**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

*(Mark One)*

|   | þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended**March 31, 2008**. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | 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**

(Registrant’s telephone number, including area code)

 

     **N/A** 

(Former name, former address and former fiscal year, if changessince last report)

 

Indicate by check mark whether the registrant: (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days: Yes þ Noo.

 

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company as defined by Rule 12b-2 of the Exchange Act:

| Large accelerated filero | Accelerated filero | Non-accelerated fileroSmaller reporting company þ |
|--------------------------|--------------------|---------------------------------------------------------|

 

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

 

At May 9, 2008, the number of shares outstanding of theregistrant's common stock, $0.0001 par value (the only class of voting stock),was 3,408,354.

 

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**TABLE OF CONTENTS**

**               
**PART I. - FINANCIALINFORMATION**
     **ITEM 1.     FINANCIAL STATEMENTS**  3   Balance Sheets as ofMarch 31, 2008 (unaudited) and December 31, 2007   4   Unaudited Statements of Operations for the three month periods ended March31, 2008 and March 31, 2007 and the period from inception   5   Unaudited Statements of Cash Flows for the three month periods ended March31, 2008 and March 31, 2007 and the period from inception  6   Notes to UnauditedConsolidated Financial Statements  7  **ITEM 2.    Management's Discussion and Analysis of FinancialCondition and Results of Operations**  10  **ITEM 3.    Quantitative and QualitativeDisclosures about Market Risk**  18  **ITEM 4T.  Controls and Procedures**  18                
**PART II. - OTHERINFORMATION**
     **ITEM 1.     Legal Proceedings**  19  **ITEM 1A.  Risk Factors**  19  **ITEM 2.     Unregistered Sales of EquitySecurities and Use of Proceeds**  24  **ITEM 3.     Defaults upon SeniorSecurities**  24  **ITEM 4.     Submission of Matters to aVote of Securities Holders**  24  **ITEM 5.     Other Information**  24  **ITEM 6.     Exhibits**  24  **Signatures**  25 **Index to Exhibits**  26 **
**            2        **

 

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**PART I – FINANCIAL INFORMATION**

 

| **ITEM 1.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

As used herein, the terms “Company,”“we,” “our,” “us,” “it,” and“its” refer to ComCam International, Inc., a Delaware corporation,unless otherwise indicated. In the opinion of management, the accompanyingunaudited financial statements included in this Form 10-Q reflect alladjustments (consisting only of normal recurring accruals)        necessary for a fair presentation of the results of operations for theperiods presented. The results of operations for the periods presented are notnecessarily indicative of the results to be expected for the full year.

 

 

 

 

 

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| COMCAM INTERNATIONAL, INC.                                                                             |
|--------------------------------------------------------------------------------------------------------|
| BALANCE SHEETS                                                                                         |
|                                                                                                   |   | March 31, |   | December 31, |
|                                                                                                   |   | 2008 |   | 2007 |
| ASSETS                                                                                                 |   | (Unaudited) |   | (Audited) |
| Current assets:                                                                                        |   |   |   |   |
| Cash and cash equivalents                                                                              | $ | 13,806 | $ | - |
| Accounts receivable, net                                                                               |   | 8,537 |   | 192,541 |
| Inventories                                                                                            |   | 66,278 |   | 66,278 |
|                                                                                                   |   |   |   |   |
| Total current assets                                                                                   |   | 88,621 |   | 258,819 |
|                                                                                                   |   |   |   |   |
| Property and equipment, net                                                                            |   | 124,045 |   | 127,179 |
| Other assets                                                                                           |   | 2,106 |   | 2,106 |
|                                                                                                   |   |   |   |   |
| Total assets                                                                                           | $ | 214,772 | $ | 388,104 |
|                                                                                                   |   |   |   |   |
| LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                  |   |   |   |   |
| Current liabilities:                                                                                   |   |   |   |   |
| Checks in excess of cash                                                                               | $ | - | $ | 38,931 |
| Accounts payable                                                                                       |   | 297,558 |   | 316,860 |
| Accrued expenses                                                                                       |   | 136,855 |   | 93,805 |
| Embedded derivative liability                                                                          |   | - |   | 69,976 |
| Notes payable                                                                                          |   | 721,568 |   | 707,433 |
|                                                                                                   |   |   |   |   |
| Total current liabilities                                                                              |   | 1,155,981 |   | 1,227,005 |
|                                                                                                   |   |   |   |   |
| Commitments and contingencies                                                                          |   |   |   |   |
|                                                                                                   |   |   |   |   |
| Stockholders' deficit:                                                                                 |   |   |   |   |
| Preferred stock, $.0001 par value; 2,000,000                                                           |   |   |   |   |
| shares authorized, no shares issued and outstanding                                                    |   | - |   | - |
| Common stock, $.0001 par value; 100,000,000 shares authorized, 3,408,354 shares issued and outstanding |   |  

