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INFRAX SYSTEMS, INC. - 10-Q - Management's Discussion and Analysis or Plan of Operation
(Edgar Glimpses Via Acquire Media NewsEdge) 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. Lockwood has close to $10M in sales activity in the
pipeline so far for the year 2013. Infrax will be starting a pilot project at
the end of its third quarter possibility with a local utility. We are currently
working on other proposed pilot projects in other countries such as India for
35M customers. We cannot be guaranteed that we get our proposal accepted for
these pilot projects but feel very confident on our technology and its need by
the major utilities.
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, 2013.
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.
RESULTS OF OPERATIONS
For the Three Months ended September 30, 2013 and 2012:
During the three month period ended September 30, 2013, we had sales from the
delivery of equipment and services in the amount of $65,167 compared to $54,068
for the comparable three month period ended September 30, 2012. The Company has
increased its marketing efforts with Lockwood and retired product lines that
were not profitable.
Our expenses exclusive of amortization, depreciation and stock based
compensation decreased by approximately $87,723 to $139,432 from $227,155 for
the three month period ended September 30, 2013 and 2012, respectively. Expenses
decreased due to the reduction in costs incurred with our acquisition of
Lockwood, particularly salaries and consulting expenses.
Stock based compensation was $75,000 for the three months ended September 30,
2013 as compared to $0 for the three months ended September 30, 2012.
Depreciation expense was $415,623 for the three months ended September 30, 2013
as compared to $415,671 for the three months ended September 30, 2012.
For the three months ended September 30, 2013, we incurred a net loss of
$559,204 compared to a net loss of $594,369 for the three months ended September
30, 2012.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2013, we had approximately $300 in cash with which to
satisfy our cash requirements for the next twelve months, along with
approximately $251,000 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, 2013, we owe Mr. Talari $748,493 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.
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