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
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For the quarterly period ended: September
30, 2012 (First Quarter)
[ ]
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TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ________________to
________________
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COMMISSION FILE NUMBER
000-52488
INFRAX SYSTEMS, INC.
(Exact name of Registrant as specified in charter)
NEVADA
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20-2583185
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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3637 4th Street North, St. Petersburg, FL 33704
(Address of principal executive offices) (ZIP
Code)
(727) 498-8514
(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 [ ]
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of September 30, 2012, the aggregate market
value of the registrant’s common stock held by non-affiliates of the registrant was $281,237 based on the closing sale price
as reported on the NASDAQ OTCBB. As of November 14, 2012, there were 99,734,182 shares of common stock outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes [X] No [ ]
TABLE OF CONTENTS
Infrax Systems, Inc.
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Consolidated Balance Sheets
(unaudited)
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September 30,
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June 30,
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2012
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2012
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(unaudited)
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(audited)
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Assets
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Current assets
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Cash
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$
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(26,337
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)
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$
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2,072
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Accounts receivable
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41,455
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65,233
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Inventory
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70,316
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63,076
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Note receivable
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35,948
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50,000
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Prepaid expenses
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249,527
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—
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Total current assets
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370,909
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182,324
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Property & equipment, net of accumulated
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depreciation of $78,082 and $72,199, respectively
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59,336
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108,608
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Intangible property, net of accumulated
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amortization of $3,350,875 and $2,943,655, respectively
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4,674,241
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5,071,719
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Deposits
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157
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7,000
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Total Assets
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$
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5,104,643
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$
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5,369,651
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Liabilities and Stockholders’ Equity
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Current liabilities
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Accounts payable
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$
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114,847
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$
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452,818
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Accrued expenses
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1,088,764
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1,040,287
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Notes payable
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938,591
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774,500
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Loans and notes payable, related parties
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6,714
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7,403
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Total current liabilities
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2,148,911
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2,275,008
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Notes payable to shareholder
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733,575
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468,769
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Total liabilities
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2,882,485
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2,743,777
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Stockholders’ Equity
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Preferred stock, 50,000,000 authorized, $.001 par value:
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Series A Convertible: 5,000,000 shares designated;
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2,523,624 and 2,523,624 issued and outstanding
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2,525
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2525
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Series B Convertible: 10,000,000 shares designated;
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1,210 and 1,210 issued and outstanding
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1
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1
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Common stock, $.001 par value, 150,000,000 shares
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authorized; 99,734,182 and 98,580,428
shares
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issued and outstanding, respectively
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99,734
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98,580
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Additional paid-in capital
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13,099,847
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13,099,847
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Subscriptions (receivable) payable
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0
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Minority interest in subsidiary
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(16,769
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)
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(16,769
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)
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Accumulated deficit
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(10,963,180
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)
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(10,558,309
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)
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Total stockholders’ equity
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2,222,158
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2,625,874
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Total Liabilities and Stockholders’ Equity
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$
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5,104,643
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$
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5,369,651
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.
The accompanying notes are an integral part of these financial statements.
Infrax Systems, Inc.
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Consolidated Statements of Operations
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(unaudited)
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For the Three Months Ended
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September 30,
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2012
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2011
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Revenues
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$
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54,068
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$
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204,975
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Direct costs
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5,611
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5,658
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Gross Profit
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48,457
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199,317
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Operating expenses:
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Salaries and benefits
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168,133
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214,852
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Stock-based compensation
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658,075
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Consulting
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500
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10,763
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Professional fees
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21,943
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15,035
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General and administrative
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36,579
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118,973
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Amortization and depreciation
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415,671
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415,671
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Total operating expenses
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642,826
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1,433,369
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Other income (expense):
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Interest expenses
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(31,080
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)
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Sale of assets, net
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(32,470
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)
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Total other (expense)
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(63,550
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)
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Loss from operations before income taxes
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(594,369
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)
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(1,297,602
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)
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Provision for income taxes
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—
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—
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$
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(594,369
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)
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$
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(1,297,602
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)
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Minority Interest
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(21,208
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)
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Net loss
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$
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(594,369
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)
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$
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(1,318,810
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)
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Earnings (loss) per share:
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Basic
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$
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(0.01
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)
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$
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(0.22
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)
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Weighted average shares outstanding
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Basic
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48,555,121
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5,961,872
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Infrax Systems, Inc.
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Consolidated Statements of Cash Flows
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(unaudited)
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For the Three Months Ended
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September 30,
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2012
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2011
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Cash Flows from Operating Activities:
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Net (loss) income
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$
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(594,369
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)
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$
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(1,318,810
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)
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Adjustment to reconcile Net Income to net cash provided by operations:
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Depreciation and amortization
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415,671
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415,671
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Loss on sale of assets
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0
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32,470
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Issuance of stock in settlement of services
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0
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658,075
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Minority interest
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0
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21,208
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Changes in assets and liabilities:
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Accounts receivable
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23,778
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)
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(93,462
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)
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Inventory
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(7,240
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)
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13,323
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Due from affiliate
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(30,005
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)
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—
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Prepaid and other
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(203,527
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)
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(225
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)
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Accounts payable
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(337,977
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)
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42,565
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Accrued expenses
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48,477
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261,517
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Customer deposits and deferred revenue
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31,368
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—
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Net Cash (Used) Provided by Operating Activities
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(653,824
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)
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32,332
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Cash Flows from Investing Activities:
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Purchase of property and equipment
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64,723
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—
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Net Cash (Used) by Investing Activities
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64,723
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—
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Cash Flows from Financing Activities:
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Proceeds from issuance of stock
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Proceeds from issuance of note payable
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139,437
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—
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Repayments of notes payable
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(20,000
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)
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Prior period
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156,455
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20,000
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Related party advances
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264,800
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(53,466
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)
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Net Cash (Used) Provided by Financing Activities
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560,692
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(53,466
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)
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Net increase/decrease in Cash
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(28,409
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)
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|
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(21,134
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)
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Cash at beginning of period
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2,072
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25,498
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Cash at end of period
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$
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(26,337
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)
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$
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4,364
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Supplemental cash flow information:
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Interest paid
|
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$
|
—
|
|
|
$
|
—
|
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Taxes paid
|
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$
|
—
|
|
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$
|
—
|
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|
|
|
|
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The accompanying notes are an integral part of these financial statements.
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Infrax Systems, Inc.
Notes to Condensed Consolidated Financial
Statements
For the Three Months Ended September 30,
2012 and the Year Ended June 30, 2012
(Unaudited)
1. History of the Company and Nature of the Business
History of the Company
Infrax Systems, Inc. (formerly OptiCon Systems, Inc.) (
“the
Company”, “Infrax”
) 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 Energy, Inc..
FutureWorld Energy, Inc. (
“FutureWorld”
), Infrax’s
parent company, announced its intention to spin off Infrax (formerly OptiCon Systems, Inc.) through by the payment of a stock dividend. In
connection with the proposed spinoff, 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 August 31, 2007, Infrax ceased being a subsidiary of FutureWorld.
Nature of Business
Since its inception, the Company had been 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. In October 2009, the Company began developing
smart grid energy related products. As of June 29, 2010, the Company acquired the assets and management of Trimax Wireless Systems,
Inc. (“Trimax”), in exchange for equity and a note payable. In April 2011, the Company acquired controlling interest
in Lockwood Technology Corporation (“Lockwood”), a provider of advanced asset management solutions. The Trimax and
Lockwood product lines are expected to provide an operating platform and enhanced operating effectiveness to the Secure Intelligent
Energy Platform.