341 |   |  

341 |
| Additional paid-in capital                                                                             |   | 4,537,860 |   | 4,484,289 |
| Retained deficit                                                                                       |   | (5,479,410) |   | (5,323,531) |
| Total stockholders’ deficit                                                                      |   | (941,209) |   | (838,901) |
| Total liabilities and stockholders' deficit                                                            | $ | 214,772 | $ | 388,104 |

 

The accompanying notes are an integral part of these financialstatements

 

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| COMCAM INTERNATIONAL, INC.                    |
|-----------------------------------------------|
| UNAUDITED STATEMENTS OF OPERATIONS            |
| Three Months Ended March 31, 2008 and 2007    |
|                                          |   |   |   |   |
|                                          |   | 2008 |   | 2007 |
|                                          |   |   |   |   |
| Revenues, net                                 | $ | 3,134 | $ | 28,833 |
| Cost of revenues                              |   | 1,381 |   | 5,055 |
|                                          |   |   |   |   |
| Gross profit                                  |   | 1,753 |   | 23,778 |
|                                          |   |   |   |   |
| Operating expenses:                           |   |   |   |   |
| General and administrative expenses           |   | 139,618 |   | 57,887 |
| Research and development expenses             |   | 4,598 |   | 4,250 |
|                                          |   |   |   |   |
|                                          |   | 144,216 |   | 62,137 |
|                                          |   |   |   |   |
| Loss from operations                          |   | (142,463) |   | (38,359) |
|                                          |   |   |   |   |
| Other income (expense):                       |   |   |   |   |
| Interest income                               |   | 194 |   | 39 |
| Interest expense                              |   | (30,015) |   | (27,734) |
| Gain on embedded derivative liability         |   | 16,405 |   | - |
|                                          |   |   |   |   |
|                                          |   | (13,416) |   | (27,695) |
|                                          |   |   |   |   |
| Loss before provision for income taxes        |   | (155,879) |   | (66,054) |
|                                          |   |   |   |   |
| Provision for income taxes                    |   | - |   | - |
|                                          |   |   |   |   |
| Net loss                                      | $ | (155,879) | $ | (66,054) |
|                                          |   |   |   |   |
|                                          |   |   |   |   |
| Net loss per common share - basic and diluted | $ | (0.05) | $ | (0.01) |
|                                          |   |   |   |   |
| Weighted average common and common            |   |   |   |   |
| equivalent shares                             |   | 3,408,354 |   | 5,771,000 |

 

 

Theaccompanying notes are an integral part of these financial statements

 

5

 

