Infrax Systems (IFXY) 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended: March 31, 2008 (Third Quarter)

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

 For the transition period from ________________to ________________

COMMISSION FILE NUMBER 000-52488

OPTICON SYSTEMS, INC.

(Exact name of Registrant as specified in charter)

NEVADA	20-2583185
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

First floor, 1701 West Northwest Highway, Grapevine, TX 76051

(Address of principal executive offices) (ZIP Code)

817-305-0628

(Registrant's telephone no., including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  Nox

The number of shares outstanding of each of the issuer’s classes of common equity, as of May 12, 2008 was   34,474,856 shares.

Transitional Small Business Disclosure Format (Check one):

Yes o  No x

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

OptiCon Systems, Inc.

(A Development Stage Enterprise)

Balance Sheet

	March 31,
ASSETS	2008
	(unaudited)
Current assets
Cash and cash equivalents	$	83
Prepaid expenses		12,000
Total current assets		12,083
Property and equipment, net		6,165
Intangible assets, net		213,112
Other assets		625
Total assets	$	231,985
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Bank overdraft	$	8,161
Accounts payable		10,832
Accrued expenses		295,706
Note payables		6,000
Note payable – Related parties		65,775
Debentue payable – Related party		281,401
Total current liabilities		667,875
Stockholders’ Deficit
Common stock, $.001 par value, 250,000,000 shares
authorized, 34,474,856 issued and outstanding	$	34,475
Additional paid-in capital		1,191,551
Subscription receivable		(350	)
Deficit accumulated during the development stage		(1,661,566	)
Total stockholders’ deficit		(435,890	)
Total Liabilities & Stockholders' Deficit	$	231,985

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

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Statements of Operations

													Period October
													22, 2004
	For the Nine Months Ended						For the Three Months Ended						(inception) to
	March 31,						March 31,						March 31,
	2008			2007			2008			2007			2008
	(unaudited)						(unaudited)						(unaudited)
Net sales	$	-		$	-		$	-		$	-		$	-
Cost of goods sold		-			-			-			-			-
Gross profit		-			-			-			-			-
Operating expenses
Salaries and benefits		148,514			481,500			39,980			160,500			1,429,014
Consulting services		76,000			6,000			38,200			-			146,498
General & administrative		(1,742	)		20,207			5,434			8,902			90,689
Allocable software costs		-			(22,779	)		-			-			(115,111	)
Legal & accounting		26,500			31,418			4,500			8,320			89,363
Operating income (loss)		249,272			516,346			88,114			177,722			1,640,453
Non operating income (expense)
Interest expense		(9,917	)		(5,858	)		(3,961	)		(2,160	)		(21,315	)
Miscellaneous income		-			-			-			-			202
		(9,917	)		(5,858	)		(3,961	)		(2,160	)		(21,113	)
(Loss) from operations before income taxes		(259,189	)		(522,204	)		(92,075	)		(179,882	)		(1,661,566	)
Provision for income taxes		-			-			-			-			-
Net income (loss)	$	(259,189	)	$	(522,204	)	$	(92,075	)	$	(179,882	)	$	(1,661,566	)
Net (loss) per share
Basic	$	(0.008	)	$	(0.017	)	$	(0.003	)	$	(0.006	)	$	(0.064	)
Diluted	$	(0.008	)	$	(0.017	)	$	(0.003	)	$	(0.006	)	$	(0.064	)
Weighted average common shares outstanding
Basic		33,587,621			31,612,500			33,594,856			31,612,500			26,171,287
Diluted		33,587,621			31,612,500			33,594,856			31,612,500			26,171,287

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

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Statements of Changes in Stockholders’ Deficit

