UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2009oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  _________ to _________ .
 
 Commission File Number 000-52488
 
 
 OPTICON SYSTEMS, INC
 (Exact name of registrant as specified in its charter)
 
 Nevada

20-2583185(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)
 
 449 Central Avenue, Suite 105, St. Petersburg, Florida 33701
 (Address of principal executive offices)
 
 817-305-7118
 (Registrant’s telephone number, including area code)
 
 Securities registered pursuant to Section 12(b) of the Act:
 
 Title of Each Class

Name of Each Exchange on Which RegisteredNone

NoneSecurities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
oYes
xNoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
oYes
xNo
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
xYes
oNoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
oYes
xNoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
oYes
xNoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.o Large accelerated filer
o Accelerated filer
o Non-accelerated filer
x Smaller reporting CompanyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
oYes
xNo
 
 The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:
 
 Voting Common Equity
Non-voting Common Equity$1,046,881
None
 
 The number of shares outstanding of each of the registrant’s classes of common stock, as of September 30, 2009:
 
 Common stock, par value $0.001 per share
139,874,296Other
None
 
  
  
 DOCUMENTS INCORPORATED BY REFERENCE
 
 The following documents (or portions thereof) are incorporated by reference into the Parts of this Form 10-K noted:  NONE
 
 
 
 OPTICON SYSTEMS, INC
 
 Annual Report on Form 10-K
 
 For the Fiscal Year Ended June 30, 2009
 
 INDEX
 
 Page
NumberPART IItem 1.
Business
3Item 1A.
Risk Factors
18Item 1B.
Unresolved Staff Comments
19Item 2.
Properties
19Item 3.
Legal Proceedings
19Item 4.
Submission of Matters to a Vote of Security Holders
20PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
20Item 6.
Selected Financial Data
21Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21Item 8.
Financial Statements and Supplementary Data
28Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
54Item 9A.
Controls and Procedures
54Item 9A(T)
Controls and Procedures
54Item 9B.
Other Information.
55PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
55Item 11.
Executive Compensation
57Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
60Item 13.
Certain Relationships and Related Transactions, and Director Independence
61Item 14.
Principal Accountant Fees and Services
61PART IVItem 15.
Exhibits and Financial Statement Schedules
62Signatures

63
 
  - 2 -
  Forward-Looking Statements
 
 This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expects,”
“anticipates,” “intends,” “believes,” “estimates” or similar language, and among other things:  (i) events that may occur in the future, (ii) implementation of our business model; development and marketing of our products and services and (iii) prospects for revenues and profitability.  All forward-looking statements included in this document are based on information available to us on the date hereof.  We caution investors that our
business and financial performance and the matters described in these forward-looking statements are subject to substantial risks and uncertainties.  Because of these risks and uncertainties, some of which may not be currently ascertainable and many of which are beyond our control, actual results could differ materially from those projected in the forward-looking statements. Deviations between actual future events and our estimates and assumptions could lead to results that are materially different
from those expressed in or implied by the forward looking statements. We do not intend to update these forward looking statements to reflect actual future events.
 
 Item 1.  Business
 
 Background information
 
 OUR HISTORY
 
 “We”, “us” and “our” refer to OptiCon Systems, Inc., a Nevada corporation.
 
 The history of our incorporation and our ownership, in chronological order, is as follows:
 
 ●
We were incorporated in Nevada on October 22, 2004.●
J. Marshall Batton, Jeffrey A. Hoke, Jacques Laurin and Douglass W. Wright were our founders and original stockholders, each then owning twenty-five percent of our common stock.●
On July 29, 2005, FutureTech Capital LLC, a company entirely owned by Saed Talari, acquired eighty percent of our common stock as a result of our acquisition of the Opticon Network Manager software (see below) from FutureTech and the stock ownership of each of our founders was reduced to five percent.●
Also on July 29, 2005, following our acquisition of the Opticon Network Manager software, FutureTech and our founders exchanged all of our issued and outstanding common stock for an aggregate of sixty-six percent of FutureWorld Energy, Inc., (formerly Isys Medical) issued and outstanding common and all of its preferred stock; and, as a result
of the exchange, we became a wholly owned subsidiary of FutureWorld Energy.●
Before the exchange of our shares for FutureWorld Energy’s shares, Mr. Talari legally and beneficially owned eighty-eight percent of FutureWorld Energy’s common stock and beneficially owned through FutureTech eighty percent of our common stock.●
After the exchange, our founders each owned directly four percent of FutureWorld Energy’s common stock and Mr. Talari, directly and indirectly, owned eighty percent of FutureWorld Energy’s common stock.●
On April 4, 2006, we consolidated (reverse split) our issued and outstanding common stock by a factor of 0.30107143.●
In connection with FutureWorld Energy’s announcement to spin off OptiCon Systems, our Board of Directors approved a stock dividend of 99,118 of our common stock payable to our sole shareholder, FutureWorld Energy.
 
  - 3 -
  
 ●
On July 31, 2007, Mr. Batton and Mr. Wright, our founders, accepted 35,000 shares of our common stock in lieu of deferred compensation and in cancellation their respective, non-expiring rights under their employment agreements to maintain their individual ownership of our common stock to a level of four percent of our issued and outstanding
shares.●
On August 31, 2007, FutureWorld Energy paid a stock dividend to its stockholders consisting of 100% of our outstanding common.  As of this date, we ceased being a subsidiary of FutureWorld Energy.●
On June 10, 2008, we consolidated (reverse split) our issued and outstanding common stock by a factor of 0.05 (1 for 20).  Statement of all share amounts, whether before of after June 10, 2008 in this annual report have been adjusted for the share consolidation.●
On July 1, 2008 and August 7, 2008, Mr. Talari converted the principal amount and accrued interest of two convertible debentures into 56,326,560 and 12,003,734 shares of our common stock respectively.  After these conversions, Mr. Talari legally and beneficially owned eighty-nine percent of our common stock.●
On November 18, 2008, Mr. Talari converted the principal amount and accrued interest of two convertible notes into 8,000,000 shares of our common stock respectively.  After these conversions, Mr. Talari legally and beneficially owned eighty-two percent of our common stock.●
On May 13, 2009, Mr. Talari converted the principal amount and accrued interest of one convertible note, and the accrued interest and a portion of the principal amount of a second note into 50,000,000 shares of our common stock respectively.  After these conversions, Mr. Talari legally and beneficially owned eighty-four percent of
our common stock.●
On August 11, 2009, we organized Infrax Systems SA (Pty) Ltd., a South African company, as a wholly owned subsidiary, to penetrate the South Africa fiber optic telecommunication market.●
On August 12, 2009, we organized PowerCon Energy Systems, Inc., a Nevada corporation, as a wholly owned subsidiary to develop, market and distribute software, based on the R4 architecture, to the power industry.
 
 Before our acquisition of the Opticon Network Manager software, both FutureWorld Energy (formerly Isys Medical) and FutureTech were under the direct, common control of Mr. Talari. Prior to our acquisition of the Opticon Network Manager software, Mr. Talari had no control over us. With that acquisition, however, we also came under Mr. Talari’s
indirect control. Although Mr. Talari may be deemed to have determined or had a controlling influence on the terms of the exchange of stock between our stockholders and FutureWorld Energy, because he owned (a) all the stock of FutureTech which was our then eighty-percent stockholder and (b) eighty-eight percent of FutureWorld Energy’s common stock, Mr. Talari did not control the decision of our founders who owned twenty percent of our common stock and who have advised us they made independent, individual
decisions to enter into the exchange of their stock in us for FutureWorld Energy common stock. See the following table which details the aggregate of Mr. Talari’s direct and indirect stock ownership of each entity at each stage of the history described above:
 
 
 Mr. Talari’s stock ownership percentageTransaction Stage
NeuWorld Communications
FutureWorld Energy
FutureTech
Opticon SystemsOur incorporation
100
88
100


NoneOur acquisition of the Opticon Network Manager
100
88
100


80Our acquisition by FutureWorld Energy
100
80
100


80Conversion of 2 Debentures
100
80
100


89Conversion of 2 Notes
100
80
100


82Conversion of 1 note and partial conversion of second note
100
80
100


84
 
  - 4 -
  
 The address of our executive offices is First Floor, 449 Central Avenue, Suite 105, St. Petersburg, Florida 33701 and our telephone number at that address is 817-305-7118. The address of our web site is www.opticonsystemsinc.com. The information at our web site is for general information and marketing purposes and is not part of this annual
report for purposes of liability for disclosures under the federal securities laws.
 
 OUR ACQUISITION OF THE OPTICON NETWORK MANAGER SOFTWARE
 
 The history of our acquisition of the Opticon Network Manager software and related assets, in chronological order, is as follows:
 
 ●
We signed a pre-incorporation agreement dated as of August 19, 2004 with FutureTech to purchase the Opticon Network Manager software and assets.●
FutureTech did not own or have a contract to purchase the Opticon Network Manager software and assets at that time.●
The stated purchase price was $42 million.●
FutureTech signed an agreement on July 26, 2005 with Corning Cable Systems, Inc., a subsidiary of Corning Incorporated, to purchase the Opticon Network Manager software and assets for a cash purchase price of $100,000.●
The agreement between FutureTech and Corning Cable was identical in all respects, other than price, to our existing agreement with FutureTech.●
FutureTech’s purchase from Corning Cable was completed on July 29, 2005.●
We amended our agreement with FutureTech on July 29, 2005, changing our purchase price to 1,264,500 shares (or eighty percent) of our common stock.●
We completed our acquisition of the Opticon Network Manager software from FutureTech on July 29, 2005.
 
 
 OUR LICENSES OF THE OPTICON NETWORK MANAGER SOFTWARE FROM CORNING CABLE
 
 We were informed by Corning Cable that it had licensed the R3 version of the Opticon Network Manager software to approximately sixty operators of multiple cable television systems (“MSOs”). We believe those licensees installed the Opticon Network
Manager software on about 150 individual cable television systems. Corning Cable’s licensees included ten of the twenty-five largest cable providers at that time, among others. Corning Cable’s licensees for the R3 Opticon Network Manager software included:
 
 ●
Comcast Corporation;●
Comcast Corporation;●
Charter Communications.
 
 We understand that those licenses involved a non-exclusive, perpetual, paid-up, and right to use the Opticon Network Manager software as it existed at the time of the license. Corning Cable’s licensees did not obtain, however, the ability to maintain, modify or upgrade the software themselves, because they received only the part of
software program that runs on their computer systems (“object code”) and did not receive, have a right to receive or have access to the computer code on which the object code is based (“source code”) and is essential to maintenance, modification and upgrading the object code. We purchased the sole and exclusive right and title to source code for the R3 version of the Opticon Network Manager (as well as all the documentation for the partially developed R4 version). We do not have any obligation
to support, maintain or upgrade the software under Corning Cable’s licenses, nor do we have any liability associated with its performance. Those licenses exist without any impact on our ownership of the Opticon Network Manager software, which includes both the source code and the object code, and our right and ability to as the sole owner to license the Opticon Network Manager software to others.
  - 5 -
  
 We believe a substantial number of the approximately 150 installations of the R3 Opticon Network Manager software may still be use, including those on the cable systems of Comcast, TimeWarner and Charter Communications. We have made only limited attempts to discover which previous customers are still using Opticon Network Manager.  We
will continue our efforts to map out OptiCon’s previous customers that may be still using Opticon Network Manager in the second quarter of 2009. We have started to contact previous customers of Opticon Network Manager based on the customer list that were provided by our purchase of Opticon Network Manager from Corning. We anticipate completing the calls and interviews by the end of October 2009. We believe the MSOs who may still be using the R3 Opticon Network Manager represent an opportunity for us to
sell support and maintenance services, which they do not now have and cannot provide for themselves.
 
 We believe they also represent a market for our R4 version, if and when we complete development of it (of which there is no assurance). There is no assurance, however, that Corning Cable’s licensees will have an interest in buying support and maintenance services from us, or that they will have an interest in buying licenses to the
R4 version from us. We believe that even if we are unable to sell service and support services to Corning Cable’s licensees, the MSOs who have not licensed from Corning Cable, as well as other types of fiber cable system operators described below, provide us with a substantial, potential market for the Opticon Network Manager software.
 
 CORNING CABLE’S TERMINATION OF ITS BUSINESS RELATED
 TO THE OPTICON NETWORK MANAGER SOFTWARE
 
 Corning Cable developed the Opticon Network Manager software, beginning in 1995 as an outgrowth of its fiber optic cable business. Corning Cable developed three versions of the Opticon Network Manager software, concluding in March 2003 with the R3 version. Corning Cable also began development of the next-generation R4 version of the Opticon
Network Manager software, up to the point at which writing the source code and testing the object code were the next and final development steps. According to software development standards, this point of development constitutes seventy-five percent completion. We believe the Opticon Network Manager software was the most widely used fiber optic network management software in use at that time. Corning Cable decided in 2003 to terminate its involvement in the fiber optic cable network management software industry.
Corning disclosed in its annual report on Form 10-K for 2002 filed with the U.S. Securities and Exchange Commission that “During 2002 Corning continued the restructuring efforts that began in the second quarter of 2001. The telecommunications industry continued to decline over the course of the year as the trends exhibited in 2001, such as softness in demand, excess capacity, increased intensity of competition and growing pressure on price and profits have persisted.” The notice sent by Corning Cable
to its licensees dated May 27, 2003 stated that its reason for terminating its Opticon Network Manager operations was “Due to the extended downturn in the telecom industry there has been a significant reduction in demand for these products and services.” Corning’s annual report on Form 10-K for 2003 filed with the Commission disclosed that “We have been able to reduce the loss in the Telecommunications segment in 2003 by closing plants and reducing costs”. We believe that terminating
support for and continued development of the Opticon Network Manager software was one of these cost reducing measures enacted by Corning.
 
 
  - 6 -
  WHAT WE PURCHASED FROM CORNING CABLE
 
 As noted above, we purchased the Opticon Network Manager software (both the operational Release 3.x and proposed Release 4.x, as identified in the agreements) indirectly from Corning Cable, with FutureTech as a temporary, intermediary owner. Our contract to purchase the Opticon Network Manager from FutureTech was, in all material respects,
a mirror image of FutureTech’s agreement with Corning Cable. Both agreements provided for purchase and sale of “substantially all of the assets that are used by [Corning Cable] to conduct OptiCon related business”. The agreements provided for the “[sale], transfer, [assignment and delivery]” of the assets “in perpetuity, free and clear of all encumbrances” and “all rights, title and interest”. The assets included the “brand name”, all “tangible
personal property”, “all Federal, state, local and foreign governmental licenses, consents, approvals, authorizations, permits, orders, decrees and other compliance agreements”, “all OptiCon Intellectual Property Rights and Licensed Software, and the goodwill associated therewith, licenses and sublicenses granted in respect thereto and rights there under”, “all customer, supplier, advertiser and mailing lists”, “all business and financial records, books, ledgers,
files, plans, documents, correspondence, lists, plats, architectural plans, drawings, notebooks, specifications, creative materials, advertising and promotional materials, marketing materials, studies, and reports relating in any manner to, or used in connection with the operation of, OptiCon or to the Acquired Assets, in whatever media they exist”, “all goodwill” and “all inventory”. The agreements specifically provide that the purchaser (FutureTech and subsequently us) do not assume,
discharge or perform any liabilities, as defined, “related to Opticon”, which we maintain includes liabilities under the existing licenses. At each closing, the purchaser received a bill of sale for tangible assets, an assignment of intangible personal property, a trademark assignment and a general assignment of intellectual property assets. And, the seller in each case undertakes to “execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation, and will
take such further action, as may be reasonably requested in order to more effectively transfer, convey and assign to, and to confirm [the buyer’s] title”. The foregoing is a summary of the things acquired first by FutureTech from Corning Cable and second by us from FutureTech. The agreements contain other provisions necessarily related to the transactions. Reference is made to full agreements which are filed as exhibits to this annual report. All summaries of selected provisions of the agreements
in this annual report are subject to the actual agreements.
 
 
 OUR BUSINESS
 
 What Our Technology Does
 
 The Opticon Network Manager software is designed to manage large fiber optic cable networks more efficiently, as compared to Excel spread sheets which were the medium of network management in use at the time the original version of the Opticon Network manager was introduced. The R3 Opticon Network Manager software significantly reduces the
time and expense required to install, manage, maintain and repair a fiber optic cable system. These reductions are principally the result of:
 
 ●
The ability to map and determine the status of each strand in a fiber optic cable,●
The ability to automatically determine when a cut, break or fault has occurred, and●
The ability to identify the actual physical location of a cable cut, break or fault within five feet.
 
