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EX-31 - EXHIBIT31.HTM - - COMCAM INTERNATIONAL INC | exhibit31.htm |
EX-32 - EXHIBIT32.HTM - - COMCAM INTERNATIONAL INC | exhibit32.htm |
EXCEL - IDEA: XBRL DOCUMENT - COMCAM INTERNATIONAL INC | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011.
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)
Delaware (State or other jurisdiction of incorporation or organization) | 23-2976562 (I.R.S. Employer Identification No.) |
1140 McDermott Drive, West Chester, Pennsylvania 19380
(Address of principal executive offices) (Zip Code)
(610) 436-8089
(Registrants telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
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 þ No 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.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. The number of shares outstanding of the issuers common stock, $0.0001 par value (the only class of voting stock), at August 19, 2011, was 16,530,697.
TABLE OF CONTENTS PART 1- FINANCIAL INFORMATION | ||
Item1. | 3 | |
| 4 | |
| Unaudited Consolidated Statements of Operations for the Three and six month periods ended June 30, 2011 and June 30, 2010 | 5 |
| 6 | |
| 7 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3. | 20 | |
Item 4. | 20 | |
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PART II-OTHER INFORMATION
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|
Item 1. | 20 | |
Item 1A. | 20 | |
Item 2. | 25 | |
Item 3. | 25 | |
Item 4. | 25 | |
Item 5. | 25 | |
Item 6. | 25 | |
| 26 | |
| 27 |
EXPLANATORY NOTE
The purpose of this amendment to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed with the Securities Exchange Commission on August xx, 2011 (the Form 10-Q), is to furnish Exhibit 101 Interactive Data File (XBRL Exhibit) in accordance with Rule 405 of Regulation S-T. For the convenience of the reader, this amendment includes those items in our original filing. This Form 10-Q/A continues to describe conditions as of our original filing, and does not update disclosures contained herein to reflect events that occurred at a later date. This amendment speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the Form 10-Q.
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
As used herein, the terms Company, we, our, and us refer to ComCam International, Inc., a Delaware corporation, unless otherwise indicated. In the opinion of management, the accompanying unaudited financial statements included in this Form 10-Q/A reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
3
COMCAM INTERNATIONAL, INC. | ||||||||
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
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| Three Months Ended |
| Six Months Ended | ||||
|
| June 30, |
| June 30, | ||||
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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Revenues, net | $ | 993,570 |
| 550,984 |
| 2,375,101 |
| 1,498,524 |
Cost of revenues |
| 681,168 |
| 375,499 |
| 1,731,498 |
| 966,728 |
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Gross profit |
| 312,402 |
| 175,485 |
| 643,603 |
| 531,796 |
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Operating expenses: |
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General and administrative expenses |
| 729,622 |
| 935,926 |
| 1,567,508 |
| 1,547,846 |
Research and development expenses |
| 743 |
| 2,887 |
| 2,935 |
| 5,975 |
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| 730,365 |
| 938,813 |
| 1,570,443 |
| 1,553,821 |
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Loss from operations |
| (417,963) |
| (763,328) |
| (926,840) |
| (1,022,025) |
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Other income (expense): |
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Interest income |
| 251 |
| 151 |
| 606 |
| 570 |
Interest expense |
| (35,873) |
| (26,266) |
| (61,346) |
| (53,937) |
Debt extinguishment income |
| - |
| 13,725 |
| - |
| 13,725 |
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| (35,622) |
| (12,390) |
| (60,740) |
| (39,642) |
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Loss before provision for income taxes |
| (453,585) |
| (775,718) |
| (987,580) |
| (1,061,667) |
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Provision (benefit) for income taxes |
| (8,000) |
| - |
| 12,000 |
| - |
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Net loss | $ | (445,585) |
| (775,718) |
| (999,580) |
| (1,061,667) |
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Net loss per common share - basic and diluted | $ | (0.03) |
| (0.08) |
| (0.06) |
| (0.12) |
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Weighted average common and common equivalent shares |
| 16,242,817 |
| 9,309,403 |
| 15,455,351 |
| 8,500,097 |
The accompanying notes are an integral part of these consolidated financial statements
5
COMCAM INTERNATIONAL, INC. | ||||
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
Six Months Ended June 30, 2011 and 2010 | ||||
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| 2011 |
| 2010 |
Cash flows from operating activities: |
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Net loss | $ | (999,580) |
| (1,061,667) |
Adjustments to reconcile net loss to net |
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cash used in operating activities: |
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Stock, options, and warrants compensation expense |
| 603,730 |
| 375,000 |
Amortization of conversion rights on debt |
