UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

þ     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010.

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  ___ to              .

 

Commission file number: 000-51763

 

COMCAM INTERNATIONAL, INC.

 (Exact name of registrant as specified in its charter)

 

 

 

1140 McDermott Drive, West Chester, Pennsylvania 19380

 (Address of principal executive offices)    (Zip Code)

 

Registrant’s telephone number, including area code: (610) 436-8089

 

Securities registered under Section 12(b) of the Act: none.

Securities registered under Section 12(g) of the Act: common stock (title of class), $0.0001 par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

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. Yes þ No o

Indicate 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).

Yes o No þ

Indicate 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the registrant's common stock, $0.0001 par value (the only class of voting stock), held by non-affiliates (12,152,986 shares) was approximately $5,772,668 based on the average closing bid and asked prices ($0.475) for the common stock on April 14, 2011.

At April 15, 2011 the number of shares outstanding of the registrant's common stock, $0.0001 par value (the only class of voting stock), was 16,178,312.

 

 

 

 

PART I

 

ITEM 1.          BUSINESS

 

As used herein the terms “Company,” “we,” “our,” and “us” refer to ComCam International, Inc., its wholly owned subsidiary, and its predecessors, unless context indicates otherwise. All references herein to “Pinnacle” refer to Pinnacle Integrated Systems, Inc. (d/b/a P2 ABC Controls), the Company’s wholly owned subsidiary and predecessor.

 

Corporate History

 

The Company was incorporated as “Embedded Technology Group Inc.” on September 18, 1998, in the State of Delaware. Our name was changed to “ComCam International, Inc.” on February 19, 1999. On June 3, 2002, the Company was acquired by ComCam, Inc. We operated as a wholly-owned subsidiary of ComCam, Inc., until December 28, 2007, when 100% of our shares were distributed as a dividend to ComCam, Inc.’s shareholders. The board of directors of ComCam, Inc., decided to “spin-off” the Company in order to separately focus the attention of the financial community on our business, with the intention of improving our access to financing. 

 

On December 30, 2009, the Company acquired all of the outstanding shares of Pinnacle Integrated Systems, Inc. (“Pinnacle”) from Robert Betty and Feng Brown pursuant to the terms and conditions of a share purchase agreement. The Company acquired Pinnacle in exchange for 300,000 shares of the Company’s common stock that were issued to Ms. Brown as well as a promissory note in the amount of $1,000,000. On February 21, 2011, the Company, Mr. Betty, and Ms. Brown settled all amounts outstanding under the promissory note. Mr. Betty is a director and shareholder of the Company.

 

The Company’s principal place of business is located at 1140 McDermott Drive, Suite 200, West Chester, Pennsylvania , 19380, and our telephone number is (610) 436-8089.

 

The Company’s registered agent is Delaware Registry Ltd., 3511 Silverside Road, Suite 105, Wilmington, Delaware, 19810.

 

The Company

 

Summary

 

The Company has two operating divisions. One focuses on product development, manufacturing and national and international sales and the other focuses on the integration of command and control systems for correctional facilities across the United States.

 

Our product division has developed a video fusion platform that adds next generation, real-time interactive command-and-control capabilities to legacy security systems for greater performance at lower cost. The platform seamlessly integrates a suite of analytics, including third-party security solutions – access control, biometrics, radio frequency identification (RFID), chemical detection and seismic detection – to improve real-time decision-making for critical events over any wireless network

 

The Company’s products have been deployed with the Department of Defense, Immigration & Customs Enforcement, and many other law enforcement and intelligence agencies in addition to businesses across a wide range of industries. On our own, or working with prime government contractors like DRS, Motorola, and Siemens, our products are deployed in such diverse locales as the John F. Kennedy International Airport, isolated sections of the Texas-Mexico border, and remote mountain passes in Afghanistan.

As a systems integrator we take the role of the prime contractor or play a key support role to leading government integrators. Our focus to date has been on installing and integrating security systems in juvenile to super-maximum security correctional facilities. We enable our clients to reach further operational excellence by providing a complete range of security integration services.

 

In the past three years we have completed more than 15 security integration projects, with the largest topping $4.2M. We have the skill set and the resources to successfully complete projects in the $10M-$15M range.

 

The relationship between our two divisions is clear: our product division provides solutions that help government agencies locate and capture criminals while our integration division builds command centers for correctional institutions that keep criminals imprisoned.

 

Products and Services Overview

 

Hardware

 

A traditional commercial digital video system incorporates three components: (i) the camera or video- capture device, (ii) the player or video-display device, and (iii) the server, storage medium, or data- management device. The Company integrates these three components into one complete system: the ComCam 10 series.                                                             

 

The Company’s computing platform uses technologies for video capture, compression, analysis, and transmission which work in all wired and wireless networks, including the internet. The computing platform operates in digital format with a very sophisticated video compression technology that achieves a 300 to 500 percent improvement over the leading conventional compression solution, JPEG, and is more dynamic than MPEG. This system also manages the broadband video signal in real-time before transmitting it quickly to a variety of devices, such as laptops, cell phones, and PDA’s.

 

Our system offers:

 

·         A flexible and adaptable computing platform for all wireless surveillance and access control systems;

·         A proprietary micro computer and operating system which seamlessly connects video and sensing devices over any wireless network;

·         Wavelet compression which minimizes bandwidth use;

·         The ability to integrate/expand legacy analog systems with next-gen IP surveillance/security applications;

·         The ability to add any camera to a network and control it from any location;

·         The ability to support other manufacturers’ devices, like alarm modules and sensors;

·         Total system integration, including encryption, compression, sensors, analysis, miniaturization, low-power consumption, transmission and storage; and

·         Minimal power consumption, enabling the use of solar panels as a power source for full functionality in remote locations such as weather stations and border crossings.

 

 

 

 

 

In addition, the Company offers the following hardware items:

 

·         Asset Tracking System developed by the Company and used by US Immigration and Customs Enforcement in New York, including Integrated IP, sensor array, and network barcode devices;

·         Video MicroServers which adapt legacy closed circuit television (CCTV) and Mil-Spec imaging products and sensors to enable IP command and control capability;

·         High-end IP cameras, including the CF-130, a 1.3 mega pixel camera that delivers crisp, uncompressed, digital video over long distances previously unattainable by conventional camera systems, with both night and day capability; and

·         Original equipment manufacture (OEM) board sets.

 

The Company’s hardware products are developed in-house and we utilize third party board assembly houses for tested module delivery.  These modules are assembled in our headquarters into various configurations we offer. The Company has produced hardware in this way in Germany, Korea, and the USA over the years.

 

Software

 

The Company offers software products including the “Camera Control Centers,” or the C3 and Pocket C3 that work in concert with the Company’s computing platform. The C3 brings control room video and storage to laptops. The Pocket C3 extends our proven network security applications and surveillance software to the PDA and smart-phone market sectors.

 

The C3 and Pocket C3 decode and decompress images for viewing or archiving and can also be used to send back user commands to control remote devices such as panning/tilting/zooming camera domes and locking/unlocking doors.

 

Our software offers:

 

·         Embedded operating systems;

·         An extensive software suite and toolkits for command-and-control, pocket mobile display, storage/data management;

·         Plug-ins for Web browsers;

·         Support in seven languages;

·         Custom applications; and

·         Specialized video analytics for biometrics, sensors, access control, and motion detection/tracking.

 

Our software tracking algorithms include:

 

·         Advanced long-distance video tracking techniques;

·         Contrast and correlation algorithms which designate and track airplanes, vehicles, people and boats in up to 17 foot waves;

·         Ability to zoom and follow the object of interest precisely;

·         Radar tracking to estimate bearing, range, course and speed extrapolated at 30Hz and displayed to the user as well as up to 99 radar IDs managed simultaneously;

·         Hottest Spot Tracking; and

·         Video Motion Detection (VMD).

 

 

 

Security Systems Integration

 

The Company’s integration division is focused on installing and integrating security systems in juvenile to super-maximum security correctional facilities. This division provides professional design engineering, project management, installation and maintenance services. We offer single and turnkey system design, full installation service, after-sales service, modular ongoing training, and a 24/7/365 help desk with field support technicians.