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| COMCAM INTERNATIONAL, INC.                          |
|-----------------------------------------------------|
| UNAUDITED STATEMENTS OF CASH FLOWS                  |
| Three Months Ended March 31, 2008 and 2007          |
|                                                |   |   |   |   |
|                                                |   | 2008 |   | 2007 |
| Cash Flows from operating activities:               |   |   |   |   |
| Net loss                                            | $ | (155,879) | $ | (66,054) |
| Adjustments to reconcile net loss to net cash       |   |   |   |   |
| provided by (used in) operating activities:         |   |   |   |   |
| Depreciation and amortization                       |   | 3,134 |   | 843 |
| Accretion - debenture interest expense              |   | 14,135 |   | - |
| Gain on embedded derivative liability               |   | (16,405) |   | - |
| Provision for losses on accounts receivable         |   | - |   | 2,000 |
| Provision for obsolete inventories                  |   | - |   | 5,000 |
| (Increase) decrease in:                             |   |   |   |   |
| Accounts receivable                                 |   | 184,004 |   | 767 |
| Inventories                                         |   | - |   | 75 |
| Increase (decrease) in:                             |   |   |   |   |
| Accounts payable                                    |   | (19,302) |   | (38,434) |
| Accrued expenses                                    |   | 43,050 |   | 56,665 |
|                                                |   |   |   |   |
| Net cash provided by (used in) operating activities |   | 52,737 |   | (39,138) |
|                                                |   |   |   |   |
| Cash flows from investing activities:               |   | - |   | - |
|                                                |   |   |   |   |
| Cash flows from financing activities:               |   |   |   |   |
| Checks in excess of cash                            |   | (38,931) |   | - |
| Increase in notes payable                           |   | - |   | 40,000 |
|                                                |   |   |   |   |
| Net cash provided by (used in) financing activities |   | (38,931) |   | 40,000 |
|                                                |   |   |   |   |
| Net increase (decrease) in cash                     |   | 13,806 |   | 862 |
|                                                |   |   |   |   |
| Cash, beginning of period                           |   | - |   | 5,697 |
|                                                |   |   |   |   |
| Cash, end of period                                 | $ | 13,806 | $ | 6,559 |

 

The accompanying notes are an integral part of these financialstatements

 

6

 

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COMCAM INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

March 31, 2008

 

Note 1 – Basis of Presentation

 

The accompanying unaudited financial statements have beenprepared by management in accordance with the instructions in Form 10-Q and,therefore, do not include all information and footnotes required by generallyaccepted accounting principles and should, therefore, be read in conjunctionwith the Company’s Form 10-K. These statements do include all normalrecurring adjustments which the Company        believes necessary for a fair presentation of the statements. Theinterim results of operations are not necessarily indicative of the results tobe expected for the full year ended December 31, 2008.

 

Note 2 – Additional Footnotes Included By Reference

 

Except as indicated in the notes above, there have been no othermaterial changes in the information disclosed in the notes to the financialstatements included in the Company’s Form 10-K for the year-ended December31, 2007. Therefore, those footnotes are included herein by reference.

 

Note 3 – Going Concern

 

As of March 31, 2008, the Company has limited revenue generatingactivities in place and the Company has incurred losses since inception. Thesefactors raise substantial doubt about the Company’s ability to continue asa going concern.

 

Management intends to seek additional equity and debt funding toexpand marketing efforts and product development. There can be no assurance thatsuch funds will be available to the Company nor that the marketing and productdevelopment efforts will be successful.

 

 

 

 

 

 

 

 

 

 

 

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COMCAM INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

March 31, 2008

 

 

Note 4 – Notes Payable

 

Notes payable consist of the following:

|   | March 31, | December 31, |
|--------|-----------|--------------|

|   | 2008 | 2007 |
|--------|------|------|

|   | Notes payable to Paul Higbee, bearing interest |
|--------|------------------------------------------------|

|   | at 8%, due on demand, secured by the intellectual |
|--------|---------------------------------------------------|

|   | property of the Company. | $ | 395,000 | 395,000 |
|--------|--------------------------|---|---------|---------|

 

|   | Unsecured note payable to Global Megatrend, |
|--------|---------------------------------------------|

|   | bearing interest at 7.5% and due on demand. |
|--------|---------------------------------------------|

|   | 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 |
|--------|-----------------------|---------|---------|

 

|   | Convertible debenture to HNI, LLC of $125,000, |
|--------|------------------------------------------------|

|   | bearing interest at 7%, due on February 14, 2009, |
|--------|---------------------------------------------------|

|   | net of embedded derivative discount of $0 and |
|--------|-----------------------------------------------|

|   | $14,135 (see Note 5). | 125,000 | 110,865 |
|--------|-----------------------|---------|---------|