| 1,110 |
| - |
Depreciation and amortization |
| 121,571 |
| 210,925 |
Loss on disposal of assets |
| - |
| 10,449 |
(Increase) decrease in: |
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Accounts receivable |
| 68,947 |
| 296,642 |
Prepaid expenses |
| 1,916 |
| 27 |
Costs and estimated earnings in excess of |
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billings on uncompleted contracts |
| (40,841) |
| (27,093) |
Other assets |
| (150,260) |
| (14,303) |
Increase (decrease) in: |
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Accounts payable |
| 190,306 |
| (192,183) |
Accrued expenses |
| 119,511 |
| 81,253 |
Billings in excess of costs and estimated |
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earnings on uncompleted contracts |
| (251,474) |
| (61,296) |
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Net cash used in operating activities |
| (335,064) |
| (382,246) |
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Cash flows from investing activities: |
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Payments received on note receivable |
| - |
| 36,667 |
Purchase of intangible assets |
| (42,734) |
| - |
Purchase of property and equipment |
| (329) |
| (49,362) |
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Net cash used in investing activities |
| (43,063) |
| (12,695) |
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Cash flows from financing activities: |
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Payments on related party payable |
| - |
| (36,667) |
Payments on long-term debt |
| (415,000) |
| (138,730) |
Proceeds from line of credit |
| 50,000 |
| - |
Proceeds from issuance of debt |
| 450,000 |
| - |
Proceeds from issuance of common stock |
| 334,250 |
| 674,500 |
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Net cash provided by financing activities |
| 419,250 |
| 499,103 |
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Net increase in cash |
| 41,123 |
| 104,162 |
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Cash, beginning of period |
| 517,493 |
| 217,783 |
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Cash, end of period | $ | 558,616 |
| 321,945 |
The accompanying notes are an integral part of these consolidated financial statements.
6
COMCAM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
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 was organized under the laws of the state of Delaware on September 19, 1998. Its 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.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by management in accordance with the instructions in Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles and should, therefore, be read in conjunction with the Companys Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operations are not necessarily indicative of the results to be expected for the full year ended December 31, 2011.
Reclassifications
Certain amounts for 2010 have been reclassified to conform to the 2011 presentation.
Convertible Debts
In accordance with ASC 470-20, the Company calculated the value of any beneficial conversion features embedded in its convertible debts. If the debt is contingently convertible, the intrinsic value of the beneficial conversion feature is not recorded until the debt becomes convertible.
Convertible debts are split into two components: a debt component and a component representing the embedded derivatives in the debt. The debt component represents the Companys liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that debt holders have to convert into ordinary shares of the Company. If the number of shares that may be required to be issued upon conversion of the convertible debt is indeterminate, the embedded conversion option of the convertible debt is accounted for as a derivative instrument liability rather than equity in accordance with ASC 815-40.
The debt component of the convertible debt is measured at amortized cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost other than interest. The debt component decreases by the cash interest coupon payments made. The embedded derivatives are measured at fair value at each balance sheet date, and the change in the fair value is recognized in the income statement.
7
COMCAM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
Note 1 Organization and Summary of Significant Accounting Policies - continued
Additional Footnotes Included By Reference
Except as indicated in the following Notes, there have been no other material changes in the information disclosed in the notes to the financial statements included in the Companys Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by reference.
Note 2 Going Concern
As of June 30, 2011, the Company has negative working capital and has incurred losses since inception. These factors taken alone raise substantial doubt about the Companys 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 Line of Credit
The Company maintains a revolving line of credit with a bank which allows the Company to borrow up to $100,000. The line of credit bears interest at prime (3.25% at June 30, 2011) plus 1.25%, but not less than 4.75%; thus the line of credits rate at June 30, 2011 is 4.75%. Interest accrues monthly and must be paid by the end of the following month. The line of credit is secured by a money market account with the same bank which has a June 30, 2011 balance of $100,000. The line of credit matures on November 1, 2011 and the balance outstanding as of June 30, 2011 is $50,000.