 

Service contracts can be tailored to meet a variety of facilities’ operating styles and budgets. The benefits of these service contracts include:

 

·         Periodic system checks by a certified Pinnacle technician to ensure continued long-term system operation and care;

·         An elimination of "surprise" costs: all contracts are offered at a fixed rate for non-consumable parts and/or service which helps the client keep control of the total cost of ownership;

·         Reduced downtime with immediate response on parts and service; and

·         Discounts on consumables, parts, and accessory items.

 

Customers

 

The Company remains focused on numerous domestic and international sales opportunities with governments and organizations, including the following which have purchased our products in the past several years.

 

Local governmental Agencies

 

The Company has teamed up with Susquehanna Computer Innovations (SCI) to outfit a Pennsylvania regional taskforce with a mobile Incident Management Unit (IMU) command center for police enforcement, international event emergency services, and the management of mass casualty incidents. For this project we supplied our IP networking technology, cameras, and software (C3, PocketC3 and Video Locker) for video recording, analysis, mobile viewing, and management.

 

United States Agencies

 

Products sold to U.S. agencies have been used for testing purposes, including the following:

 

·         The U.S. Department of Homeland Security’s ICE (Immigration and Customs Enforcement) used our technical skills, including the development of a Detainee Tracking System, to upgrade key infrastructure technology for ICE’s General Services Administration (GSA) facility located in lower Manhattan of New York City (we are a contender for a multi-facility deployment after an extended test period);

·         Federal Bureau of Investigation, through Photech, Inc., purchased four camera systems for undisclosed surveillance monitoring; and

·         National Oceanic and Atmospheric Administration (Department of Commerce) and the Fish and Wildlife Service (Department of the Interior) have each purchased one camera system.

 

United States Corporations

 

Units sold to private US companies have been used for both research purposes and for implementation, including the following:

 

 

·         DRS/Night Vision Systems purchased five microserver systems for the U.S. Border Patrol with real-time video surveillance running on a cellular/satellite network using DRS-NVS thermal imaging cameras,

·         Henry Brothers utilized our services for installation at JFK Airport and purchased three microserver systems;

·         IBM required loss-prevention at its corporate facility in Raleigh, North Carolina for which we sold three microserver systems.

 

Correctional Facilities

 

Our customer list since 2008 includes the following juvenile and super-maximum security correctional facilities:

 

·         Federal Correctional Institution Berlin – Berlin, New Hampshire

·         Mercer Juvenile Detention Center – Mercer, New Jersey

·         State Correctional Institution Muncy – Muncy, Pennsylvania

·         State Correctional Institution Mercer – Mercer, Pennsylvania

·         Federal Correctional Institution Seagoville – Seagoville, Texas

·         Keesler Air Force Base – Kessler, Mississippi

·         Chester County Prison – West Chester, Pennsylvania

·         Carroll County Detention Center – Westminster , Maryland

·         Juvenile and Domestic Relations Courthouse – Charlottesville, Virginia

·         Hall County Jail – Omaha, Nebraska

·         Philadelphia Industrial Correctional Center – Philadelphia, Pennsylvania

·         US Immigration and Customs Enforcement – Manhattan, New York

 

Business Partners

 

To reach our customers the Company builds partnerships with a variety of manufacturers, systems integrators, and other companies.

 

One of these partnerships is with Symbol Technologies, Inc., now owned by Motorola (“Symbol”), a leader in mobile computing, radio frequency identification (RFID), and scanning technology. The Company is a member of Symbol’s PartnerSelect program as an authorized reseller. Further, our Pocket C3 software has been tested on all of Symbol’s mobile computers and received their Symbol PLUS validation for use on all Symbol devices. In their validation report, our software was deemed “very straightforward and simple to set up... [and] worked right out of the gate on all devices under test.” We are designing our products with Symbol’s mobile computers in mind for a simple, comprehensive, mobile security system.   

 

Recently, our technology was incorporated in a Technology Service Corporation (TSC) bid for a Texas border security initiative. The Texas border security bid was formally submitted by DRS Technologies, Inc./Night Vision Equipment Company. Also, our technology was incorporated into a TSC bid for the US Navy, under the Naval Facilities Engineering Command (NAVFAC) Anti-terrorism Force Protection (ATFP) Ashore Program (“Ashore”). The Ashore bid was formally submitted by EG&G (a defense contractor and subsidiary of URS Corporation).

Finally, Siemens Maintenance Services, LLC, has included the Company in design bids for wireless configurations to commercial airports, municipal transportation departments, and other venues.

 

 

 

Marketing and Sales Opportunities

 

The Company’s product marketing and sales team operates from both Pennsylvania and Texas targeting the following market segments:

 

·         Military: “hot spot” in-field deployment as well as battlefield collaboration;

·         Department of Homeland Security: targeting airport perimeter security, border security, access control (federal Transportation Worker Identification Credential (TWIC) program), port security, and video asset tracking;

·         Commercial markets: video asset tracking uses and operational support for remote franchise management

 

Our product marketing and sales advantage is due to the flexibility of our technological platforms which lend themselves to rapid integration with many third-party technologies including access control, biometric, radio frequency identification (RFID), chemical detection, and seismic detection. The Company’s suite of software products and tools can extend the performance and functionality of many products, especially in the area of remote control with video. We believe that the current CCTV (closed circuit television), access control, biometrics and digital communications markets have been consolidating over the past several years and that our technology may well be the glue that will integrate these markets.

 

Our security integration business targets the marketing opportunities from its applications such as retrospective and reverse engineering, project rescue and recovery, IT services, complete programmable logic controller (PLC) system design integrated into real-time touch screen technology, door and building control, video over IP and digital storage, parking control, smart card, systems, applications and products (SAP) integration, energy management, enterprise time and attendance, CCTV, perimeter intrusion detection, inmate locator and man-down systems. We believe that the market for these services is strong and growing.

 

Competition

 

Competition within the domestic and international markets for video surveillance systems is intense. In general, competitors include many companies from key sectors of the video networking and security market, including: hardware (e.g., camera and digital video recorder), software (e.g., analysis, access control), networking, and specialized solutions (e.g., data integration, data management).  However, our principal competitors offer increasingly more sophisticated products, including Internet Protocol capabilities.

 

Our competition falls into the following broad categories:

 

·         Leading security camera companies: Axis Communications, Pelco, Pixord, Mobotix AG and others that supply a diverse product line of cameras, digital video recorders and other products;

·         Integrated conglomerates: Siemens/Bosch, Philips, Sony, GE, JVC, Sanyo and others that provide a full line of cameras and related accessories; and

·         “Boutique” camera and other security-industry equipment companies:  LiveWare, ObjectVideo, DvTel, ioImage, IPIX and many others that offer specialized products.

 

 

 

 

 

While there is no dominant technological or business leader, there are many companies with greater financial resources and more established distribution channels than the Company. However, our products are distinguished by next-generation innovations that are both sophisticated and cost effective. We believe that the Company has few direct competitors based on what we consider to be our competitive advantages, as follows:

 

·         Only wireless real-time command-and-control system to address critical events in remote locations, overcoming poor network conditions (Mexican border, Afghanistan):

o   High-quality video at low bandwidth; and

o   Low-powered high performance.

·         Interoperability with flexible and adaptable networking platform:

o   Camera agnostic – software changes personality/functionality of any brand;

o   Easy integration of third-party analytics (biometrics, facial recognition) to legacy systems; and

o   Works over all wireless networks.

·         Rapid deployment, low cost, and expert service.

 

Competition for security integration services within the domestic and international markets is intense. We pursue an average of 15 project bids per month. While we compete against scores of companies, our three primary competitors on the projects we bid are Norment Security Group, ComTech Security, Inc., and Stanley Convergent Security Solutions.

 

Norment is a large systems contractor with offices in California, Arizona, Maryland, Alabama, and North Carolina. Like us, they focus both on new detention services and products as well as complete retrofit services and electronic security systems integration.

 

ComTech has offices in Chicago and Milwaukee and is a leader throughout the Midwest, servicing Illinois, Wisconsin, and Indiana. ComTech has begun looking outside of the Midwest and provides sales and technical assistance to a variety of different industries including financial, educational, institutional, and retail.