 

|   | Convertible unsecured note payable to Robert |
|--------|----------------------------------------------|

|   | Emmet, bearing interest at 6%, and due on demand. |
|--------|---------------------------------------------------|

|   | The note may be converted into common shares of |
|--------|-------------------------------------------------|

|   | the Company at $.35 per share and contains a |
|--------|----------------------------------------------|

|   | provision which allows the Company to call for the |
|--------|----------------------------------------------------|

|   | conversion at anytime. | 25,000 | 25,000 |
|--------|------------------------|--------|--------|

 

|   | $ | 721,568 | 707,433 |
|--------|---|---------|---------|

 

 

 

 

 

 

 

 

 

 

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COMCAM INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

March 31, 2008

 

 

Note 5 – Convertible Debenture and Embedded Derivative toHNI, LLC

 

On February 14, 2008, the Company entered into an amendmentagreement with HNI, LLC. The convertible debenture to HNI, LLC, as amended,accrues interest at 7% per annum, is due on February 14, 2009, and isconvertible into 138,834 shares. As a result of the new conversion provisionsset forth in the amendment agreement, the embedded derivative liability wasremoved.

 

The Company analyzed the Debenture based on the provisions ofEITF 00-19 and determined that the original conversion option of the Debenturequalified it as an embedded derivative. Information related to the recognitionof the embedded derivative is as follows:

 

Embedded Derivative

 

The fair value of the embedded derivative was determined to be$113,080 and was recorded as an embedded derivative liability. The embeddedderivative is revalued at the end of each reporting period and any resultinggain or loss is recognized as a current period charge to the statement ofoperations. Upon issuance the fair value was calculated using the Black-Scholesoption pricing model with the following        factors, assumptions and methodologies:

 

|   | **•** | The fair value of the Company’s common stock was calculated to be $.017 per share. |
|--------|------------|------------------------------------------------------------------------------------------|

|   | **•** | A volatility of 149% was calculated by using the Company’s closing stock prices since May 2006. |
|--------|------------|-------------------------------------------------------------------------------------------------------|

|   | **•** | The exercise price was $.0119. This amount was determined based on 30% off the most recent closing bid price immediately preceding the issuance date. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | The estimated life was determined to be 1 year, which is equal to the contractual life of the embedded derivative. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------|

|   | **•** | The risk free interest rate was determined to be 5.06% based on the 1-year treasury rate. |
|--------|------------|-------------------------------------------------------------------------------------------|

 

Note 6 – Supplemental Cash Flow Information

 

During the three months ended March 31, 2008, the Companyincreased additional paid-in capital and decreased its embedded derivative by$53,571 due to the termination of the embedded derivative.

 

Note 7 – Recent Accounting Pronouncements

 

In March 2008, the FASB issued SFAS 161 which amends and expandsthe disclosure requirements of SFAS 133 to provide an enhanced understanding ofan entity’s use of derivative instruments, how they are accounted forunder SFAS 133 and their effect on the entity’s financial position,financial performance and cash flows. The provisions of SFAS 161 are effectivefor the period beginning after        November 15, 2008. The Company is currently reviewing the effect thatthe adoption of this statement will have on our financial statements.

 

9

 

 

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| **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

This*Management’s Discussion andAnalysis of Financial Condition and**Results ofOperations*and other parts of this quarterly reportcontain forward-looking statements that involve risks and uncertainties.Forward-looking statements can also be identified by words such as“anticipates,” “expects,”        “believes,” “plans,” “predicts,” andsimilar terms. Forward-looking statements are not guarantees of futureperformance and our actual results may differ significantly from the resultsdiscussed in the forward-looking statements. Factors that might cause suchdifferences include but are not limited to those discussed in the subsectionentitled*Forward-Looking Statements and Factors ThatMay Affect Future Results and Financial        Condition*below. The following discussionshould be read in conjunction with our financial statements and notes theretoincluded in this report. Our fiscal year end is December 31. All informationpresented herein is based on the three month period ended March 31, 2008.