8 |
8
COMCAM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
Note 4 Long-Term Debt
Long-term debt consists of the following:
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| June 30, |
| December 31, |
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| 2011 |
| 2010 |
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| (Unaudited) |
| (Audited) |
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Note payable to Robert Betty, bearing interest at 3%, secured by the common stock and assets of Pinnacle, and due in five monthly installments of $200,000, beginning February 2010. | $ | - |
| 841,650 |
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Notes payable to Paul Higbee, bearing interest at 8%, due March 2012, secured by the intellectual property of the Company. |
| 465,000 |
| 465,000 |
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Notes payable to Doug Bartek, bearing interest at 18%, secured by the common stock and assets of Pinnacle, and due February 2012. |
| 400,000 |
| - |
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Unsecured note payable to Global Megatrend, bearing interest at 7.5% and due 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. |
| 176,568 |
| 176,568 |
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Unsecured note payable to Bayberry Capital, Inc., bearing interest at 12% and due October 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. |
| 50,000 |
| - |
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| 1,091,568 |
| 1,483,218 |
Less unamortized discount |
| (5,550) |
| - |
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| 1,086,018 |
| 1,483,218 |
Less current portion |
| (865,000) |
| (841,650) |
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| $ | 221,018 |
| 641,568 |
The fair values of the conversion options are recorded as discounts on the face values of the notes and are $5,550 and $0 at June 30, 2011 and December 31, 2010, respectively. These amounts are amortized using the straight-line method over the term of the notes. During the six months ended June 30, 2011 and 2010, the Company recorded $1,110 and $0, respectively, as interest expense due to amortization of the discounts.
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9
COMCAM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
Note 5 Supplemental Cash Flow Information
During the six months ended June 30, 2011, the Company:
· Issued 352,000 shares of common stock in satisfaction of $110,475 of accrued expenses and $47,925 of deferred stock compensation.
· Issued 800,000 shares of common stock in exchange for $426,650 of long-term debt, $14,189 of accrued expenses, and recognized debt extinguishment income of $88,839. The debt extinguishment income was recorded as an increase to additional paid-in capital due to the related party nature of the transaction.
During the six months ended June 30, 2010, the Company:
· Issued 1,363,930 shares of common stock in exchange for $438,405 of long-term debt, accounts payable, and accrued expenses.
· Issued 1,500,000 shares of common stock for services rendered to the Company in the amount of $375,000.
· Issued 2,698,000 shares of common stock in exchange for $674,500 in cash.
· Recognized debt extinguishment income of $13,725 from the discharge of certain accounts payable.
During the six months ended June 30, 2011 and 2010, cash paid for interest was $0 and $11,105 respectively, and cash paid for income taxes was $7,072 and $0, respectively.
Note 6 Common Stock Options and Warrants
Common stock options and warrants consist of:
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| Number of |
| Price | ||
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| Options |
| Warrants |
| Per Share |
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Outstanding at January 1, 2011 |
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| - |
| - | $ | - | ||
Granted, vested, and excercisable |
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| 885,000 |
| 320,000 |
| .50 - .75 | |||
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Outstanding at June 30, 2011 |
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| 885,000 |
| 320,000 | $ | .50 - .75 |
10
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Managements Discussion and Analysis of Financial Condition and Results of Operations and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can 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 report. Our fiscal year end is December 31. All information presented herein is based on the six month period ended June 30, 2011.
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.
Business
We have two operating divisions. One focuses on product development, manufacturing and sales world-wide while 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. Our 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.
Our systems division acts as the general contractor or plays 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.
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Business Development Strategy
We are pursuing numerous new domestic and international sales opportunities intended to increase revenue by leveraging our product and systems divisions to provide turn-key solutions across a spectrum of applications within the security industry. While expanding marketing efforts to reach new customers we continue to focus on offering our services as an original equipment manufacturer (OEM) for strategic resellers, in order to serve as a research and development partner, and to develop a network of dealers, resellers and system integrators with differing targeted market expertise. Meanwhile we continue to service existing customers with our products and services.
Product Division
We intend to 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 are also focused on transforming non-recurring engineering contracts that utilize our hardware and software designs into opportunities to develop a recurring royalty model. Our near term intention is to take advantage of certain installations that utilize our cloud computing platform which allows franchise operators and large retail chains to improve remote operations management.
We also intend to develop a program to monetize our patents related to the integration of live video and analytics through a web portal used to make real time command and control decisions.