 Based on our review of the fiber optic management software against which the Opticon Network Manager now competes, we believe that none of them provide these features. See “Competition”, below.
 
 The OptiCon R4 system of the Opticon Network Manager software will not only have all the features of the OptiCon R3 system, but also is designed for use on:
 
 ●
An entirely fiber optic network, just like the OptiCon R3 system, and●
A network which has a combination of fiber optic cable and copper wire cable.
 
  - 7 -
  Based on our review of the fiber optic management software against which the Opticon Network Manager now competes within R3 architecture, none of our competitors function across an entire hybrid system composed of fiber optic and copper wire cables.
Development of the OptiCon R4 system is seventy-five percent complete, according to software development industry standards. The OptiCon R4 system is not ready for commercial sale. A product by Lucent-Alcatel called CloudView will compete directly with R4 when it is completed.
 
 The length of a fiber optic cable is limited only by the delivery requirements of the particular installation. Unlike the loss of signal strength in copper wire cable which limits the length of each copper wire cable segment to three thousand feet between amplification points, there is no loss of signal strength in fiber optic cable, regardless
of the length of the cable. Fiber optic cable may be hundreds or thousands of miles in length. The ability to quickly detect and repair cable cuts, breaks and faults is critical to the quality of service (QoS) provided by a cable system operator to its customers.
 
 As cable operators move into voice services they move into a QoS which requires a 99.999% “uptime” (the standard for telephony service providers). While subscribers to cable television and the Internet on a fiber optic cable system may accept service outages of up to hours and even days as an inconvenience or irritation, interruption
of telephone service (voice) of even much shorter duration is unacceptable to consumers. This is particularly true with respect to emergency 911 service. Providing telephone service over fiber optic cable becomes commercially feasible only with the ability to (a) provision (provide service to) new customers promptly, (b) reduce service interruptions by effective management and maintenance, (c) quickly restore service when interruptions occur due to cable cuts, breaks and faults and (d) reduce the cost of maintenance,
service and repair to a level comparable to copper wire cable. Based on the experience of our former chief executive officer at Lucent Technologies’ NetCare division in sales, installation and management of copper wire cable systems, these types of service interruptions in copper wire cable require an average of 1.6 service crews (“truck rolls”), as compared to the experience of fiber cable system which, based on information we obtained from Corning Cable, require an average eight truck
rolls for each cut, break or fault in a fiber optic cable.
 
 The Advantages of Our Technology
 
 The Opticon Network Manager software, among other things described below,
 
 ●
Isolates cable cuts, breaks and faults, service degradation and other “optical events” to within plus or minus five feet of the event; and●
OptiCon is the only Fiber Path Management System that facilitates capacity planning to the Fiber Path and Lambda Level. It is true Layer 1 OSI Management, which is essential for the FTTP and FTTH deployments.●
Lambda level management for multiple application delivery (voice, data and video) down a single fiber path●
Inventory of fiber paths in use and available.Present alternative routing scenarios to correct an outage at the fiber path level of granularity●
Produces a GPS (global positioning system) location for the outage to an approximate five foot section of cable (GPS location can be better or worse, depending upon the accuracy of the data supplied to the system).
 
 Based upon our analysis of products against which we compete, the Opticon Network Manager software is the only commercially available fiber optic management software offering these features. The Opticon Network Manager software takes into account all of the physical variables in the installation of fiber optic cable. Other systems now in
use determine the location of the cut, break or fault (optical event) based on the length of the cable from the test point. They do not identify the actual geographic location of the cut, break or fault. They provide a distance to a fault determined by a reflectometer (a ping, like radar, is put on the line and the amount of time it takes for the ping to return determines the distance) which may differ as much as thirty percent from the geographic location of the actual fault, as a result of cable twist and other
factors in the physical installation of the cable, such as deviations from a straight line caused by obstacle avoidance, grade change, slack between attachment points and ground versus overhead deployment.
  - 8 -
  
 
 When the Opticon Network Manager software detects a significant optical event, it sends an alarm to any type of communications device in use by the cable system operator, which, in turn, alerts management. The Opticon Network Manager software can automatically print a work order and dispatch a repair crew to the correct location, using its
mapping capability. Identifying the precise location of a cable cut, break or fault to within plus or minus five feet reduces the time needed to locate and repair the cable. The corollary of reduction in time to locate and repair is reduction in personnel and equipment cost and an increase in QoS to an equivalency to copper wire cable networks. Rather than hours spent locating a cut, break or fault in long runs of fiber optic cable with an average of up to eight crews on the road for a single occurrence, personnel
time and equipment cost is materially reduced to an average of 1.6 crews and trucks on the road. This feature of the Opticon Network Manager software brings maintenance and repair costs of fiber optic cable into line with those costs for wireline where cuts, faults and breaks can be isolated between amplification points - a maximum of three thousand feet.
 
 Additional features of the Opticon Network Manager software include the ability to:
 
 ●
Track fiber strands in use,●
Track fiber strands available for use (that is, attached to equipment, but not in use), and●
Track fiber strands in inventory (available, but not attached to any equipment, or dark).
 
 Our product
 
 We began licensing the OptiCon R3 system in forth quarter 2008 in South Africa through business relationships developed by our CFO and one of our directors and their contacts.  We have had several conversations with prospective customers in Greece, Africa and Dubai in the first and second quarter 2009.   Effective
September 1, 2009, we hired Frank Vegliante as Vice President of International Sales.  Mr. Vegliante’s main duties would be to market OptiCon R3 software in Africa and Eastern Europe due to the major initiatives by the telecommunication companies in those regions to lay fiber optics for next generation communication services.  We have already started to assemble all sales and marketing packages for this coming major push into Africa and Eastern Europe.  Any major sales effort
is subject to funding for marketing and for capacity for support and maintenance.  This is the same system that had been licensed by Corning Cable.  It provides a complete management structure for a physical fiber optic cable network.  The OptiCon R3 system can be used by both cable providers and telephone systems that have deployed or are in the process of deploying fiber optic cable.  It can be used both (a) during the installation process of the fiber optic cable
and (b) during the operation of the fiber optic cable network.
 
 The OptiCon R3 system provides a single repository for all data which documents the fiber optic cable network.During installation, the OptiCon R3 system interfaces with the operator’s work order system to ensure the accurate collection of all data relevant to the ongoing
management of the network. For example, it tracks all of the components of the system, it maps both outside locations and inside equipment and their layouts, it maps and tracks all network connections and all customers served.
 
 After installation of the fiber optic network, the OptiCon R3 system provides these additional four capabilities:
 
 ●
It improves the circuit assignment process and provisioning of new customers during the implementation phase;●
It automates the network management and maintenance functions;●
It complements a carrier’s existing systems and databases; and●
It is accessible to personnel at all levels.
 
  - 9 -
  
 During the implementation phase, the location and paths all fiber strands are captured in an Oracle data base and are identified as they are moved from dark, to inactive, to active status during the provisioning process. The OptiCon system also displays for the operator selected fiber paths to customers or fiber paths available for new customers.
It also displays all relevant information about that fiber path, including its current status, the service type being provided and relevant wavelength. All of these capabilities reduce the time and cost necessary for fiber provisioning for and assignment of circuits to customers. The current method of provisioning service to a new fiber optic cable customer is manually finding an available fiber optic route to the customer’s premises.
 
 In network management using the Opticon system, all relevant network information is available to the operator online. Drawing on information in the Oracle data base, the OptiCon system automatically displays network connections, provides access to historical outage records, generates detailed work orders and provides a variety of other network
information and reports essential to operating a complex fiber optic cable network.
 
 Use of the OptiCon R3 system requires a data base by Oracle Corporation to store network data and requires a graphical information system by MapInfo Corporation to display and manipulate data, which is graphically highlighted on maps to provide easy use with a Windows interface requiring minimal user training. The OptiCon R3 system will
not function without both an Oracle database and MapInfo software. At the present time, users of the Opticon R3 system must license the data base software directly from Oracle and display software directly from MapInfo, because we do not have reseller licenses covering either of those software. We anticipate applying to become an Oracle and MapInfo a Value Added Reseller (VAR) in the near future.  Being a VAR of both products will then enable us to directly license all of the software needed to utilize
the Opticon R3 system and the R4 system, if any, when development of the R4 system is completed for commercial licensing.
 
 The OptiCon R3 system is customizable, allowing users to specify unique reporting options to reflect specific needs. These features both reduce the cost of implementation by extending the functionality of the operator’s existing systems, while reducing response times and allowing immediate access to critical data.
 
 In order to provide a GPS location within plus or minus five feet, the OptiCon R3 system:
 
 ●
Accepts cable system design data to determine the distance between two points in a network;●
Accepts inputs from the installing field crew, such as a variety of local data points (such as point to point sheath lengths, GPS coordinates, elevations and slack in the cable at any point);●
Stores all of the specific information on fiber cable manufacturer’s product number and specific characteristics (each product line within a manufacturer’s product offering can have different specifications); and●
Manages all network information in a single data base and GIS system.
 
 When a cut, break or fault is detected, the OptiCon R3 system issues a work order for repair services. The technician goes to a starting point identified in the work order and uses a reflectometer (OTDR) to determine the distance from the starting point to the optical event. The technician updates the work order with the OTDR reading and
the Opticon Network Manager software adjusts the distance using the information it has regarding the specifics of the cable used, slack, elevations and other factors, and presents both GPS coordinates and a map of the outage to the work crew.
 
 
  - 10 -
  Our next-generation products
 
 OptiCon R4
 
 The OptiCon R4 system is our next generation of fiber optic network management software, which requires an estimated twenty-five percent final development before it can be commercially licensed. The OptiCon R4 system is being designed to address two major deficiencies in the OptiCon R3 system. These are:
 
 ●
It will manage fiber optic cable, copper wire cable, wireless, satellite and electric power grids in a hybrid cable system; and●
It will have an interface that will enable it to work with other software applications, for example, to easily give and receive information from a client’s existing work order system.
 
 And, it also has an easy-to-use web-browser user interface.
 
 Since our inception, we have not made any major effort in raising funds for the completion of the R-4 software.  Our major efforts were focused on upgrading our R-3 software to version 3.8, and preparing the conditions for our marketing efforts.  Starting in the third quarter 2009, we plan to aggressively pursue fund raising
efforts and/or obtaining financing to complete the development of our R-4 software.  If adequate funds become available and our funding successful, we have established the following schedule to complete the commercial development of the OptiCon R4 system.
 
 ●
A demonstration system within one hundred twenty days after funding;●
A beta version of the software in 210 days after funding; and●
General availability release in eighteen months after funding.
 
 We purchased all of the documentation for the Opticon R4 system from Corning Cable. As noted above, by industry standards, this documentation constitutes approximately seventy-five percent completion of the Opticon R4 system when we acquired it from Corning Cable. To complete commercial development of the R4 system, we must write the source
code for the Opticon R4 system and test the resulting object code (the code that actually runs on the computer), including the debugging process, before we can offer the Opticon R4 system for licensing. We have not done any development work on the Opticon R4 system after we purchased it from Corning Cable, nor do we have the funding available at the present time to hire programmers and purchase computer equipment needed to write the source code and test the object code. But we have confirmed the availability
of two of the original designers and founders to come on board to finish the development of R4 alongside a system developer, which we plan to hire in the future. We are in the final negotiation stages to hire these individuals and have them come aboard by the end of September, 2009. We have already made basic assessments on the architecture of R4 and its relevancy in comparison to the competitive landscape. See, Plan of Operations and Liquidity and Capital Resources.
 
 Without adequate funding, we will not be able to produce a marketable Opticon R4 system. There is no assurance we will be able to obtain any or adequate funding to complete the development of and market the R4 Opticon Network Manager. In the event we are able to obtain adequate funding, we believe writing the source code based on Corning
Cable’s documentation (which itself has been developed from the operational R3 version) will be a straight-forward undertaking without any unexpected complications. With adequate funding, we estimate that writing the source code and testing the object code will require less than four months to complete.
 
  - 11 -
  PowerCon
 
 Since inception of the OptiCon Network Manager, developers and founders always believed that the core architecture of R3, even though it was a client server application, could be adapted into the power markets systems such as power utility companies (hence one of the major customers of OptiCon
was (is) a power company in El Paso, TX).  With that belief in mind, the developers of the software started to view the next generation OptiCon R4 not only as a logical layer manager (a logical layer is an independent group of functions where each function facilitates the layer meeting its contract with other layers) but also as an element manager (elements being any units whether it is a telecom switch or a power pole, power meter or a grid). With that in mind, Corning and its scientists started developing
the core architecture of R4 to manage not only Fiber Optics but also, Copper, Wireless, RFID, Satellite and most importantly power grids. In 2008, with universal push toward moving the power companies to the new century by revamping their entire archaic grid system into a smart and more efficient power systems that is expected to consist of smart meters to smart grids, we have decided to implement the Corning development team’s original idea by developing a Power Network Management software from data we
have recently received from the Corning documents and our conversations with Jeff Hoke, one of the original developers.  Much like  OptiCon Network Manager, the Power Network Management software will isolate power cable cuts, breaks, and faults, and service degradation and other power events, and produces a global positioning system location for the outage to an approximate five foot section of cable.
 
 How We Will Deliver the Opticon Network Manager Software
 
 We plan to deliver the Opticon Network Manager software to our licensees on compact disks that we will produce and manufacture.
 
 Who Uses Our Technology
 
 Every business with a fiber optic cable network is a potential customer for the Opticon Network Manager software. These companies deliver voice, data and video to customers. These companies include:
 
 ●
Telephone companies who install and maintain their own network; and●
Cable television system operators.
 
 Both of these industries are vying to provide high speed Internet connectivity to their customers. In addition, the telephone companies are providing television and the cable operators are providing voice (telephone) service in an expanding number of markets. Both industries have installed and are continuing to install fiber optic cable and
require a software system to maintain and repair the cable. Many companies have a combination of copper wire cable and fiber optic cable, which we plan to be addressed by the OptiCon R4 system.
 
 Potential Customers and Marketing
 
 We view the principal customers for the Opticon Network Manager software to be:
 
 ●
Independent operating companies (IOC),●
Independent local exchange carriers (ILEC),●
Regional Bell operating companies (RBOC), and●
MSOs who are not licensees of Corning Cable represent additional customers for the Opticon Network Manager software.●
Value Added Resellers (VARs) and other resellers domestically and internationally
 
  - 12 -
  We believe the IOCs, ILECs, RBOCs and the MSOs who are not Corning Cable’s licensees represent a far greater market and greater potential customer base for the Opticon Network Manager in the United States alone that the customer base of which we may be viewed as being deprived by Corning Cable’s existing licenses. As noted above,
even Corning Cable’s licensees represent a market opportunity for maintenance and support services, as well as upgrade to the R4 version, if and when it is ready for commercial licensing.  We plan to also target domestic and international VARs and resellers who market to large and medium size telecom and communication companies globally.
 
 Once we have received adequate funding, we plan to target seven regional consulting firms who dominate the IOC marketplace to become resellers of the Opticon Network Manager software.
 
 Our marketing strategy has three basic phases.
 
 The first phase will be contacting all of Corning Cable’s licensees of the OptiCon R3 software - potentially sixty different companies with about 150 potential, existing installations. We believe many of these companies may continue to use the R3 software as their network management system, but without the ability to maintain it themselves.
We plan to contact these companies to see if they would be interested in upgrades, re-installations, service, maintenance and technical support.
 
 The second phase will be marketing to the small telephone and cable television companies who have installed fiber optic cable systems but are not licensees of Corning Cable, both domestically and internationality.
 
 The third phase will be marketing to the large telephone and cable television companies who are not using the Opticon Network Manager software, both domestically and internationality either through a relationship with VARs or directly.
 
 We believe that we will not be driving the timeline for the purchase and implementation of a core network management system like the Opticon Network Manager software. We believe the time line will be dictated by the executive management of the operators who we understand have mandated a solution for network management.  Operational
management must provide the solutions to implement that directive from executive management. As a result of this mandate for a solution to network management, we believe the decision to utilize the Opticon Network Manager software will be put on a fast track at many firms, at the point we are able to market and support the R3 version. The challenge we expect to face is to ramp up our capacity to market to and service the needs of these potential customers, some of whom are huge telephone companies and cable system
operators.
 