While we continue to support the OptiCon Network Management platform,
the Company has shifted its focus and energies towards the “Smart Grid” energy sector. The Company believes our secure
integrated platform will hasten the deployment of all Smart Grid technology for resource constrained small and mid-sized utilities. Infrax’s
advantage comes from our products ability to enable the creation of a secure platform scalable to deliver a broad set of intelligent
Smart Grid initiatives across millions of endpoints for Utilities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet as of September 30, 2012, the consolidated
statements of operations and statements of cash flows 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.
In the opinion of management, all adjustments necessary to present
fairly the financial position at September 30, 2012, and the results of operations and changes in cash flows 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 for the year ended June 30, 2012 on Form 10-K filed with the SEC on October 19, 2012.
Certain reclassifications have been made to the Statement of Operations
for disclosure purposes and comparability.
Use of Estimates
The Company prepares its financial statements in conformity with
generally accepted accounting principles in the United States of America. These principals require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management
believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could
differ from those estimates.
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, an inactive foreign subsidiary and Lockwood
Technology Corporation (70% owned by Infrax Systems, Inc. (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 material intercompany transactions have been eliminated.
The Trimax Wireless, Inc. acquisition was effective June 29, 2010.
The Company, per the agreement, acquired all the assets and liabilities of Trimax Wireless, Inc. As an asset purchase the acquired
assets and liabilities are included in the accounts of Infrax Systems, Inc.
Variable Interest Entities
The Company considers the consolidation of entities to which the
usual condition (ownership of a majority voting interest) of consolidation does not apply, focusing on controlling financial interests
that may be achieved through arrangements that do not involve voting interest. If an enterprise holds a majority of
the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary is generally
required to consolidate assets, liabilities and non-controlling interests at fair value (or at historical cost if the entity is
a related party) and subsequently account for the variable interest as if it were consolidated based on a majority voting interest.
The Company has evaluated all related parties, contracts, agreements and arrangements in which it may hold a variable interest.
The Company has determined it is not the primary beneficiary in any of these entities, arrangements or participates in any of the
activities.
Financial Instruments
The Company’s balance sheets include the following financial
instruments: cash, accounts receivable, inventory, accounts payable, accrued expenses, and notes payable and notes payable to stockholder.
The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period
of time between the origination of these instruments and their expected realization. The carrying values of the note payable to
stockholder approximates fair value based on borrowing rates currently available to the Company for instruments with
similar terms and remaining maturities.
In September 2006, the Financial Accounting Standards Board (FASB)
introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities.
The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the
impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “
Fair Value Measurements and
Disclosures
” (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date.. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s
own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of Nine broad levels, which gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Nine
levels of the fair value hierarchy are described below:
|
·
|
Level 1 - Unadjusted quoted
prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
|
|
·
|
Level 2 - Inputs other than
quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including
quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
·
|
Level 3 - Inputs that are
both significant to the fair value measurement and unobservable.
|
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to management as of September 30, 2012. The respective carrying value of certain
on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These
financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses.
The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar
terms which is not significantly different from its stated value.
The Company applied ASC 820 for all non-financial assets and liabilities
measured at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have
a significant impact on the Company’s financial statements.
As of September 30 and June 30, 2012, the fair values of the
Company’s financial instruments approximate their historical carrying amount.
Cash and Cash Equivalents
The majority of cash is maintained with major financial institutions
in the United States. Deposits with these banks may exceed the amount of insurance provided on such deposits. Generally,
these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid
investments purchased with an original maturity of Nine months or less to be cash equivalents.
Accounts Receivable and Credit
Accounts receivable consist of amounts due for the delivery of sales
to customers. Prepayments on account are recorded as customer deposit, a current liability, as they represent
deferred revenue. Additionally, the Company invoices projects when signed agreement or statements of work are received. Amounts
are recorded at the anticipated collectible amount and recorded as deferred revenue until such time that the work is performed.
A contra receivable is recorded for invoiced work orders when collectability is not certain, reducing amount included as deferred
revenue. Contract revenue is recognized as the contract is completed, based on defined milestones (see policy on revenue recognition).
An allowance for doubtful accounts is considered to be established for any amounts that may not be recoverable, which is based
on an analysis of the Company’s customer credit worthiness, and current economic trends. Based on management’s
review of accounts receivable, no allowance for doubtful accounts was considered necessary. Receivables are determined
to be past due, based on payment terms of original invoices. The Company does not typically charge interest on past
due receivables.
Inventories
Inventories are stated at the lower of standard cost or market,
which approximates actual cost. Cost is determined using the first-in, first-out method. Inventory is comprised of component
parts and accessories available for sale. Parts are generally purchased for projects, as minimal inventory is held to supply customers.
Prepaid Expenses
The company on June 23, 2011 entered into a Binding Letter of Intent
for the acquisition of the assets of a company which was reported through a 8-K on January 4, 2012. As a part of these negotiations
the company was required to place $150,000 (1,500,000 shares) into escrow for extension of time.
Property & Equipment
Property and equipment are recorded at historical cost or acquisition
value. Depreciation is computed on the straight-line method over estimated useful lives of the respective assets, ranging from
Nine to five years. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation
and amortization period or the unamortized balance is warranted. Based upon the Company’s most recent analysis, management believes
that no impairment of property and equipment exists at June 30, 2012.
Intangible Property
On June 29, 2010 the Company acquired the assets of Trimax Wireless
Systems, Inc., including licenses and trademarks. The purchase price was allocated first to the identifiable assets received, allocating
the remaining costs to the intellectual property. The valuation considered future cash flows of the operating intangible assets
acquired. The valuation of the intellectual property was limited to the acquisition price (valuation of stock consideration and
note payable), less the fair market value of identifiable assets. The shares issued in exchange for the acquired property were
valued at the fair market value of the equivalent common stock as of the date of closing. The fair market value of consideration
issued (stock and note payable) to the sellers was an aggregate amount of $6,511,364. The value assigned to the carrying value
of the acquired intellectual property was $6,329,342. Intellectual property has an estimated useful life of 59 months (remaining
life of patents).
On May, 2011 the Company completed the acquisition of controlling
interest (70%) in Lockwood Technology Corporation, in exchange for stock and certain considerations (cash and warrants). The shares
were issued at the fair market value at the date of the transaction ($1,650,000) and warrants were valued using an option price
model ($477,900). The total purchase price, net of cash, notes receivable, and net assets acquired was $1,956,158. The Company
recognized an immediate impairment in the amount of $641,008 in consideration of its analysis of future discounted cash flows and
industry multiples of the acquired Company, resulting in a net
intangible assets of $1,315,150. Management’s allocation of
the purchase price was based on our assessment of the fair market value of the assets acquired, in accordance with Accounting Standard
Codification, Topic 805. Fixed assets and other tangible assets were evaluated for market value. There were no identifiable assets
that had any significant appreciation or impairment; therefore those assets have been brought over at the historical basis, net
of depreciation. The analysis of the intangible values purchased were allocated to the Lockwood customer list (30% or $394,550)
and the developed software and licensing technology (70% or $920,600).
Capitalized Software Development Costs
The Company capitalizes software development costs, under which
certain software development costs incurred subsequent to the establishment of technological feasibility have been capitalized
and are being amortized over the estimated lives of the related products. Capitalization of computer software costs is discontinued
when the computer software product is available to be sold, leased, or otherwise marketed.
Amortization begins when the product is available for release and sold to customers. Software development costs will be amortized
based on the estimated economic life of the product, anticipated to be 10 years.