 

Stanley Convergent Security Solutions provides electronic security services and products in North America, Europe, South Africa, Asia, and Australia. It has more than 150 offices serving over 500,000 customers as one of the largest global electronic security services and product providers. 

 

We believe that our ability to compete against these firms is centered upon the following six core areas of expertise:

 

·         Design/Build

• 20 + years of Design/Build construction experience
• In-house engineering staff
• Local and national architectural teaming
• Full design and construction services for any size project

·         Engineering/Consulting

• Team of in-house engineers and security consultants
• In-house CAD operators
• Submittal and as-built drawing packages
• Baseline system testing
• Commissioning of all systems

 

·         Construction Management & Project Management

• Onsite or In-house project management available
• Development of project schedule and budget
• Risk Planning
• Corrective action implementing

·         Installation

• In-house teams of certified systems installers
• Local and National network of licensed electrical contractors

·         Service and Preventative Maintenance

• 24/7/365 emergency service
• Monthly and Quarterly Maintenance Services
• Maintenance Programs to fit any budget

·         Sales

• Bidding and Estimating Services
• In-house staff of certified Sales Engineers

 

Marketability

 

The video surveillance systems and security integration services industries are large and fragmented with no dominant leaders. Providers are comprised of thousands of manufacturing, distribution, and installation/service companies engaged in the task of safeguarding public and/or private facilities, personnel, and assets. The threat of terrorism, higher crime rates, and computer vulnerability have all had an effect on creating a growing demand for security related products. Among the services and products available are access control and identification programs, alarm systems, biometrics, surveillance equipment, computer security, home automation, integrated systems, intrusion alarms with monitoring, and GPS mobile securities.

 

Over the last 20 years, video monitoring and surveillance applications have been served by analog technology, which requires heavy maintenance, does not offer remote accessibility, and is notoriously difficult to integrate with other information technology systems. In addition, searching for a sequence on videotape has traditionally taken hours of playback and searching.  Despite these drawbacks, analog technology was popular within the security markets. Until recently, video in security applications was primarily used to provide raw data. However, new technology enables more precise information, making it possible to communicate, make decisions, and activate an immediate response to any perceived threat. Advances in communication technologies now make it easier to convert video into valuable real-time or time-lapsed information. Digital cameras today can be plugged into a standard computer network and offer greater performance and reliability than analog cameras. Large video archives can now be easily stored. Importantly, digital video archives can be indexed and specific video clips located quickly and easily.  New product introductions or enhancements, declining market prices for component parts and products, and competing or overlapping systems and technologies characterize the dynamic nature of the security surveillance industry today. The potential for the burgeoning digital video market as well as securities integration market is evident as the industries make the transition from analog to digital technology.

 

Patents, Trademarks, Licenses, Franchises, Concessions,

Royalty Agreements and Labor Contracts

 

All of the Company’s software is copyrighted, developed in-house, and licensed to customers in connection with sales of its hardware.  In addition, some software is additionally protected under two company owned patents:

 

 

·         No. US 6,975,220 B1, “Internet Based Security, Fire, and Emergency Identification and Communication System,” and

·         No. US 7,302,481 B1, “Methods and Apparatus Providing Remote Monitoring of Security and Video Systems.”

 

Additionally, “ComCam” and “P2ABC Controls” are trademarked.

 

We are under no licenses, franchises, concessions, or royalty agreements associated with our products. The Company is not subject to any labor contracts.

 

Governmental Regulation

 

The following information generally summarizes governmental approval and regulations that pertain to the Company’s operations.

 

The Company is subject to local, state, and national taxation. Our fixed and mobile digital video cameras and communication systems must conform to local, national, and international governmental authorities that set the regulations by which communications are transmitted within and across respective territories.

 

The FCC

 

Certain components within our products are required to meet Federal Communications Commission (“FCC”) approval, specifically for Classes A & B Digital Devices relating to Part 15, which is a common testing standard for products similar to our own. FCC Part 15 basically covers the regulations under which a device emits radio frequency energy by radiation, and the technical specifications, administrative requirements, and other conditions relating to the marketing of FCC Part 15 devices. Approvals as required in relation to Part 15 are obtained independently by suppliers of these components.

 

The FCC’s definition of a Class A Digital Device is one which is marketed for use in a commercial, industrial, or business environment. Our ComCam series 10 camera and other hardware are Class A Digital Devices. However, since we sell our hardware products to system integrators, dealers, and other third-party resellers who integrate our products into their own FCC approved video solutions, we are not required to obtain FCC approvals. Rather, each reseller secures its FCC and/or other approvals.

 

The FCC’s definition of a Class B Digital Device is one which is marketed for use in a residential environment. Our cameras and micro-servers are not currently sold directly into the consumer market nor to our knowledge are they being deployed by third-party distributors and/or resellers in a residential environment within the United States.

 

Although we do not currently need to seek approval for our devices due to the particulars of our current sales and customer utilization, we do plan to produce a new generation of cameras and accompanying micro-servers derived from an enhancement of the software currently associated with these products. Due to financial constraints these new products are not yet in production and we are yet to determine a production start date. We intend to initiate production of new products at such time as sufficient financing is available and will seek FCC approval at the appropriate time. FCC approval will require that we provide the FCC with examples of this new generation of products. The new products will then be subjected to a series of standardized radiation tests. Sufficient test results will label our products with FCC approval.

 

 

 

 

 

Environmental Laws

 

The Company is not currently affected by compliance with any environmental laws. However, lead danger has historically been an issue in high-tech industries.

 

RoHS, short for Restriction of Hazardous Substances, also known as Lead-Free, is a European Union directive from 2002 which restricts the use of six hazardous materials found in electronic products. All electronic products sold in the EU market must pass RoHS compliance. Further, the need to comply with RoHS type directives is evolving globally. Japanese manufacturers have been reducing lead levels since 2000 and California has already passed legislation to fall in line with the EU RoHS timescales. To satisfy lead related requirements as they expand in our customers’ states and countries, we may need to substitute different components into our hardware. These replacement components will need to contain less of the hazardous materials which are finding their way into the world’s landfills.

 

Climate Change Legislation and Greenhouse Gas Regulation

 

Many studies over the past couple decades have indicated that emissions of certain gases contribute to warming of the Earth’s atmosphere. In response to these studies, many nations have agreed to limit emissions of “greenhouse gases” or “GHGs” pursuant to the United Nations Framework Convention on Climate Change, and the “Kyoto Protocol.” Although the United States is not participating in the Kyoto Protocol, several states have adopted legislation and regulations to reduce emissions of greenhouse gases. Additionally, the United States Supreme Court has ruled, in Massachusetts, et al. v. EPA, that the EPA abused its discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources. As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under the Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions limits under the Clean Air Act, even without Congressional action. Finally, acts of Congress, particularly those such as the “American Clean Energy and Security Act of 2009” approved by the United States House of Representatives, as well as the decisions of lower courts, large numbers of states, and foreign governments could widely affect climate change regulation. Greenhouse gas legislation could have a material adverse effect on our business, financial condition, and results of operations.

 

Research and Development

 

We are involved on an ongoing basis in research and development activities related to improving the capacity and performance of our products. During the years ended December 31, 2010 and 2009, the Company spent $9,042 and $584, respectively, on research and development activities. We expect to increase research and development expenditures in future periods.

 

Employees

 

The Company has 14 full-time employees. We also use consultants, sub-contractors, legal, accounting, and auditing firms, as required, that assist us in the operation of our business.

 

 

 

 

Reports to Security Holders

The Company’s annual report contains audited financial statements. We are not required to deliver an annual report to security holders and will not automatically deliver a copy of the annual report to our security holders unless a request is made for such delivery. We file all of our required reports and other information with the Securities and Exchange Commission (the “Commission”). The public may read and copy any materials that are filed by the Company with the Commission at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the Commission have also been filed electronically and are available for viewing or copy on the Commission maintained Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address for this site can be found at http://www.sec.gov.

 

ITEM 1A.       RISK FACTORS

 

The Company’s operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our business, financial condition, and/or results of operations as well as the future trading price and/or the value of our securities.