For the Period October 22, 2004 (date of inception) through March 31, 2008

											Deficit
											Accumulated
											During the
	Common				Additional			Subscription			Development
	Shares		Stock		Paid-in Capital			Receivable			Stage			Total
Balance at October 22, 2004		-	$	-	$	-		$	-		$	-		$	-
Issuance of common shares in exchange for
organization efforts		4,817,143		4,817		11,183			-			-			16,000
Issuance of common shares in
exchange for services		1,505,357		1,505		3,495			-			-			5,000
Net (loss)		–		–		–			-			(21,000	)		(21,000	)
Balance at June 30, 2005		6,322,500		6,322		14,678			-			(21,000	)		-
Issuance of common shares in exchange for
Opticon software and other assets		25,290,000		25,290		74,710			-			-			100,000
Issuance of common stock purchase
warrants in exchange for services		-		-		17,999			-			-			17,999
Net (loss)		-		-		-			-			(656,885	)		(656,885	)
Balance at June 30, 2006		31,612,500		31,612		107,387			-			(677,885	)		(538,886	)
Issuance of common stock purchase
warrants in exchange for services		-		-		16,499			-			-			16,499
Net (loss)		-		-		-			-			(724,492	)		(724,492	)
Balance at June 30, 2007		31,612,500		31,612		123,886.00			-			(1,402,377	)		(1,246,879	)
Issuance of common stock dividend		1,982,356		1,983		(1,983	)		-			-			-
Issuance of common stock for services		60,000		60		2,940			-			-			3,000
Sale of common stock for cash		700,000		700		-			-			-			700
Subscription receivable		-		-		-			(350	)		-			(350	)
Capital contribution on cancellation of debt		-		-		1,042,828			-			-			1,042,828
Net (loss)		-		-		-			-			(61,764	)		(61,764	)
Balance at September 30, 2007 (unaudited)		34,354,856		34,355		1,167,671			(350	)		(1,464,141	)		(262,465	)
Issuance of common stock for services		120,000		120		23,880			-			-			24,000
Net (loss)		-		-		-			-			(105,350	)		(105,350	)
Balance at December 31, 2007 (unaudited)		34,474,856		34,475		1,191,551			(350	)		(1,569,491	)		(343,815	)
Net (loss)		-		-		-			-			(92,075	)		(92,075	)
Balance at March 31, 2008 (unaudited)		34,474,856	$	34,475	$	1,191,551		$	(350	)	$	(1,661,566	)	$	(435,890	)

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

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Statements of Cash Flows

							Period
							October 22, 2004
	Nine Months Ended						(inception)
	March 31,						March 31,
	2008			2007			2008
	(unaudited)						(unaudited)
Cash Flows From Operating Activities
Net (Loss) from continuing operations	$	(259,189	)	$	(522,204	)	$	(1,661,566	)
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
Depreciation and amortization		2,220			1,542			6,295
Issuance of common stock in exchange for services		27,000			16,499			77,498
Change in working capital components:
Prepaid expenses		(12,000	)		-			(12,000	)
Bank overdraft		8,161			-			8,161
Accounts payable		(4,572	)		4,320			22,832
Accrued expenses		111,398			454,320			1,355,236
Net cash (used) by operating activities		(126,982	)		(45,523	)		(203,544	)
Cash Flows From Investing Activities
Purchase of property and equipment		(4,516	)		-			(7,460	)
Purchase of technology		-			(25,780	)		(113,112	)
Decrease (increasein other assets		(625	)		1,356			(625	)
Net cash (used) in investing activities		(5,141	)		(24,424	)		(121,197	)
Cash Flows From Financing Activities
Sale of common stock, net of subscription		350			-			350
Repayments of loans payable		(6,000	)					(6,000	)
Loan payable – Related parties		134,277			73,648			330,474
Net cash provided by investing activities		128,627			73,648			324,824
Net increase (decrease) in cash and cash equivalents		(3,496	)		3,701			83
Cash And Cash Equivalents
Beginning		3,579			1,386			-
Ending	$	83		$	5,087		$	83
Supplemental Disclosure on Interest and Income Taxes Paid:
Interest paid for the periods	$	-		$	-		$	-
Income taxes paid for the periods	$	-		$	-		$	-
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of common stock for software and other assets	$	-		$	-		$	105,000
Issuance of common stock for services	$	-		$	16,499		$	16,499
Conversion of accounts payable to notes payable	$	12,000		$	-		$	12,000
Sale of common stock subscription	$	350		$	-		$	350
Dividend on common stock	$	1,982		$	-		$	1,982
Conversion of note payable and accrued interest to debenture payable	$	281,401		$	-		$	281,401
Settlement of accrued expenses for common stock	$	1,042,827		$	-		$	1,042,827

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

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

1. Basis of Presentation, Business and Summary of Significant Accounting Policies

(a) Basis of Presentation

The balance sheet as of March 31, 2008, the statements of operations and statements of cash flows for the nine and three months ended March 31, 2008, and 2007, and for the period October 22, 2004 (date of inception) through March 31, 2008 have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the nine and three months ending March 31, 2008 are not necessarily indicative of results expected for the full year ending June 30, 2008.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at March 31, 2008 and for all periods presented, have been made.