 

**Discussion and Analysis**

**General**

 

The Company develops network video command-and-control productswith asset tracking and provides a distributed platform for analysis, controland management in mobile and rapid deployment markets.  The Company offerssolutions and technical services to U.S. government agencies, Fortune 500companies, research facilities, original equipment manufacturers and systemsintegrators worldwide.

 

Products include propriety cameras and video convertersprogrammable for analysis and behaviors. We specialize in software and systemsutilizing our hardware platform for command and control applications from rapiddeployment military use to residential and commercial security and accessapplications. Our services include systems design and end-to-end management ofthese systems.

 

All of our software is copyrighted, developed in-house, andlicensed to customers in connection with sales of our hardware.  Inaddition, some software is additionally protected under two Company ownedpatents:

 

|   | **•** | 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.” |
|--------|------------|---------------------------------------------------------------------------------------------------------------------|

 

Our company name “COMCAM” is also trademarked.

 

**Discussion and Analysis**

 

Our financial condition and results of operations dependprimarily on revenue generated from the sale of our products and by providingspecialized services. In addition, our financial condition is tied to ourability to realize additional debt or equity financing in combination withstability in administrative expenses. There can be no assurance that an increasein sales of our products or any other sources        of revenue will provide sufficient cash flows in the near term tosustain our operations and we have no commitments for additional debt or equityfinancing. Since the Company does not expect to generate sufficient cash flow inthe short term, we are currently seeking financing as a means to bridge the gapbetween operational losses and expenses. We can provide no assurance that ourefforts will be successful.

 

 

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The Company’s business development strategy is prone tosignificant risks and uncertainties which can have an immediate impact onefforts 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 anindication of continued growth and a historical record of incurring losses.Should we be unable to consistently        generate revenue and reduce or stabilize expenses to the point where wecan realize net cash flow, such failure will have an immediate impact on ourability to continue our business operations.

 

Strategy 

 

The Company remains focused on numerous domestic andinternational sales opportunities with businesses and organizations that havepurchased our products in the past, including the following: 

 

|   | **•** | United States agencies: our products are currently being deployed with Immigration and Customs Enforcement (ICE) at the General Service Administration facility located in lower Manhattan, New York City. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | United States agencies: products sold to U.S. agencies have been used for testing purposes, including: |
|--------|------------|--------------------------------------------------------------------------------------------------------|

|   | (a) | the Coast Guard and Navy which funded the University of South Florida for remote underwater operating vehicles and purchased 10 camera systems between 2002 and the present, |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Naval Undersea Warfare Center who purchased 16 camera systems for classified purposes in 2003, |
|--------|-----|------------------------------------------------------------------------------------------------|

|   | (c) | the FBI through Photech, Inc., who purchased 4 camera systems for undisclosed surveillance monitoring in 2004, |
|--------|-----|----------------------------------------------------------------------------------------------------------------|

|   | (d) | National Oceanic and Atmospheric Administration (Department of Commerce) and the Fish and Wildlife Service (Department of the Interior) who each purchased 1 camera system in October 2005, and |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Department of Interior who purchased several camera systems in 2001 to secure certain historic buildings in Independence Park, Philadelphia; and State agencies: the Washington Fish and Wildlife Service purchased 1 camera system in October 2005. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | United States corporations: units sold to private US companies for both research purposes and for implementation, including: |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | DRS/Night Vision Systems for various purposes and purchased 5 microserver systems between 2006 and the present, and provide engineering services; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Henry Brothers for installation at JFK Airport and purchased 3 microserver systems; |
|--------|-----|-------------------------------------------------------------------------------------|

|   | (c) | IBM for loss-prevention purpose at its corporate facility in Raleigh, NC, purchased 3 microserver systems. |
|--------|-----|------------------------------------------------------------------------------------------------------------|

|   | **•** | Various South America and North Africa integrators: port security and various wireless applications including two companies in Cartagena, Columbia, who purchased 11 professional lens camera systems since 2003 for testing in a port security project. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Additionally, the Company intends to pursue numerous new domesticand international sales opportunities to generate increased revenue, includingthe following: 