Impairment of Long-Lived Assets
Periodically, the Company assesses the recoverability of the Company’s
intangible assets, consisting of the Trimax acquired intellectual property, OptiCon Network Manager software and its trademark,
and record an impairment loss to the extent that the carrying amounts of the assets exceed its fair value. Based upon
management’s most recent analysis, the Company believes that no impairment of the Company’s tangible or intangible assets
exist at September 30, 2012 and June 30, 2012.
Revenue Recognition
The Company is principally in the business of providing solutions
for a secure intelligent energy platform that incorporates our secure wireless technology. Contracts include multiple revenue components,
comprised of our software licensing, hardware platforms, installation, training and maintenance. In accordance with
ASC 605-25 Multiple-Element Arrangements, revenue from licensing the software will be 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 arrangements include a commitment to provide training and/or other services or materials,
the Company estimates and records the expected costs of these training and/or other services and/or materials.
Stock Based Compensation
The Company issues restricted stock to consultants for various services.
Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier
of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii)
the date at which the counterparty’s performance is complete. The Company recognized consulting expenses and a
corresponding increase to additional paid-in-capital related to stock issued for services. Stock compensation for the
periods presented were issued to consultants for past services provided, accordingly, all shares issued are fully vested, and there
is no unrecognized compensation associated with these transactions.
Shipping Costs
The Company includes shipping costs and freight-in costs in cost
of goods sold.
Advertising Costs
The costs of advertising are expensed as incurred.
Advertising expenses are included in the Company’s operating expenses. Advertising expense was $6,865 and $3,230 for
the three month periods ending September 30, 2012 and 2011, respectively.
Research and Development
The Company expenses research and development costs when incurred. Indirect
costs related to research and developments are allocated based on percentage usage to the research and development.
Income Taxes
The Company accounts for income taxes under the liability method.
Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at
the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the
deferred tax assets and liabilities are expected to be settled or realized.
Earnings (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, are included in the computation of
fully diluted loss per share, since their inclusion would be anti-dilutive. Convertible preferred shares have been included in
the dilutive computation, as if they would have been converted at the end of the period.
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Earnings (Loss) per share:
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(594,369
|
)
|
|
$
|
(1,318,810
|
)
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
48,555,121
|
|
|
|
5,961,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share, basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.22
|
)
|
*Potentially issuable preferred shares, if converted to common,
were considered but not included in the calculation of diluted earnings per share for the period ended September 30, 2012 and 2011,
respectively, because their inclusion would be anti-dilutive.
Recently Issued Accounting Pronouncements
Except for rules and interpretive releases of the SEC under authority
of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”)
is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed
the aforementioned rules and releases and believes any effect will not have a material impact on the Company’s present or future
consolidated financial statements.
3. Going Concern
As of September 30, 2012, the Company has a working capital deficit
and has incurred a loss from operations and recurring losses since its inception resulting in a significant accumulated deficit.
As of September 30, 2012, the Company had negative working capital of approximately
$2.0
million and approximately $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’s is attaining revenues and management expects
profitability in the future; however operations have not yet attained a profit or break-even. Accordingly, 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. Accounts Receivable
Accounts receivable reflect the amounts that
have billed at their anticipated collectible amount. The Company receives contract acceptances on submitted quotes. Due to the
advanced planning required, contract modifications occur, therefore, management invoices contracts upon signing, however, may
reserve against invoicing until final scope of project negotiations or good faith deposits are made.
5. Property and Equipment
Property and equipment consists of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2012
|
|
|
2012
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
Office and computer equipment
|
|
$
|
78,959
|
|
|
$
|
122,348
|
|
Furniture and fixtures
|
|
|
52,991
|
|
|
|
52,991
|
|
Computer software
|
|
|
5,468
|
|
|
|
5,468
|
|
|
|
|
137,418
|
|
|
|
180,807
|
|
Accumulated depreciation
|
|
|
78,082
|
|
|
|
72,199
|
|
|
|
$
|
59,336
|
|
|
$
|
108,608
|
|
For the Three months ended September 30, 2012 and 2011, the total
depreciation expense charged to operations totaled $8,451, and $8,451 respectively.
6. Intangible Assets
Intangible assets consists of the following:
|
|
September 30, 2012
|
|
|
June 30, 2012
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
Opticon fiber optic management software
|
|
$
|
189,862
|
|
|
$
|
189,862
|
|
Trademarks
|
|
|
1,000
|
|
|
|
1,000
|
|
TriMax intellectual property
|
|
|
6,329,342
|
|
|
|
6,329,342
|
|
TriMax software
|
|
|
180,020
|
|
|
|
180,020
|
|
Lockwood customer list
|
|
|
394,550
|
|
|
|
394,550
|
|
Lockwood licensing technology
|
|
|
920,600
|
|
|
|
920,600
|
|
|
|
|
8,015,374
|
|
|
|
8,015,374
|
|
Accumulated amortization
|
|
|
3,350,875
|
|
|
|
2,943,655
|
|
|
|
$
|
4,674,241
|
|
|
$
|
5,071,719
|
|
For the Three months ended September 30, 2012 and 2011, the total
amortization expense charged to operations totaled $407,220 and $407,220, respectively.
Opticon fiber optic management software
The Company purchased all rights, titles and interest in the Opticon
fiber optic management software on July 26, 2005, from FutureTech, LLC. in exchange for common stock. The agreement became effective
upon FutureTech purchasing the acquired assets from Corning Cable Systems, LLC in exchange for $100,000 in cash. The Company recorded
the common stock at the transferor’s historical cost basis determined under generally accepted accounting principles.
On July 26, 2005, the Company purchased the OptiCon Network Manager
software system which consisted of version R3 and R4. At the time of the purchase, the software system was out of date
and had to be updated and integrated with other current business
software systems, before it could be distributed to customers. The
development of R3 software system was completed during the quarter ended December 31, 2006, and is available for distribution to
customers. In June 2010 a transfer of 50% of the R3 license was returned to FutureTech, LLC at a carrying cost value of $22,250.
During the years ended June 30, 2012 and 2011, the Company did not allocate any direct labor costs, and indirect costs and expenses
to this effort. The capitalized software costs are amortized when the software is actually sold to customers. Amortization
is provided based on the number of software units sold relative to the number of expected to be sold during the software’s
economic life.
TriMax intellectual property
On June 29, 2010 the Company acquired the assets of Trimax Wireless
Systems, Inc., including licenses and trademarks. The purchase price was allocated first to the identifiable assets received, allocating
the remaining costs to the intellectual property. The valuation considered future cash flows of the operating intangible assets
acquired. The valuation of the intellectual property was limited to the acquisition price (valuation of stock consideration and
note payable), less the fair market value of identifiable assets. The shares issued in exchange for the acquired property were
valued at the fair market value of the equivalent common stock as of the date of closing. The acquisition carrying value assigned
to the intellectual property was $6,329,342.
TriMax software
Software development costs, in the amount of $180,020, were acquired
in the Trimax acquisition. The proprietary software was an identified asset of the acquisition and valued at the historical carrying
value, cost. The capitalized software is available for sale and is to be amortized over a 5 year period.
Lockwood Technology Corporation
On May, 2011 the Company completed the acquisition of controlling
interest in Lockwood Technology Corporation, leading RFID software and hardware solutions provider, from Daedalus Capital, LLC.
Infrax Systems acquired 70% interest in exchange for stock and certain considerations, including a $50,000 note receivable (due
in 180 days) from the sellers to Infrax and $112,000 in cash received by Infrax at closing. Additionally, warrants were issued
for the purpose of possible future investment capital, to be received by Infrax. Shares were issued at the fair market value at
the date of the transaction ($1,650,000). The agreement included warrants for the purchase of 660,000 (post reverse split) common
shares at an exercise price of $5.00 (split adjusted, for a term of 3 years. The warrants are callable by Infrax at certain fair
market values of the common stock. Warrants were valued at $477,900 using an option price model (assumptions used in calculation:
volatility 400%; risk free rate 1.02%; dividend rate 0%). The total purchase price, net of cash, notes receivable, and net assets
acquired was $1,956,158 and was allocated to intangible assets.
The Company recognized an immediate impairment in the amount of
$641,008 in consideration of its analysis of future discounted cash flows and industry multiples of the acquired Company, resulting
in a net intangible assets of $1,315,150. Infrax also plans to utilize their expertise in future smart grid deployment projects.
Management’s allocation of the purchase price was based on our assessment of the fair market value of the assets acquired,
in accordance with Accounting Standard Codification, Topic 805. Fixed assets and other tangible assets were evaluated for market
value. There were no identifiable assets that had any significant appreciation or impairment; therefore those assets have been
brought over at the historical basis, net of depreciation. The analysis of the intangible values purchased were allocated to the
Lockwood customer list (30% or $394,550) and the developed software and licensing technology (70% or $920,600).
Future amortization of intangible property remaining is expected
as follows:
|
For the year ended June 30, 2012:
|
|
|
|
|
|
|
2013
|
|
|
$
|
1,647,863
|
|
|
2014
|
|
|
|
1,647,863
|
|
|
2015
|
|
|
|
1,647,863
|
|
|
2016
|
|
|
|
128,130
|
|
|
|
|
|
|
|
|
|
thereafter
|
|
|
|
—
|
|
|
|
|
|
$
|
5,071,719
|
|
7. Debt Agreements
On June 29, 2010 the Company entered into an agreement with the
shareholders of Trimax Wireless, Inc. (“Trimax”) for the purchase of their business assets and technology for preferred
shares of the Company, the assumption of liabilities and a note payable, in the amount of $712,500. The note is interest bearing
at 6% per annum until fully paid with a start period of 90 (September 29, 2010) days for the first payment. The Company shall make
interest-only payments on the first day of each month from the date of this Note until
the earlier of (a) receipt of Investment Funding as defined; or
(b) 180 days from the date hereof (“Maturity Date”) (December 29, 2010). Principal plus all accrued and unpaid interest
on such principal shall be due and payable on the Maturity Date. As of the balance sheet date the Company is in default, as it
has not made payments on this loan and is currently in negotiations to extend terms. There is no default interest rate. The Company
has accrued $53,437 on this loan
The Company has a Master Note Agreement, as
an unsecured line of credit, from Mr. Sam Talari. The Master Note is for operational capital, in the amount of $350,000 and bears
interest at 5% per annum. Mr. Talari has pledged additional funding for operating capital, up to $1 million dollars, under the
same terms as the original Master Note.
8. Related Parties Disclosures
Employment Agreements
The following agreements are with Shareholders,
Directors and Members of the Board:
Sam Talari
Effective August 1, 2009, the Company
entered into a three-year employment agreement with Sam Talari, one of the Company’s directors. The agreement was automatically
renewed for an additional one-year period, and subsequently renewed by the Board for an additional one-year period through July
31, 2013. The Agreement provides for (a) a base salary of $15,000 per month, (b) a signing bonus equal to one month salary, (c)
four weeks’ vacation within one year of the starting date, and (d) all group insurance plans and other benefit plans and
programs made available to the Company’s management employees.
John Verghese
On October 19, 2010, as amended January
1, 2010, the Company entered into a three-year employment agreement with John Verghese as Director of Product Development, one
of the Company’s directors. The Agreement provides for (a) a base salary of $6,500 per month, (b) a signing bonus of $10,000,
(c) three weeks’ vacation within one year of the starting date, and (d) all group insurance plans and other benefit plans
and programs made available to the Company’s management employees. Additionally Mr. Verghese has the option to purchase 360,000
shares of common stock at $.025 per share, ratably vesting at the employment anniversary date.
Terry Gardner
On April 2nd, 2012, the Company entered
into a three-year employment agreement with Terry Gardner as VP of Professional Services. The Agreement provides for (a) a base
salary of $10,000 per month, (b) a signing bonus of $30,000, (c) three weeks’ vacation within one year of the starting date,
and (d) all group insurance plans and other benefit plans and programs made available to the Company’s management employees.
Additionally Mr. Gardner has the option to purchase 300,000 shares of common stock at $.04 per share, ratably vesting at the employment
anniversary date.
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, as amended effective January
1, 2010 provides for (a) a base salary of $2,000 per month; (b) eligibility to receive 375,000 shares of the Company’s common
stock based on the employee’s achievement of goals and objectives approved by the Board; (c) an option to purchase 375,000
shares of the Company common stock at $0.025 per share to be granted over a 3 years based on the achievement of goals and objectives
established by the Board; (d) a bonus based on the level of funding the Company achieves through December 31, 2010 ; (e) two week
vacation during first year of employment; and (f) all group insurance plans and other benefit plans and programs made available
to the Company’s management employees.
Other employment agreements exist with employees.
Line of Credit, Master Agreement
On September 1, 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, with interest at the rate
of 5% per annum, based on amounts advanced from time to time, payable
annually. Mr. Talari has pledged additional funding for operating capital, up to $500,000, under the same terms as the original
Master Note. Mr. Talari, from time to time, has converted advances and accrued interest in exchange for equity shares ($105,000
and $45,000 for the years ended June 30, 2011 and 2010, respectively). Mr. Talari continued making advances to the Company on the
loan, of which $574,957 and $185,704 remains outstanding at June 30, 2012 and 2011, respectively. In addition, the Company has
accrued interest on this loan in the amount of $30,235 and $5,390 at June 30, 2012 and 2011, respectively. Mr. Talari has pledged
additional funding for operating capital, up to $1 million, under the same terms as the original Master Note.
Accounts Payable
The Company relies on advances from the majority shareholder and
other key members. Advances are normally in the form of a loan. Payments are made on behalf of the Company by these individual
and are treated as trade payables. These amounts are considered liquid and if payment is not made, may be formally converted in
the form of a note. The Company currently has an aggregate of
$99,337 due to nine individuals
as of September 30, 2012
.
Stock Transactions
N/A
9. Stock Options and Warrants
On December 2, 2005, the Company granted two unrelated individuals
Series A Warrants to purchase 660,004 shares, at an adjusted average exercise price of $ .75. All of the Warrants expire
on November 11, 2011. All of the Warrants granted were non-qualified fixed price warrants.
The following table summarizes the activity related to the stock
purchase warrants and options and weighted average assumptions for the period ended September 30, 2012:
|
|
|
|
|
|
Weighted Average
|
|
Remaining
|
|
|
Options
|
|
Options
|
|
Intrinsic
|
|
Exercise
|
|
Contractual
|
|
|
Outstanding
|
|
Vested
|
|
Value
|
|
Price
|
|
Term
|
Options, June 30, 2011
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
$
|
|
|
$
|
5.50
|
|
|
|
1.37 years
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(600,000
|
)
|
|
|
(600,000
|
)
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
Options, September 30, 2012
|
|
|
660,004
|
|
|
|
660,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are the weighted average assumptions for the options
granted:
Weighted Average:
|
|
|
|
|
Dividend rate
|
|
|
0.0
|
%
|
Risk-free interest rate
|
|
|
1.02
|
%
|
Expected lives (years)
|
|
|
5.0
|
|
Expected price volatility
|
|
|
400.0
|
%
|
Forfeiture Rate
|
|
|
0.0
|
%
|
10. Income Taxes
There is no current or deferred income tax expense or benefit allocated
to continuing operations for the period ended September 30, 2012 and 2011. The Company has not recognized an income tax benefit
for its operating losses generated through September 30, 2012 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.
For income tax purposes the Company has available a net operating
loss carry-forward of approximately $5,675,000 from inception to September 30, 2012, which will expire, unless used to offset
future federal taxable income beginning in 2024.
11. Capital Equity
The Company has issued convertible preferred shares. Shares are
convertible into the Company’s common stock, at the option of the holder, at the prescribed conversion rate. Conversions
are as follows:
|
|
Shares Outstanding
|
|
Conversion Rate to Common
|
Preferred Series A
|
|
|
2,400,000
|
|
|
|
375
|
|
Preferred Series A1
|
|
|
8,889
|
|
|
|
88.89
|
|
Preferred Series A2
|
|
|
88,889
|
|
|
|
20
|
|
Preferred Series A3
|
|
|
25,846
|
|
|
|
20
|
|
Preferred Series B
|
|
|
1,210
|
|
|
|
0.30
|
|
|
|
|
2,524,834
|
|
|
|
|
|
Effective August, 2011 the Company’s Board of Directors affected
a 1:500 reverse stock split on common shares. In September 2011 the Preferred B shares were subject to a reverse split of 1 for
1,000. Due to the event of the reverse stock split, the preferred shares conversion rate to common were adjusted All shares presented
have been retroactively stated to reflect the reverse-split shares.
12. Commitments and Contingencies
Lease/Rental Agreements
Our executive office is now located in an office complex under annual five year lease, beginning June 1, 2012 at a rent of $3,575
per month. We entered into this 5-year commercial lease agreement in St. Petersburg, Florida with Kalyvas Group II, LLC. Our lease
provides us with approximately 4,100 square feet of: reception area, nine offices, a lab/production area, inventory room, server
room, kitchenette and one conference rooms. We believe the facilities are adequate for our operational needs. We may require additional
offices in the event we obtain funding and acquire additional customers.
Rent expense for the years ended June 30, 2012 and 2011 amounted
to $42,900 and $63,987, respectively.
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 September 30, 2012 and 2011 no foreign currency translation was conducted due to the immaterial nature of its subsidiary’s
balance sheet.
Legal Matters
From time to time the Company may be a party
to litigation matters involving claims against the Company. Management believes that there are no current matters that would have
a material effect on the Company’s consolidated financial position or results of operations as of June 30, 2012 and 2011.
During the quarter ended June 30, 2011, Trimax
Wireless filed a complaint relating to the unpaid balance of the Promissory Note executed with the acquisition of Trimax Wireless.
The Company has filed a motion to dismiss such action which is set for hearing. The note is unsecured, however, if holders prevail,
they may be entitled to legal cost, in addition to payments per the term of the agreement. The Company believes that it has sufficient
affirmative defenses to this complaint and does not believe that it will have a material effect on the Company. Currently the company
is in the process of requesting dismissal of the suit.
During quarter ended June 30, 2012, The Company
filed a Federal lawsuit against Lockwood Worldwide and its owners, current and previous management in the UNITED STATES DISTRICT
COURT, SOUTHERN DISTRICT OF FLORIDA. We are requesting an award of compensatory damages, an award of treble damages pursuant to
the provisions of RICO and other applicable federal and state statutes and an award of punitive damages in the full amount by the
jury against each of the Defendants. As Plaintiff, we have suffered damages as a result thereof, an amount in excess of $4,350,000.00.
We are asking for a total damages up to 4 times the amount of loss or close to $16M. As of the filing of this 10/K, we have had
success in freezing their operational account and all funds associated with that account.
13. Subsequent Events
The Company is currently
in merger or acquisition negotiations with entities which management believes to be key components of the Smart Grid solutions
we envision. Management believes that acquisitions will be a catalyst for advancing the Company’s existing technology to
attain greater market share. We are currently in valuation negotiations with the targeted companies; acquisitions will be primarily
share exchanges. Additionally, we are seeking capital financing for the purposes of furthering our plan of operations. These negotiations
have not advanced, at this point, to an issuance of a letter of intent; however management believes this ongoing strategy will
best serve existing shareholders.
We have held discussions
with one major NASDAQ traded company in a possible acquisition in parts by Infrax Systems. These negotiations have not advanced,
at this point, beyond a letter of intent; however management believes this ongoing strategy will best serve existing shareholders
if it comes to fruition.
The Company has been
approached by a large electric contractor for a possible investment and or an alliance. The Company has also been approached by
an Investment Fund in a possible investment in the Company. Currently we are in discussion with three separate parties on possible
investment in the Company. As we are getting closer to the completion of our products and validation of our technologies, we will
be approached by partners and investors. Management and the Board of Directors are aware of our position and potential of our technology
and will consider any offer that increases shareholder value.
Mr., Talari, our acting
CEO, has decided to convert of 200,000 shares of his Preferred Series A for 75,000,000 shares of Common stock. The decision was
based on vulnerability of the Company due to its current market capitalization and the risk of hostile takeover. Mr. Talari’s
position falls under rule 144 and insider trading rule. As an insider and a control person he has substantial restriction on sale
of his position.
Mr. Peter Messineo has
resigned as our CFO starting October 30, 2012. His departure is not due to any disagreement with the Company on any matter related
to the Company’s operations. Our acting COO, Mr., Glaser will replace Mr. Messineo as our CFO with his departure.
Infrax Systems was invited
by its partner Itron, as a sponsor, to showcase its highly anticipated, world only, 2.4GHZ Secured Network Interface Card (SNIC)
built based on its Secure Intelligent Energy Platform. Infrax showcased the relevance of security in today's world of Smart Grid
and how its ever growing product lines will build a solid barrier against insidious intrusions through its initial product; "SNIC".
ITRON UTILITY WEEK 2012, hosted by one of the largest Meter manufacturers in the world, is a premier international event with thousands
of participates from utilities from all over the world. The show was on October 21st in San Antonio TX. This show was pivotal to
our success and growth showcasing our technology. We also showcased our GRiM product which includes; network management, server
management, application management, intrusion detection and (big) data analysis (whitepaper only). We gathered impressive interest
from the utilities visiting the Itron show and we believe we have become a viable alternative to larger and more well-known competitors
based on our impressive and cost effective technology. We were approached by few utilities interested in starting a dialogue for
a possible pilot projects for their combined 35M+ customers. We have also been approached by another major meter manufacturer for
a possible agreement to develop SNIC for their meters globally. We believe as we continue completion of our products, we will be
approached by utility vendors globally for joint development and sales of our products.
We have started preparing
the S1 for the spin-off of the Lockwood Technology. We have consulted with our auditors, our accountants and our SEC counsel for
process support. We expect to file the S1 before the end of the year. We believe with Lockwood’s current pipeline, the Company
should flourish as a separate public company.
Item 2.
|
Management’s Discussion and Analysis or Plan of Operation
|
Management’s Discussion and Analysis or Plan of Operation
|
The information contained
in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the
forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes
that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that
the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed
in this report.
We desire to take advantage
of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number
of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies,
products, future results and events, and financial performance. All statements made in this filing other than statements of historical
fact, including statements addressing operating performance, events, or developments which management expects or anticipates will
or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products,
adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information,
are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements,
but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking.
These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results,
performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied
by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any
future events or circumstances.
Readers should not place
undue reliance on these forward-looking statements, which are based on management’s current expectations and projections
about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those
described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such
differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases
and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks
and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
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, 2011. 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.
Our Business
INFRAX is a pioneer designer, developer, systems
integrator and manufacturer of turnkey secure solutions for the utility industry. We are a provider of unique secure, cost-efficient
solutions that provide everything required to bring the utility’s technological platform into the 21st. century. Our SIEP™
platform provides: 1) Network Transport and Management (secure 2 way communications), 2) Secure Smart Devices (Smart Meters), and
3) Asset management, Grid Optimization and Security, all in an integrated state-of-the-art Smart Grid solution that truly provides
our customers with end to end grid management capability.
We believe our Secure Integrated Platform will facilitate and hasten
the deployment of Smart Grid technology among resource constrained small and mid-sized utilities. INFRAX’ advantage comes
from our advanced patented technologies, which provide a highly secure, reliable platform that allows two-way communication with
our Secure Intelligent Endpoint Devices for Advanced Metering Infrastructure and Substations applications.
Based on our review of the Smart Grid related products against which
the Secure Intelligent Energy Platform now competes, we believe that none of them provide the required encryption and threat detection
capabilities required to secure the energy grid.
The Utility industry’s aggressive deployment of Advanced Metering
Infrastructure (AMI) and data management devices has led to the accelerated reliance on fiber optic communications to many of the
key substations. However, the existing utility networks cannot provide the security, reliability and connectivity to extend the
reach to the consumer locations.
Today’s evolution of Smart Grid
design and implementations actually began several years prior to the current initiatives. The same applies to the products
designed by most of the major players including Itron, Silver Spring and GridPoint. Although the current security initiatives
and elected officials have good intentions, they have missed the window of opportunity to truly integrate security from the
beginning by several years. Similar to the credit card industry, banking, health care, and most other industries that conduct
business online, the next electrical infrastructure will need to feature security as an add-on that is applied after the
Smart Grid is implemented.
Recently discovered vulnerabilities in smart meters have been identified
that could allow an attacker to obtain complete control of the meters. Specifically, an attacker could exploit these vulnerabilities
to turn off electricity to hundreds of thousands of homes. Thus, an attacker could execute a wide-scale Denial of Service (“DoS”)
attack against homes and businesses.
The Advantage of Our Technology
By entering the market without the burden of
legacy products and technology, Infrax is able to focus on future technologies and will be poised to provide advanced solutions
for companies that are yet to deploy AMI and harden previously installed networks and devices.
While the current use of RF technology is inherently less reliable,
Infrax is focused on using highly encrypted data over secure tunnels using a variety of communications medium including WiFi, Cellular
or other public communication media. Infrax’s secure smart grid platform incorporates a communications transport known as GridMesh™,
and a device and data security management tool known as GRiM. Secure management of the “last mile” backhaul is necessary
for utilities to implement Smart Grid applications such as AMI, and substation and distribution automation.
We believe that our Secure Intelligent Energy Platform will give
us a competitive advantage in the emerging and evolving Smart Grid environment. By utilizing our solution, Utilities can secure
their networks and prolong the lifecycle of previously deployed components by eliminating the security concerns that would necessitate
replacement.
INFRAX Strategy
We intend to generate revenues from the design,
sales, installation, and support of the hardware, software and technology, associated with our integrated solution, Infrax Secure
Intelligent Energy Platform (SIEP) ™. Additionally, revenues may be generated from licensing our Security, GRiM and, Infrax
Networks wireless communications and future products.
Our Product Portfolio
(a)
SNIC
Over the last several quarters, Infrax has been
developing the company’s flagship product - Secure Network Interface Card (SNIC) for electric meters. While the initial focus
will be to develop the card for one of the largest meter manufactures in the world, the final objective is to have a universal
card that can be used in any meter in the world. The wireless part of the first prototype has been completed and successfully tested.
With the development and improvements continuing, we will have a complete working prototype by the end of this summer. Although
details of the card cannot be disclosed for obvious reasons, our emphasis has been to address the security of the data to and from
a meter as well as to provide a robust communication platform that can be used not only for meter data but also in Distribution
Automation projects such as capacitor bank and volt/var controllers. The Company believes that the SNIC along with newly created
Professional Services division will hasten the deployment of all Smart Grid technology for resource constrained small and mid-sized
utilities.
(b)
SPIDer – Secure Perimeter Intrusion Detection
Building on our expertise in network and physical
security platforms, the company has introduced the first active and secure intrusion detection network. The SPIDer Network initial
offering is directed to the electrical energy company concerns with copper and material theft and its related impact to safety
and homeland security. Infrax Systems is committed to change the present paradigm in the electric utility industry as to how physical
and data security processes are deployed to protect electrical substations, remote critical infrastructure facilities, communications
networks, advanced distributed controls and intelligent meter networks. Copper theft and its potential threat to safety and homeland
security has been estimated by the Department of Energy and other sources as approaching a Billion dollar cost annually in the
US alone. Attacks on critical infrastructure such as electric and water resources can cause wide scale economic devastation which
would greatly amplify these costs. Most of these assets have little to no security or intrusion detection and what little exists
is forensic in nature as it helps to identify what happens but does not detect the threat at the moment it occurs. Infrax Systems’
vision is based on a trusted network of intelligent devices which detect intrusion at any level and quickly determines friend or
foe thus taking action when necessary to secure critical infrastructure and intelligent property.
Infrax Systems has recently started a marketing campaign for the
SPIDer product line. Currently we have demonstrated the basic SPIDer system to three utilities and are scheduled for another two
demonstrations. Five additional utilities have expressed interest in the product. Most are for the image based level although one
has shown initial interest in the first level coaxial based system. One customer utility has requested a proposal for a complete
network linking 12 facilities. Initial projections indicate a strong market and revenue. Revenues are expected to grow logarithmically
as utilities finish their pilot stages and budget for next year.
(c)
Professional Services
Infrax Systems has introduced a new division
which provides engineering and professional services to its energy customers. This division is charged with packaging Infrax Systems
products into engineered solutions that are marketed to their customers. Professional services provides engineering, construction
and project managements services to the smaller utilities such as local municipalities, Rural Electric Cooperatives and Investor
Owned Utilities who may not have the manpower or expertise to accomplish their goals. By leveraging our over 100 years of combined
experience in the electric utility and telecommunications industries, Infrax Systems is well placed in an industry which is becoming
the newest high tech phenomenon. The Smart Grid vision relies on vast networks of intelligent devices which sources in the Data
and Enterprise Network industry indicate will surpass by several orders of magnitude of any know data network of today. Even a
relatively small utility will have upwards of a million devices operating on thousands of individual domains. These networks not
only will control instant and real time power flow but will also be the cash register for the Utility industry. Security, scalability
and authenticity as well as day to day maintainability are the utmost concerns in providing an intelligent power grid that is safe
and secure. Infrax Systems will be a leader in designing, building and securing these networks and solutions.
Initial marketing campaigns have been targeting the municipalities
and Electrical Cooperatives. Currently we have responded to one major RFP for Capacitor Bank networks and Smart Grid infrastructure
worth in excess of 1.5 million dollars. We are also working on a pilot project for our AMI product with the availability of the
SNIC, with a major utility. If the pilot project is accepted and successful, we may be asked to provide AMI to all their customers.
The revenue from such project, for only one utility, will be overwhelmingly substantial. We are also in the process of negotiations
for a contract to provide customer engineer expertise for a fiber optic construction project and we have installed several radios
for one of our initial customers. We have started to communicate with few utilities in Florida to become qualified bidders for
the coming projects. We will continue this process with utilities all along the east coast of USA.
(d)
Lockwood Technology
The past few months have been eventful for Lockwood
Technology. The new development team has made substantial progress in their efforts to map out the new features and improvements
to our core software platform “Asset Tracker”. The new features, operational improvements, and added functionality
has been released as an incremental upgrade as version v11.6.
Our development road map plan
is to give the entire platform a structural overhaul and graphical refresh by porting all of the features and functions into
a “Browser-Based” user GUI that can be more easily deployed, managed, and updated. This would allow
Lockwood’s platform to be deployed in a “Cloud-Based” architecture. This upgrade will better position
Lockwood’s solutions to be sold into the targeted vertical markets. This will also allow us to better manage different
licensing options and increase revenues. Lockwood has also created a new sales and marketing strategy that will reduce the
sales cycle timing and increase the profit margin on all deals. This plan is based on a channel strategy that leverages the
efforts of numerous established VAR’s and integrators that each has their own substantial pipeline of deal within the
targeted vertical markets. The plan also incorporates the creation of “Pre-Configured” versions of the platform
that are tailored to the specific vertical markets we target. We call these “Vertical Market Applications”. These
Vertical Market Applications make the systems easier to sell than those of a custom integration based solution. This
approach also reduces the man-hours involved in these implementations by pre-configuring the platform with industry specific
best practice routines. There is still a significant amount of flexibility within the application to maintain our competitive
advantage of the other “Fixed” platforms.
The initial vertical markets we have identified based
on our market research are:
• Healthcare
• Education
• Hospitality
• Retail
• Government
This new channel based strategy is beginning to take shape. We have
identified the 400-500 individual integrators to partner with, each with their own sales pipelines within the vertical markets
listed above. We are working with the RFID and Barcode hardware manufacturers to promote our software as the catalyst that makes
their hardware more valuable as part of a total solution. We have developed a web-based sales training system that will enable
these VAR’s to incorporate our software solutions with the RFID hardware products they sell to solve the problems their customer
are experiencing. This approach will no doubt make Lockwood’s value proposition obvious to the customers while increasing
our profit margins as well as those of our integrator partners.
On the short-term revenue front, we have had success in maintaining
our existing customer base. We are experiencing a 99% take rate on our annual software maintenance renewals. This will provide
a consistent and predictable stream of recurring revenue. We are also working with our existing customers to learn more about how
they operate and are providing them with the ongoing support to maintain this success. We are also identifying the customers that
are using older versions of the platform and encouraging them to upgrade to the current revision level. The upgrade process is
facilitated by our customer’s compliancy policies requiring them to meet certain network security standards that can only
be achieved by implementing the newer versions of our software.
We also have a significant sales pipeline of proposals that include
not only software sales, but also complete solutions that incorporate hardware, software and professional services as well. This
pipeline is made up of deals with our existing channel partners such as Lockheed Martin’s IS&GS Group, the US Army, and
numerous other municipal, state, and federal government projects and RFP’s. We are also working on significant deals with
our international partners within the same vertical markets in the Middle East and Europe.
Lockwood Technology has been chosen under a prime bidder to bid
on a large state contract for Enterprise Asset Management System (EAMS) for the Government of an East African country. The total
bid is under $20M USD and consists of three lots. We have bid for all three lots and may or may not win all three or in parts.
The project if won will be started in late 2012. Lockwood Technology has also been chosen under the same prime bidder to bid on
another large state contract for Enterprise Asset Management System (EAMS) for another Government of an East African country. The
total bid is unknown at this time. The project if won will be started in 2013.
Our Market
INFRAX market opportunity exists in one of the
largest industries in the world. Globally, according to the International Energy Agency (IEA), this industry is expected to spend
close to $10 trillion dollars by 2030 to upgrade electrical infrastructure. Technology innovations in power delivery have been
fermenting for years, but only now is the confluence of physical need and social expectations creating an environment in which
real and sustained monetary commitments are being made to create a “Smart Grid” built on information-based devices,
digital communication and advanced analytics. Networking giant Cisco has estimated that the market for smart grid communications
will grow into a $20 billion-a-year opportunity as the infrastructure is built out over the next five years. Researchers at Specialists
in Business Information (SBI) forecast the market will grow to $17 billion-per-year by 2014 from today’s $6 billion. Globally,
SBI expects the market for smart grid technologies to grow to about $171 by 2014 up from approximately $70 billion in 2009.
Furthering our development towards becoming
a leader in the emerging smart-grid industry, on April 8, 2011 we acquired a 70% controlling interest in Lockwood Technology Corporation,
to supply RFID and asset tracking, among other technology value to our product lines.
The information contained
in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the
forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes
that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that
the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed
in this report.
We desire to take
advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing
contains a number of forward-looking statements which reflect management’s current views and expectations with respect
to our business, strategies, products, future results and events, and financial performance. All statements made in this
filing other than statements of historical fact, including statements addressing operating performance, events, or
developments which management expects or anticipates will or may occur in the future, including statements related to
distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements
expressing general optimism about future operating results, and non-historical information, are forward looking statements.
In particular, the words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “may,” variations of such words, and similar expressions identify forward-looking
statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the
statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties,
including those discussed below. Our actual results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any
obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place
undue reliance on these forward-looking statements, which are based on management’s current expectations and projections
about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those
described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements. Factors which
could cause or contribute
to such differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press
releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of
the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
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, 2011. 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.
Nature of Our Business
While we continue to maintain the OptiCon Network
Management platform, the Company has shifted its focus and energies towards the “Smart Grid” energy sector. The Company
believes our secure integrated platform will hasten the deployment of all Smart Grid technology for resource constrained small
and mid-sized utilities. Infrax’s advantage comes from our products ability to enable the creation of a secure
platform scalable to deliver a broad set of intelligent Smart Grid initiatives across millions of endpoints for Utilities.
INFRAX market opportunity exists in one of the
largest industries in the world. Globally, according to the International Energy Agency (IEA), this industry is expected to spend
close to $10 trillion dollars by 2030 to upgrade electrical infrastructure. Technology innovations in power delivery have been
fermenting for years, but only now is the confluence of physical need and social expectations creating an environment in which
real and sustained monetary commitments are being made to create a “Smart Grid” built on information-based devices,
digital communication and advanced analytics. Networking giant Cisco has estimated that the market for smart grid communications
will grow into a $20 billion-a-year opportunity as the infrastructure is built out over the next five years. Researchers at Specialists
in Business Information (SBI) forecast the market will grow to $17 billion-per-year by 2014 from today’s $6 billion. Globally,
SBI expects the market for smart grid technologies to grow to about $171 by 2014 up from approximately $70 billion in 2009.
According to a report issued to Congress by
the Office of Electricity Delivery and Energy Reliability, as required by Section 1309 of Title XIII of the Energy Independence
and Security Act of 2007, the security of any future Smart Grid is dependent on successfully addressing the cyber security issues
associated with the nation’s current power grid.
The complexity of the grid implies that vulnerabilities
exist that have not yet been identified. It is particularly difficult to estimate risk from cyber-attack because of the size, complexity,
and dynamic nature of the power grid and the unpredictability of potential attackers.
Infrax creates a unified solution path to securely
manage Advanced Metering Infrastructure (AMI) and other Smart Grid optimization applications such as substation and distribution
automation. Our product portfolio provides Network Transport and Management, Secure Intelligent Devices, Threat Detection, and
Grid Optimization, all integral components of a state-of-the-art Smart Grid solution.
Through our wireless broadband business unit,
Infrax Networks, we provide outdoor mesh-relay based wireless broadband networks used by customers as the metro-scale IP foundation
upon which to run one or many applications that help build greener, safer, smarter communities. Our products have been deployed
globally to help connect the unconnected. In addition, our networks are used by electric utilities to build large scale, reliable,
and secure networks that deliver the high bandwidth and low latency required for deploying smart grids.
Furthering our development towards becoming
a leader in the emerging smart-grid industry, on April 8, 2011 we acquired a 70% controlling interest in Lockwood Technology Corporation,
to supply RFID and asset tracking, among other technology value to our product lines.
Name Changes
None.
Changes in Management
None
Sales Activity
The Company’s backlog of proposal activity
substantially increased in the quarter. Interest in our core products and development projects continues to increase. We are in
discussions with several large, nationwide distribution channels to add our products to their portfolios and are in contract discussions
with a national sales channel to sell preconfigured versions of select Lockwood and Infrax products.
Critical Accounting Policies
Our significant accounting policies are more
fully described in Note 2 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.
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 -
The Company is principally
in the business of providing solutions for a secure intelligent energy platform that incorporates our secure wireless technology.
Contracts include multiple revenue components, comprised of our software licensing, hardware platforms, installation, training
and maintenance. In accordance with ASC 605-25 Multiple-Element Arrangements, revenue from licensing the software will
be 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 arrangements include a commitment to provide training and/or other services or materials,
the Company estimates and records the expected costs of these training and/or other services and/or materials.
|
·
|
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. The Company has considered
the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified
principles will have a material impact on the corporation’s reported financial position or operations in the near term. The
applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Those
standards have been addressed in the notes to the unaudited financial statement and in our Annual Report, filed on Form 10-K for
the period ended June 30, 2012.
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.
Subsequent Events
:
We have held discussions with one major NASDAQ
traded company in a possible acquisition in parts by Infrax Systems. These negotiations have not advanced, at this point, beyond
a letter of intent; however management believes this ongoing strategy will best serve existing shareholders if it comes to fruition.
The Company has been approached by a large
electric contractor for a possible investment and or an alliance. The Company has also been approached by an Investment Fund in
a possible investment in the Company. Currently we are in discussion with three separate parties on possible investment in the
Company. As we are getting closer to the completion of our products and validation of our technologies, we will be approached by
partners and investors. Management and the Board of Directors are aware of our position and potential of our technology and will
consider any offer that increases shareholder value.
Mr., Talari, our acting CEO, has decided to
convert of 200,000 shares of his Preferred Series A for 75,000,000 shares of Common stock. The decision was based on vulnerability
of the Company due to its current market capitalization and the risk of hostile takeover. Mr. Talari’s position falls under
rule 144 and insider trading rule. As an insider and a control person he has substantial restriction on sale of his position.
Mr. Peter Messineo has resigned as our CFO
starting October 30, 2012. His departure is not due to any disagreement with the Company on any matter related to the Company’s
operations. Our acting COO, Mr., Glaser will replace Mr. Messineo as our CFO with his departure.
Infrax Systems was invited by its partner
Itron, as a sponsor, to showcase its highly anticipated, world only, 2.4GHZ Secured Network Interface Card (SNIC) built based on
its Secure Intelligent Energy Platform. Infrax showcased the relevance of security in today's world of Smart Grid and how its ever
growing product lines will build a solid barrier against insidious intrusions through its initial product; "SNIC". ITRON
UTILITY WEEK 2012, hosted by one of the largest Meter manufacturers in the world, is a premier international event with thousands
of participates from utilities from all over the world. The show was on October 21st in San Antonio TX. This show was pivotal to
our success and growth showcasing our technology. We also showcased our GRiM product which includes; network management, server
management, application management, intrusion detection and (big) data analysis (whitepaper only). We gathered impressive interest
from the utilities visiting the Itron show and we believe we have become a viable alternative to larger and more well-known competitors
based on our impressive and cost effective technology. We were approached by few utilities interested in starting a dialogue for
a possible pilot projects for their combined 35M+ customers. We have also been approached by another major meter manufacturer for
a possible agreement to develop SNIC for their meters globally. We believe as we continue completion of our products, we will be
approached by utility vendors globally for joint development and sales of our products.
We have started preparing the S1 for the spin-off
of the Lockwood Technology. We have consulted with our auditors, our accountants and our SEC counsel for process support. We expect
to file the S1 before the end of the year. We believe with Lockwood’s current pipeline, the Company should flourish as a
separate public company.
RESULTS OF OPERATIONS
For the Three months ended September 30, 2012 and 2011
:
During the Three month period ended September 30, 2012, we had sales
from the delivery of equipment and services in the amount of $54,068 compared to $204,975 for the comparable nine month period
ended September 30, 2011. The Company has increased its marketing efforts with the new service and product offerings of Trimax
and for the newly acquired Lockwood.
Our expenses decreased by approximately $750,000 from $1,433,369
to $642,826 for the Three month period ended September 30, 2012 and 2011, respectively. Expenses decreased due to the reduction
in costs incurred with our acquisition of Lockwood, particularly salaries and consulting expenses. We also incurred $415,671 of
depreciation and amortization costs, compared to $415,671, primarily the result of our acquisitions.
For the three months ended September 30, 2012, we incurred a net
loss of $594,369 compared to a loss of $1,318,810 for the three months ended September 30, 2011, reflecting primarily the additional
employees and infrastructure as we advance our operations from an R&D company to a service provider.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2012, we had approximately $0 in cash with which
to satisfy our cash requirements for the next twelve months, along with approximately $450,000 remaining on the line of credit
from Mr. Talari to pay normal operating expenses, while we attempt to secure other sources of financing.
Since the inception of our Master Note Agreement, Mr. Talari has
continued to advance funds to us as needed. Mr. Talari remains committed to continue funding the Company and has regularly converted
amounts outstanding and accrued interest, under the note agreement, to our common stock, in order to have money available. At
September 30, 2012, we owe Mr. Talari $515,000 on the master promissory note plus accrued interest. Mr. Talari has
pledged funding for operating capital, up to $1,000,000, under the same terms as the original Master Note.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
We are a Smaller Reporting Company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4.
|
Controls and Procedures
|
Not Applicable
Item 4T.
|
Controls and Procedures
|
Disclosure controls and procedures:
As
of September 30, 2012, 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 September 30, 2012, 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 September 30, 2012 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.
PART II - OTHER INFORMATION
Item 1
|
Legal Proceedings.
|
During the fourth
quarter of our year ended June 30, 2011, Trimax Wireless filed a complaint relating to the unpaid balance of the Promissory Note
executed with the acquisition of Trimax Wireless. The Company has filed a motion to dismiss such action which is set for hearing.
The note is unsecured, however, if holders prevail, they may be entitled to legal cost, in addition to payments per the term of
the agreement. The Company believes that it has sufficient affirmative defenses to this complaint and does not believe that it
will have a material effect on the Company.
We have filed a Federal lawsuit against Lockwood
Worldwide and its owners, current and previous management in the UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA. We
are requesting an award of compensatory damages, an award of treble damages pursuant to the provisions of RICO and other applicable
federal and state statutes and an award of punitive damages in the full amount by the jury against each of the Defendants. As Plaintiff,
we have suffered damages as a result thereof, an amount in excess of $4,350,000.00. We are asking for a total damages up to 4 times
the amount of loss or close to $16M. As of the filing of this 10/K, We have had success in freezing their operational account and
all funds associated with that account. The hearing is set to start first quarter next year.
We did not terminate any legal proceedings during the fourth quarter
of our 2012 fiscal year.
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, 2012 filed on October 19, 2012 with
the Securities and Exchange Commission.
Item 2
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
None
Item 3
|
Defaults Upon Senior Securities.
|
Not applicable.
Item 4
|
Removed and Reserved
.
|
Not applicable
Item 5
|
Other Information.
|
None
|
|
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: 10/14/2012
|
By:
/s/ Sam Talari
|
|
Sam Talari
|
|
Principal Executive Officer
|
|
|
Date: 10/14/2012
|
By:
/s/ Peter Messineo
|
|
Dave Glazer
|
|
Principal Financial & Accounting Officer
|
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