The nature of the business and a summary of the significant accounting policies in conformity with accounting principles generally accepted in the United States of America, and consistently applied in the preparation of the accompanying financial statements are as follows:

(b) History of the Company

OptiCon Systems, Inc. (“the Company”) was formed as a Nevada corporation on October 22, 2004.  On July 29, 2005, the stockholders of the Company entered into an agreement to exchange 100% of the outstanding common stock of the Company, for common and preferred stock of Hathaway Corporation, a publicly traded company, at which time, the Company became a wholly owned subsidiary of Hathaway Corporation.

Hathaway Corporation, OptiCon Systems’ parent company, announced its intention to spin off OptiCon through by the payment of a stock dividend consisting of one share of OptiCon for every two shares of Hathaway owed.  The stock dividend became effective upon receiving approval from NASD and receiving its trading symbol.  In connection with the proposed spin off, Opticon’s board of directors approved a stock dividend of 1,982,356 (approximately 1.06 for 1) shares to Hathaway Corporation, its sole shareholder.

On August 31, 2007, Hathaway Corporation 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 Opticon Systems stock for every two shares they own of Hathaway Corporation.  As of this date, Opticon Systems ceased being a subsidiary of Hathaway Corporation.

(c)  Development Stage Enterprise

Since its inception, the Company has been in the development stage, dedicated to selling and/or licensing a fiber optic management software system under the name OptiCon Network Manager, originally developed, and acquired from Corning Cable System, Inc. through FutureTech Capital, LLC ("FutureTech"), a related company.  The Company expects to continue to incur significant operating losses and to generate negative cash flow from operating activities while developing its customer base and establishing itself in the marketplace.

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

The Company's ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control.  If the Company is unable to implement the Company’s business plan successfully, it may not be able to eliminate operating losses, generate positive cash flow, or achieve or sustain profitability, which would materially adversely affect its business, operations, and financial results, as well as its ability to make payments on its debt obligations.

(d) Revenue Recognition

The Company is principally in the business of licensing fiber optic management software, OptiCon Network Manager.  In accordance with Statement of Position 97-2 – Software Revenue Recognition, 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.

(e)   Capitalized Software Development Costs

The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed, under which certain software development costs incurred subsequent to the establishment of technological feasibility may be capitalized and 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 to customers. Software development costs will be amortized based on the estimated economic life of the product.  Capitalized software costs at March 31, 2008 amounted to $213,112.

(f) Impairment of Intangible Assets

Periodically, the Company assesses the recoverability of the Company’s intangible assets, consisting of the 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 March 31, 2008.

(g)  Earnings (Loss) Per Share

Basic EPS is calculated by dividing earnings (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.

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

(h) Impact of Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) 157 Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expanded disclosures about fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 157 on the Company’s result of operations and financial position.

In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating if it will elect the fair value option for any of its eligible financial instruments and other items.

2.  Going Concern

For the nine and three months ended March 31, 2008, the Company incurred a loss of $259,189 and  $92,075, respectively.  For the period October 22, 2004 (date of inception) through March 31, 2008, the Company incurred a cumulative net loss of $1,661,566.  At of March 31, 2008, the Company had a working capital deficit of $655,792 and $83 in cash with which to satisfy any future cash requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company depends upon capital to be derived from future financing activities such as loans from its parent company, and 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, 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

3.  Intangible Assets

Intangible assets consist of the following:

	March 31, 2008
Opticon fiber optic management software	$	212,112
Trademarks		1,000
	$	213,112

On July 26, 2005, the Company purchased the OptiCon Network Manager software system from FutureTech for $100,000, consisting 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 current business software systems, before it could be distributed to customers.  During the period October 22, 2004 (inception) though March  31, 2008, the Company allocated direct labor costs, and indirect costs and expenses of $115,111 relating to this effort.  During the nine and three months ended March 31, 2008 the Company did not allocate any costs and expenses to the software development.  The development of R3 software system was completed during the quarter ended December 31, 2006, and is available for distribution to customers, although no sales have been made.  Amortization of the capitalized software costs will begin when the software is actually sold to customers.  At March 31, 2008, the R4 software system was not yet completed.