 The network management system is the key management tool in any optic fiber-based network. We believe the following criteria will be important in the review of our products:
 
 ●
The degree to which any solution meets the user’s needs.●
The ability of the user to modify any solution to meet internal needs.●
The ability of any solution to communicate with the user’s existing systems.●
The ability of the vendor to technically support the solution.●
The ability of the vendor to provide services that will be needed to implement the solution.
 
 We believe we can satisfy the first three of these criteria. Although we do not currently have the resources to compete with Lucent and others, we believe we have some advantages in that (a) our consulting team (who are expected to join management on a full time basis in the event we obtain funding) has over eight years of experience in this
specific field where the RBOC’s have little, if any experience and (b) the Opticon Network Manager software was installed on over 150 fiber optic systems that were and may still be operational and provide a resource to show actual performance as opposed to projected performance. When Corning initially considered selling its OptiCon Network Manager, it provided its then customers options to use other systems from other providers but we have an understanding that it was an option not a requirement. So we
believe after many discussion with the original developers, some of Corning’s customers may still be using OptiCon Network Manager. We are in the process of contacting all Corning’s initial customers to determine who is still using the software.
  - 13 -
  
 Another of the challenges that we expect to face is the creation of a credible and mature services organization that will involve personnel who already have credibility in the RBOC community. We believe we have the ability to identify and recruit experienced professionals. These personnel will provide the basis for the Build, Operate and
Transfer Model we will be proposing to the RBOC’s. The Build, Operate and Transfer Model are common in the service provider marketplace. Our service model can be fixed-price based or time-and-materials based and is preferred when deploying new technologies or entering new markets.
 
 In the build phase of the model - we will secure all of the hardware and software to meet the needs of the project:
 
 1.
We will install the hardware in the facilities designated in the statement of work.2.
We will manage the process of building the data needed for the project.3.
We will create and manage the process of collecting and validating the data.
 
 Then, we will manage the operations:
 
 1.
We will create the organizational structure and appropriate job definitions for the operations center (this includes all management structure).2.
We will assist in the selection of staff from internal or external sources.3.
We will train all staff on the solution.4.
We will help establish the performance metrics and best business practices for the center.5.
We will manage the operational process until the customer is satisfied that the center is fully operational.
 
 Once the network management center is operating to the customer’s satisfaction, we will transfer the operation to the customer.
 
 Other organizations that we expect to compete with may already have the professional services organization, but we believe they do not have the solution or the operational knowledge.
 
 Effective October 16, 2008, we entered into a six-month Consulting Agreement with Philip Johnston, an unrelated individual, in exchange for 4 million shares of our common stock.  The Consultant would provide services to the Company on a non-exclusive basis, including business modeling and strategies, strategic alliances, increase
exposure of the Company’s R-3 software management system in the U.S. and Canada, and other business and consulting services.  We agreed to file a registration statement with the Securities and Exchange Commission on Form S-8 to register the 4 million shares on behalf of the Consultant.  Subsequently, the Company and the Consultant agreed to cancel the Agreement, and no shares were issued.
 
 On May 9, 2008, we entered into a six-month Consulting Agreement with Keith Jablon, an unrelated individual, in exchange for a cash payment of $12,000 to provide marketing related services in connection with our R3 management software system.  Mr. Jablon had the option to receive the cash payment under the Agreement in the form of
common stock, subject to an S-8 registration, at a 20% discount to the five average closing bid price, prior to his notice to exercise the option.  We terminated the Agreement effective November 8, 2009.  Mr. Jablon was also granted the option to purchase $12,000 per month worth of common stock, subject to an S-8 registration at a 40% discount to the average 10-day closing bid price prior to his notice to exercise.  The options expired on May 8, 2009.  Mr. Jablon was also
to receive a 10% commission on all products through channels he introduced to the Company during the term of the agreement, and for one year after the termination of the Agreement, and 5% in kind on all consideration paid by the Company for any mergers or acquisitions that the Consultant is instrumental in finding or facilitating.  To date, the Company has not had revenue from sources introduced by Mr. Jablon.
 
 
  - 14 -
  Our Business Strategy
 
 To our knowledge, the Opticon Network Manager software (R3) provides the only available network management system that solves fiber optic system service and provisioning issues at a cost comparable to a copper wire cable system. We believe that network management systems are “core” systems. In general, a core system is acquired
from a single vendor and is deployed network-wide by a service provider.
 
 In addition, the decision of the Federal Communications Commission in March 2004 declaring the “last mile in fiber” (that is the cable from street to the user’s home or premises) will to be a “private asset”. What this means is that this “last mile” is not required to be shared on a discount basis
with competing service providers.  As of June 30, 2009, we are not aware of any recent legal or governmental development that erodes the above “last mile” model.
 
 As a result of these factors, core system and “last mile” decisions, we believe a strong demand for a software like the Opticon Network Manager software exists and will grow in the short term. We believe our business strategy of concentrating on the fault isolation, detection and correction and the capacity planning element of
being able to inventory and manage the dark fiber, as well as the active and inactive fiber, addresses the existing need and a growing demand. Based on our estimated comparisons of maintaining fiber optic network systems with and without the OptiCon Network Manager and information about the costs of maintaining copper wire cable systems, we believe the OptiCon Network Manager software can reduce maintenance costs by as much as four fold bringing it in line with the maintenance cost of copper wire cable systems.
 
 We have a single focus on development and sales of and service and support for the Opticon Network Manager software. We understand that Corning Cable, in contrast, spread responsibilities for the Opticon Network Manager software over a number of departments in a loosely organized structure with externally imposed and  arbitrary
operational constraints. We understand Corning Cable restricted the selling of the Opticon Network Management software to MSOs, while ignoring the rest of the potential user categories.
 
 Contracts and Agreements
 
 In December 2008, we signed an exclusive reseller and agent agreement with Mfumo Networking Solutions of South Africa with a term of 24 months, and an automatic 12 month extension.  They have purchased an initial 10 licenses.
 
 In November 2008, we signed a non-exclusive agent agreement with Develco of South Africa for a term of two years for reselling the Opticon Network Manager to private business in South Africa, and as our business agents to help us establish business relationships. Through this agreement we were introduced to Mfumo Networking, who has an established
relationship with the South African federal government and a substantial number of municipalities.
 
 Corporate Activities
 
 On July 31, 2008, we entered into a six-month Consulting Agreement with First Level Capital, Inc., an unrelated company, to provide investment banking services in exchange for 2,000,000 shares of the Company’s restricted common stock.  We were instructed by First Level Capital to issued the 1,000,000 shares to Market Voice,
Inc., subsequent to signing the agreement.  The second 1,000,000 has not been issued.   Subsequently, we advised the Consultant that due to lack of proper and adequate public relations services by the Consultant, and because the Company was not able to obtain investment from any sources, we were cancelling the agreement due to contractual default, and have made demand of the Consultant for the return of the 1,000,000 shares issued to them.  To date these shares have not been
returned.  We are presently negotiating a service agreement with the Consultant which will involve for the payment in shares comprising of part or all the 1,000,000 shares.
  - 15 -
  Our Intellectual Property and Its Protection
 
 Our intellectual property consists of all of Corning Cable’s intellectual property related to the Opticon Network Manager software. Our rights by purchase in our intellectual property are equivalent to that of any developer or creator of intellectual property. We have exclusive ownership of the Opticon Network Manager software and all
its revisions and new versions, including R4, with the exclusive right to license it to others. See, “Licensing of the Opticon Network Manger Software by Corning Cable” and “What We Purchased From Corning Cable”. Corning Cable’s existing licenses to use the Opticon Network Manager software do not have any impact on our right and title to Opticon Network Manager software. Those licenses are analogous to selling copies of a book, which have no impact on the ownership of the copyright
or intellectual property that is embodied in the book and the right to sell additional copies of the book.
 
 We regard our Opticon software and its documentation as proprietary and the source code for the software as a trade secret. We intend to implement confidentiality procedures, contractual arrangements, physical security systems and other measures to protect our proprietary and trade secret information when be begin to hire employees. As part
of our confidentiality procedures, we plan generally enter into non-disclosure agreements with our employees, and our license agreement will include provisions for protection of our proprietary information. We also plan to educate our employees on trade secret protection and employ measures to protect our facilities and equipment.  We plan to license the Opticon software under signed license agreements that impose restrictions on the licensee’s ability to utilize the software and do not permit
the re-sale, sublicense or other transfer of the software.
 
 We acquired the name Opticon and the design associated with it from FutureTech. The trademark was acquired by FutureTech from Corning Cable. The trademark is not registered. At the present time, two other companies have trademark registrations for “Opticon”, one for bar code scanners and another for educational seminars in computer
software. There is no assurance one of these companies, or others may not claim that our corporate and product name infringe their registered trademarks.
 
 We do not have any issued patents and pending patent applications covering the Opticon R3 Network Manager Software. We may file applications for one or more patents, in the event we determine that features of the Opticon R4 system may be patentable.
 
 Our Opticon software is protected under U.S. and international copyright laws and laws related to the protection of intellectual property and proprietary information. We do not need to do any further steps to protect our IP than stated. Neither we, nor to our knowledge Corning Cable, has filed a U.S. copyright registration. We will file a
registration for the Opticon R4 and the PowerCon system when they are  complete. We take measures to label our product with the appropriate proprietary rights notices, and we plan to actively enforce such rights in the U.S. and abroad. We believe that our ability to maintain and protect our intellectual property rights is important to the success of our business. Our intellectual property is at this time our only asset that will enable us to engage in our planned business. The measures for its
protection described in this section may not provide sufficient protection and our intellectual property rights may be challenged. Efforts to enforce our intellectual property rights in litigation, or defend suits brought against us for copyright infringement, which we do not have reason to expect, would be expensive and consume substantial amounts of our management’s time. Our ability to pursue remedies against person who we believe may infringe our intellectual property rights will depend on our financial
condition from time to time.
 
 Competition
 
 Our competitions’ OSS systems cannot provide, at the present time, most of the features and functionality of the Opticon Network Manager software.
  - 16 -
  
 The Opticon Network Manager software starts at a vastly different level of granularity compared to competing OSS suites. OSS suites are element managers, managing logical, not physical, network configurations. They manage the hardware (primarily, switches and routers) on the network and identify circuits by the hardware ports to which the
fiber is hook up. We manage the physical network at the fiber strand level in the fiber optic cable. This is the reason we can inventory to the fiber strand level whether the strand is hooked up to a port or not. This is the reason why we can apply metrics to the cable and our competitors’ OSS Systems cannot do so at the present time. OSS suites are dealing with a logical representation of the network based on the equipment on the network. We are dealing with the physical characteristics of the
network.
 
 We compete against a number of companies who provide OSS/network management solutions. Those companies presently provide only a small part of the solution that must be integrated by the user into a total solution, or the competitor’s solution was built for a copper network and doesn’t have the capabilities to provide effective
management of a fiber optic system.  For the R-3, only OSPInsight presents a major competitive factor.  But we believe that their product is only an element manager and does not manage the physical network at the fiber strand level in the fiber optic cable as our R-3 does.  Hence, we believe that Opticon is a superior product.
 
 Telcordia and Lucent-Alcatel are our only competitors in the core RBOC marketplace for our R-4 software. Telcordia supports the wireline (copper) system as it exists today in the ILEC/RBOC marketplace. It does not support a fiber optic system. It is IBM Mainframe based, written in COBOL, has a very difficult time interfacing with the present
legacy systems and is extremely structured and procedural. We believe Telcordia would have to design and write any support program for fiber optic cable systems from scratch. What is now known as Telcordia was actually the software development arm of AT&T prior to the breakup of the Bell System. They were chartered to build the network management systems for the core network. We believe that Telcordia by culture and by the nature of their technological pool of talent is not positioned to create an operational
fiber optic management system in the three-year time frame required by the RBOCs. Currently since Lucent-Alcatel has just rolled out their software, we do not have any data as of yet about any comparative analysis in regards to R4.
 
 We provide the only solution that we are aware of that can provide support across the fiber optic life cycle and has the scalability to meet the operational needs of the RBOC community. Once a fiber optic cable system operator selects a solution for their core network we believe it will be unlikely the will revisit the solution selection
unless it fails. Once we make a sale, we expect recurring revenues from annual licensing fees and sales of maintenance and technical support.
 
 We believe that none of our R3 related competitors can match our reliability and economic viability in a fiber optic environment. They all believe that a two dimensional (GIS) or logical (OSS) solution can provide the appropriate support level. We believe they are mistaken, as their products were developed for the MSO that has not had to
deal with the QoS issues associated with providing telephone service. Based on the length of time we understand that it took Corning Cable to develop the R4 system to the seventy-fiver percent completion point, we believe that it will take any potential competitor starting from scratch thirty to thirty-six months to field a system to compete with the OptiCon system. We believe the market requires delivery of this solution in less than thirty-six months.
 
 Our Employees
 
 At the date of this annual report, we have one  full-time and one part-time employee. Sam Talari, our acting CEO,  director and full time employee,  Cris Perez is our CFO, director and part- time employee,  Jacques Laurin and Jeff Hoke (founders) currently provide consulting services to us, and are
expected to join us on a full-time basis when we have secure funding at a minimum level of $1,000,000.  Also, if we are successful in obtaining this minimum funding amount and licensing the Opticon Network Manager software to at least ten customers, of whom there is no assurance in either case, we expect to have a need to employ a total of forty-four personnel in the following positions:
  - 17 -
  
 Individual Employees

Departments and FunctionsPresident and Chief Executive Officer

Human Resources Department (2)Chief Technical Officer

Accounting Department (2)Senior Vice President of Sales

Sales Department (5)Senior Vice President for Professional Services

Development Programmers (6)Vice President of Development

Training (3)Director of Systems Engineering

Professional Services (7)System Engineers (5)Administration (4)Information Technology
 
 The numbers in parenthesis following certain positions indicate the number of personnel we believe we will need in the respective position, subject to funding.
 
 Item 1A.  Risk factors
 
 We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward looking statements that we make from time to time in filings with the U.S. Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other
written communications as well as oral forward looking statements made from time to time by our representatives. These risks and uncertainties include, but are not limited to, those risks described below that we are presently aware of. Additional risks and uncertainties that we currently deem immaterial may also impair our business operations, and historical results are not necessarily an indication of the future results. The cautionary statements below discuss important factors that could cause our business,
financial condition, operating results and cash flows to be materially adversely affected.
 
 An investment in our common stock involves a high degree of risk. Therefore, if you are considering buying our common stock, you should consider all of the risk factors discussed below, as well as the other information contained in this annual report. You should not invest in our common stock unless you can afford to lose your entire
investment and you are not dependent on the funds you are investing in order to pay your monthly expenses.
 
 WITHOUT MINIMUM FUNDING OF $5 MILLION AND ADDITIONAL FUNDING OF UP TO $20 MILLION, WE MAY NOT BE ABLE TO ESTABLISH, MAINTAIN AND GROW OUR BUSINESS.
 At the date of this annual report, we do not have the funding we require to maintain our business and we have had no success in raising capital in the past 2 years.  We have concentrated mainly on upgrading our R-3 software. Furthermore, we do not have any existing or ongoing arrangement, understandings, commitments or agreements
for additional funding.  Failure to raise additional debt or equity funding would prevent us from completing development of the Opticon R4 system and possibly cease operations. There is no assurance that we will be able to obtain sufficient debt or equity funding, or that the terms of available funding will be acceptable to us. Failure to raise additional debt or equity funding would most probably result in a complete loss of their investment by purchasers of our common stock.
 
 WE BEGAN MARKETING THE OPTICON SYSTEM, HAVE MADE ONE SALE AND EARNED NO REVENUES YET AND HAVE ONE CUSTOMER, AND OUR NEXT-GENERATION SOFTWARE IS NOT COMPLETE
 We began marketing our R3 product, and have made one sale to only one customer.  There is no assurance we will be able to continue selling licenses to our Opticon Network Manager software and sell related service contracts in the future in sufficient numbers to become profitable.  If we are not able to do so, we will be
unable to remain in business.  Our next-generation Opticon R4 software is approximately seventy-five percent complete and cannot be marketed in its current state of development. Without adequate funding we would be unable to complete the development of our R4 software and thus not able to generate any revenue from this product.
  - 18 -
  
 WE DO NOT HAVE ANY PERSONNEL WITH PRIOR EXPERIENCE IN OUR BUSINESS, WHICH MAY HINDER OUR SUCCESS
 At the date of this annual report, we do no have any employees who have prior experience with our business except for two or our founders, Messrs. Jeff Hoke and Jacques Laurin who have marketing and developmental experience with our R3 and R4 software, however, in order to hire them as full-time employees, we would have to raise adequate funding,
which there is no assurance we would able to do.  Accordingly, we may be unable to achieve success in our business.
 