 

Risks Related to the Company’s Business

 

THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN IS IN QUESTION

 

The Company’s auditors included an explanatory statement in their report on our consolidated financial statements for the years ended December 31, 2010 and 2009, stating that there are certain factors which raise substantial doubt about the Company’s ability to continue as a going concern. These factors include negative working capital, a stockholders’ deficit, and losses incurred since inception.

 

THE COMPANY HAS A HISTORY OF LOSSES AND MAY INCUR LOSSES FOR THE FORESEEABLE FUTURE

 

The Company had an accumulated deficit of $7,638,342 as of December 31, 2010. We believe that we may achieve profitability in the next twelve months but we can provide no assurances that we will ever achieve profitability or in the event that we do achieve profitability that we will be able to sustain that profitability over time.

 

IF THE COMPANY DOES NOT GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS AND IS UNABLE TO OBTAIN ADDITIONAL CAPITAL TO OPERATE ITS BUSINESS, WE MAY NOT BE ABLE TO EFFECTIVELY CONTINUE OPERATIONS

 

As of December 31, 2010, the Company had a working capital deficit of $253,492. We expect to generate sufficient cash flow from operations approximating that required to sustain operations in 2011. However, we can make no such assurances. Until the point at which cash flow from operations match expenditures we will have to obtain additional working capital from debt or equity placements to effectively continue our operations. However, we have no commitment for the provision of additional working capital. Should we be unable to secure additional capital to cover any short fall in cash flow, such condition would cause us to reduce expenditures, which could have a material adverse effect on our business.

 

THE COMPANY MAY NOT BE SUCCESSFUL IN INTEGRATING THE BUSINESS OPERATIONS OF PINNACLE INTO OUR BUSINESS OPERATIONS, STIFLING GROWTH AND DISRUPTING OUR BUSINESS.

 

The Company’s recent acquisition of Pinnacle involves the integration of companies that have previously operated independently.  Successful integration will depend on our ability to consolidate operations and procedures and to integrate Pinnacle’s management team with our own. If we are unable to do so, we may not realize the anticipated potential benefits of the acquisition, our business development could be stifled, and results of operations may suffer.  Difficulties could include the loss of key employees, the disruption of Pinnacle’s ongoing businesses, and possible inconsistencies in standards, controls, procedures and policies. 

 

THE COMPANY MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS

 

We have historically had difficulty producing new products due to cash flow shortages. Our future success depends in a significant part on the ability to evolve our hardware and software to develop new products. Should adequate funds to produce new products not become available, the Company’s ability to respond to competitive pressures would be significantly limited.

 

THE VIDEO MONITORING SURVEILLANCE INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND THE COMPANY'S PRODUCTS COULD BECOME OBSOLETE AT ANY TIME

 

Evolving technology, updated industry standards, and frequent new product and service introductions characterize the video surveillance systems and security integration services markets; our products could become obsolete at any time. Competitors could develop products similar to or better than our own, finish development of new technologies in advance of the Company’s research and development, or be more successful at marketing new products, any of which factors may hurt our prospects for success.

 

THE MARKET ACCEPTANCE OF THE COMPANY’S PRODUCTS IS CRITICAL TO THE COMPANY’S GROWTH

 

The Company generates revenue from the design and sale of video surveillance systems and security integration services; therefore, market acceptance of our products is critical. If our customers do not accept or purchase our products, then our revenue, cash flow, and/or operating results will be negatively impacted.

 

THE COMPANY COMPETES WITH LARGER AND BETTER-FINANCED CORPORATIONS

 

Competition within the international market for video surveillance systems and security integration services is intense. While the Company’s products are distinguished by next-generation innovations that are more sophisticated, flexible, and cost effective than many competitive products currently in the market place, a number of entities offer video surveillance systems, and new competitors may enter the market in the future. Some of our existing and potential competitors have longer operating histories, greater name recognition, larger customer bases, and significantly greater financial, technical and marketing resources than we do, including well known multi-national corporations.

 

 

 

 

 

 

 

THE COMPANY IS LARGELY DEPENDENT UPON FEW CUSTOMERS

We have in the past, and may in the future lose our customers or a substantial portion of our business with one or more major customers. If we do not sell products to our existing customers in the quantities anticipated, or if our customers reduce or terminate their relationships with us, market perception of our products and technology, growth prospects, and financial condition and results of operations could be harmed. Any termination of our relationship with our largest customers or any other customers could materially reduce our revenue.

 

THE COMPANY DEPENDS UPON LIMITED SOURCE SUPPLIERS

 

The Company utilizes third party electronic assemblers for its board sets which the Company final assembles in its West Chester, Pennsylvania facility. Many components are purchased from such source suppliers as Freescale Semiconductor and Analog Devices, Inc. We anticipate that the Company will continue to depend upon one or few manufacturers, as well as a limited number of source suppliers, which dependence, reduces the level of control we have and exposes us to significant risks such as inadequate capacity, late delivery, substandard quality, and higher prices, all of which could adversely affect the Company’s business.

 

THE COMPANY’S SUCCESS DEPENDS ON THE COMPANY’S ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL

 

The Company’s future success will depend substantially on the continued service and performance of Don Gilbreath, Robert Betty, and other key personnel. We have relatively few senior personnel, and so the loss of Don Gilbreath, Robert Betty, or any other key employees could have a material adverse effect on the Company’s business prospects, financial condition, and results of operations. Our future success also depends on the Company’s ability to identify, attract, hire, train, retain, and motivate technical, managerial, and sales personnel. Competition for such personnel is intense, and we cannot assure that we will succeed in attracting and retaining such personnel. Our failure to attract and retain the necessary technical, managerial, and sales personnel could have a material adverse effect on our business prospects, financial condition, and results of operations.

 

MISAPPROPRIATION OF PROPRIETARY RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT THE COMPANY'S FINANCIAL CONDITION

 

The Company's success depends significantly on protecting proprietary technology. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology or products. Monitoring unauthorized use of the Company's technology is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

 

In addition, from time to time, third parties may assert patent, copyright, trademark, and other intellectual property rights claims against us with respect to existing or future products or technology. If there is a successful claim of infringement and the Company fails or is unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, the Company's business and results of operations could be seriously harmed.

 

 

 

THE COMPANY’S BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATIONS

 

International, national, and local standards set by governmental regulatory authorities set the regulations by which communications are transmitted within and across respective territories. The Company's fixed and mobile digital video cameras and communication systems are subject to such regulation in addition to national, state, and local taxation. Our products may be required to meet Federal Communications Commission approval, specifically for Classes A & B of Part 15 for the telephone related applications of our hardware products. Further, climate change legislation and greenhouse gas regulation is becoming increasingly ubiquitous. Although the Company successfully operates within current governmental regulations it is possible that regulatory changes could negatively impact our operations and cause us to diminish or cease operations.

 

THE COMPANY’S PRODUCTS ARE SUBJECT TO ENVIRONMENTAL LAWS

 

New hazardous materials restrictions have been and are being sought in numerous jurisdictions worldwide. As these restrictions take effect, the Company may need to change the components it uses in certain key products. These components may be difficult to procure or more expensive than the components we currently use. As such, current and future environmental regulations could negatively impact our operations.

 

Risks Related to the Company’s Stock

 

THE COMPANY MAY NEED TO RAISE ADDITIONAL CAPITAL TO FUND OPERATIONS WHICH COULD ADVERSELY AFFECT OUR SHAREHOLDERS

 

The Company may need to raise additional capital to fund operations until such time as our revenues match our expenditures. We expect that revenue will match expenditures by late 2011 or early 2012. Until the point at which cash flow from operations can match expenditures, we may have to realize additional capital for operations. Capital realized would be used for research and development expenses, marketing costs, and general and administrative expenses. We have no commitment from any sources of financing to provide us with any needed capital requirements. Any equity financing will obligate us to issue additional shares of the Company’s common stock which will result in dilution to existing shareholders.

 

We incur significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses will continue to negatively impact our financial performance.

 

We incur significant legal, accounting, and other expenses as a result of the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission, which control the corporate governance practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, has substantially increased our expenses and made some activities more time-consuming and costly than previously, which expenses continue to negatively impact our financial performance.