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

4.   Accrued Expenses

Accrued expenses as of March 31, 2008 are summarized as follows:

Accrued Salaries	$	239,000
Accrued Vacations		21,937
Payroll Tax Liabilities		28,202
Accrued Interest		4,567
Accrued Consulting		2,000
	$	295,706

5.   Related Parties Disclosures

(a) Accrued Salaries – Former Officers and Director

The Company accrued compensation payable under employment agreements with J. Marshall Batton, its former president, Douglass D. Wright, its former senior vice president of sales, and Mr. Saeed Talari, one of the Company’s directors in the aggregate amount of $50,000 per month, based on their respective employment agreements commencing August 1, 2005.

Mr. Batton’s and Mr. Douglas’ employment agreements terminated July 31, 2007, and were not renewed.  In connection with the termination of their respective employment agreements on July 31, 2007, Mr. John M. Batton and Mr. Douglass W. Wright, were given the option to purchase 350,000 shares of the Company’s common stock each at $0.001 per share, in lieu of monies owed to them (including but not limited to, salaries, benefits, vacation pay and any and all compensation), and in cancellation their respective, non-expiring rights under their employment agreements to maintain/restore their individual ownership of our common stock to a level of four percent of our issued and outstanding shares whenever our total issued and outstanding shares of common stock exceeded 100 million shares.  Mr. Batton and Mr. Wright agreed to cancel and contribute to capital $1,042,828 in amounts owed to them.  Mr. Talari’s agreement was renewed for an additional one-year period.

As of March 31, 2008, the accrued compensation amount was $239,000.  As of March 31, 2008, the Company also accrued vacation pay under employment agreements in the amount of $21,937.

(b) Loan from Related Parties

On September 6, 2005, Mr. 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.

On December 15, 2007, the Company agreed to convert the outstanding amount of the note of $264,699 and accrued interest thereon of $16,702 into a 5% convertible debenture due December 31, 2008 in the aggregate amount of $281,401.  The Company also accrued interest on the debenture in the amount of $4,125 at March 31, 2008.  The debenture in convertible into shares of the Company’s common stock at the rate of $0.05 per share.

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

During the quarter ended March 31, 2008, Mr. Talari made advances to the Company, on the unsecured $350,000 loan, in the aggregate amount of $57,150 which remains outstanding at March 31, 2008.  In addition, the Company accrued interest on these loans in the amount of $442 at March 31, 2008.

Mr. Talari has the option to convert any part of the principal and/or interest outstanding into the Company’s common stock at a thirty percent discount of the last five (5) days’ average bid price, once the Company becomes fully reporting and trading in a national market.

During the nine months ended March 31, 2008, Hathaway Corporation, OptiCon’s former parent company, paid expenses on behalf of the Company. Most of these expenses were paid by Hathaway at the time OptiCon was still a subsidiary.  At March 31, 2008, the amount owed to Hathaway was $8,625.

6.   Change in Management

On July 17, 2007 in an action by written consent, the sole shareholder, and by written consent the Board of Directors (1) approved amending the Company’s articles of incorporation to reduce the authorized number of shares to 100,000,000 shares with a $0.001 par value without affecting in any manner the number of issued and outstanding common shares; (2) to removed John M. Batton as Director and Chief Executive Officer of the corporation, and (3) to elect Mr. Sadruddin Currimbhoy as director and Interim Chief Executive Officer.

The change to the capital structure has not been recorded with the Nevada secretary of state.

 7.   Consulting Agreement and Stock Issuance

On October 1, 2007, the Company entered into a one-year consulting agreement with the Company’s Chief Financial Officer in exchange for a cash payment of $2,000 per month, and 120,000 shares of the Company’s common stock valued at $24,000.  The Board approved the value of the stock issued.

8.   Stock Options and Warrants

On December 2, 2005, the Company granted Series A Warrants to two unrelated individuals, (see “Bentley Securities Agreement”), to purchase 69,000 shares, of which 36,000 shares were subject to the 1-for-.30107143 reverse stock split of April 4, 2006, at an exercise price of $1.10 per share ($3.65 after the reverse stock split).  All of the Warrants expire on November 11, 2011.

9.  Income Taxes

There is no current or deferred income tax expense or benefit allocated to continuing operations for nine and three months ended March 31, 2008, or for the period October 22, 2004 (date of inception) through March 31, 2008.

The Company has not recognized an income tax benefit for its operating losses generated through March 31, 2008 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.