Systems Division
We are focused on pursuing new contracts related to the incremental integration of security measures utilized by correctional facilities. Our business has been limited in the past by an inability to secure performance bonds at a reasonable cost. We have recently overcome this limitation and going forward we are confident in our ability to procure new contracts. 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 intend to continue to seek out the acquisition of companies and products that add synergistic distribution partners and broader application integration. Our intention is to target companies with intellectual properties in biometric algorithms, RFID sensors, and prison perimeter offerings.
In April 2011, the Company entered into a letter of intent to acquire distribution rights from 1st Choice Security Solutions (1st Choice), an OEM supplier of ultra-long range RFID technology. The distribution rights will allow us to distribute Protrac iD products in North and South America. As of June 30, 2011, we had paid $42,734 to 1st Choice. We expect to finalize the distribution rights purchase by September 30, 2011, with an additional $70,000 cash outlay and the issuance 200,000 shares of common stock.
13
Business Development Risks
Our 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.
Our financial condition and results of operations going forward will continue to depend primarily on revenue generated from the sale of specialized services and our ability to realize additional debt or equity financing. We can provide no assurance that future revenue will provide sufficient cash flow to sustain operations although the achievement of this milestone is anticipated in the near term. Further, we have no immediate commitments for additional financing though management is committed to procuring the capital required to develop our business.
Results of Operations
During the six month period ended June 30, 2011, we were engaged in (i) developing 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 to correctional facilities, (iii) completing debt financing arrangements, (iv) securing a performance bond, (v) performing due diligence and entering into a letter of intent with 1st Choice, and (vi) satisfying continuous public disclosure requirements.
Revenue
Revenue for the three months ended June 30, 2011, increased to $993,570 from $550,984 for the three months ended June 30, 2010, an increase of 80%. Revenue for the six months ended June 30, 2011, increased to $2,375,101 from $1,498,524 for the six months ended June 30, 2010, an increase of 58%. The increase in revenue over the comparable period is due to the procurement of new contracts by our systems division. We expect to continue to increase revenues in future periods through the sale of services to correction facilities and video products.
Cost of revenue for the three months ended June 30, 2011, was $681,168 compared to $375,499 for the three months ended June 30, 2010, an increase of 81%. Cost of revenue for the six months ended June 30, 2011, was $1,731,498 compared to $966,728 for the six months ended June 30, 2010, an increase of 79%. The increase in the cost of revenue in the current period can be attributed to the increase in revenue over the comparative period and increasing costs for materials. We expect the cost of revenue to increase in future periods along with increases in revenue.
Gross profit for the three months ended June 30, 2011, increased to $312,402 from $175,485 for the three months ended June 30, 2010, an increase of 78%. Gross profit for the six months ended June 30, 2011, increased to $643,603 from $531,796 for the six months ended June 30, 2010, an increase of 21%. The increase in gross profit over the comparable periods is primarily attributable to the increase in revenue over the comparative periods, while opposed by increasing materials costs. We expect that gross profit will continue to increase in correlation with anticipated increases in revenue over future periods.
14
Expenses
Operating expenses for the three months ended June 30, 2011, decreased to $730,365 from $938,813 for the three months ended June 30, 2010, a decrease of 22%. Operating expenses for the six months ended June 30, 2011, increased to $1,570,443 from $1,553,821 for the six months ended June 30, 2010, an increase of 1%. The decrease in operating expenses over the comparative three month periods is primarily attributable to our implementation of cost-cutting activities and operational efficiencies. The increase in operating expenses over the comparative six month periods is primarily attributable to the increase in general and administrative expenses. We expect that operating expenses will remain relatively constant in the near term as management continues to evaluate prospective operating efficiencies.
Depreciation and amortization expenses for the six months ended June 30, 2011 and 2010 were $121,571 and $210,925, respectively. The decrease in depreciation and amortization expenses over the respective periods can be attributed to a decrease in the amortization of intangible assets.
Other Income (Expense)
Interest income for the three months ended June 30, 2011 was $251 as compared to $151 for the three months ended June 30, 2010. Interest income for the six months ended June 30, 2011 was $606 as compared to $570 for the six months ended June 30, 2010. Interest expense for the three months ended June 30, 2011 was $35,873 as compared to $26,266 for the three months ended June 30, 2010. Interest expense for the six months ended June 30, 2011 was $61,346 as compared to $53,937 for the six months ended June 30, 2010. The increase in interest expense over the comparable three and six month periods can be attributed to outstanding debt obligations. We expect that interest expense will continue to increase as debt obligations mature.