 

THE COMPANY’S STOCK PRICE IS VOLATILE

 

The market price for our common stock is subject to significant volatility and trading volumes are low. Factors affecting the Company’s market price could include:

 

·         the Company’s perceived prospects;

·         negative variances in our operating results, and achievement of key business targets;

·         limited trading volume in shares of the Company’s common stock in the public market;

·         sales or purchases of large blocks of our stock;

·         changes in, or the Company’s failure to meet, earnings estimates;

·         changes in securities analysts’ buy/sell recommendations;

·         differences between our reported results and those expected by investors and securities analysts;

·         announcements of new contracts by the Company or our competitors;

·         announcements of legal claims against us;

·         market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;

·         developments in the financial markets;

·         general economic, political or stock market conditions.

 

In addition, our stock price may fluctuate in ways unrelated or disproportionate to our operating performance. The general economic, political, and stock market conditions that may affect the market price of the Company’s common stock are beyond our control. The market price of the Company’s common stock at any particular time may not remain the market price in the future. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.

 

The Company’s common stock is currently deemed to be “penny stock”, which makes it more difficult for investors to sell their shares.

 

The Company’s common stock is and will be subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.

 

Our internal controls over financial reporting may not be considered effective in the future, which could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our management on our internal controls over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. If we are unable to continue to assert that our internal controls are effective, our shareholders could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.

 

 

 

ITEM 1B.        UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.          PROPERTIES

 

The Company leases office space with short and long-term leases in Pennsylvania. Rental expense related to leases for the years ended December 31, 2010 and 2009 was approximately $129,000 and $123,000, respectively. We believe that the space leased is generally suitable and adequate to accommodate current operations.

 

ITEM 3.          LEGAL PROCEEDINGS

 

None.

 

ITEM 4.          (REMOVED AND RESERVED)

 

Removed and reserved.

 

PART II

 

ITEM 5.          MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s common stock is quoted on the Over the Counter Bulletin Board, a service maintained by the Financial Industry Regulatory Authority, under the symbol “CMCJ”. Trading in the common stock over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. These prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. The high and low bid prices for the common stock for each quarter of the periods ended December 31, 2010 and 2009 are as follows:

 

 

 

Capital Stock

 

The following is a summary of the material terms of the Company’s capital stock. This summary is subject to and qualified by our articles of incorporation and bylaws.

 

 

 

Common Stock

 

As of April 14, 2011, there were 124 shareholders of record holding a total of 15,182,147 shares of fully paid and non-assessable common stock of the 100,000,000 shares of common stock, par value $0.0001, authorized. The board of directors believes that the number of beneficial owners is substantially greater than the number of record holders because a portion of our outstanding common stock is held in broker “street names” for the benefit of individual investors. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

 

Preferred Stock

 

As of April 14, 2011, there were no shareholders of record of the 2,000,000 shares of preferred stock, par value $0.0001, authorized.

 

Warrants

 

As of April 14, 2011, the Company had the following warrants outstanding:

·         100,000 warrants to purchase shares of the Company’s common stock at a price of $0.50 per share until February 25, 2016.

·         100,000 warrants to purchase shares of the Company’s common stock at a price of $0.60 per share until April 1, 2016.

·         120,000 warrants to purchase shares of the Company’s common stock at a price of $0.75 per share until April 1, 2016.

 

Stock Options

 

As of April 14, 2011, the Company had 885,000 outstanding stock options registered pursuant to the Company’s 2010 Benefit Plan of ComCam International, Inc. to purchase shares of the Company’s common stock at $0.50 until March 31, 2013.

 

Convertible Debt

 

As of April 14, 2011, the Company had a convertible note dated April 1, 2011, valued at $50,000 with an interest rate of 1% per month, compounded monthly, due on October 1, 2012, convertible into the Company’s common stock at $0.45 per share

 

Dividends

 

The Company has not declared any cash dividends since inception and does not anticipate paying any dividends in the near future. The payment of dividends is within the discretion of the board of directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors.  There are no restrictions that currently limit the Company's ability to pay dividends on its common stock other than those generally imposed by applicable state law.

 

Transfer Agent and Registrar

 

Our transfer agent is Interwest Transfer, 1981 East, Murray-Holladay Road, Holladay, Utah, 84117-5164, and their telephone number is (801) 272-9294.

 

 

 

The Company made this offering pursuant to Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction by the Company which did not involve a public offering; (2) the offeree has access to the kind of information which registration would disclose; and (3) the offferee is financially sophisticated.

 

On January 18, 2011, the Company authorized the issuance of 1,099,600 shares of common stock in exchange for $274,900 in cash or $0.25 per share, pursuant to exemption provided by Rule 506 of Regulation D of the Securities Act, to the following individuals and entities:
 

 

The Company complied with the requirements of Rule 506 of Regulation D of the Securities Act by: (i) foregoing any general solicitation or advertising to market the securities; (ii) selling only to accredited investors; (iii) having not violated antifraud prohibitions with the information provided to the investors; (iv) being available to answer questions by the investors; and (v) issuing restricted securities to the investors.

 

On December 31, 2010, the Company authorized the issuance of 383,094 shares of common stock to Global Convertible Megatrend Ltd. pursuant to an amendment to a convertible debenture in full satisfaction of that accrued interest of $95,773.41 from the original convertible debenture, valued at $0.25 a share, pursuant to exemption provided by Section 4(2) and Regulation S of the Securities Act of 1933. 

 

The Company made this offering pursuant to Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction by the Company which did not involve a public offering; (2) the offeree has access to the kind of information which registration would disclose; and (3) the offeree is financially sophisticated.

Regulation S provides generally that any offer or sale that occurs outside of the United States is exempt from the registration requirements of the Securities Act, provided that certain conditions are met. Regulation S has two safe harbors. One safe harbor applies to offers and sales by issuers, securities professionals involved in the distribution process pursuant to contract, their respective affiliates, and persons acting on behalf of any of the foregoing ( “issuer safe harbor”), and the other applies to resales by persons other than the issuer, securities professionals involved in the distribution process pursuant to contract, their respective affiliates (except certain officers and directors), and persons acting on behalf of any of the forgoing (“resale safe harbor”). An offer, sale or resale of securities that satisfied all conditions of the applicable safe harbor is deemed to be outside the United States as required by Regulation S.

 

ITEM  6.         SELECTED FINANCIAL DATA

 

Not required.

 

ITEM  7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this current report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can also be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include but are not limited to those discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition below. The following discussion should be read in conjunction with our financial statements and notes thereto included in this current report. Our fiscal year end is December 31.

 

Discussion and Analysis

 

Our financial condition and results of operations depend primarily on revenue generated from the sale of our products and specialized services in addition to our ability to realize additional debt or equity financing. We can provide no assurance that revenue going forward will provide sufficient cash flows to sustain our operations though revenue approximating that required to sustain operations is anticipated in fiscal year 2011. Further, although we have no commitments for financing we remain in the process of procuring additional equity financing as we seek to redress any shortfall in cash flows to sustain operations while seeking to expand our business.

 

Strategy  

 

The Company will work to leverage our product division and our security integration division to provide turn-key solutions to the spectrum of applications sought after within the security industry. Further, the Company will focus on integrating the divisions to create a synergetic relationship that will not only enhance our security integration business but will bolster our product business to provide the momentum that it has long needed.

 

The Company intends to pursue numerous new domestic and international sales opportunities to generate increased revenue. We also plan to implement an aggressive marketing and sales campaign to reach a broader market for our products. While maintaining direct sales relations with many of our historic customers, we have also focused our sales efforts on serving as an original equipment manufacturer (OEM) for strategic resellers, to serve as a research and development partner, and to develop a network of dealers, resellers and system integrators with differing targeted market expertise.

 

Product Division

 

The Company will leverage pilot installations on the US/Mexico border, the Port of Philadelphia, and with Immigration and Customs Enforcement to focus on closing new proposals and contracts with the Department of Homeland Security. The key to this line of business is a value added reseller (VAR) agreement signed with DRS in 2010 offering an off-the-shelf advanced thermal tracking solution to be bundled with our microserver and software algorithms which addresses a major US initiative to fight border drug trafficking.