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OptiCon Systems, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

10.  Commitments and Contingencies

(a) Employment Agreements

On December 1, 2004, the Company entered into a two-year Employment Agreement with Mr. Talari, one of the Company's Saeed (Sam) Talari. The Agreement was automatically extended for an additional one-year period. The Agreement became effective August 1, 2005. The Agreement provides for (a) a base salary of $7,000 per month, (b) a signing bonus equal to one month salary, (c) four weeks vacation within one year the starting date, and (d) all group insurance plans and other benefit plans and programs made available to the Company’s management employees.

On October 1, 2007, the Company entered into a one-year Employment Agreement with Mr. Sadruddin Currimbhoy, our Chief Executive Officer. The Agreement was automatically extended for an additional one-year period. The Agreement provides for (a) a base salary of $5,000 per month, (b) eight weeks vacation within one year the starting date, and (c) all group insurance plans and other benefit plans and programs made available to the Company’s management employees.

(b) Operating Leases

On August 1, 2007, the Company entered into a lease agreement for executive offices at a monthly rental of $625, plus sales taxes and ancillary services.  The offices consist of approximately 500 square feet and reception services, and access to conference room and office support services.

Prior to the August 1, 2007 lease, Mr. Batton, the former president of the Company provided office space at no cost to the Company.

Rent expense for the nine and three months ended March 31, 2008 and for the period October 22, 2004 (date of inception) through March 31, 2008 was $5,537, $1,945 and $18,994 respectively.

11.   Subsequent Event

Effective January 8, 2008, the Company entered into an agreement with Cinelight Studios, a related company, 50% owned by Sam Talari, one of the Company’s major shareholders.  According to the agreement, Cinelight was engaged to develop a 10-minute public relations video for the Company.  Cinelight is to be paid $25,000 in cash upon signing the agreement, and 467,428 shares of the Company’s common stock valued at $0.50 per share.  Should the price of the shares fall below $0.50 per share, Cinelight Studios is entitled to receive additional shares.

On February 27, 2008, by mutual agreement between Cinelight Studios and the Company, the agreement was cancelled, specifying that no payments have been made by the Company, and that the issuance of Opticon’s common shares under the agreement is rescinded.

- 11 -

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Significant accounting policies and estimates.

Our significant accounting policies are more fully described in Note 1 to the financial statements. However, certain accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result they are subject to an inherent degree of uncertainty. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on knowledge of our industry, historical operations, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate.

Our significant accounting policies include:

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 release to customers. We anticipate amortizing software development costs over the estimated economic life of the product.

Stock Based Compensation - We record stock-base compensation under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", which provides for the use of a fair value based method of accounting for stock-based compensation. However, we record the compensation cost for stock options granted to employees using the intrinsic value method of accounting as prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", which only requires charges to compensation expense for the excess, if any, of the fair value of the underlying stock at the date a stock option is granted  over the amount the employee must pay to acquire the stock. We have elected to account for employee stock options using the intrinsic value method under APB 25, however, under SFAS 123 we are required to provide pro forma disclosures of net loss as if a fair value based method of accounting had been applied.

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PLAN OF OPERATIONS

As more fully described in “LIQUIDITY AND CAPITAL RESOURCES”, we had $83 in cash at March 31, 2008, and $292,850 remaining on the line of credit from Mr. Talari with which to satisfy our future cash requirements.  Our management believes our cash and credit line will support only limited activities for the next twelve months. We are attempting to secure other sources of financing to develop our business plan, and to implement our sales and marketing plan.  We believe full implementation of our plan of operations and completion of development of the R4 system will cost approximately $5 million.  We have no assurance we will be able to obtain additional funding to sustain even limited operations beyond twelve months based on the available cash and balance of our line of credit with Mr. Talari.  If we do not obtain additional funding, we may need to cease operations until we do so and, in that event, may consider a sale of our technology.  Our plan of operations set forth below depends entirely upon obtaining additional funding.

We do not have any ongoing discussions, arrangements, understandings, commitments or agreements for additional funding.  We will consider equity funding, either or both of a private sale or a registered public offering of our common stock; however, it seems unlikely that we can obtain an underwriter.  We will consider a joint venture in which the joint venture partner provides funding to the enterprise.  We will consider debt financing, both unsecured and secured by a pledge of our technology.  As noted above, we may be forced to cease operations without additional funding, after our limited cash and line of credit with Mr. Talari are exhausted.