 “PENNY STOCK” RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT
 Trading in our securities is expected to be subject, at least initially, to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions, none of which apply to our common stock. These rules
require that a broker-dealer, who recommends our common stock to persons other than its existing customers and accredited investors, must, prior to the sale:
 
 ●
Make a suitability determination prior to selling a penny stock to the purchaser;●
Receive the purchaser’s written consent to the transaction;●
Provide certain written disclosures to the purchaser;●
Deliver a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market;●
Disclose commissions payable to both the broker-dealer and the registered representative; and●
Disclose current quotations for the common stock.
 
 The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability
to resell our common stock.
 
 THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY AND YOU MAY FIND IT DIFFICULT TO SELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM
 We do not know the extent to which the market for our shares of common stock may be volatile. Therefore, your ability to resell your shares may be limited. Actions or announcements by our competitors and economic conditions, as well as period-to-period fluctuations in our financial results and other factors, may have significant effects on
the price of our common stock and prevent you from selling your shares at or above the price you paid for them.
 
 Item 1B.   Unresolved staff comments
 
 None.
 
 Item 2.     Properties
 
 Our executive office and computer center is now located in an “office suite” under an annual lease, beginning August 1, 2009 at a rent of $1,804 per month. We entered into this 2-year commercial lease agreement in St. Petersburg, Florida with Caroline DeVale. Our lease provides us with approximately 1,700 square feet of reception
area, six offices, a kitchen and a conference room.  We believe the facilities are  adequate for our operational needs.  We may required additional offices in the event we obtain funding and acquire customers.
 
 Item 3.     Legal proceedings
 
 (a)  We are not engaged in any legal proceedings at the date of this report, nor are we aware of any demands or claims against us that may result in litigation.  We may be involved in legal proceedings from time to time in the normal course of our business.
  - 19 -
  (b)  We did not terminate any legal proceedings during the fourth quarter of our 2009 fiscal year.
 
 Item 4.     Submission of matters to a vote of security holders
 
 We did not submit any matter to a vote of our security holders, through the solicitation of proxies or otherwise during the fourth quarter of our 2009 fiscal year.
 
 
 PART II
 
 Item 5.     Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities
 
 Our common stock is quoted on OTC Bulletin Board under the symbol “OPCN”.
 
 Price History of our common stock.
 
 The following table sets forth high and low bid quotations for the quarters indicated and trading volume data for our common stock for the period indicated.  These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
 
 High Bid

Low BidFiscal 2009:Fourth Quarter

$
.59

$
.20Third Quarter

$
.20

$
.10Second Quarter

$
.15

$
.01First Quarter

$
.20

$
.10Fiscal 2008:Fourth Quarter

$
.13

$
.01Third Quarter

$
.90

$
.45Second Quarter
(1)
$
.N/A

$
N/AFirst Quarter
(1)
$
.N/A

$
.N/A
 
  (1) OptiCon began trading in the OTC Bulletin Board on January 11, 2008.
 
 As of August 30, 2009, we had 57 shareholders of record and approximately 1685 beneficial shareholders, and we had 139,874,296 shares of $0.001 par value common stock outstanding.
 
 Dividend Policy
 
 We have never declared or paid any cash dividends on our capital stock. We do not have earnings out of which to pay cash dividends.  Our board of directors has the authority to declare cash dividends when and if we have earning sufficient for that purpose.
 
 Equity Compensation Plan
 
 See description our Stock Option Plan in Item 12.
 
 Transfer Agent
 
 We have engaged Island Stock Transfer, Inc. to serve as our stock register and transfer agent.  Island’s address is Suite 705N, 100 Second Avenue South, St. Petersburg, Florida 33701.
 
  - 20 -
  
 Sales of Unregistered Securities
 
 The following table sets forth information about our unregistered sales of securities during the three months  ended June 30, 2009.
 
 Date
Title of Security
Amount
Purchaser

Price
Exemption2009
Common stock
36,738,
Cristino L. Perez
(1)
Services
Section 4(2)2009
Common stock
50,000,000
Saed (Sam) Talari
(2)
Conversion
Section 4(2)2009
Common stock
82,000
Caroline & Jerry Devale
(3)
Rent
Section 4(2)


We did not pay and no one acting on our behalf or to our knowledge paid any commissions or other compensation with respect to the sale of any of the shares listed in the tables above.   Mr. Talari, Mr. Perez, and Mr. Lisenby are thoroughly familiar with our proposed business in their respective positions as Acting Chief Executive
Officer, Chief Financial Officer and director. First Voice, Inc. and Market Solutions are consultants with experience in dealing with small public entities.  Caroline & Jerry Devale, as owners of the building where our offices are located, are well acquainted with the Company and as professional people able to perform their own investigation/due diligence.  None of these transactions involved a public offering. A legend was placed on each certificate that has been issued, prohibiting public
resale of the shares, except subject to an effective registration statement under the Securities Act of 1933, as amended (the “Act”) or in compliance with Rule 144. We claim exemption from the registration requirement of the Act by reason of Section 4(2) of the Act and the rules and regulations there under, on grounds that none of the sales listed above involve a public offering within the meaning of the Act.





Item 6.   Selected financial data(Unaudited)





Not applicable





Item 7.   Management’s discussion and analysis of financial condition and results of operations





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 their 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, and our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate.


- 21 -





Our critical accounting policies include:





●
Revenue Recognition.  We recognize revenue from licensing our software upon the installation and acceptance of the software by customers in accordance with Statement of Position 97-2, Software Revenue Recognition.  When
a software sales arrangement includes rights to customer support, the portion of the license fee allocated to such support is recognized ratably over the term of the arrangement, normally one year.  Revenue from professional services arrangements will be recognized in the month in which services are rendered over the term of the arrangement.●
Long-Lived Assets - We depreciate property and equipment and amortize intangible assets, including software development costs over the respective assets’ estimated useful life and periodically review the remaining useful lives of our assets to ascertain that our estimate is still
valid. If we determine a useful life has materially changed, we either change the useful life or write the asset down or if we determine the asset has exhausted its useful life, we write the asset off completely.





●
Capitalized Software Development Costs - We capitalize software development costs incurred subsequent to the establishment of technological feasibility and amortize them over the estimated lives of the related products. We discontinue capitalization of software when the software product
is available to be sold, leased, or otherwise marketed. Amortization of software costs begins when the developed product is available for sale to our customers. We amortize our software development costs over the estimated economic life and estimated number of units of the product to be sold.





●
Stock Based Compensation -We account for stock based compensation under the provisions of Statement of Financial Accounting Standards No. 123, (revised 2004) Share-Based Payments.  Under
the fair value recognition provisions of SFAS 123R, 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.





●
Income Taxes - We record federal and state income tax liability in accordance with Statement of Financial Accounting Standards No. 109 – Accounting for Income Taxes.  Deferred income taxes are provided on the liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards, and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets
will not be realized.





Recent Accounting Pronouncements:





In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157 Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expanded disclosures about fair value measurements.
The adoption of the applicable provisions of SFAS 157 on July 1, 2008 did not have an impact on the Company’s financial statements.    SFAS 157 provides an exception of the application of the statement to the determination of fair value of nonfinancial assets and liabilities that are recognized or disclosed on a nonrecurring basis, which is effective for fiscal years beginning after November 15, 2008.  We are evaluating
the effect that adoption of the remaining provisions of this statement will have on our financial statements.




In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”.  FSP 157-1 provides a scope exception from FASB No. 157, “Fair Value measurements” for the evaluation criteria on lease classification and capital lease measurement under FASB No. 13, Accounting for Leasesand other related accounting pronouncements.
The Company does not have any capital leases, accordingly, the Company did not apply the provisions of FSB 157-1.





- 22 -





In February 2008, the FASB issued FASB Staff Position 157-2 (FSP 157-2), which delayed the effective date by which companies must adopt the provisions of SFAS 157.  FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. We are evaluating the
effect that adoption of the remaining provisions of this statement will have on its financial statements.





In December 2007, the FASB issued SFAS 160, Noncontrolling Interest in Consolidated Financial Statements.This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Early adoption is prohibited.  We expect to implement SFAS 160 on July 1, 2009, but does not believe the adoption of the Statement will have a material impact on our financial statements.




In December 2007, the FASB issued SFAS 141R,Business Combinations, which replaces SFAS 141. This Statement applies to all transactions or other events in which an entity obtains control
of one or more businesses and requires that all assets and liabilities of an acquired business as well as any noncontrolling interest in the acquiree be recorded at their fair values at the acquisition date. Among other things, SFAS 141R requires the expensing of direct transaction costs, including deal costs and restructuring costs as incurred.  Contingent consideration arrangements are to be recognized at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings.
Pre-acquisition contingencies will also typically be recognized at their acquisition date fair values. In subsequent periods, contingent liabilities will be measured at the higher of their acquisition date fair values or the estimated amounts to be realized. In addition, material adjustments made to the initial acquisition purchase accounting will be required to be recorded back to the acquisition date. This will cause companies to revise previously reported results when reporting comparative financial information
in subsequent filings. The Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management does not expect that SFAS 141R would have an impact on the Company’s financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company may consummate after the effective date.





On January 1, 2008, FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. SFAS 159 permits entities to elect to measure eligible financial instruments at fair value at specified
election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  This statement became effective for the Company’s current fiscal year.  We did not elect the fair value option, therefore, the adoption of the Statement did not have an impact on our financial statements.





In March 2008, the FASB issued SFAS 161,Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.   The Statement establishes enhanced disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS 133,Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. The Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We expect to implement SFAS 161 July 1,  2009, but do not believe the adoption of the Statement will have a material impact on our financial statements.





Effective April 1, 2008, the Company adopted EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. EITF 07-3 requires that nonrefundable advance payments for goods or services that will be
used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. The adoption of EITF 07-3 did not have a material impact on our financial statements.




In April 2008, the FASB issued FASB Staff Position 142-3,Determination of the Useful Life of Intangible Assets, (FSP 142-3) which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142,Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FASB 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. generally accepted accounting principles. FSP 142-3
is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and early adoption is prohibited. The Company expects to implement FSP 142-3 on July 1, 2009.   Management expects that FSP 142-3 could have an impact on the Company’s future financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions, if any, the Company consummate after the effective
date.





In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. The new standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  We do not expect the adoption of SFAS 162 to have a material impact on our financial statements.


- 23 -





In May 2008, FASB issued Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(FSP APB 14-1).  This FSP APB 14-1 specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all periods presented.  Early adoption is not permitted.  We expect to implement APB 14-2 on July 1, 2009, but do
not believe the FSP APB 14-1 would have a material impact on ourfinancial statements.





In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). This FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 becomes effective for the Company on July 1, 2009. We do not expect that the adoption of FSP EITF 03-6-1 will have a material impact on our financial statements.




In May 2009, the FASB issued SFAS 165, Subsequent Events.The objective of this Statement is to establish general standards of accounting for and disclosures of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures
that an entity should make about events or transactions that occurred after the balance sheet date. In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. The Company does not believe that the adoption of SFAS 165 would have a material impact on the Company’s financial statements.


In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 provides for the FASB Accounting Standards Codification (the
“Codification”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature. SFAS 168 is effective for interim and annual periods ending after September 15, 2009.





Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.





PLAN OF OPERATIONS





As more fully described in “LIQUIDITY AND CAPITAL RESOURCES”, we had $1,996 in cash at June 30, 2009, and $298,752 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.


- 24 -








On February 1, 2008, we filed a registration statement on Form S-1, with the Securities and Exchange Commission, offering 5,000,000 shares of our authorized but unissued common stock for sale pursuant to this prospectus in a "self underwritten" public offering. Our registration statement has not yet been declared effective, and there is no
assurance it will be declared effective.  During the year  ended June 30, 2009, we have not made any efforts to get the registration statement approved, however, once approved, 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 have ever been either
a registered securities broker-dealer or an affiliate or associated person thereof.  If we complete our registration process, and the registration is approved, the offering will continue until we have sold the 5,000,000 shares or terminate the offering.  We will receive the net proceeds from the sale of the 5,000,000 shares.  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 of 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% 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.





We are in the process of preparing a Private Placement Memorandum to raise funds for our subsidiary PowerCon systems to continue the development of our Opticon R4 software and/or our Power Network Management System.  We have not determined the number of shares to be offered through this Private Placement or the price at which we
will offer those shares.  Our directors and executive officers will offer the shares on PowerCon Systems’ behalf, and will not receive any compensation for sales of the shares which they may make.  There is no assurance PowerCon Systems will be able to sell all or any of the shares that will be offered through this Private Placement.





We are in the process of discussions and negotiations with a major law firm in Washington D.C. specializing in applying for a grants made available by the Federal Government under the stimulus programs, and grants by the State of Florida to write grant requests on our behalf.  Based on our discussions, we believe we may be eligible
to receive grant funds under these programs.  However, there is no assurance that the law firm will agree to write the grant requests for us, or whether we received any funds from these requests.





On September 14th, 2009, we offered employment to four individuals who, if the positions are accepted, will hold dual positions on OptiCon Systems and PowerCon Systems. These positions are as follows; Acting President & COO, Sales Vice President of International
sales, Sales Vice President of Systems development, and Vice President of Business & Corporate Development.  Their compensation package will include part cash and part shares of Opticon and PowerCon.  There is no assurance that any of these individuals will accept the terms we have proposed.





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 we believe they continue
to utilize. Since Corning Cable stopped supporting the R3 software, those companies still using the software have no means to maintain and support the software. We would be able to provide them with seamless integration with other programs or newer version of programs being used, and provide them with full maintenance and support.  We have contacted a number of these companies, almost entirely in the United States, and have found that they have a keen interest in our software.  We are unable
to sell our customer's software until we are able to raise funds to provide adequate support for the software – see description of “International Operations” below.


- 25 -








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





We may explore the opportunities to locate local and regionally based companies in emerging markets with existing relationships with the key decision makers in Africa, and Middle East, that would be willing establish strategic relationships in those markets and establishing their own Network Operating Centers to increase our visibility and
support our customers in those markets. We are considering the establishment of this concept as our business model for countries in these emerging markets.





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, and we will begin hiring the appropriate technical staff that 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 and cable company marketplace, as noted above, we will require an initial investment of approximately $5 million. We expect this level of funding to carry us into the MSO and ISO marketplaces and provide the capital necessary to complete
the development of OptiCon R4 system, our next generation product which is not now ready for commercial licensing. The following table depicts the areas of development, assuming attainment of different level of funding.


- 26 -








Level of Funding
$1,000,000

Level of Funding
$2,500,000

Level of Funding
$5,000,000Securing adequate facilities (approximately 12,500 square feet of space)

N/A

Securing an additional 12,500 to 25,000 square feet facilityHiring 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 companiesHiring of product support and development department heads.

N/A

N/AN/A

Commence the development of OptiCon R4 software system.

Complete the development of the OptiCon R4 system.





Our previous efforts to secure funding have been unsuccessful.





RESULTS OF OPERATIONS





Comparison year ended June 30, 2009 to June 30, 2008





For the year ended June 30, 2009, we incurred a net loss of $450,920. Of this loss, $209,994 consisting of depreciation and amortization of ($3,054) and deferred compensation to our officers ($84,000), as well as issuance of common stock in exchange for services ($108,790) 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 $71,743.





For the year ended June 30, 2008, we incurred a net loss of $372,042. Of this loss, $198,698, consisting of depreciation of ($3,031) and compensation to our officers ($168,667), as well as issuance of 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 $167,025.