 

We will also expand our entry into commercial markets taking advantage of four installations that utilize our cloud computing platform and allow franchise operators and large retail chains to improve remote operations management. This area allows us to build a recurring revenue stream.

 

Non-recurring engineering contracts utilizing our hardware and software design represent an opportunity to develop a recurring royalty model. We view this as an untapped profitable revenue stream.

 

The Company will develop a program to monetize of its patents related to the integration of live video and analytics through a web portal used to make real time command and control decisions.

 

Integration Division

 

The improvement in our balance sheet has eliminated the single largest barrier to growth and allows for performance bonds to be secured at a reasonable cost. With this barrier gone, this opens up the opportunity to pursue incremental integration business with correctional facilities that requires performance bonds.  In addition, we have expanded our highly profitable long-term maintenance agreement program to existing and future integration customers with a goal of establishing a recurring revenue stream from this business unit.

 

Mergers and Acquisitions

 

We will seek to make strategic acquisitions of companies and products that add synergistic distribution partners and broader application integration. We will target companies with intellectual properties in biometric algorithms, RFID sensors, and prison perimeter offerings.

 

Risks to our Strategy

 

The Company’s business development strategy is prone to significant risks and uncertainties which can have an immediate impact on efforts to realize net cash flow and deter future prospects of revenue growth. We have a limited history of generating revenue which cannot be viewed as an indication of continued growth and a historical record of incurring losses. Should we be unable to consistently generate revenue and reduce or stabilize expenses on a consolidated basis to the point where we can realize net cash flow, such failure will have an immediate impact on our ability to continue our business operations.

 

Results of Operations

 

During the year ended December 31, 2010, we were engaged in (i) the ongoing development of our Internet Protocol remote control platform cameras, micro servers, associated software, and unique end-to-end network solutions, (ii) providing turnkey system design and installation, maintenance contracts, and field support technicians through Pinnacle, (iii) servicing maintenance contracts, providing software development expertise and consulting on security surveillance systems, and (iv) satisfying continuous public disclosure requirements.

We discuss below the results of operations for the Company’s comparative years ended December 31, 2010 and December 31, 2009. Pinnacle was acquired on December 30, 2009. The Company’s year ended December 31, 2010 results of operations include the results of operations for Pinnacle while the Company’s year ended December 31, 2009 results of operations do not include the results of operations for Pinnacle prior to the acquisition. Accordingly, the comparative period discussions include reference to Pinnacle’s portion of the December 31, 2010 results of operations, which were a majority of the Company’s operations during the period.

 

Revenue

 

Revenue for the year ended December 31 , 2010, increased to $3,551,500 from $24,086 for the year ended December 31 , 2009.  The increase in revenue over the comparable periods is primarily due to the consolidation of sales attributable to Pinnacle in the current period. During the year ended December 31, 2010, $3,450,906 of our revenue was derived from sales attributable to Pinnacle, and $100,594 from the rendition of contract work and consulting. The Company did not derive any revenue from the sale of its Internet Protocol remote control platform cameras, micro servers, associated software, and unique end-to-end network solutions over the current period though we continue to market a limited range of these products.  We expect revenues to continue to increase over the next 12 months based on the amount of work Pinnacle currently has under contract and the steady increase in the number of bids Pinnacle generates in the pursuit of a growing number of projects and, subsequent to the end of the period, we now have the capacity to bond contract work for our product sales and services, a capacity which we have not had since inception.

 

Cost of revenue for the year ended December 31, 2010, was $2,640,879 compared to $24,046 for the year ended December 31, 2009. The increase in the cost of revenue in the current period can be primarily attributed to the inclusion of cost of revenues associated with the operations of Pinnacle. During the year ended December 31, 2010 $2,200,863 of our consolidated cost of revenue was derived from costs attributable to Pinnacle. We expect the cost of revenue to increase over the next 12 months in line with our expectation that revenues will increase as a result of Pinnacle’s operations and in connection with the manufacture of our products in correspondence with an anticipated increase in revenue

 

Gross profit for the year ended December 31, 2010, increased to $910,621 from $40 for the year ended December 31 , 2009. The increase in gross profit in the current period can be primarily attributed to the revenue generated through the operations of Pinnacle. During the year ended December 31, 2010 $1,150,116 in gross profit was attributable to Pinnacle. We expect that gross profit will increase over the next 12 months in line with our expectation that revenues will increase as a result of Pinnacle’s operations and the sale of our products

 

Expenses

 

Operating expenses for the year ended December 31, 2010, increased to $2,096,868 from $460,870 for the year ended December 31, 2009. The increase in operating expenses over the comparative periods is primarily attributable to an increase in general and administrative expenses to $2,087,826 from $460,286. The increase in operating expenses over the comparable periods is primarily attributable to the addition of the operations of Pinnacle and a $375,000 non-cash expense related to stock issuances the Company made in the 2nd quarter of 2010. During the year ended December 31, 2010, $1,054,059 in general and administrative expenses was derived from costs attributable to Pinnacle. Pinnacle’s general and administrative expenses are primarily attributable to wages for employees and to a lesser extent the overhead costs associated with Pinnacle’s 6,000 square foot facility, and to the amortization expense for intangible assets. We expect that our general and administrative expenses will increase over the next twelve months with anticipated business expansion. 

Depreciation and amortization expenses for the years ended December 31, 2010 and 2009 were $442,509 and $12,685, respectively. The increase in depreciation and amortization expenses over the comparable periods can be attributed to the addition of fixed assets owned by Pinnacle as well as the amortization of intangible assets related to the acquisition of Pinnacle. During the year ended December 31, 2010, $426,202 in depreciation and amortization expenses was attributable to Pinnacle.

 

Other Income (Expense)

 

Interest income for the year ended December 31, 2010, was $914 as compared to $1,720 for the year ended December 31 , 2009. The decrease in interest income over the comparable periods is primarily attributable to the repayment of a note receivable from a related party in the current period. We expect that interest income will continue to decrease in the near term as the Company uses current assets to maintain operations and meet debt obligations.

 

Interest expense for the year ended December 31, 2010, increased to $95,102 from $81,030 for the year ended December 31 , 2009. The increase in interest expense over the comparable periods can be attributed to the interest associated with the secured promissory note incurred in connection with the acquisition of Pinnacle offset by the conversion of certain accrued interest expense to common stock that resulted in a net increase over the prior period. The Company expects that interest expense will decrease in the near term as management strives to reduce debt pursuant to debt settlement or equity financing.

 

Losses

 

Losses for the year ended December 31, 2010, increased to $1,357,991 from $430,648 for the year ended December 31, 2009. The increase in losses over the comparative periods can be primarily attributed to the increase in general and administrative expenses in the period. During the year ended December 31, 2010, $72,533 of net income was attributable to Pinnacle. We expect net losses to transition to net income in 2011 as revenues continue to increase, operating costs decrease, and interest expense falls along with the reduction of outstanding debt.

 

Income Tax Expense (Benefit)

 

The Company has an income tax benefit resulting from net operating losses to offset any future operating profit. The net operating loss carry forwards at December 31, 2010, was approximately $6,195,000. These losses will begin to expire in the year 2019. The amount of net operating loss carry forwards that can be used in any one year can be limited by significant changes in the ownership of the Company and by the applicable tax laws which are in effect at the time such carry forwards are utilized.

 

Impact of Inflation

 

The Company believes that inflation has had a negligible effect on its operations or those of Pinnacle over the past three years. We believe that we can offset inflationary increases in the cost of materials and labor by increasing revenue and improving operating efficiencies.

 

Capital Expenditures

 

The Company made no significant capital expenditures on property or equipment for the years ended December 31, 2010 or 2009.