On February 1, 2008, we filed a registration statement on Form S-1, with the Securities and Exchange Commission.  We are offering 5,000,000 shares of our authorized but unissued common stock for sale pursuant to this prospectus in a "self underwritten" public offering.  The offering will continue until we have sold the 5,000,000 shares or terminate the offering.  Our directors and executive officers will offer the shares on our behalf.  Our directors and executive officers will not receive any compensation for sales of the shares which they may make.  We will rely on Rule 3(a)4-11 in that none of our directors and executive officers ever been either a registered securities broker-dealer or an affiliate or associated person thereof.  We will receive the net proceeds from the sale of the 5,000,000 shares. Our registration statement has not yet been declared effective, and there is no assurance it will be declared effective.  There is no assurance we will be able sell all or any of these shares. We plan to attempt to recruit registered securities broker-dealers to assist us with the sale of the shares.  In the event we are able to do so, we expect to pay commissions and other compensation up to ten percent of the gross sales price, or $0.10 per share to participating broker dealers, none of whom will be permitted to sell more than 9.99 percent of the offering, unless we amend the registration statement of which this prospectus is a part to identify such broker-dealers as underwriters and to disclose their compensation arrangements.

Our Marketing Plan

The first phase in our plan of operations, subject to adequate funding, will be implementation of our sales and marketing plan. We plan to initially contact those companies to which Corning Cable licensed the Opticon Network Manager software to offer maintenance and professional services with respect to the R3 software they continue to utilize. Since Corning Cable stopped supporting the R3 software, these companies have been without a means to maintain and support the software. We would able to provide them with seamless integration with other programs or newer version of programs being used, and provide them with full maintenance and support. Corning Cable has provide us with a list of companies they had previously used their software.  We have contacted a number of these companies, and have found that the have a keen interest in our software.  We are unable to sell our software customers until we are able to raise funds to provide adequate support for the software.

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We also plan to begin marketing to the MSO (cable companies) market. In parallel with this activity we plan to contact the seven consulting firms servicing the ISO market. These firms act as a technical staff for this market, as it is too costly for the individual ISOs to keep a full time technical staff. The consulting firms also provide strategic technical analysis for this market segment as the ISOs do not have the resources or staff to provide this function on their own.

Product Research and Development

Our OptiCon R4 software system is still under development and not ready for commercial licensing; we estimate it is seventy-five percent complete. We have budgeted $2.2 million to complete the development of the R4 system.  We do not have financial or other resources to undertake this development.  Without additional funding sufficient to cover this budgeted amount, we will not have the resources to conduct this development.

We anticipate that as funding is received, of which there is no assurance, we will begin hiring the appropriate technical staff who will be able to handle support requirements for this market segment. We anticipate a need for up to forty-four employees by the end of the first year of full operation after funding. The number of employees we hire during the next twelve months will depend upon the level of funding and sales achieved.

Funding

To support our activities and provide the initial sales and support for entry into the large service provider marketplace, we will require an initial investment of approximately $5 million. We expect this level of funding to carry us into the marketplace for  IOCs,  ILECs and  RBOCs, as well as offer services to existing users of the R3 system, and provide the capital necessary to complete the development of OptiCon R4 system, our next generation product.  The graph below depicts the areas of development, assuming attainment of different level of funding.

Level of Funding $1,000,000	Level of Funding $2,500,000	Level of Funding $5,000,000
Securing adequate facilities (approximately 12,500 square feet of space)	N/A	Securing an additional 12,500 to 25,000 square feet facility
Hiring approximately 12 product support, marketing, and administrative staff	Hiring an additional 12 product support and marketing staff, 3 product development staff, and additional administrative staff.	Hiring additional 12 product support, marketing and administrative support staff.
Acquiring furniture and fixtures for the facilities and staff, acquire computer systems	Acquire additional furniture and equipment for staff, and acquire additional computers and upgrade present system.	Upgrade computer systems to accommodate handling large MSO and ISO companies
Hiring of product support and development department heads.	N/A	N/A
N/A	Commence the development of OptiCon R4 software system.	Complete the development of the OptiCon R4 system.

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LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2008 and 2007.

For the three months ended March 31, 2008, we incurred a net loss of $92,075.  Of this loss, $64.791, consisting of depreciation ($811) and deferred compensation to our employees ($39,980), and issuance of common stock in exchange for services ($24,000) did not require the use of cash.  Increases in prepaid and other expenses, offset by increases in accounts payable, payroll, salary, and other accruals brought the total cash used in operations to $153,794.