For the year ended June 30, 2009 compared to June 30, 2008, salaries and benefits decreased from $184,618 to $90,462 reflecting the termination of the employment agreements on July 31, 2007 for John Batton, our former CEO and Douglass Wright, our former vice-president.  For the same period, legal expenses increased from $30,500
to $60,000, reflecting increase efforts of filing our annual report on Form 10-K and other general legal services.  During the same period, consulting expenses increased from $130,800 to $217,200, reflecting hiring our Chief Financial Officer, and consultants to assist us with investment banking services and the marketing of our R3 software system in the U.S., and a one time payment to our Chief Financial Officer and one of our directors for their efforts in establishing business relationships in South
Africa.  For the same period, rent expense increased from $8,528 to $22,459 reflecting our lease for our corporate offices in St. Petersburg, Florida.





- 27 -


LIQUIDITY AND CAPITAL RESOURCES





As of June 30, 2009, we had $49,215 in accounts receivable, $1,996 in cash, along with $298,752 remaining on the line of credit from Mr. Talari to pay normal operating expenses, while we attempt to secure other sources of financing to develop our business plan, and to start implementation of our marketing plan.





On September 6, 2005, we obtained a loan commitment from Mr. Talari, one of our director and controlling person in the aggregate amount of $350,000 under a revolving master promissory note, due on demand, with interest at the rate of five percent per annum. We have been receiving advances on this note on an as needed basis and through
June 30, 2009, we have received a total of $445,691.  Mr. Talari has made a number of conversions as follows into our common stock:





●
On December 15, 2007, advances of $264,699 plus accrued interest of $16,702 were converted into a 5% Convertible Debenture.  On July 1, 2008, Mr. Talari converted the debenture into our common stock.


●
On July 2, 2008, a portion of the debt plus accrued interest of $60,019 was converted into a second 5% Convertible Debenture, and then, on August 7, 2008, Mr. Talari converted the second debenture into our common stock.


●
On May 13, 2009, a portion of the debt plus accrued interest of $81,708 was converted into our common stock





On February 10, 2009, we granted Mfumo Networking Solutions cc, a South Africa closed corporation, an Exclusive Agency in the Republic of South Africa to provide data services to our customers, and assist us in developing a customer base for our OptiCon Network ManagerTM software.  The Agency required Mfumo to purchase 10 software
licenses totaling $49,215, net of a commission allowance of $8,685, and to pay us a 10% royalty fee on data services and professional service revenue generated from customers using our software.  We expect to collect this receivable within the next 60 days.  We have also agreed to pay Develco cc, our Business Agent in South Africa a 10% commission of all revenue from Mfumo.





On November 16, 2008, we signed a 2-year commercial sub-lease agreement for our executive offices at $2,000 per month with Muse River, a related company.  We are committed to make lease payments of $24,000 and $9,000, respectively for the next two years.  At June 30, 2009, we had no other contractual obligation or material
commercial commitments for capital expenditures.





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.





Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.





Not Required.





Item 8.     Financial statements and supplementary data








- 28 -


OptiCon Systems, Inc.


2009 Annual Report


Index to Financial Statements and Financial Statement Schedules








PageReport of Independent Registered Public Accounting Firm
30Balance Sheets
31Statements of Operations
32Statements of Changes in Stockholders’ Deficit
33Statements of Cash Flows
34Notes to Financial Statements
35










- 29 -








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and Stockholders of


OptiCon Systems, Inc.


St. Petersburg, Florida





We have audited the accompanying balance sheet of OptiCon Systems, Inc as of June 30, 2009 and 2008 and the related statement of operations, stockholders’ deficit, and cash flows for the years ended June 30, 2009 and 2008 and for the period from October 22, 2004 (inception) to June 30, 2009. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged
to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Opticon Systems, Inc. as of June 30, 2009 and 2008, and the results of their operations, changes in their stockholders' deficit and their cash flows for the years ended June 30, 2009 and 2008 and period from October
22, 2004 (inception) to June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as agoingconcern. As shown in the financial statements and discussed in Note 3 of the accompanying financial statements, the Company has incurred significant recurring losses from operations since inception
and is dependent on outside sources of financing for continuation of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.














/s/ KBL, LLP





Tampa, Florida


September 30, 2009








- 30 -








OptiCon Systems, Inc.(A Development Stage Enterprise)Balance Sheets-June 30,2009


2008ASSETSCurrent assetsCash and cash equivalents

$
1,996


$
-Accounts receivable, net


49,215



-Deferred contract costs


26,696



-Prepaid expenses


2,000



9,600Total current assets


79,907



9,600Property and equipment, net


3,206



5,354Intangible assets, net


212,206



213,112Other assets


-



625Total assets

$
295,319


$
228,691LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent liabilitiesBank overdraft

$
-


$
6,425Accounts payable


27,835



15,319Deferred revenue


49,215



-Accrued expenses


372,441



391,257Note payable


6,000



6,000Debenture payable - related party


-



281,401Loan & note payable - related parties


59,050



77,033Total current liabilities


514,541



777,435Stockholders’ DeficitPreferred stock, $.001 par value50,000,000 shares authorized, none issued


-



-Common stock, $.001 par value, 250,000,000 sharesauthorized, 139,874,296 and 1,723,808 issued and outstanding


139,874



1,724Additional paid-in capital


1,866,593



1,224,301Subscription receivable


(350
)


(350
)Deficit accumulated during the development stage


(2,225,339
)


(1,774,419
)Total stockholders’ deficit


(219,222
)


(548,744
)Total liabilities and stockholders' deficit

$
295,319


$
228,691








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








- 31 -





OptiCon Systems, Inc.(A Development Stage Enterprise)Statements of OperationsPeriod
October22, 2004For theYears Ended


(inception) toJune 30,


June 30,2009


2008



2009(unaudited)Net sales

$
-


$
-


$
-Cost of goods sold


-



-



-Gross profit


-



-



-Operating expensesSalaries and benefits


90,462



184,618



1,555,580Consulting services


217,200



130,800



418,498Other general and administrative


68,131



10,419



170,981Allocable software costs


-



-



(115,111
)Legal and accounting


60,000



30,500



153,363Operating loss


435,793



356,337



2,183,311Non-operating income (expense)Interest expense


(15,127
)


(15,705
)


(42,230
)Miscellaneous income


-



-



202(15,127
)


(15,705
)


(42,028
)Loss from operations before income taxes


(450,920
)


(372,042
)


(2,225,339
)Provision for income taxes


-



-



-Net loss

$
(450,920
)

$
(372,042
)

$
(2,225,339
)Net loss per shareBasic

$
(0.01
)

$
(0.22
)Diluted

$
(0.01
)

$
(0.22
).



.Weighted average common shares outstandingBasic


85,904,808



1,679,471Diluted


85,904,808



1,679,471








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





- 32 -





OptiCon Systems, Inc.(A Development Stage Enterprise)Statements of Changes in Stockholders’ DeficitAccumulated
DeficitCommon


Additional





During theShares


Stock


Paid-in
Capital


SubscriptionReceivable


DevelopmentStage


TotalBalance at October 22, 2004


-


$
-


$
-


$
-


$
-


$
-Issuance of common shares in exchange fororganization efforts


240,857



241



15,759



-



-



16,000Issuance of common shares inexchange for services


75,268



75



4,925



-



-



5,000Net (loss)


-



-



-



-



(21,000
)


(21,000
)Balance at June 30, 2005


316,125



316



20,684



-



(21,000
)


-Issuance of common shares in exchange forOpticon software and other assets


1,264,500



1,265



98,736



-



-



100,000Issuance of common stock purchasewarrants in exchange for services


-



-



17,999



-



-



17,999Net (loss)


-



-



-







(656,885
)


(656,885
)Balance at June 30, 2006


1,580,625



1,581



137,418



-



(677,885
)


(538,886
)Issuance of common stock purchasewarrants in exchange for services


-



-



16,499



-



-



16,499Net (loss)


-



-



-







(724,492
)


(724,492
)Balance at June 30, 2007


1,580,625



1,581



153,917



-



(1,402,377
)


(1,246,879
)Stock dividend


99,118



99



(99
)


-



-



-Issuance of common shares in exchangefor services


3,000



3



2,997



-



-



3,000Conversion of accrued expenses to common stock


-



-



1,042,827



-



-



1,042,827Sale of stock for cash


17,500



18



332



-



-



350Subscription receivable


17,500



17



333



(350
)


-



-Issuance of common shares in exchangefor services


6,000



6



23,994



-



-



24,000Discount on conversion feature of debenture


-



-



281,401



-



-



281,401Amortization of conversion feature of debenture


-



-



(281,401
)


-



-



(281,401
)Fractional shares issued


65



-



-



-



-



-Net (loss)


-



-



-



-



(372,042
)


(372,042
)Balance at June 30, 2008


1,723,808



1,724



1,224,301



(350
)


(1,774,419
)


(548,744
)Issuance of common shares on conversionof (2) debentures and accrued interest


68,330,134



68,330



273,322



-



-



341,652Issuance of common shares in exchangeof consulting services


400,000



400



5,450



-



-



5,850Issuance of common shares in exchange for services


1,000,000



1,000



39,000



-



-



40,000Discount on conversion feature of convertible note


-



-



203,000



-



-



203,000Amortization of conversion feature of convertible note


-



-



(203,000
)


-



-



(203,000
)Fractional shares issued


4



-



-



-



-



-Issuance of common shares in exchange for services


2,111,724



2,112



40,888



-



-



43,000Issuance of common shares on the conversionof (3) convertible promissory notes


12,000,000



12,000



48,000



-



-



60,000Issuance of common shares in exchange for services


226,626



226



5,774



-



-



6,000Issuance of common shares on the conversion of aconvertible promissory note


4,000,000



4,000



16,000



-



-



20,000Issuance of common shares in exchange for convertiblenotes and accrued interest


50,000,000



50,000



200,000



-



-



250,000Issuance of common shares in exchange for rent


82,000



82



13,858



-



-



13,940Net (loss)


-



-



-



-



(450,920
)


(450,920
)Balance at June 30, 2009


139,874,296


$
139,874


$
1,866,593


$
(350
)

$
(2,225,339
)

$
(219,222
)








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





- 33 -





OptiCon Systems, Inc.(A Development Stage Enterprise)Statements of Cash FlowsFor thePeriodFor the Years Ended


October 22,2004June 30 ,


(inception) to2009


2008


June 30, 2009(Unaudited)Cash Flows From Operating ActivitiesNet (Loss) from continuing operations

$
(450,920
)

$
(372,042
)

$
(2,225,339
)Adjustments to reconcile earnings from continuingoperations to net cash provided by operating activities:Depreciation and amortization


3,054



3,031



10,160Issuance of common stock in exchange for services


108,790



27,000



186,288Change in working capital components:Accounts receivable


(49,215
)


-



(49,215
)Prepaid expenses


7,600



(9,600
)


(2,000
)Deferred contract costs


(26,696
)


-



(26,696
)Bank overdraft


(6,425
)


6,425



-Accounts payable


12,516



(12,085
)


27,835Accrued expenses


280,338



190,246



1,714,422Deferred revenue


49,215



-



49,215Net cash (used) by operating activities


(71,743
)


(167,025
)


(315,330
)Cash Flows From Investing ActivitiesPurchase of property and equipment


-



(4,516
)


(7,460
)Capitalization of software development costs


-



-



(113,112
)Decrease (increase) in other assets


625



(625
)


-Net cash (used) in investing activities


625



(5,141
)


(120,572
)Cash Flows From Financing ActivitiesLoan payable


-



12,000



12,000Repayment of loan payable


-



(6,000
)


(6,000
)Proceeds from the sale of common stock


-



350



350Loan payable – Related parties


73,114



162,237



431,548Net cash provided by investing activities


73,114



168,587



437,898Net increase (decrease) in cash and cash equivalents


1,996



(3,579
)


1,996Cash And Cash EquivalentsBeginning of period


-



3,579



-End of the period

$
1,996


$
-


$
1,996SUPPLEMENTAL DISCLOSURES ON INTERESTAND INCOME TAXES PAID:Interest paid for the period

$
-


$
-


$
-Income taxes paid for the period

$
-


$
-


$
-SUPPLEMENTAL SCHEDULE OF NONCASH INVESTINGAND FINANCING ACTIVITIES:Issuance of common stock in exchange for promissorynotes, debenture and accrued interest

$
671,651


$
-


$
671,651Issuance of common stock in exchange for accounts payable

$
5,850


$
-


$
5,850Issuance of common stock for software and other assets

$
-


$
-


$
105,000Sale of stock subscription

$
-


$
350


$
350








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





- 34 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009





1. History of the Company and Basis of Presentation





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:





(a) 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 FutureWorld Energy, Inc. (formerly Isys Medical,
Inc.), a publicly traded company, at which time, the Company became a wholly owned subsidiary of Isys Medical.





FutureWorld Energy, Inc. (“FutureWorld”), OptiCon Systems’ parent company, announced its intention to spin off OptiCon through by the payment of a stock dividend.  In connection with the proposed spin off, Opticon’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 Opticon Systems’ stock for every two shares they own of FutureWorld.  As of that date, Opticon Systems ceased being a subsidiary of FutureWorld.





(b) Development Stage Enterprise





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





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





2.  Summary of Significant Accounting Policies





(a) Basis of Accounting





The Company maintains its financial records and financial statements on the accrual basis of accounting, in conformity with generally accepted accounting principles in the United States of America. The accrual basis of accounting provides for matching of revenues and expenses in the period they were earned and incurred.





(b) 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.


- 35 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








Revenue associated with software sales to distributors is recognized, net of discounts, when the Company has performed substantially all its obligations under the arrangement.  Until such time as substantially all obligations under the arrangement are met, software sales are recognized as deferred revenue.  Costs and expenses
associated with deferred revenue are also deferred.  When a software sales arrangement includes a commitment to provide training and/or other services or materials, the Company estimates and records the expected costs of these training and/or other services and/or materials.





(c) Cash and Cash Equivalents





For purposes of reporting cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.  The Company classifies outstanding checks in excess of funds on deposit as bank overdraft and reduces cash and cash equivalents when these checks clear the bank
on which they were drawn. Outstanding checks in excess of funds on deposit recorded as bank overdraft were $6,428 at June 30, 2008, none at June 30, 2009.  The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.





(d) Fair Value of Financial Instruments


The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:


●
Cash and Cash Equivalents, Accounts Receivable, Deferred Contract Costs, Prepaid Expenses, Bank Overdraft,  Accounts Payable, Deferred Revenue and  Accrued Expenses:●
The carrying amount reported in the balance sheets for these items approximates fair value because of the short maturity of these instruments.

Notes Payable and Loans and Notes Payable to Related Parties:The carrying value of notes payable and loans and notes payable to related parties approximates fair value as each of the notes payable carries an interest rate commensurate with commercial borrowing rates available to the Company.


As of June 30, 2009 and 2008, the fair values of the Company’s financial instruments approximate their historical carrying amount.


(e) Property & Equipment and Depreciation





Property and equipment are recorded at historical cost. Depreciation is computed on the straight-line method over estimated useful lives of the respective assets, ranging from three 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, 2009 and 2008.





(f)   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.


- 36 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








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.  Capitalized software costs at June 30, 2009 and 2008 amounted to $212,206 and $213,112 respectively.  Amortization of the software costs
amounted to $901 and $0 for years ending June 30, 2009 and 2008 respectively.





(g) 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 June 30, 2009 and 2008.





(h) Stock Based Compensation





On January 1, 2006, the Company adopted Statements of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R))”.  In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R).
The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).





The Company adopted SFAS 123(R) using the modified prospective transition method. The Company’s financial statements as of and for the years ended June 30, 2009 and 2008 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s financial statements for prior periods have not
been restated to reflect, and do not include, the impact of SFAS 123(R).  Stock-based compensation expense recognized under SFAS 123(R) for employee and directors for the years ended June 30, 2009 and 2008 was $108,790 and $27,000 respectively.





SFAS 123(R) requires companies to estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model. For stock-based awards issued to employees and directors, stock-based compensation is attributed to expense using the straight-line single option method, which is consistent
with how the prior-period pro-forma were provided.   Stock-based compensation expense recognized in the Statements of Operations for the years ended June 30, 2009 and 2008 included compensation expense for share-based payment awards granted prior to, but not yet vested based on the grant date fair value estimated in accordance with the pro-forma provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to January 1, 2006 based on the grant date fair
value estimated in accordance with the provisions of SFAS 123(R).





The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant using the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited
to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.





(i) Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


- 37 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








(j) Income Taxes





The Company records federal and state income tax liability in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109 – Accounting for Income Taxes.  Deferred income taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax credit carry forwards, and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.





In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized in the financial statements when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold
at the effective date to be recognized upon the adoption of FIN No. 48 and in subsequent periods. This interpretation also provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.





In May 2007, the FASB issued FASB Staff Position FIN 48-1, Definition of a Settlement in FASB Interpretation No. 48 ("FSP FIN 48-1"). FSP FIN 48-1 provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. In determining whether a tax position has been effectively settled, entities must evaluate (i) whether taxing authorities have completed their examination procedures; (ii) whether the entity intends to appeal or litigate any aspect of a tax position included in a completed evaluation; and (iii) whether it is remote that a taxing authority would examine or re-examine any aspect of a taxing position. FSP FIN 48-1 is to be applied upon the initial adoption of FIN 48.





The Company adopted the provisions of FIN No. 48 on January 1, 2007 with no cumulative effect adjustment required. The Company believes that their income tax filing positions and deductions will be sustained upon examination and, accordingly, have not recorded any reserves, or related accruals for interest and penalties, at
June 30, 2009 or 2008 for uncertain income tax positions pursuant to FIN No. 48. In accordance with FIN No. 48, the Company adopted a policy under which, if required to be recognized in the future, they will classify interest related to the underpayment of income taxes as a component of interest expense and will classify any related penalties in selling, engineering, general and administrating expenses in the statement of operations.





(k) Advertising Costs





Advertising costs are charged to operations as incurred.





(l) 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.


- 38 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








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.





Effective June 10, 2008, the Board of Directors approved a 1-for-20 reverse stock split.  All references to common shares have been retroactively adjusted for the reverse stock split.





(m)Impact of Recently Issued Accounting Pronouncements





In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157 Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expanded disclosures about fair value measurements.
The adoption of the applicable provisions of SFAS 157 on July 1, 2008 did not have an impact on the Company’s financial statements.    SFAS 157 provides an exception of the application of the statement to the determination of fair value of nonfinancial assets and liabilities that are recognized or disclosed on a nonrecurring basis, which is effective for fiscal years beginning after November 15, 2008.  The Company is evaluating the effect that adoption of the remaining provisions
of this statement will have on its financial statements.





In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13”.  FSP 157-1 provides a scope exception from FASB No. 157, “Fair Value measurements” for the evaluation criteria on lease classification and capital lease measurement under FASB No. 13, Accounting for Leasesand other related accounting pronouncements. The Company does not have any capital leases, accordingly, the Company did not apply
the provisions of FSB 157-1.





In February 2008, the FASB issued FASB Staff Position 157-2 (FSP 157-2), which delayed the effective date by which companies must adopt the provisions of SFAS 157.  FSP 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company is evaluating
the effect that adoption of the remaining provisions of this statement will have on its financial statements.





In October, 2008, the FASB issued Staff Position 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP 157-3).  FSP 157-3 became effective upon issuance and clarifies the application of Statement 157 in a market that is not
active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.  The adoption of FSP 157-3 did not have an impact on the Company’s financial statements.





In December 2007, the FASB issued SFAS 160, Noncontrolling Interest in Consolidated Financial Statements.This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for
the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Early adoption is prohibited.  The Company expects to implement SFAS 160 on July 1, 2009, but does not believe the adoption of the Statement will have a material impact on its financial statements.


- 39 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








In December 2007, the FASB issued SFAS 141R,Business Combinations, which replaces SFAS 141. This Statement applies to all transactions or other events in which an entity obtains control of one or more businesses and requires that all assets and liabilities of an acquired business
as well as any noncontrolling interest in the acquiree be recorded at their fair values at the acquisition date. Among other things, SFAS 141R requires the expensing of direct transaction costs, including deal costs and restructuring costs as incurred.  Contingent consideration arrangements are to be recognized at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings. Pre-acquisition contingencies will also typically be recognized at their acquisition date
fair values. In subsequent periods, contingent liabilities will be measured at the higher of their acquisition date fair values or the estimated amounts to be realized. In addition, material adjustments made to the initial acquisition purchase accounting will be required to be recorded back to the acquisition date. This will cause companies to revise previously reported results when reporting comparative financial information in subsequent filings. The Statement is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management does not expect that SFAS 141R would have an impact on the Company’s financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions the Company may consummate after the effective date.





On January 1, 2008, FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. SFAS 159 permits entities to elect to measure eligible financial instruments at fair value at specified
election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  This statement became effective for the Company’s current fiscal year.  The Company did not elect the fair value option, therefore, the adoption of the Statement did not have an impact on its financial statements.





In March 2008, the FASB issued SFAS 161,Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.   The Statement establishes enhanced disclosures about how and why an entity uses derivative instruments, how derivative
instruments and related hedged items are accounted for under SFAS 133,Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. The Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company expects to implement SFAS 161 on July 1,  2009, but do not believe the adoption of the Statement will have a material impact on the Company’s financial statements.





Effective April 1, 2008, the Company adopted EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used
or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. The adoption of EITF 07-3 did not have a material impact on the Company’s financial statements.





- 40 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








In April 2008, the FASB issued FASB Staff Position 142-3,Determination of the Useful Life of Intangible Assets, (FSP 142-3) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible
asset under SFAS 142,Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under FASB 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. generally accepted accounting principles. FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years and early adoption is prohibited. The Company expects to implement FSP 142-3 on July 1, 2009.   Management expects that FSP 142-3 could have an impact on the Company’s future financial statements when effective, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of the acquisitions, if any, the Company consummate after the effective date.





In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental entities. The new standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect that the adoption of SFAS 162 to have a material impact on its financial statements.





In May 2008, FASB issued Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(FSP APB 14-1).  This FSP APB 14-1 specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all periods presented.  Early adoption is not permitted.  The Company expects to implement APB 14-2 on July 1, 2009,
but does not believe the FSP APB 14-1 would have a material impact on the Company’s financial statements.





In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). This FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 becomes effective for the Company on July 1, 2009. The Company does not expect that the adoption of FSP EITF 03-6-1 will have a material impact on the Company’s financial statements.




- 41 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009










In May 2009, the FASB issued SFAS 165, Subsequent Events.The objective of this Statement is to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In
particular, this Statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. In accordance with this Statement, an entity should apply the requirements to interim or annual financial periods ending after June 15, 2009. The Company has adopted the disclosure requirements of SFAS 165 for the year ended June 30, 2009 through September 30, 2009.




In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 provides for the FASB Accounting Standards Codification (the
“Codification”) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification did not change GAAP but reorganizes the literature. SFAS 168 is effective for interim and annual periods ending after September 15, 2009.





Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements.





3.  Going Concern





For the year ended June 30, 2009, the Company incurred a loss of $450,920.  For the period October 22, 2004 (date of inception) through June 30, 2009, the Company incurred a cumulative net loss of $2,225,339.  At of June 30, 2009, the Company had negative working capital of $434,634, and $1,996 in cash with which to satisfy
any future cash requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company depends upon capital to be derived from future financing activities such as loans from its officers and directors, subsequent offerings of its common stock or debt financing in order to operate and grow the business. There can be no assurance that the Company will be successful in raising such capital. The key factors that are not within the Company's control and that
may have a direct bearing on operating results include, but are not limited to, acceptance of the Company’s business plan, the ability to raise capital in the future, to continue receiving funding from its officers, directors and shareholders, the ability to expand its customer base, and the ability to hire key employees to grow the business. There may be other risks and circumstances that management may be unable to predict.





4. Purchase of Assets





Effective July 26, 2005, the Company consummated an agreement with FutureTech, LLC to purchase all rights, title and interest in the OptiCon Network Manager, a fiber optic network management software system, certain computer equipment and the OptiCon trademark (“Acquired Assets”) in exchange for the issuance of 1,264,500 shares
(after the reverse stock splits of April 4, 2006 and June 10, 2008) of its common stock.  After the exchange, FutureTech owned eighty-four percent of the Company's issued and outstanding common stock.  The agreement became effective upon FutureTech purchasing the Acquired Assets from Corning Cable Systems, LLC in exchange for $100,000 in cash.


- 42 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








The Company recorded the purchase of the Acquired Assets at $100,000, in accordance with SFAS No. 153 - Exchanges of Non-monetary Assets, and SEC Staff Accounting Bulletin No. 48 Topic 5-G, which generally requires that non-monetary assets exchanged by promoters or shareholders for all
or part of a company’s common stock be recorded at the transferor’s historical cost basis determined under generally accepted accounting principles. The purchase price was allocated as follows:





OptiCon fiber optic management software

$
89,000Computer equipment


5,000Collateral documentation related to the software


5,000Trademarks


1,000$
100,000




5.  Property and Equipment




Property and equipment at June 30, 2009 and 2008 consist of the following:


2009


2008Computer equipment

$
8,587


$
8,587Software


3,873



3,87312,460



12,460Accumulated depreciation


9,254



7,106Net

$
3,206


$
5,354




For the years ended June 30, 2009 and 2008, and for the period from October 22, 2004 (inception) to June 30, 2009, the total depreciation expense charged to operations totaled $2,148, $3,031, and $9,254, respectively.




6.   Intangible Assets





Intangible assets consist of the following at June 30, 2009 and 2008 are summarized as follows:


2009


2008Opticon fiber optic management software

$
212,112


$
212,112Trademarks


1,000



1,000213,112



213,112Less: Amortization


906



-$
212,206


$
213,112





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, although no sales have been made.


- 43 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








During the years ended June 30, 2009 and 2008, the Company did not allocate any direct labor costs, and indirect costs and expenses to this effort.  Amortization of the capitalized software costs begins 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.  At June 30, 2009, the R4 software system was not yet completed.





7.   Accrued Expenses





Accrued expenses at June 30, 2009 and 2008 were as follows:





2009


2008Accrued Salaries

$
124,167


$
269,167Accrued Vacations


17,835



25,374Payroll Tax Liabilities


43,789



29,982Accrued Consulting


109,150



56,400Accrued Legal


45,000



-Accrued Software Training


20,000



-Accrued Commissions


5,790



-Accrued Interest


6,710



10,334$
372,441


$
391,257


8.   Related Parties Disclosures





(a) Employment Agreements





Saed (Sam) Talari





Effective August 1, 2005, the Company entered into a two-year employment agreement with Saed (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, 2009.  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 of 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 5, 2007, the Company agreed to convert $40,000 of accrued salaries into a convertible promissory note due October 5, 2009.  The note is convertible into the Company’s common stock at the lower of 50% discount to the lowest recorded year end closing price or $.005 per share.  On October 5, 2007, Mr. Talari
assigned the promissory note to Market Solutions Limited, Inc., an unrelated entity, for services provided by them unrelated to the business of the Company.  On November 14, 2008, the Company agreed to convert $20,000 of the $40,000 note held by Market Solutions into 4,000,000 shares of the Company’s common stock.  On January 2, 2009, the Company agreed to convert the remaining $20,000 note held by Market Solutions into an additional 4,000,000 shares of the Company’s common stock.





On September 30, 2008, the Company agreed to convert accrued salaries of $189,000 and accrued vacation pay of $14,000 due to Sam Talari into a 5% convertible promissory note in the amount of $203,000 due June 30, 2009.  The note is convertible into shares of the Company’s common stock at a 50% discount to the lowest recorded
year closing or $.005 per share.  The Company recorded a discount due to the beneficial conversion feature of the convertible note in the amount of $203,000, and a corresponding amortization of the discount in the same amount.


- 44 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








On November 13, 2008, the Company agreed to split the $203,000 note into two (2) notes of $20,000 each, and one note of $163,000 under the same terms and conditions.  On November 18, 2008, the Company agreed to convert the two (2) notes of $20,000 into 8,000,000 shares of the Company’s common stock at $.005 per share.





Sadruddin Currimbhoy





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 of the starting date,
and (c) all group insurance plans and other benefit plans and programs made available to the Company’s management employees.  Mr. Currimbhoy had taken a leave of absence and on November 21, 2008 resigned as Chief Executive Officer.





As of June 30, 2009 and 2008, the accrued compensation under the employment agreements was $124,167 and $269,167 respectively.  Additionally, as of June 30, 2009 and 2008, the Company also accrued vacation pay under employment agreements in the amount of $17,835 and $25,374 respectively.





(b) Consulting Agreements and Stock Issuances





Cristino L. Perez





On October 1, 2007, the Company entered into a one-year consulting agreement with Mr. Cristino L. Perez, the Company’s Chief Financial Officer in exchange for a cash payment of $2,000 per month, and 6,000 shares of the Company’s common stock valued at $24,000.  The Board approved the value of the stock issued.





Effective October 1, 2008, upon termination of the initial one-year consulting agreement, the Company entered into a second one-year consulting agreement with Mr. Perez, the Company’s Chief Financial Officer.  The Agreement provides for (1) a cash payment of $3,000 per month, and (2) $12,000 is payable in the form of the Company’s
common stock at a 20% discount to the average bid and ask value during the 5 days preceding the end of each month.  For years ended June 30, 2009 and 2008 respectively, the Company agreed to issue Mr. Perez a total of 190,580 and 6,000 shares of the Company’s common stock in exchange for services.  These services were valued at $9,000 and $24,000 respectively, for the years ended June 30, 2009 and 2008, respectively.  The Board approved the value of the stock issued.  Although
Mr. Perez has the option to receive common stock in lieu of the cash payment at a 20% discount to the average bid and ask value during the 5 days preceding the end of conversion, he has not exercised this option.





On September 19, 2008, the Company agreed to convert accrued consulting fees of $5,850 due to the Company’s CFO into 400,000 shares of the Company’s common stock at the rate of $.014625 per shares which corresponds to a 40% discount to the average bid and ask market price over the previous 5 days.





On November 24, 2008, the Company issued Mr. Perez 1,000,000 shares of common stock in exchange for services related to his efforts in developing business relationships, and arranging strategic alliances with companies in South Africa on behalf of the Company, These services were valued at $20,000.  The Board approved the value of
the stock issued.


- 45 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








Paul Lisenby





On November 20, 2008, the Company issued Mr. Lisenby, one of the Company’s directors, 1,000,000 shares of common stock in exchange for services related to his efforts assisting Mr. Perez, our CFO, in developing business relationships, and arranging strategic alliances with companies in South Africa on behalf of the Company, These services
were valued at $20,000.  The Board approved the value of the stock issued.





(c)  Loan from Related Parties





On September 6, 2005, Mr. Sam Talari, one of the Company’s directors, agreed to make advances to the Company as an interim unsecured loan for operational capital up to a maximum of $350,000, evidenced by a master promissory note, 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 in the aggregate amount of $281,401.  On July 1, 2008, the Company agreed to change the conversion feature of the debenture to 50% discount to the lowest recorded
year closing price or $0.005 per share.  The Company recorded a discount due to the beneficial conversion feature of the debenture in the amount of $281,401, and a corresponding amortization of the discount in the same amount. On July 1, 2008, Mr. Talari exercised the principal amount of his convertible debenture and a portion of the accrued interest totaling $281,632 into 56,326,560 shares of the Company’s common stock.





On July 2, 2008, the Company agreed to convert the remaining accrued interest of the debenture dated December 15, 2007 and a portion of outstanding amount of the master promissory note and accrued interest thereon in the aggregate amount of $60,019 into a 5% convertible debenture due December 31, 2008.  The debenture was convertible
into shares of the Company’s common stock at a 50% discount to the lowest recorded year closing or $.005 per share.  On August 7, 2008, Mr. Talari exercised the principal amount of his convertible debenture of $60,019, dated July 2, 2008 into 12,003,734 shares of the Company’s common stock.





On May 13, 2009, the Company agreed to convert the principal amount of a $163,000 convertible promissory note dated September 30, 2008, plus accrued thereon of $5,292, and $78,694 principal amount of the $350,000 master promissory note with a balance of $99,583, plus accrued interest thereon of $3,014 due to Mr. Sam Talari, the Company’s
acting Chief Executive Officer, into 50,000,000 shares of the Company’s common stock.  The convertible and the master promissory notes are convertible into shares of the Company’s common stock at 50% discount to the lowest recorded year closing price or $0.005.





Since the issuance of the unsecured $350,000 master promissory note, and subsequent to the conversion of a portion of this debt on May 13, 2009, and other conversions, and Mr. Talari continued making advances to the Company on the loan, of which $51,248 and $68,408 remains outstanding at June 30, 2009 and 2008 respectively.  In addition,
the Company has accrued interest on this loan in the amount of $300 and $1,257 at June 30, 2009 and 2008 respectively.