Net Loss
Net loss for the three months ended June 30, 2011, was $445,585 as compared to a net loss of $775,718 for the three months ended June 30, 2010, a decrease of 43%. Net loss for the six months ended June 30, 2011, was $999,580 as compared to a net loss of $1,061,667 for the six months ended June 30, 2010, a decrease of 6%. The decrease in net loss over the comparable periods can be primarily attributed to decreases in losses from operations during the current three and six month periods. We expect to transition to net income in the near term with anticipated increases in revenue and consistency in operating expenses.
Income Tax Expense (Benefit)
We have 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. Some states do not allow us to file consolidated income tax returns and offset our net operating loss carryforwards against Pinnacles taxable income. When applicable, we record income taxes payable and income tax expense for these states.
Impact of Inflation
We believe that inflation has had a negligible effect on operations over the past three years and that we can offset any inflationary pressures by improving operating efficiencies.
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Capital Expenditures
We made no significant capital expenditures on property or equipment for the six months ended June 30, 2011 or 2010.
Liquidity and Capital Resources
At June 30, 2011 we had a working capital deficit of $232,925.
At June 30, 2011 we had current assets of $1,491,475 that consisted of cash totaling $558,616, accounts receivable of $767,395, estimated earnings in excess of billings on uncompleted contracts of $155,668 and prepaid expenses of $9,796. Our total assets of $2,191,805 included current assets as well as intangible assets of $393,467, property and equipment of $132,677 and other assets of $174,186.
At June 30, 2011 we had current liabilities of $1,724,400 that consisted of accounts payable of $571,459, accrued expenses of $101,492, excess billings on uncompleted contracts of $136,449, a line of credit of $50,000 and the current portion of long-term debt of $865,000. Total liabilities of $2,105,018 include current liabilities as well as long-term debt of $221,018 and accrued expenses of $159,600.
Total stockholders equity was $86,787 as of June 30, 2011.
Cash flows used in operations were $335,064 for the six months ended June 30, 2011 as compared to $382,246 for the six months ended June 30, 2010. The difference in cash flows used in operations over the comparative periods can be primarily attributed to a decrease in net losses, an adjustment to net losses from stock, option, and warrant compensation expenses, and an increase in accounts payable. We expect to realize cash flows provided by operating activities with an anticipated transition to net income in the near term.
Cash flows used in investing activities were $43,063 for the six months ended June 30, 2011 as compared to $12,695 for the six months ended June 30, 2010. Cash flows used in investing activities in the current period are related to amounts paid to acquire the distribution rights of Protrac iD in addition to the purchase of property and equipment. We expect to continue to use cash flows in investing activities in future periods.
Cash flows provided by financing activities were $419,250 for the six months ended June 30, 2011 as compared to $499,103 for the six months ended June 30, 2010. Cash flows provided by financing activities for the current period are attributable to the issuance of common stock for cash and debt instruments offset by payments on long-term debt. We expect to continue to have cash flow provided by financing activities.
We had certain long-term debt obligations as of June 30, 2011:
· Unsecured note payable to Global Convertible Megatrend, Ltd. (Global Megatrend) in the amount of $176,568 bearing interest at 7.5% and due in December 2012. The note may be converted to our common shares, at the option of the holder, based on certain terms related to outstanding shares and per share prices. Accrued interest at June 30, 2011 was $10,123.
· Secured note payable to Paul Higbee in the amount of $465,000 bearing interest at 8%, due on March 31, 2012. Accrued interest at June 30, 2011 was $47,217.
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· Secured promissory note payable to Doug Bartek in the amount of $400,000 bearing interest at 18%, with a final payment of $472,000 on February 25, 2012. The obligation is secured by the stock of our wholly owned subsidiary, Pinnacle. Accrued interest at June 30, 2011 was $24,658, and an unamortized discount of $5,550 at June 30, 2011.
· Unsecured note payable to Bayberry Capital, Inc., in the amount of $50,000 bearing interest at 12% and due in October 2012. The note may be converted to our common shares, at the option of the holder, based on certain terms related to outstanding shares and per share prices. Accrued interest at June 30, 2011 was $1,491.
We have a 2010 Benefit Plan registered under Form S-8 pursuant to which we can issue or option shares of our common stock to employees, directors, officers, consultants or advisors on the terms and conditions set forth therein. As of June 30, 2011 we had granted 885,000 stock options for a two year term at an exercise price of $0.50 a share under the Benefit Plan.
Our current assets are sufficient to maintain operations but insufficient to return to product research, development or manufacture over the next twelve (12) months. We need a minimum of $3,000,000 in debt or equity financing to fund these product related activities, expand our marketing efforts or raise our performance bond capacity, all of which are integral to our business success. Unfortunately, we have no commitments or arrangements for this financing, though management is actively pursuing acceptable arrangements for prospective debt or equity placements. Our inability to obtain financing would have a material adverse affect on our business operations.
We have a $100,000 line of credit with a bank which had a balance due of $50,000 at June 30, 2011. Accrued interest at June 30, 2011 was $13.
We have no commitments for future capital expenditures that were material at June 30, 2011.
We have no defined benefit plan or contractual commitment with any of our officers or directors.
We have no current plans for the purchase or sale of any plant or equipment.
We hired several former employees of 1st Choice during July 2011.
We do not expect to pay cash dividends in the foreseeable future.
Off-Balance Sheet Arrangements
As of June 30, 2011 we have 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 are material to stockholders.
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Going Concern
Our 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 and a working capital deficit. Our ability to continue as a going concern remains dependent on an ability to realize net income and/or obtaining financing from outside sources. Managements plan to address our ability to continue as a going concern includes (i) increases in revenue; (ii) decreases in general and administrative costs; (iii) financing from private placement sources; and (iv) converting outstanding debt to equity. Although we believe that we 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, we discussed those accounting policies that are considered to be significant in determining the results of operations and our financial position. We believe that the accounting principles utilized by us conform to accounting principles generally accepted in the United States. The preparation of financial statements requires our 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, we evaluate estimates. Our estimates are based 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
We generate revenues from product sales, consulting, installation of security systems, and support and maintenance contracts. Our 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 our 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. Due to the 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. We believe that revenue should be recognized at the time of shipment as title passes to the customer at the time of shipment.
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- 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 we have 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 Managements 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 enterprises 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.
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Risks Related to our Business
OUR ABILITY TO CONTINUE AS A GOING CONCERN IS IN QUESTION
Our 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 our ability to continue as a going concern. These factors include an accumulated deficit and working capital deficit.
WE HAVE A HISTORY OF LOSSES AND MAY INCUR LOSSES FOR THE FORESEEABLE FUTURE
We had an accumulated deficit of $8,637,922 as of June 30, 2011 and a net operating loss. We do expect net income in the next twelve months but can provide no assurance to this end. Should we realize net income in the near term we can provide no assurance that we will be able to sustain net income over time.
WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS
We have historically had difficulty producing our products because of cash flow shortages. Though we have recently resumed limited production of our products, our future success depends in a significant part on our ability to evolve our hardware and software and to develop and introduce new products and technologies in response to market demands. If adequate funds are not available, our ability to develop or enhance products and services or otherwise respond to competitive pressures would be significantly limited.
THE VIDEO MONITORING SURVEILLANCE INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND OUR 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 our 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 OUR PRODUCTS IS CRITICAL TO OUR GROWTH
We generate 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.
WE COMPETE WITH LARGER AND BETTER-FINANCED CORPORATIONS
Competition within the international market for video surveillance systems and security integration services is intense. While our products are distinguished by next-generation innovations that are more sophisticated, flexible and cost effective than many competitive products currently in the marketplace, 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.
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WE ARE 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.
WE DEPEND ON ONE MANUFACTURER AND LIMITED SOURCE SUPPLIERS
Pennsylvania-based Strategic Manufacturing Technologies, Inc. currently procures our components and manufactures our video surveillance systems. Our components are purchased for us from such source suppliers as Motorola, Inc., and Analog Devices, Inc. We anticipate that we 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 our business. We currently have no agreement with Strategic Manufacturing Technologies, Inc. for the manufacture of our video surveillance systems.
If our suppliers were unable to provide parts in the volumes needed or at an acceptable price, our manufacturer and we would have to identify and qualify acceptable replacements from alternative sources of supply. If we were unable to obtain these components in a timely fashion, we would likely not be able to meet demand. Any disruption of either component procurement or manufacturing delays could adversely affect our results of operations.
OUR SUCCESS DEPENDS ON THE ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
Our 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 our business prospects, financial condition and results of operations. Our future success also depends on our 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 OUR FINANCIAL CONDITION
Our success also depends significantly on protecting proprietary technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology or products. Monitoring unauthorized use of our 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 we fail or are unable to develop non-infringing technology or license the infringed or similar technology on a timely basis, our business and results of operations could be seriously harmed.
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Recent Sales of Unregistered Securities
On July 5, 2011 we issued 242,385 shares of common stock in exchange for $126,040 in cash or $0.52 per share, in reliance on Section 4(2) of the Securities Act, to the following individuals:
Investor | Shares | Consideration |
Louise Woods | 177,000 | $92,040 |
SeaFin Capital LLC | 65,385 | $34,000 |
Totals | 242,385 | $126,040 |
We made this offering pursuant to Section 4(2) of the Securities Act based on the following factors: (1) the issuances were isolated private transactions which did not involve a public offering; (2) the offerees have access to the kind of information which registration would disclose; and (3) the offerees are financially sophisticated.
On June 5, 2011 we issued 120,000 shares of common stock in exchange for $30,000 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:
Investor | Shares | Consideration |
Dan Traxler | 60,000 | $15,000 |
William R. Bryan | 40,000 | $10,000 |
Ron E. Barker | 20,000 | $5,000 |
Totals | 120,000 | $30,000 |
We 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.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. (REMOVED AND RESERVED)
Removed and reserved.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits on page 27 of this Form 10‑Q/A, and are incorporated herein by this reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ComCam International, Inc. | Date |
/s/ Don Gilbreath By: Don Gilbreath Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Director
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August 31, 2011 |
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EXHIBITS
Exhibit Description
3(i)* Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006).
3(ii)* Bylaws of the Company (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006).
10(i)* Employment Agreement between the Company, ComCam, Inc. and Don Gilbreath dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006).
10(ii)* Amendment and Assignment of Convertible Debenture between the Company and Global Convertible Megatrend, LTD, dated June 30, 2007 (incorporated by reference to the Form 10-K/A filed with the Commission on January 14, 2011).
10(iii)* Joinder, Amendment and Consent Agreement between ComCam, Inc., the Company and HNI, LLC dated September 28, 2007 (incorporated by reference to the Form 10-QSB filed with the Commission on November 14, 2007).
10(iv)* Amendment Agreement dated February 14, 2008 (incorporated by reference to the Form 10-K filed with the Commission on April 14, 2008).
10(v)* Amended and Restated Debenture between the Company and HNI dated July 10, 2009 (incorporated by reference to the Form 10-Q filed with the Commission on January 27, 2010).
10(vi)* Share Purchase Agreement between the Company, Pinnacle Integrated Systems, Inc., Robert Betty and Feng Brown dated December 30, 2009 (incorporated by reference to the Form 8-K filed with the Commission on December 31, 2009).
10(vii)* Secured Promissory Note from Paul Higbee dated March 31, 2010 (incorporated by reference to the Form 10-K/A filed with the Commission on January 14, 2011).
10(viii)* Debt Settlement Agreement between the Company and Paul Higbee dated March 31, 2010 (incorporated by reference to the Form 10-K/A filed with the Commission on January 14, 2011).
10(ix)* Restated Accord and Satisfaction Agreement dated March 24, 2011 (incorporated by reference to the Form 8-K/A filed with the Commission on May 16, 2011.
14* Code of Ethics adopted March 24, 2008 (incorporated by reference to the Form 10-K filed with the Commission on April 14, 2008).
21* Subsidiaries (incorporated by reference to the Form 10-K filed with the Commission on April 16, 2010).
99* Pinnacle Integrated Systems, Inc. audited financial statements for the period ended December 30, 2009 and the years ended December 31, 2008 and 2007 (predecessor to ComCam International, Inc.) (incorporated by reference to the Form 10-KA/2 filed with the Commission on March 9, 2011).
101. INS XBRL Instance Document
101. PRE XBRL Taxonomy Extension Presentation Linkbase
101. LAB XBRL Taxonomy Extension Label Linkbase
101. DEF XBRL Taxonomy Extension Label Linkbase
101. CAL XBRL Taxonomy Extension Label Linkbase
101. SCH XBRL Taxonomy Extension Schema
* Incorporated by reference to previous filings of ComCam International.
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed furnished and not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, or deemed furnished and not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.
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