 

 

 

Liquidity and Capital Resources

 

The Company had a working capital deficit of $253,492 as of December 31, 2010 and of $1,786,500 as of December 31, 2009. The Company had current assets of $1,480,374 and total assets of $2,108,952 as of December 31, 2010. Current assets consisted of cash totaling $517,493 and accounts receivable of $836,342, estimated earnings in excess of billings on uncompleted contracts of $114,827 and prepaid expenses of $11,712. Total assets include current assets as well as intangible assets of $447,389, property and equipment of $157,263 and other assets of $23,926. The Company had current liabilities of $1,733,866 and total liabilities of $2,551,434 as of December 31, 2010. Liabilities consisted of accounts payable of $381,153, accrued expenses of $123,140, excess billings on uncompleted contracts of $387,923, the current portion of long-term debt of $841,650, long-term debt of $641,568 and long-term accrued expenses of $176,000.

 

Liquidity and capital resources improved over the year ended December 31, 2010 due primarily to a reduction in current liabilities as a result of Pinnacle’s operations, and reductions in the current portions of long-term debt and related accrued interest.

 

Current assets held at the subsidiary level by Pinnacle of those consolidated with the Company at December 31, 2010 consisted of $494,242 in cash, $817,112 in accounts receivable, and $114,827 in estimated earnings in excess of billings on uncompleted contracts. Working capital held at the subsidiary level by Pinnacle at December 31, 2010 was $797,471. The Company has no immediate plans to repatriate cash from Pinnacle, but rather intends to meet its commitments thereto from the proceeds of additional debt or equity placements though no arrangement to do so is currently in place.

 

Cash flows used in operating activities were $314,113 for the year ended December 31, 2010, as compared to $222,730 for the year ended December 31, 2009. The comparably higher cash flows used in operating activities in the current period can be primarily attributed to net losses and the adjustment from the decrease in accounts payable. During the period ended December 31 , 2010, $428,580 in cash flows provided by operating activities was attributable to Pinnacle. We expect to continue to use cash flows in operating activities until such time as net losses transition to net income.

 

Cash flows used in investing activities were $62,560 for the year ended December 31, 2010, as compared to cash flows provided by investing activities of $123,822 for the year ended December 31 , 2009. Cash flows used in investing activities in the current period are from the purchase of property and equipment by Pinnacle offset by payments received from an unrelated party on a note receivable. During the period ended December 31, 2010, $94,827 in cash flows used in investing activities was attributable to Pinnacle. We expect to continue to use cash flows in investing activities as the Company looks forward to expand operations in future periods.

 

Cash flows provided by financing activities were $676,383 for the year ended December 31, 2010, as compared to $315,667 for the year ended December 31, 2009. Cash flows provided by financing activities for the current period are attributable to the issuance of common stock for cash in a private placement for $871,400 to unrelated persons offset by a payment of $158,350 on long-term debt to Mr. Robert Betty against a note payable in connection with the acquisition of Pinnacle and payments of $36,667 to a related party. During the period ended December 31, 2010, $94,827 in cash flows provided by financing activities was attributable to Pinnacle. We expect to continue to provide cash flows from financing activities as the Company seeks to reduce debt and expand operations through additional equity financings.

 

 

 

 

The Company has a 2010 Benefit Plan registered under Form S-8 pursuant to which it can issue or option shares of its common stock to employees, directors, officers, consultants or advisors on the terms and conditions set forth therein. As of December 31, 2010, 2,000,000 shares remained available for issuance or grant under this plan. On March 31, 2011 the Company granted 885,000 stock options under the Benefit Plan to the following individuals:

 

 

The Company had certain long-term debt obligations as of December 31, 2010:

 

·         Note payable to Robert Betty in the amount of $1,000,000, bearing interest at 3%, secured by the common stock and assets of Pinnacle due in five monthly installments of $200,000, beginning on February 15, 2010. The note payable was in default as of December 31 , 2010 in the amount of $841,650 plus accrued interest of $9,961. On February 21, 2011, the Company satisfied the note payable with the execution of an accord and satisfaction agreement for a payment of $250,000 and 800,000 shares of the Company’s common stock.

 

·         Unsecured note payable to Global Convertible Megatrend, Ltd. (“Global Megatrend”) in the amount of $176,568 bearing interest at 7.5% and due on December 2012. The note may be converted to common shares of the Company, at the option of the holder, based on certain terms related to outstanding shares and per share prices. Accrued interest at December 31 , 2010 was $0.

 

·         Secured note payable to Paul Higbee in the amount of $465,000 bearing interest at 8%, due on March 31, 2012. Accrued interest at December 31, 2010 was $28,027.

 

 

 

 

 

 

The Company had an additional long-term debt obligation subsequent to the period ending December 31, 2010:

 

·         Secured promissory note payable to Bartek Investments -1, Ltd. in the amount of $400,000 bearing interest at 18%, with quarterly principal payments of $100,000 due on May 25, 2011, August 25, 2011, and November 25, 2011 with a final payment of $172,000 on February 25, 2012. The obligation is secured by the stock of the Company’s wholly owned subsidiary, Pinnacle.

 

Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the next twelve months. The Company will need a minimum of $500,000 in debt or equity financing to increase research and development activities and meet expenses until such time as net revenues cover cash needs. We expect to be able to realize this financing objective in the near term. However, we have no commitments or arrangements for new financing though we are pursuing a number of prospective sources that include shareholder loans, the sale of equity, or the procurement of long term debt. Further, we face certain financial obstacles to attracting new financing due to our historical and current record of net losses and working capital deficits. Therefore, despite our efforts we can provide no assurance that we will be able to obtain the financing required to meet our stated objectives or even to continue as a going concern.

 

The Company has no lines of credit or other bank financing arrangements.

 

The Company has no commitments for material future capital expenditures.

 

The Company has no current plans for the purchase or sale of any plant or equipment.

 

The Company has no current plans to make any changes in the number of employees.

 

The Company does not expect to pay cash dividends in the foreseeable future.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2010, the Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.

 

Going Concern

 

The Company’s auditors have expressed an opinion as to our ability to continue as a going concern as a result of an accumulated deficit of $7,638,342 as of December 31, 2010. Our ability to continue as a going concern is subject to the ability of the Company to transition to net income as anticipated in 2011 and obtaining additional funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes (i) increases in revenue; (ii) financing from private placement sources; and (iii) converting outstanding debt to equity. Although the Company believes that it will be able to remain a going concern, through the methods discussed above, there can be no assurances that such methods will prove successful.

 

 

 

 

 

 

Critical Accounting Policies

 

In Note 1 to the audited financial statements for the years ended December 31, 2010 and 2009, included in our Form 10-K, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and its financial position. The Company believes that the accounting principles utilized by it conform to accounting principles generally accepted in the United States. The preparation of financial statements requires Company management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, the Company evaluates estimates. The Company bases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

 

Revenue Recognition

 

The Company generates revenues from product sales, consulting, installation of security systems, and support and maintenance contracts. The Company’s revenue recognition policy is as follows:

 

·         Development and Delivery of Security Systems - Profits on long-term contracts are recorded primarily using the percentage of completion method for individual contracts. Estimated percentage of completion is determined on the basis of total costs expended as a percentage of total estimated costs. As the Company's long-term contracts extend over one or more years, revisions in cost and profit estimates are reflected in the accounting period that the revisions become known. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

o   Contract costs include all direct materials, labor, and other costs. General and administrative costs are charged to expense as incurred. At the time a loss on a contract is expected, the entire amount of the estimated loss is recognized.

o    The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues earned in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues earned.

• Support and Maintenance Revenue – Revenue from support and maintenance agreements is recognized ratably over the term of the agreement, which in most instances is one year.
• Service Revenue – Revenue from system upgrades is recognized as the services are performed. Revenue from training and development services is recognized as the services are performed.
• Product Sales Revenue – Revenue from product sales is recognized at the time the product is shipped and invoiced and collectibility is reasonably assured. The Company believes that revenue should be recognized at the time of shipment as title passes to the customer at the time of shipment.
• Consulting Revenue – Revenues from consulting services are recognized when a consulting agreement is executed that establishes the amount and scope of service to be provided, the consulting services have been performed, and the Company has no additional rescission, refund, or customer satisfaction requirements, and collectibility of the amount billed is reasonably assured.