During the year ended June 30, 2008, FutureWorld Energy, Inc. (formerly Isys Medical), OptiCon’s former parent company, paid expenses on behalf of the Company and made cash advances.  Most of these expenses were paid, and the advances made, by FutureWorld Energy at the time OptiCon was still a subsidiary, and are included in Loan
& Note Payable – Related Partieson the balance sheet. At June 30, 2009 and 2008, the amount owed to FutureWorld Energy on this promissory note was $7,802 and $8,625 respectively, and has accrued interest of $31 and $1,040 respectively.


- 46 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








9.   Change in Management





November 21, 2008, Mr. Sadruddin Currimbhoy resigned his position as Chief Executive Officer and director of the Company, and Derek Haake had resigned his position as Secretary and director of the Company effective August 19, 2007.  On November 21, 2008, Mr. Sam Talari was elected Acting Chief Executive Officer and director, Mr.
Cristino L. Perez was elected Secretary and director, and Paul D. Lisenby was elected director of the Company.





10.   Stock Issuances





On February 9, 2009, the Company agreed to issue its corporate counsel an additional 147,500 in exchange for prior legal services provided to the Company.  The Company had previously agreed to issue its corporate counsel 2,500 shares of the Company’s common stock.   The Company had recorded the value of the original
services, no further services were recorded due to the additional issuance.





On May 22, 2009, the Company issued 82,000 shares of the Company’s common shares to the owners of the building where the Company maintains its corporate office in exchange for rent, which the Company owed to Muse River Corporation, from whom the Company sub-leases its corporate offices.





11.   Consulting Agreement and Stock Issuance





(a)  Keith Jablon





On May 9, 2008, the Company entered into a six-month Consulting Agreement with Keith Jablon, an unrelated individual, in exchange for a cash payment of $12,000 to provide marketing related services in connection with our R3 management software system.  The Agreement was terminated by the Company after 5 months, effective November
8, 2008.  The Consultant had the option to receive the cash payment under the Agreement in the form of common stock, subject to an S-8 registration, at a 20% discount to the five average closing bid price, prior to his notice to exercise the option.  Mr. Sam Talari made payments to Mr. Jablon on behalf of the Company, in the form of common stock of the Company personally owned by Mr. Talari, covering the first three months of services under the Agreement.  The Company remains liable
to Mr. Jablon for two months of service under the Agreement.





The Consultant was also granted the option to purchase $12,000 per month worth of common stock, subject to an S-8 registration at a 40% discount to the average 10-day closing bid price prior to his notice to exercise.  The options are cumulative and expire, if not exercised within six months of the date of the last option received.  These
options were not exercised, therefore, they expired on May 8, 2009.





The Consultant was also to receive a 10% commission on all products through channels he introduced to the Company during the term of the agreement, and for one year after the termination of the Agreement, and 5% in kind on all consideration paid by the Company for any mergers or acquisitions that the Consultant is instrumental in finding or
facilitating.  To date, the Company has not had revenue from sources introduced by Mr. Jablon.


- 47 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








(b)  First Level Capital





On July 31, 2008, the Company entered into a six-month Consulting Agreement with First Level Capital, Inc., an unrelated company, to provide investment banking services in exchange for 2,000,000 shares of the Company’s restricted common stock.  One-half of the shares were to be paid 14 days and 60 days after execution of the
Agreement, respectively.  The Company issued 1,000,000 shares subsequent to signing the agreement.  The second 1,000,000 had not yet been issued.   Subsequently, the Company has advised the Consultant that due to lack of proper and adequate public relations services by the vendor, the Company was not able to obtain investment from any sources, and therefore, the Company has cancelled the agreement due to contractual default and has made demand of the Consultant for the return
of the 1,000,000 shares issued to them.  To date these shares have not been returned.  The Company is presently negotiating a service agreement with First Level Capital which will involve for the payment in shares comprising of part or all the 1,000,000 shares.





(c)  Philip Johnston





Effective October 16, 2008, the Company entered into a six-month Consulting Agreement with Philip Johnston, an unrelated individual, in exchange for 4 million non-legend shares of the Company’s common stock.  The Consultant would provide services to the Company on a non-exclusive basis, including business modeling and strategies,
strategic alliances, increase exposure of the Company’s R-3 software management system in the U.S. and Canada, and other business and consulting services.  The Company agreed to file a registration statement with the Securities and Exchange Commission on Form S-8 to register the 4 million shares on behalf of the Consultant.  Subsequently, the Company and the Consultant agreed to cancel the Agreement, and no shares were issued.





12.   Stock Options and Warrants





On December 2, 2005, the Company granted two unrelated individuals Series A Warrants to purchase 2,192 shares, at an adjusted average exercise price of $34.60.  All of the Warrants expire on November 11, 2011.  All of the Warrants granted were non-qualified fixed price warrants.





The following table summarizes the activity related to the stock purchase warrants and options for the period from October 22, 2004 (inception) to June 30, 2009:


- 48 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009






Shares


(a) (b)Exercise Priceper Share


Weighted AverageExercise Priceper ShareWarrants


Options (c)


Warrants


Options


Warrants


OptionsBalance at October 22, 2004


–



–



–



–



–



–Granted


–



–



–



–



–



–Exercised


–



–



–



–



–



–Canceled or expired


–



–



–



–



–



–Outstanding at June 30, 2005


–



–



–



–



–



–Granted


541



–


$
73



–


$
35


$
–Exercised


–



–



–



–



–



–Canceled or expired


–



–



–



–



–



–Outstanding at June 30, 2006


541



–



73



–



35



–Granted


1,651



–



22



–



35



–Exercised


–



–



–



–



–



–Canceled or expired


–



–



–



–



–



–Outstanding at June 30, 2007


2,192







–



–



35



–Granted


–



1,134,365



–



0



–



0Exercised


–



–



–



–



–



–Canceled or expired


–



–



–



–



–



–Exercisable at June 30, 2008


2,192



1,134,365



-



(0
)


35



0Granted


–



597,947



–



(0
)


–



0Exercised


–



–



–



–



–



–Canceled or expired


–



(1,732,312
)


–



(.05
)


–



(0
)Exercisable at June 30, 2009


2,192



-


$
–


$
-


$
35


$
-


(a)
Using the Black-Scholes-Merton option pricing model, management determined that the warrants originally issued on December 2, 2005 had a calculated value of $0.50 per share.  The following are the weighted average assumptions for warrants granted:  Dividend rate of 0%; risk-free interest rate of 5%; expected lives of five
years; and expected price volatility of 400%.(b)
As described in the consulting agreement, Mr. Keith Jablon, an unrelated individual, was granted the option to purchase $12,000 in common stock each month, subject to an S-8 registration at a 40% discount to the average 10-day closing bid price prior to his notice to exercise.   Using the Black-Scholes-Merton option pricing
model, management determined that the grant-date value was $12,000 per month, which was recorded as consulting expense.  The number of shares underlying the grants was determined using the option pricing model.  These options were cumulative and expire, if not exercised within six months of the date of the last option received.  All these options were not exercised and expired on May 8, 2009.(c)
The following are the weighted average assumptions for the options granted to Mr. Jablon:  Dividend rate of zero percent; risk-free interest rate of 2.98%; expected lives of six months; and expected price volatility varying monthly from 442% to 510%.





- 49 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








13.  Stock Option Plan





On October 22, 2004, the Company adopted a 2004 Non-statutory Stock Option Plan (“Option Plan”) for the benefit of its key employees (including officers and employee directors), consultants and affiliates. The Option Plan is intended to provide those persons who have substantial responsibility for the management and growth of the
Company with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, encouraging them to continue in employment.





The Board of Directors authorized 60,214 shares of the Company's common stock to be set aside, which may be issued under the Option Plan.  As of June 30, 2009 and 2008, no shares have yet been issued under the Option Plan.




14.  Income Taxes




Income tax benefit resulting from applying statutory rates in jurisdictions in which the Company is taxed (Federal and State of Florida) differs from the income tax provision (benefit) in our financial statements.  The following table reflects the reconciliation for the years ended June 30, 2009 and 2008:
   Year Ended June 30,2009


2008Federal at federal statutory rate


(34.00
)%


(34.00
)%State, net of federal deduction


(3.30
)%


(3.96
)%Change in valuation allowance


37.3
%


37.96
%Effective tax rate


0.00
%


0.00
%


There is no current or deferred income tax expense or benefit allocated to continuing operations for the years ended June 30, 2009 and 2008 or for the period October 22, 2004 (date of inception) through June 30, 2009.





The income tax provision differs from the amount of tax determined by applying the federal statutory rate as follows:


Year Ended June 30, 2009


Year Ended June 30, 2008


Period
October 22, 2004
(inception)
through
June 30, 2009Income tax benefit at statutory rate

$
(156,756
)

$
(126,495
)

$
(773,607
)Increase (decrease) in income taxes due to:Change in valuation allowance


156,756



126,495



773,607All other


-



-



-






- 50 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








Net deferred tax assets and liabilities were comprised of the following:


Year Ended
June 30, 2009


Year Ended
June 30, 2008


Period
October 22, 2004 (inception)
through
June 30, 2009Deferred tax asset (liability), current:Accounts receivable

$
17,109


$
-


$
17,109Deferred costs


9,280



-



9,280Accrued salaries


43,165



92,858



43,165Accrued vacation pay


6,200



26,915



6,200Payroll tax liabilities


3,498



4,329



3,498Deferred revenue


17,109



-



17,109Accrued consulting fees


37,944



-



37,944Other accrued expenses


26,942



-



26,942Prepaid expenses


-



3,264



-Valuation allowance


(161,247
)


(127,367
)


(161,247
)$
-


$
-


$
-Deferred tax asset (liability), non-currentNet operating loss

$
( 3,829
)

$
( 107
)

$
613,022Property and equipment


(662
)


(765
)


(662
)Valuation allowance


4,491



872



(612,360
)$
-


$
-


$
-





The Company has not recognized an income tax benefit for its operating losses generated through June 30, 2009 or 2009 based on uncertainties concerning the Company’s ability to generate taxable income in future periods.  The tax benefit is offset by a valuation allowance established against deferred tax assets arising from
operating losses and other temporary differences, the realization of which could not be considered more likely than not.  In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not.





For income tax purposes the Company has available a net operating loss carry-forward of $720,579 from inception to June 30, 2009, which will expire, unless used to offset future federal taxable income through 2024.





15.  Commitments and Contingencies





(a) Agency and Sales Representative Agreements





On November 23rd., 2008, the Company signed an Exclusive Business Agent agreement with Develco cc, a South African corporation to recruit non-exclusive sales representatives, master re-sellers of the Company’s  software, and licensed agents to represent
the Company in the country.  Develco introduced the Company to Mfumo Networking Solutions.


- 51 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








Effective February 10, 2009, the Company signed an Exclusive Agency Agreement with Mfumo Networking Solutions cc, a South Africa closed corporation, to provide data services to customers, and, and to assist the Company in developing a customer base for the Company’s  OptiCon Network ManagerTM software in South Africa.  Mfumo
Networking is a leading telecommunications integrator company in South Africa focusing within the Information Technology and Telecommunications environment, with personal and business relationships with governmental and municipal agencies as well as private enterprises.





The term of the Agency Agreement is for 24 months, and is automatically renewable for additional 12-month periods under terms and conditions to be negotiated by both parties.   The Agreement required Mfumo Networking to purchase 10 software licenses totaling $49,215, net of a commission allowance of $8,685.  The sale
of these licenses have been reflected as deferred revenue in the accompanying financial statements. The Company is also required under the Agreement to provide training and other services to Mfumo.  The estimated costs associated with the agreement have been recorded as deferred contract costs. The Agreement also requires Mfumo to pay the Company a 10% royalty fee on data services and professional service revenue generated from customers using the Company’s software.  No professional
services have been provided to date.





On February 10, 2009, the Company also signed an Exclusive Sales Representative Agreement with Mfumo Networking Solutions to sell the Company’s  OptiCon Network ManagerTM software to governmental agencies and non-exclusive to non-governmental enterprises in South Africa.  In addition to Mfumo, the Company has
signed two other Non-Exclusive Sales Representative Agreements to sell our software in South Africa.   All sales representative agreements are for a one-year period.  Under the agreements the Company has agreed to pay a total sales commission of 25% to be apportioned among the Business Agent and the sales representatives.





(b) Lease/Rental Agreements





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.  After termination of the initial term, the lease was extended on a month-to-month basis through November 2008.





On November 18, 2008, the Company entered into a 2-year commercial sub-lease agreement for our executive offices in St. Petersburg, Florida at a rental of $2,000 per month with Muse River Corporation, a related party, of whom Sam Talari, our Acting Chief Executive Officer has a 50% ownership interest.





Rent expense for the years ended June 30, 2009, and 2008, and for the period from October 22, 2004 (date of inception) through June 30, 2009 amounted to $22,459, $8,528 and $44,444 respectively.





16.  Subsequent Events





Effective August 1, 2009, the Company entered into a new three-year employment agreement with Saed (Sam) Talari, our Acting Chief Executive Officer.  The agreement is automatically renewed for an additional one-year period.  The Agreement provides for (a) a base salary of $15,000 per month, (b) four weeks vacation within
one year of the starting date, and (c) all group insurance plans and other benefit plans and programs made available to the Company’s management employees.


- 52 -


OptiCon Systems, Inc.


(A Development Stage Enterprise)


Notes to Financial Statements


For the Years Ended June 30, 2009 and 2008 and the Period October 22, 2004


(Date of Inception) through June 30, 2009








On August 1, 2009, the Company terminated its lease agreement with Muse River Corporation, and entered into a 2-year commercial lease with Caroline DeVale, an unrelated individual, to rent approximately 1,700 square feet of executive offices and computer center in St. Petersburg, Florida at rent of $1,804 a month.





On August 11, 2009, the Company organized Infrax Systems SA (Pty) Ltd., a South African company, as a wholly owned subsidiary.





On August 12, 2009, the Company organized PowerCon Energy Systems, Inc., a Nevada corporation, as a wholly owned subsidiary.











- 53 -





Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure





NONE





Item 9A.  Controls and Procedures.





Not applicable.





Item 9A(T).  Controls and Procedures





As of June 30, 2009 we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. This evaluation was done under the supervision and with the participation of our management, including our President and Chief Financial Officer. Based on this evaluation
of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15e), our President and Chief Financial Officer have concluded that as of June 30, 2009 such disclosure controls and procedures were not effective.





·
We do not have adequate personnel and other resources to assure that significant and complex transactions are timely analyzed and reviewed.·
We have limited personnel and financial resources available to plan, develop, and implement disclosure and procedure controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and forms.·
Our limited financial resources restrict our employment adequate personnel needed and desirable to separate the various receiving, recording, reviewing and oversight functions for the exercise effective control over financial reporting.·
Our limited resources restrict our ability to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.





Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and provide reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.





Pursuant to Rule 13a-15d of the Exchange Act, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (1992) and Internal
Control Over Financial Reporting Guidance for Smaller Public Companies (2006), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of June 30, 2009


- 54 -





This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the company to provide only management’s report in this annual report.





Changes in Controls and Procedures





There were no significant changes made in our internal controls over financial reporting during the year ended June 30, 2009 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.





Limitations on the Effectiveness of Internal Control





Our management, including the President, 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, 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 the likelihood of future events, and there can be 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/or 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.





Item 9B.  Other Information





Not applicable.








PART III





Item 10.   Directors, Executive Officers and Corporate Governance





The following table identifies our directors and executive officers, their ages, the positions each holds and, if a director, the first year he became a director.





Name

Age

Position(s)

Director sinceSaed (Sam) Talari

47

Acting Chief Executive Officer and Director

2004Cristino L. Perez

65

Chief Financial Officer, Secretary and Director

2008Paul D. Lisenby

49

Director

2008





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Saed (“Sam”) Talari has been one of our directors since 2004.  Mr. Talari became our Chairman on June 1, 2008, and our Acting Chief Executive Officer on November 21, 2008.  Mr. Talari’s employment during the five year period prior to this annual
report, and for certain years before that period, is as follows:







●
1994 – 1999 – Mr. Talari ran Compusite Corporation, one of the first Internet solutions providers in the nation to offer large spectrum of value added services to companies seeking greater presence on the Internet. He assisted Compusite to grow from no revenue to a multi-million dollar company.


●
1999 to Present – Mr. Talari founded FutureWorld Energy, Inc., (formerly Isys Medical, Inc.) and serves since inception as one of FutureWorld Energy’s directors. FutureWorld Energy is a diversified energy holding company, owning and seeking disrupted technologies in the renewable and alternative energy industry globally.


●
2001 to Present – Mr. Talari founded and manages FutureTech, a venture capital firm that invests in high technology start up enterprises.





Mr. Talari attended the University of New Hampshire, where he studied computer science and mathematics. He earned a bachelor’s degree from the University of Massachusetts at Lowell in computer science, engineering and mathematics and took master studies in finance.





Cristino L. Perez has been our Chief Financial Officer on a part-time basis since January 1, 2007.  Mr. Perez became Secretary and one of our directors on November 21, 2008.  Mr. Perez’ employment during the five year period prior to this annual report, and
for certain years before that period, is as follows:





●
October 1999 to June 2002 – Mr. Perez was employed by Baumann, Raymondo & Company, P.A., Certified Public Accountants, with primary responsibilities for development of accounting and auditing services to small publicly held enterprises.●
October 2001 to September 2003 – Mr. Perez was on part-time basis a Chief Financial Officer, Secretary, Treasurer and Director of Resolve Staffing, Inc., a publicly traded company.●
September 2002 until the present – Mr. Perez has been self-employed as an independent consultant on a part-time basis and full-time basis.





Mr. Perez earned a Bachelor of Arts degree in accounting from the University of South Florida in 1964.





Paul D. Lisenby became one of our directors on November 21, 2008.  Mr. Lisenby has over 27 years of business development, marketing, and management experience. Mr. Lisenby has authored business plans and strategic marketing campaigns for several start-up and micro-cap companies.   Mr.
Lisenby’ employment during the five year period prior to this annual report, and for certain years before that period, is as follows:





●
1995 to 2001 – Mr. Lisenby was the Chief Operating Officer of an n-commerce that grew from $100,000 revenue in to over $110 million.●
2001 to 2005 – Mr. Lisenby has assisted several companies in raising capital and developing exit strategies, served as a member of the Board of Directors of several publicly traded companies, acted as Interim CEO & Chairman positions, and continues to raise funds though private and institutional funding sources. Mr. Lisenby has developed
significant funding, manufacturing, and distribution contacts in Asia and assists companies in global strategies to expand their business models.●
2006 until the present – As one of the management of FutureWorld Energy, Inc., (formerly Isys Medical, Inc.) Mr. Lisenby has been its Chief Executive Officer and directors. FutureWorld Energy is a diversified energy holding company, owning and seeking disrupted technologies in the renewable and alternative energy industry globally.●
2006 until the present – Mr. Lisenby has also been the Chief Executive Officer of Xtend Medical, a medical supplies company trading in the Over-the-Counter pink sheets.





- 56 -





Section 16(a) Beneficial Ownership Reporting Compliance.





No person who at any time during the fiscal year, was a director, officer, beneficial owner of more than ten percent of our common stock has furnished to us Forms 3, 4 and 5, and amendments thereto, or filed such reports and amendments with the U.S. Securities and Exchange Commission, during our 2009 or 2008 fiscal year.





Code of Ethics.





On July 1, 2005, we adopted the Code of Ethics governing all employees, officers and directors.  During the year ended June 30, 2009, no amendments to or waivers of the provisions of the Code of Ethics were made with respect to any of our directors or executive officers.  We will provide a copy of the Code of Ethics to
shareholders without charge upon written request to Mr. Sam Talari, Chief Executive Officer, 449 Central Avenue, Suite 101, St. Petersburg, Florida 33701.  We have posted our Code of Ethics on our website at http://www.opticonsystemsinc.com/investor_2_3848649435.pdf, and will disclose future amendments to, or waivers from, the Code of Ethics on our website within four business days following the date of such amendment or waiver.





Audit committee.





We do not have an audit committee.





Procedures for stockholders to nominate directors.





We have not adopted any procedures whereby stockholders may nominate persons for election as directors.





Item 11.  Executive Compensation




COMPENSATION DISCUSSION AND ANALYSIS




Overview




The goal of our named executive officer compensation program is the same as our goal for operating the company—to create long-term value for our shareowners. Toward this goal, we have designed and implemented our compensation programs for our named executives to reward them for leadership excellence, to align their interests with those
of our shareowners and to encourage them to remain with the company for long and productive careers. Most of our compensation elements simultaneously fulfill one or more of our performance, alignment and retention objectives. These elements consist of salary, bonus, and equity incentive compensation. In deciding on the type and amount of compensation for each executive, we focus on both current pay and the opportunity for future compensation. We combine the compensation elements for each executive in a manner
we believe optimizes the executive’s contribution to the company.




Compensation Objectives




Performance. Our two executives who are identified in the Summary Compensation Table (whom we refer to as our named executives) have held different positions and increased levels of responsibility. The amount of compensation for each named executive reflects his management experience,
performance and service.  A key element of compensation is equity incentive compensation in the form of our common stock, and participation in our Non statutory Stock Option Plan, although no shares have been granted to date.


- 57 -




We believe that the compensation of our executives should reflect their success in attaining our key objectives. Our key objectives are currently: (i) attracting qualified individuals to enhance our management team, (ii) establishing strategic business relationships, (iii) raising capital, and (iv) develop our marketing plan.
The key individual factors for each executive include but are not limited to: (i) the value of their skills and capabilities, (ii) performance of their management responsibilities, (iii) whether that individuals is capable to assuming greater responsibilities, (iv) leadership qualities, (v) tenure and career experience, (vi) current compensation arrangements, (vii) long-term potential to enhance shareholder value, and (viii) contribution as a member to our executive management
team.





We allocate compensation between cash compensation and equity based compensation. We provide cash compensation in the form of base salaries to meet competitive salary norms and reward performance on an annual basis, if warranted. Base salary is designed to reward annual achievements and be commensurate with the executive’s scope of responsibilities,
demonstrated leadership abilities, and management experience and effectiveness. Our other elements of compensation focus on motivating and challenging the executive to achieve superior, longer-term, sustained results. We provide non-cash compensation in the form of equity incentive arrangements to retain and attract key individuals and to reward performance against specific objectives and long-term strategic goals.




Alignment.We seek to align the interests of the named executives with those of our investors by evaluating executive performance on the basis of key financial measurements which we believe closely correlate to long-term shareowner value. A key element of compensation that align the
interests of our executives with shareowners is equity incentive compensation, and providing the executives the ability to convert a portion of their compensation into common shares, both of which increases the executive’s stake in the Company.




Implementing Our Objectives




Base Compensation.Base compensation amounts for our executive officers are set pursuant to written agreements. When setting base salary, the Board reviews a number of factors, including but not limited to executives of similar position, responsibility, experience, qualifications
and performance, which allows us to recruit and retain qualified executives.




Stock Option Grants. The Board of Directors has the authority to select individuals who are to receive options under the Plan and to specify the terms and conditions of each option so granted (incentive or nonqualified), the exercise price (which must be at least equal to the fair market
value of the common stock on the date of grant with respect to incentive stock options), the vesting provisions and the option term.




Bonus Compensation. During the year, we rewarded our Chief Financial Officer and one of our directors with a bonus of 1,000,000 shares of our common stock each. This bonus was awarded to Mr. Perez and Mr. Lisenby based on their efforts in developing new business relationships and
strategic alliances with companies in South Africa.





SUMMARY COMPENSATION TABLE





The following table sets forth the compensation we have paid to (i) our current and former chief executive officers during the last fiscal year, (ii) our two most highly compensated other executive offers who were executive officers at the end of the last fiscal year whose compensation exceeded $100,000 and (iii) our two most highly compensated
other executive officers who were not executive officers at the end of the last fiscal year whose compensation exceeded $100,000.


- 58 -





Name and principal position

Year

Salary

Bonus

Stock Award

All other
compensation

TotalSaed (Sam) Talari, Acting

2009

$ 84,000
(9)

-0-

-0-

-0-

$   84,000Chief Executive Officer

2008

$        -0-
(9)

-0-

-0-

-0-

$   84,000(Principal Executive Officer)

2007

$        -0-
(9)

-0-

-0-

-0-

$   84,000Cristino L. Perez, ChiefFinancial Officer (Principal

2009

$ 48,000
(8)

$ 20,000

-0-

-0-

$   68,000Accounting Officer)

2008

$ 39,000
(7)

-0-

-0-

-0-

$   39,000Sadruddin Currimbhoy, Former

2008

$ 41,667
(6)

-0-

-0-

-0-

$    41,667Chief Executive Officer

2007

-0-
(6)

-0-

-0-

-0-

-0-J. Marshall Batton, Former

2007

$225,000
(1)(5)

-0-

-0-

-0-

$  225,000Chief Executive Officer

2006

$300,000
(2)

-0-

-0-

-0-

$  300,000Douglass W. Wright, Former

2007

$162,000
(3)(5)

-0-

-0-

-0-

$  162,000Senior Vice President

2006

$216,000
(4)

-0-

-0-

-0-

$  216,000









1.
Mr. Batton’s compensation consists of $17,500 cash and $207,500 deferred compensation.2.
Mr. Batton’s compensation consists of $35,800 cash and $264,200 deferred compensation.3.
Mr. Wright’s compensation consists of $17,000 cash and $145,000 deferred compensation.4.
Mr. Wright’s compensation consists of $32,950 cash and $183,050 deferred compensation.5.
Mr. Batton and Mr. Wright, in connection with the termination of their respective employment agreements on July 31, 2007, each accepted 17,500 shares of our common stock in lieu of deferred 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.6.
Mr. Currimbhoy’s compensation consists of $24,500 cash and $17,167 accrued compensation.7.
Mr. Perez’ compensation consists of $11,000 in cash, $10,000 of deferred compensation, and $18,000 in common stock.8.
Mr. Perez’ compensation consists of $14,000 in cash, $19,000 in deferred compensation, and $35,000 in common stock.9.
Mr. Talari’s compensation consists of $84,000 of deferred compensation.




EMPLOYMENT AGREEMENTS





We had a two-year agreement with Mr. Talari, effective August 1, 2005, one of our directors. This agreement automatically extended for two additional one-year period through July 31, 2009. 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 our management employees.





Effective August 1, 2009, we entered into three-year agreement with Mr. Talari, currently our Acting Chief Financial Officer. The Agreement provides for (a) a base salary of $15,000 per month, (b) four weeks vacation within one year the starting date, and (c) all group insurance plans and other benefit plans and programs made available to
our management employees.





On October 1, 2007, we entered into a one-year Employment Agreement with Mr. Sadruddin Currimbhoy, our former Chief Executive Officer. The Agreement provided 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.  Mr. Currimbhoy had taken a leave of absence and on November 21, 2008 resigned as our Chief Executive Officer.







- 59 -




COMPENSATION OF DIRECTORS




Directors who are Company employees receive no additional or special remuneration for serving as directors.  Presently, we do not provide compensation to outside directors.




OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS




There are no family relationships between the directors or executive officers.  All of the actions by the Board of Directors during the year were taken by consent resolutions and written actions in lieu of meetings.





Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





The following table sets forth the number of our shares of common stock owned by:





—
each of our directors and executive officers, at August 30, 2009;—
our directors and executive officers as a group, at August 30, 2009; and—
other persons, including their addresses, and groups, if any, we have learned own or control more than five percent of our issued and outstanding common stock as of a recent date.





The address of our directors and executive officers is our address. Except as noted in the following table, we are not aware of any other person or “group”, as defined in the Regulation S-K, who owned five percent or more of our common stock at August 30, 2009.  We have no reason to believe that each person identified
in the table does not have sole voting and investment power over the shares he owns, except as noted.





Name

(1)
Number of
shares





PercentageCristino L. Perez


1,862,612






1.33
%Saed (Sam) Talari


118,528,765



(2)



84.74
%Paul D. Lisenby


3,500,000



(3)



2.50
%All directors and officers as a group (3 persons)


123,891,377







88.57
%





______________




(1) The shares reflect the issuance of additional shares reflecting the conversion by Mr. Talari of two convertible debentures on July 1, 2008 and August 2, 2008 into 56,326,560 and 12,003,734 shares respectively, and the assignment of most of those shares to NeuWorld Communications, and the conversion of promissory notes plus accrued interest
on November 18, 2008 and May 13, 2009 into 8,000,000 and 50,000,000 shares respectively.


(2) Mr. Talari owns 56,579,338 of our shares both legally and beneficially, 647,425 of our shares beneficially, the legal ownership being held by FutureTech, and 61,302,002 of our shares beneficially, the legal ownership being held by NeuWorld Communications, both companies being owned entirely by Mr. Talari.





STOCK OPTION PLAN





We have adopted a 2004 Non Statutory Stock Option Plan to reward and provide incentives to our key employees, who may include our directors who are also employees and our officers, as well as consultants and affiliates. The following table provides certain information about the plan.


- 60 -








Plan category

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

Weighted- average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a)(a)

(b)

(c)Equity compensation plan approved by security holders

None

Not applicable

NoneEquity compensation plan not approved by security holders

None

Not applicable

60,214








Item 13.  Certain Relationships and Related Transactions, and Director Independence





During the fiscal years 2008 and 2009, we have not entered into any transactions with our directors and executive officers, outside of normal employment transactions, or with their relatives and entities they control; except the following:





●
We have borrowed $445,691 and $333,107 for working capital through June 30, 2009 and 2008, respectively, from Mr. Talari at five percent interest per annum on a revolving $350,000 line of credit agreement he extended to us on September 1, 2005. On December 15, 2007, a portion of this debt plus accrued interest was converted into two convertible
debentures of $281,401 and $60,019, respectively.  On July 1, 2008, both these debentures were exchanged for 56,326,400 and 12,003,734 shares our common stock, respectively.  Accrued interest outstanding at June 30, 2009, is $300. We believe the terms of this line of credit are more favorable than we could have obtained from an unrelated third party, if we could have obtained a line of credit from a third party at all.●
On September 30, 2008, $203,000 of accrued salaries and accrued vacation pay for Mr. Talari were converted into promissory notes.  On November 18, 2008, $40,000 of these notes was converted into 8,000,000 shares of our common stock.  On May 13, 2009, the remaining $163,000 of the note plus accrued interest, along with $78,785
of the revolving line of credit plus accrued thereon was converted into 50,000,000 shares of our common stock.





We do not anticipate entering into any future transactions with our directors, officers and affiliates.





There are no family relationships between the directors or executive officers.





Item 14.  Principal Accountant Fees and Services





The following table sets forth amounts we have been billed with respect to 2009 and 2008 for certain services provided by our independent accountants, KBL, LLP, CPAs:





Service

2009


2008Audit

$
10,000


$
0Review of unaudited financial statements

$
7,500


$
6,000Audit-related fees

$
0


$
0Tax compliance, tax advice and tax planning

$
0


$
0All other services

$
0


$
2,500





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PART IV








Item 15.  Exhibits and Financial Statement Schedules





(a)(1)  FINANCIAL STATEMENTSSee index in Item 8(a)(2)  FINANCIAL STATEMENT SCHEDULESNone(a)(3)  OTHER EXHIBITS10.E.02.1
Saed (Sam) Talari, Employment Agreement dated August 1, 200910.G.01
Exclusive Business Agent Agreement with Develco cc *10.G.02
Exclusive Agency Agreement with Mfumo Networking Solutions cc *10.G.03
Exclusive Sales Representative Agreement with Mfumo Networking Solutions cc *21
Wholly owned subsidiaries31.1
Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Principal Financial & Accounting Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
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 200232.2
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


* Previously filed





(c) FINANCIAL STATEMENT SCHEDULES:None








- 62 -


SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Opticon Systems, Inc.Date:       October 2, 2009
By:
/s/ Sam TalariSaed (Sam) Talari, Principal Executive Officer








Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.








Signature, Name and Position:

Date:/s/ Sam Talari

October 2, 2009Saed (Sam) Talari, Principal Executive Officer and Director/s/ Cristino L. Perez

October 2, 2009Cristino L. Perez, Principal Financial Officer and Principal Accounting Officer and director/s/ Paul D. Lisenby

October 2, 2009Paul D. Lisenby, Director








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