For the three months ended March 31, 2007, we incurred a net loss of $179,882. Of this loss, $161,392, consisting of depreciation ($892) and deferred compensation to our employees ($160,500) that did not represent the use of cash.  These changes plus others brought the total cash used in operations to $45,523.

At March 31, 2008, we had no contractual obligation or material commercial commitments for capital expenditures.

For the nine months ended March 31, 2008 and 2007.

For the nine months ended March 31, 2008, we incurred a net loss of $259,189.  Of this loss, $155,734, consisting of depreciation ($2,220) and deferred compensation and benefits to our employees ($126,514), and payment and/or issuance of our common stock in exchange for services ($27,000) did not require the use of cash.  Increases in prepaid and other expenses, offset by increases in accounts payable, payroll, salary, and other accruals brought the total cash used in operations to $138,982

For the nine months ended March 31, 2007, we incurred a net loss of $522,204. Of this loss, $488,827, consisting of depreciation ($1,542), deferred compensation and benefits to our officers ($481,500) and payments and/or issuance of our common stock in exchange for services ($16,500) did not represent the use of cash.  These changes plus others brought the total cash used in operations to $45,523.

On September 6, 2005, we obtained a loan commitment from Mr. Talari, one of our directors and controlling person in the amount of $350,000 evidenced by  a master promissory note, due on demand, with interest at the rate of 5% per annum.  On December 15, 2007, we agreed to convert the outstanding amount of the promissory note of $264,699, along with accrued interest of $16,702 into a 5% convertible debenture due on December 31, 2008 in the amount of $281,401.  The debenture is convertible into shares of our common stock at the rate of $0.05 per share.  At March 31, 2008, we have accrued interest of $4,124 on this debenture.

Mr. Talari remains committed to continue funding the Company, so that after the conversion on December 15, 2007 of the outstanding amount on the note and accrued interest to a debenture, we effectively have the full $350,000 promissory note available to us on an as needed basis.  During the quarter ended March 31, 2008, Mr. Talari made advances to the Company under this promissory note in the aggregate amount of $57,150, which remains outstanding at March 31, 2008.  In addition, the Company accrued interest on these loans in the amount of $442 at March 31, 2008.

As of March 31, 2008, we had $83 in cash with which to satisfy our cash requirements for the next twelve months, along with $292,850 remaining on the line of credit from Mr. Talari to pay normal operating expenses, while we attempt to secure other sources of financing to develop our business plan, and to start implementation of our marketing plan.

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Hathaway Corporation, our former parent company, paid expenses on our behalf amounting to $8,625 at March 31, 2008.  Most of these expenses were paid by by Hathaway, while OptiCon was still a subsidiary.  Hathaway does not have any obligation or agreement to make any payments on our behalf.

At March 31, 2008, we had no contractual obligation or material commercial commitments for capital expenditures.

Item 3.  Controls and Procedures

Disclosure Controls and Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Management did not use a framework to conduct the required evaluation of the effectiveness of our internal control over financial reporting since, in the view of management, comparison with a framework was unwarranted because the size of the Company’s current operations are such that management is aware of all current transactions. An evaluation was conducted under the supervision and with the participation of the Company’s management, including the President (Principal Executive Officer) and Chief Financial Officer (Principal Accounting and Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period ending March 31, 2008 covered by this Periodic Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion does not relate to reporting periods after March 31, 2008.

Inherent Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

The Company’s management, including the President (Principal Executive Officer) and Chief Financial Officer (Principal Accounting and Financial Officer), confirm that there was no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 3A(T)

Not applicable

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PART II - OTHER INFORMATION

Item 1 Legal Proceedings.

The registrant is not engaged in any legal proceedings at the date of this report.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3  Defaults Upon Senior Securities.

Not applicable.

Item 4  Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5  Other Information.

Not applicable.

Item 6 Exhibits

31.A	Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.B	Principal Financial & Accounting Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.A	Principal Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.B	Principle 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.

	OptiCon Systems, Inc.
	(Registrant)
Date: May 15, 2008	By:  /s/  Sadruddin Currimbhoy
	Sadruddin Currimbhoy
	President & Principal Executive Officer
Date: May 15, 2008	By:  /s/ Cristino L. Perez
	Cristino L. Perez,
	Principal Financial & Accounting Officer

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