 

Forward-Looking Statements and Factors That May Affect Future Results and Financial Condition

 

The statements contained in the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this current report, with the exception of historical facts, are forward-looking statements. Forward-looking statements reflect our current expectations and beliefs regarding our future results of operations, performance, and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. These statements include, but are not limited to, statements concerning:

 

 

·         our anticipated financial performance;

·         the sufficiency of existing capital resources;

·         our ability to raise additional capital to fund cash requirements;

·         uncertainties related to our business;

·         increases in revenues;

·         the volatility of the stock market and;

·         general economic conditions.

 

We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results to differ materially from those discussed or anticipated including the factors set forth in the section entitled Risk Factors included elsewhere in this report. We also wish to advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

Stock-Based Compensation

 

We have adopted Accounting Standards Codification Topic (“ASC”) 718, Share-Based-Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.

 

We account for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.

 

Recent Accounting Pronouncements

 

Please see Note 20 to our consolidated financial statements for recent accounting pronouncements.

 

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our audited financial statements for the years ended December 31, 2010 and 2009 are attached hereto as F-1 through F-20.

COMCAM INTERNATIONAL, INC.

INDEX TO FINANCIAL STATEMENTS

December 31, 2010 and 2009

 

 

 

                                                                                                                                          Page

 

                Report of Independent Registered Public Accounting Firm                                                 F-2               

           

                Consolidated Balance Sheets                                                                                                              F-3

 

            Consolidated Statements of Operations                                                                  F-4

 

            Consolidated Statements of Stockholders’ Deficit                                                  F-5

 

            Consolidated Statements of Cash Flows                                                                 F-6

 

                Notes to Consolidated Financial Statements                                                                               F-7

                                                                                                                                                                                                       

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

Board of Directors

ComCam International, Inc. and Subsidiary

West Chester, Pennsylvania

 

We have audited the accompanying consolidated balance sheets of ComCam International, Inc. and Subsidiary as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the years in the two-year period ended December 31, 2010. ComCam International, Inc. and Subsidiary’s management is responsible for these financial statements. 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 audit 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 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of ComCam International, Inc. and Subsidiary as of December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming ComCam International, Inc. and Subsidiary will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, ComCam International, Inc. and Subsidiary has incurred substantial losses and has a working capital deficit.  These factors raise substantial doubt about the ability of the Company to continue as a going concern.  Management’s plans in regards to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

/s/ PRITCHETT, SILER & HARDY, P.C.

 

PRITCHETT, SILER & HARDY, P.C.

 

Salt Lake City, Utah

April 15, 2011

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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

 

 

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

Note 1 – Organization and Summary of Significant Accounting Policies

 

Organization

 

The consolidated financial statements consist of Comcam International, Inc. (“Comcam”) and its wholly owned subsidiary Pinnacle Integrated Systems, Inc. (“Pinnacle”). Collectively, these entities are referred to as “the Company”.

 

Comcam International, Inc. was organized under the laws of the state of Delaware on September 19, 1998. The Company’s operations consist primarily of the research and development of advanced compact video systems that utilize built-in digital compression technology. Pinnacle is a security systems integrator focused on correctional facilities across the United States, providing turnkey system design and installation, maintenance contracts, and field support technicians.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Comcam and Pinnacle.  All significant intercompany balances and transactions have been eliminated.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are amounts due on product sales and are unsecured. Accounts receivable are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest although a finance charge may be applied to such receivables that are more than thirty days past due. Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance, and current economic conditions.

 

Property and Equipment

 

Property, improvements, and equipment are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Costs of major renewals or betterments are capitalized over the remaining useful lives of the related assets. Depreciation is computed by using the straight-line method. Equipment is depreciated over three to five years and furniture and fixtures are depreciated over seven years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the remaining life of the lease. The cost of property disposed of and related accumulated depreciation is removed from the accounts at the time of disposal, and gain or loss is reflected in operations.

 

 

 

 

 

 

 

Note 1 – Organization and Summary of Significant Accounting Policies (continued)

 

Long-Lived Assets

 

The Company evaluates its long-lived assets in accordance with Accounting Standards Codification (ASC) 360, “Accounting for the Impairment of Long-Lived Assets.”  Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amounts.  Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets and is recorded in the period in which the determination was made.

 

Intangible Assets

 

The Company accounts for their intangible assets in accordance with ASC 350, “Goodwill and Other Intangible Assets”. ASC 350 establishes three classifications for intangible assets including definite-life intangible assets, indefinite-life intangible assets and goodwill and requires different accounting treatment and disclosures for each classification.  In accordance with ASC 350, the Company periodically reviews their definite-life intangible assets for impairment.  No impairment was recorded during the years ended December 31, 2010 and 2009. Definite-life intangible assets are amortized using the straight-line method over their estimated useful lives.

 

Revenue Recognition

 

The Company generates revenues from product sales, consulting, installation of security systems, and support and maintenance contracts. The Company’s revenue recognition policy is as follows:

 

·         Development and Delivery of Security Systems - Profits on long-term contracts are recorded primarily using the percentage of completion method for individual contracts. Estimated percentage of completion is determined on the basis of total costs expended as a percentage of total estimated costs. As the Company's long-term contracts extend over one or more years, revisions in cost and profit estimates are reflected in the accounting period that the revisions become known. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

 

Contract costs include all direct materials, labor, and other costs. General and administrative costs are charged to expense as incurred. At the time a loss on a contract is expected, the entire amount of the estimated loss is recognized.

 

The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues earned in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues earned.

 

• Support and Maintenance Revenue – Revenue from support and maintenance agreements is recognized ratably over the term of the maintenance agreement, which in most instances is one year.

 

F-3

 

Note 1 – Organization and Summary of Significant Accounting Policies (continued)

 

Revenue Recognition (continued)

 

• Service Revenue – Revenue from system upgrades is recognized as the services are performed. Revenue from training and development services is recognized as the services are performed.

 

• Revenue from product sales is recognized at the time the product is shipped and invoiced and collectibility is reasonably assured. The Company believes that revenue should be recognized at the time of shipment as title passes to the customer at the time of shipment.

 

• Revenues from consulting services are recognized when a consulting agreement is executed that establishes the amount and scope of service to be provided, the consulting services have been performed, and the Company has no additional rescission, refund, or customer satisfaction requirements, and collectibility of the amount billed is reasonably assured.

 

Income Taxes

 

Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse.

 

If the Company has uncertain tax positions, they are evaluated by management and a loss contingency is recognized when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The amount recognized is subject to estimate and management judgment and the amount ultimately sustained for an uncertain tax position could differ from the amount recognized. The Company recognizes interest expense and penalties related to unrecognized tax benefits with the provision for income taxes. The tax years previous to 2007 are closed to examination by the Internal Revenue Service.

 

The Company has recorded $148,000 and $148,000 of accrued tax liabilities in the balance sheets as Accrued Expenses for unrecognized tax benefits as of December 31, 2010 and 2009, respectively.

 

Earnings (Loss) Per Share

 

The computation of basic earnings (loss) per common share is based on the weighted average number of shares outstanding during the year.

 

The computation of diluted earnings (loss) per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the year. Common stock equivalents are not included in the diluted earnings per share calculation when their effect is antidilutive.

 

 

 

 

 

Note 1 – Organization and Summary of Significant Accounting Policies (continued)

 

Concentration of Credit Risk

 

The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Most of the Company’s accounts receivable, which are unsecured, are with Pinnacle’s customers. Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.

 

Use of Estimates in the Preparation of Financial Statements

 

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

 

 

Note 2 – Going Concern

 

As of December 31, 2010, the Company has negative working capital, a stockholders’ deficit, and has incurred losses since inception. These factors taken alone raise substantial doubt about the Company’s ability to continue as a going concern. However, management is in the process of procuring additional financing to expand marketing efforts and product development which actions, if successful, will enable the Company to continue as a going concern. Nevertheless, there can be no assurance that sufficient financing will be available to the Company to successfully pursue its marketing and product development efforts.

 

 

Note 3 – Accounts Receivable

 

Accounts receivable consist of the following:

 

 

 

 

 

 

 

Note 4 – Contracts in Process

 

Information with respect to uncompleted contracts consists of the following:

 

 

 

Included in the accompanying balance sheets under the following captions:

 

 

 

Note 5 – Property and Equipment

 

Property and equipment consist of the following: