued revised guidance under ASC 805 “Business
Combinations”, which establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. ASC 805 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008. Earlier adoption is
prohibited. The adoption of ASC 805 did not have a material impact on the
Company’s financial position, results of operations or cash flows because the
Company has not been involved in any business combinations during the six months
ended December 31, 2009.
In
December 2007, the FASB issued guidance under ASC 810
“Consolidation”. This guidance establishes new accounting and
reporting standards for the Non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance will change the classification
and reporting for minority interest and non-controlling interests of variable
interest entities. The guidance requires the minority interest and
non-controlling interest of variable interest entities to be carried as a
component of stockholders’ equity. Accordingly we will reflect non-controlling
interest in our consolidated variable interest entities as a component of
stockholders’ equity. This guidance is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15, 2008
and earlier adoption is prohibited. The Company adopted this guidance beginning
July 1, 2009. We do not have Variable Interest Entities consolidated in our
financial statements. We have disclosed a non-controlling interest on
our financial statements.
In July
2006, the FASB issued guidance under ASC 740 “Income Taxes”. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial. It prescribes a recognition threshold and measurement
attribute for financial statement disclosure of tax positions taken, or expected
to be taken, on a tax return. The adoption of this guidance did not have any
impact on our financial statements.
Other
recent accounting pronouncements issued by the FASB, the American Institute of
Certified Public Accountants, and the Securities and Exchange Commission did not
or are not believed by management to have a material impact on the Company's
present or future financial statements.
Off-Balance Sheet
Arrangements:
We do not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as special purpose entities or variable
interest entities, which have been established for the purpose of facilitating
off-balance sheet arrangements or other limited purposes.
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21 -
PLAN
OF OPERATIONS
As more
fully described in “LIQUIDITY
AND CAPITAL RESOURCES”, we had $0 in cash at December 31, 2009, and
$247,775 remaining on the line of credit from Mr. Talari with which to satisfy
our future cash requirements. Our management believes our cash and
credit line, and revenue from the sale of our products will support only limited
activities for the next twelve months. We are attempting to secure other sources
of financing to develop our business plan, and to implement our sales and
marketing plan.
We
believe full implementation of our plan of operations and completion of
development of the R4 system will cost approximately $5 million. We
have no assurance we will be able to obtain additional funding to sustain even
limited operations beyond twelve months based on the available cash and balance
of our line of credit with Mr. Talari, and limited revenues from the sale of our
products. If we do not obtain additional funding, we may need to
cease operations until we do so, and in that event may consider a sale of our
technology. Our plan of operations set forth below depends entirely
upon obtaining additional funding.
We do not
have any ongoing discussions, arrangements, understandings, commitments or
agreements for additional funding. We will consider equity funding
through either a private sale or a registered public offering of our common
stock; however, it seems unlikely that we can obtain an
underwriter. We will consider a joint venture in which the joint
venture partner provides funding to the enterprise. We will consider
debt financing, both unsecured and secured by a pledge of our
technology. As noted above, we may be forced to cease operations
without additional funding, after our limited cash and line of credit with Mr.
Talari are exhausted.
Our Marketing
Plan
The first
phase in our plan of operations, subject to adequate funding, will be
implementation of our sales and marketing plan. Our plan has been to contact
those companies to which Corning Cable licensed the Opticon Network Manager
software to offer maintenance and professional services with respect to the R3
software they continue to utilize. Since Corning Cable stopped supporting the R3
software, these companies have been without a means to maintain and support the
software, or they have acquired software from other sources for their current
needs. For those companies that continue to use the R3 software, we would be
able to provide them with seamless integration with other programs or newer
version of programs being used, and provide them with full maintenance and
support. Corning Cable has provided us with a list of companies they had
previously used their software. We have contacted a number of these
companies, almost entirely in the United States, and have found that many have a
keen interest in our software. We are unable to sell our software
customers until we are able to raise funds to provide adequate support for the
software.
We also
plan to begin marketing to the MSO (cable companies) market. In
parallel with this activity we plan to contact the seven consulting firms
servicing the ISO market. These firms act as a technical staff for this market,
as it is too costly for the individual ISOs to keep a full time technical
staff. The consulting firms also provide strategic technical
analysis for this market segment as the ISOs do not have the resources or
staff to provide this function on their own.
We are
also exploring the opportunities to create joint ventures, agencies or other
business relationships and are in discussion with local and
regionally based companies in emerging markets with existing relationships with
the key decision makers in these foreign markets, that would be willing
establish strategic relationships in those markets and establishing their own
Network Operating Centers to increase our visibility and support our customers
in those markets. We are considering establishing this concept as our
business model for countries in these emerging markets.
Product Research and
Development
The
Opticon software was originally designed for two distinct applications, one for
the telecommunications industry (R4) and the other for the power industry
(R4PC). The Company transferred the R4PC to PowerCon Energy Systems,
Inc., in exchange for 3,000,000 shares of that company’s common stock, while the
R4 remained with us. We estimated that our OptiCon R4 software system is
approximately seventy-five percent complete. We have not done any
significant development on the R4. The development of the R4 requires
significant funding, and that process cannot be implemented until such time as
the we obtain adequate funding. We have budgeted $2.2 million to complete the
development of the R4 system. We do not have financial or other
resources to undertake this development. Without additional funding
sufficient to cover this budgeted amount, we will not have the resources to
conduct this development.
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22 -
We
anticipate that as funding is received, of which there is no assurance, we will
begin hiring the appropriate technical staff that would be able to handle
support requirements for this market segment. We anticipate a need for up to
forty-four employees by the end of the first year of full operation after
funding. The number of employees we hire during the next twelve months will
depend upon the level of funding and sales achieved.
Funding
To
support our activities and provide the initial sales and support for entry into
the large service provider marketplace, which consist of the national cable
companies, we will require an initial investment of approximately $5 million. We
expect this level of funding to carry us into the marketplace
for IOCs, ILECs and RBOCs, as well as offer
services to existing users of the R3 system, and provide the capital necessary
to complete the development of our OptiCon R4 system, our next generation
product. The graph below depicts the areas of development, assuming
attainment of different level of funding.
Level
of Funding
$1,000,000
|
Level
of Funding
$2,500,000
|
Level
of Funding
$5,000,000
|
Securing
adequate facilities (approximately 12,500 square feet of
space)
|
N/A
|
Securing
an additional 12,500 to 25,000 square feet facility
|
Hiring
approximately 12 product support, marketing, and administrative
staff
|
Hiring
an additional 12 product support and marketing staff, 3 product
development staff, and additional administrative staff.
|
Hiring
additional 12 product support, marketing and administrative support
staff.
|
Acquiring
furniture and fixtures for the facilities and staff, acquire computer
systems
|
Acquire
additional furniture and equipment for staff, and acquire additional
computers and upgrade present system.
|
Upgrade
computer systems to accommodate handling large MSO and ISO
companies
|
Hiring
of product support and development department heads.
|
N/A
|
N/A
|
N/A
|
Commence
the development of OptiCon R4 software system.
|
Complete
the development of the OptiCon R4
system.
|
Results
of Operations
For the six months ended
December 31, 2009 and 2008:
During
the six month period ended December 31, 2009, we made our first sale
and installation of the Opticon Network Manager to BalsamWest FiberNET, a
regional provider of broadband services in the Mid Atlantic region, in the
amount of $1,995, after substantial discounts. BalsamWest has agreed
to allow us to show other potential customers their real time operation of our
software.
For the
six months ended December 31, 2009, we incurred a net loss of $403,593 compared
to a loss of $296,200 for the six months ended December 31, 2008 an increase of
36%, reflecting primarily the hiring a new managing team, including a CEO,
Executive Vice-President of Business Development, a Senior Vice-President of
International Sales, a Director of Product Development and others.
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23 -
For the
six months ended December 31, 2009 compared to December 31, 2008 salaries and
benefits increased from $45,231 to $251,942 reflecting new employment agreements
our new management team and other employees hired during the
period. For the same period legal and accounting decreased from
$40,000 to $26,000 reflecting a decrease in legal services provided by our
outside counsel, and other cost cutting measures. For the same
period, consulting expenses decreased from $190,700 to $41,540, reflecting the
termination of the agreement with an independent consultant who was assisting us
with the marketing of our R3 software system in the U.S. For the
period December 31, 2008 compared to the same period in 2009, our travel and
entertainment expenses increased from $2,357 to $15,160 reflecting the increase
activity of our management team. For the same period, taxes and
licenses increased from 6,219 to $17,140 reflecting an increase in salary based
with the hiring of the new management team. Also for the same period,
rent expense decreased from $22,459 to $11,432 reflecting the cancellation of
our offices in California and moving our officer to the new corporate offices in
St. Petersburg, Florida.
For the three months ended
December 31, 2009 and 2008:
For the
three months ended December 31, 2009, we incurred a net loss of $296,961
compared to a loss of $145,269 for the three months ended December 31, 2008 an
increase of 104%, reflecting primarily the hiring a new managing team, including
a CEO, Executive Vice-President of Business Development, a Senior Vice-President
of International Sales, a Director of Product Development and others at the
beginning of October 2009.
For the
three months ended December 31, 2009 compared to December 31, 2008 salaries and
benefits increased from $22,616 to $227,327 reflecting new employment agreements
our new management team and other employees hired during the
period. For the same period legal and accounting decreased from
$25,000 to $3,500 reflecting a decrease in legal services provided by our
outside counsel, and other cost cutting measures. For the same
period, consulting expenses decreased from $79,533 to $5,388, reflecting the
termination of the agreement with an independent consultant who was assisting us
with the marketing of our R3 software system in the U.S. For the
three months December 31, 2008 compared to the same period in 2009, our travel
and entertainment expenses increased from $4,431 to $10,729 reflecting the
increase activity of our management team. For the same period, taxes
and licenses increased from $622 to $16,618 reflecting an increase in salary
based with the hiring of the new management team. Also for the same
period, rent expense increased slightly from $5,642 to $5,790 reflecting the
cancellation of our offices in California and moving our officer to the new
corporate offices in St. Petersburg, Florida.
LIQUIDITY
AND CAPITAL RESOURCES
As of
December 31, 2009, we had $0 cash with which to satisfy our cash requirements
for the next twelve months, along with $247,775 remaining on the line of credit
from Mr. Talari to pay normal operating expenses, while we attempt to secure
other sources of financing to develop our business plan, and to start
implementation of our marketing plan. On September 6, 2005, we
obtained a loan commitment from Mr. Saed (Sam)Talari, one of our directors
and controlling person in the amount of $350,000 evidenced by a master
promissory note, due on demand, with interest at the rate of 5% per
annum. Since its inception, Mr. Talari has continued to advance funds
to us as we needed them.
Mr.
Talari remains committed to continue funding the Company, so that after the
conversions of the outstanding amount on the note and accrued interest to our
common stock, we effectively have $247,775 of the master promissory note
available to us on an as needed basis. During the three and six
months ended December 31, 2009, Mr. Talari made advances to us or paid expenses
on our behalf under this master promissory note in the amount of $34,034 and
$100,977. At December 31, 2009, we owe Mr. Talari a total of
$152,2225 which is comprised of $102,225 on the master promissory note, ,
and $50,000 on two $25,000 convertible promissory notes, and accrued
interest of $2,521. On October 3, 2009, Mr. Talari assigned one of the notes to
Eventus Capital, Inc., an unrelated entity, for business unrelated to the
Company. Subsequent to the end of the year, Eventus Capital converted the
$25,000 note into 1,860,119 shares of the Company’s common
stock.
Beginning
in October 2009, we entered into employment agreements with our new CEO, our
Executive Vice-President of Business Development, our Senior Vice-President of
International Sales, our Director of Product Development, our CFO and
others. All of the agreements contain provisions to defer a
portion of the compensation and for the employee to accept our shares in lieu of
cash for a period of time, to allow our to raise funding for
operations. Most of these shares were registered to allow the
employees to receive some cash from the sale of the shares in the market
place. We believe our strategy has allowed us to attract top notch
talent, and will allow us to retain them using very little
cash.
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24 -
On August
1, 2009, we terminated its lease agreement with Muse River Corporation, and
entered into a 5-year commercial lease with Caroline DeVale, an unrelated
individual, to rent approximately 1,625 square feet of executive offices and
computer center in St. Petersburg, Florida at a rent of $1,930 a
month.
At
December 31, 2009, we had no other contractual obligation or material commercial
commitments for capital expenditures.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Not
Applicable
Item
4.
|
Controls
and Procedures
|
Not
Applicable
Item
4T.
|
Controls
and Procedures
|
Disclosure controls and
procedures: As of December 31, 2009, we carried out an
evaluation of the effectiveness of our disclosure controls and procedures, with
the participation of our principal executive and principal financial
officers. Disclosure controls and procedures are defined in
Exchange Act Rule 15d–15(e) as “controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms and include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuer's management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.” Based on our evaluation, our President/Chief Executive
Officer and Chief Financial Officer have concluded that, as of December 31,
2009, such disclosure controls and procedures were not effective.
Changes in internal control over
financial reporting:
Based upon an evaluation by our management of our internal control over
financial reporting, with the participation of our principal executive and
principal financial officers, there were no changes made in our internal control
over financial reporting during the quarter ended December 31, 2009 that have
materially affected or are reasonably likely to materially affect this
control.
Limitations on the Effectiveness of
Internal Control: Our management does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
necessarily prevent all fraud and material errors. An internal
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations on all internal control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, and/or by management
override of the control. The design of any system of internal control
is also based in part upon certain assumptions about risks and the likelihood of
future events, and there is no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in circumstances and the
degree of compliance with the policies and procedures may
deteriorate. Because of the inherent limitations in a cost-effective
internal control system, financial reporting misstatements due to error or fraud
may occur and not be detected on a timely basis.
-
25 -
PART
II - OTHER INFORMATION
Item
1
|
Legal
Proceedings.
|
The
registrant is not engaged in any legal proceedings at the date of this
report.
Item
1A
|
Risk
Factors.
|
There
have been no material changes to the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended June 30, 2009 filed on October 5,
2009 with the Securities and Exchange Commission.
Item
2
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
The
following table sets forth information about our unregistered sales of
securities during the three months ended December 31, 2009.
Date
|
Title
of Security
|
Amount
|
Purchaser
|
Price
|
Exemption
|
2009
|
Common
stock
|
72,727
|
Jacques
Laurin (1)
|
Services
|
Section
4(2)
|
(1)
Issued to one of our consultants in exchange for services under a consulting
arrangement for services during the quarter ended December 31,
2009.
We did
not pay and no one acting on our behalf or to our knowledge paid any commissions
or other compensation with respect to the sale of the shares listed in the
tables above. A legend was placed on the certificate that has been
issued to Mr. Laurin, prohibiting public resale of the shares, except subject to
an effective registration statement under the Securities Act of 1933, as amended
(the "Act") or in compliance with Rule 144. We claim exemption from the
registration requirement of the Act by reason of Section 4(2) of the Act and the
rules and regulations there under, on grounds that the referenced sale listed
above involve does not involve a public offering within the meaning of the Act.
Furthermore, although the value of the shares we have issued and agreed to issue
is uncertain, we believe we may also rely on Rule 504 under Regulation D as an
exemption from registration.
Item
3
|
Defaults Upon Senior
Securities.
|
Not
applicable.
Item
4
|
Submission of Matters to a Vote
of Security Holders.
|
Change in Company
Name:
Effective
December 2, 2009 the name the name of the Company was changed from OptiCon
Systems, Inc. to Infrax Systems, Inc. This action was presented to
and approved by the majority shareholder in writing and without a meeting in
lieu of a special meeting of the shareholders.
The
action was approved by vote of the majority shareholder, Saed (Sam) Talari
representing 114,000,000 shares or 82.0% of the issued and outstanding shares of
the Company.
Election of
Directors:
On
January 2, 2010 by vote of the majority shareholder in writing and without a
meeting in lieu of the annual meeting of shareholders, the following individuals
were elected directors for the ensuing year, or until their resignation or
removal:
Malcolm F. Welch –
Co-Chairman
Saed (Sam) Talari –
Co-Chairman
Paul J. Aiello
Cristino L. Perez
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26 -
The
action was approved by vote of the majority shareholder, Saed (Sam) Talari
representing 117,949,232 shares or 83.51% of the issued and outstanding shares
of the Company.
Item
5
|
Other
Information.
|
Not
applicable.
Item
6
|
Exhibits
|
||
31.A
|
Principal
Executive Officer's Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
||
31.B
|
Principal
Financial & Accounting Officer's Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
||
32.A
|
Principal
Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
||
32.B
|
Principal
Financial & Accounting Officer’s Certification Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant cause this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Infrax
Systems, Inc. (Registrant)
|
|
Date:
February 19, 2010
|
By:
/s/ Paul J.
Aiello
|
Paul
J. Aiello
|
|
Principal
Executive Officer
|
|
Date:
February 19, 2010
|
By:
/s/ Cristino L.
Perez
|
Cristino
L. Perez,
|
|
Principal
Financial & Accounting Officer
|
|
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27 -