 

|   | **•** | DRS/Night Vision Systems has provided engineering services for their Perceptor camera line and it has incorporated our microservers and software to support trials for the military projects. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Digi-Data Corporation has signed a letter of intent to pursue mutually advantageous business opportunities. |
|--------|------------|-------------------------------------------------------------------------------------------------------------|

|   | **•** | EG&G has included the Company in design bids for wireless configurations on military contracts. |
|--------|------------|-----------------------------------------------------------------------------------------------------|

 

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|   | **•** | OLogic has included the Company in design of robotic based command-and-control system. |
|--------|------------|----------------------------------------------------------------------------------------|

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

|   | **•** | Symbol/Motorola has made the Company a strategic sales partner for command-and-control and video display on mobile enterprise devices. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------|

 

Marketing overtures through DRS/Night Vision, Siemans MaintenanceServices, LLC, and Symbol/Motorola have not resulted in sales to date. All ofthe above are examples of potential future customers that may contribute to anincrease in the Company’s revenues. Additionally, we plan to implement anaggressive marketing and sales campaign to reach a broader market for ourproducts.

 

While maintaining direct sales relations with many of itshistoric customers (e.g., DRS), the Company has also focused our sales effortson serving as an original equipment manufacturer (OEM) for strategic resellers,to serve as a research and development partner, and to develop a network ofdealers, resellers and system integrators with differing targeted marketexpertise. As an OEM, the Company has        established a strategic reseller alliance with Symbol/Motorola for thedevelopment of integrated solutions to take advantage of its MotoMESH networkarchitecture.

 

The Company is offering a series of specialized“solution” bundles to be sold into the marketplace by selectdistributors, including: 

 

|   | **•** | AAID Security Solutions, Peachtree City, GA -- for the distribution of the RFID Biometric Access System. |
|--------|------------|----------------------------------------------------------------------------------------------------------|

|   | **•** | Remote Eyes, Laurel, MD – distribution of the CCTV Upgrade Kit (Limited System). |
|--------|------------|----------------------------------------------------------------------------------------|

|   | **•** | ScanSource, Greenville, SC – distributor of the CCTV Wireless Upgrade Kit (Full System). |
|--------|------------|------------------------------------------------------------------------------------------------|

|   | **•** | Susquehanna Computer Innovations, South Williamsport, PA – for distribution of the Integrated Command-&-Control Van. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------|

 

Individual dealers, resellers and system integrators have begunto offer company-based solutions to their respective sales channels.

 

The Company’s marketing plan provides that we will:

 

|   | **•** | promote our products and services through our website; |
|--------|------------|--------------------------------------------------------|

|   | **•** | promote our accomplishments through regular press releases distributed by a PR Newswire that reaches both the financial press and the specialized industry-sector press. We maintain an online mailing list of three thousand names and each release is sent to contacts on the list; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | attend leading industry events, including trade conferences and seminars, often with a strategic partner; two recent events include FenceTech 2007 with AAID, to introduce its “RFID Biometric Access System,” and CES 2007 with OLogic, to participate at “Robotics TechZone” to demonstrate a video command-and-control system;                        and |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | support our strategic partners by participating in planning sessions and other events. |
|--------|------------|----------------------------------------------------------------------------------------|

 

Further, we intend to: 

 

|   | **•** | retain a professional investor relations / public relations firm to launch an aggressive re-branding awareness campaign targeted to both our core sales channels (e.g., security surveillance, video networking) as well as the investor community (e.g., market makers and research analysts); and |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   | **•** | revise our corporate identity (e.g., logo), website and print materials: in line with overall corporate repositioning, we will revise and refresh our core branding elements to maximize their positioning message as a technology leader not only in video surveillance but also toward wireless networking; through these efforts, we will be able to manage sales                        growth as well as take advantage of new opportunitiesincluding customized solutions that resellers bring to us. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Results of Operations**

 

During the three month period ended March 31, 2008 we wereengaged in the ongoing development and sale of our*Internet Protocol*remote control platform cameras,micro servers, associated software, and unique end-to-end network solutions.

 

***Revenue***

 

Revenue for the three month period ended March 31, 2008 decreasedto $3,134 from $28,833 for the three month period ended March 31, 2007, adecrease of 89%. The decrease in revenue over the comparative three monthperiods can be attributed to our inability to bond certain contracts whichinability can result in sporadic revenue from one period to another. The Companyexpects revenue to increase overall        during the next twelve months as it is pursuing several differentoptions to facilitate bonding of prospective contracts.

 

***Losses***

 

Net losses for the three month period ended March 31, 2008increased to $155,879 from $66,054 for the three month period ended March 31,2007, an increase of 136%. The increase in net losses over the comparative threemonth periods is primarily due to the decrease in revenue and the increase ingeneral and administrative expenses. The Company expects to continue to incur anet loss over the next twelve        months that will decrease as revenues increase.

 

***Expenses***

 

Cost of revenues for the three month period ended March 31, 2008decreased to $1,381 from $5,055 for the three month period ended March 31, 2007.The decrease in the cost of revenue over the comparative three month periods canbe attributed to a decrease in costs associated with the decrease in revenueover the periods. The Company expects the cost of revenues to increase asrevenues are expected to increase        over the next twelve months.

 

General and administrative expenses for the three month periodended March 31, 2008 increased to $139,618 from $57,887 for the three monthperiod ended March 31, 2007, an increase of 141%. The increase in general andadministrative expenses over the comparative three month periods is attributableto increases in consulting and professional fees. The Company expects thatgeneral and administrative expenses        will remain relatively consistent over the next twelve months.

 

Research and development expenses for the three month periodended March 31, 2008 increased to $4,598 from $4,250 for the three month periodended March 31, 2007, an increase of 8%.The small increase in research anddevelopment expenses over the comparative three month periods is due to limitedfinancial resources. The Company expects that research and development expenseswill increase over the next twelve        months subject to the availability of financial resources dedicated forthese purposes.

 

Depreciation and amortization expenses for the three monthperiods ended March 31, 2008 and 2007 were $3,134 and $843, respectively.

 

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***Income Tax Expense (Benefit)***

 

The Company has an income tax benefit resulting from netoperating losses to offset any future operating profit. The net operating losscarry forwards at December 31, 2007, consisted of approximately $5,140,000 whichwill begin to expire in the year 2019. The amount of net operating loss carryforwards that can be used in any one year can be limited by significant changesin the ownership of the Company and        by the applicable tax laws which are in effect at the time such carryforwards are utilized.

 

***Impact of Inflation***

 

The Company believes that inflation has had a negligible effecton operations over the past three years. We believe that we can offsetinflationary increases in the cost of materials and labor by increasing salesand improving operating efficiencies.

 

***Capital Expenditures***

 

The Company made no significant capital expenditures on propertyor equipment for the three month periods ended March 31, 2008 or 2007.

 

***Liquidity and Capital Resources***

 

Cash flow provided by operations for the three month period endedMarch 31, 2008 was $52,737, as compared to cash flow used in operations of$39,138 for the three months ended March 31, 2007. The transition to cash flowsprovided by operations in the three month period ended March 31, 2008 can beprimarily attributed to the decrease in accounts receivable. The Company expectsto continue to provide cash flow        from operations as net losses decrease.

 

Cash flows used in investing activities was $0 for the threemonth periods ended March 31, 2008 and March 31, 2007. The Company expects touse cash flow in investing activities in future periods.

 

Cash flow used in financing activities was $38,931 for the threemonth period ended March 31, 2008, as compared to cash flow provided byfinancing activities of $40,000 for the three months ended March 31, 2007. Cashflow used in financing activities in the three month period ended March 31, 2008can be attributed to post dated checks. The Company expects to generate cashflow from financing activities in        future periods.

 

The Company had a working capital deficit of $1,067,360 as ofMarch 31, 2008 as compared to a working capital deficit of $968,186 as ofDecember 31, 2007. On March 31, 2008 the Company had notes payable of $721,568,accounts payable of $297,558 and accrued expenses of $136,855. The Company had$13,806 in cash, net accounts receivable of $8,537 and inventories of $66,278 asof March 31, 2008.

 

We do not have sufficient current assets or operational cash flowto meet our current obligations or satisfy cash needs over the next twelvemonths and will be required to pursue debt or equity financing to maintainoperations. Sources for such prospective financing may consist of loans fromshareholders, the sale of common stock or other equity instruments, or loansfrom other sources. Although we have        funded our cash needs from inception from revenue, sales of our equity,and a series of debt transactions we can provide no assurance that we will beable to obtain the required financing.

 

The Company had no formal long-term lines or credit or other bankfinancing arrangements as of March 31, 2008.

 

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Since earnings, if any, will be reinvested in operations, theCompany does not expect to pay cash dividends in the foreseeable future.

 

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

 

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

 

***Off Balance Sheet Arrangements***

 

As of March 31, 2008, the Company has no significant off-balancesheet arrangements that have or are reasonably likely to have a current orfuture effect on our financial condition, changes in financial condition,revenues or expenses, results of operations, liquidity, capital expenditures, orcapital resources that is material to stockholders.

 

***Going Concern***

The Company’s auditors have expressed an opinion as to ourability to continue as a going concern as a result of an accumulated deficit of$5,323,531 as of December 31, 2007 which increased to $5,479,410 as of March 31,2008. Our ability to continue as a going concern is subject to the ability ofthe Company to obtain a profit and/or obtaining the necessary funding fromoutside sources.        Management’s plan to address the Company’s ability tocontinue as a going concern, includes (i) increasing revenues; (ii) obtainingfunding from private placement sources; (iii) obtaining funding from the sale ofthe Company’s securities; (iv) obtaining loans from shareholders asnecessary, and (v) converting outstanding debt to equity. Although managementbelieves that it will be able to obtain the necessary funding to allow theCompany to remain a going concern        through the methods discussed above, there can be no assurances thatsuch methods will prove successful.

 

***Critical Accounting Policies***

 

In Note 1 to the audited financial statements for the years endedDecember 31, 2007 and 2006, included in our Form 10-K, the Company discussesthose accounting policies that are considered to be significant in determiningthe results of operations and its financial position. The Company believes thatthe accounting principles utilized by it conform to accounting principlesgenerally accepted in the United        States. The preparation of financial statements requires Companymanagement to make significant estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses. By their nature, thesejudgments are subject to an inherent degree of uncertainty. On an on-goingbasis, the Company evaluates estimates. The Company bases its estimates onhistorical experience and other facts and circumstances that are believed to bereasonable, and the results form the        basis for making judgments about the carrying value of assets andliabilities. The actual results may differ from these estimates under differentassumptions or conditions.

 

***Revenue Recognition***

 

We generate revenue through the sale of our products to theprivate, commercial, industrial and governmental sectors of the securityindustry. Revenue from product sales is recognized at the time the product isshipped and invoiced and collectibility is reasonably assured. The Companybelieves that revenue should be recognized at the time ofshipment as title passes to the customer at the time        of shipment.

 

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***Forward Looking Statements and Factors That May Affect FutureResults and Financial Condition***

 

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

 

|   | **•** | our anticipated financial performance and business plan; |
|--------|------------|----------------------------------------------------------|

|   | **•** | the sufficiency of existing capital resources; |
|--------|------------|------------------------------------------------|

|   | **•** | our ability to raise additional capital to fund cash requirements for future operations; |
|--------|------------|------------------------------------------------------------------------------------------|

|   | **•** | uncertainties related to the Company’s future business prospects; |
|--------|------------|-------------------------------------------------------------------------|

|   | **•** | our ability to generate revenues from future operations; |
|--------|------------|----------------------------------------------------------|

|   | **•** | the volatility of the stock market and; |
|--------|------------|-----------------------------------------|

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

 

We wish to caution readers that our operating results are subjectto various risks and uncertainties that could cause our actual results to differmaterially from those discussed or anticipated, including the factors set forthin the section entitled*Risk Factors*included elsewhere in this report. We also wish to advise readersnot 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 toreflect new events or circumstances or any changes in our beliefs orexpectations, other than as required by law.

 

***Stock-Based Compensation***

 

On January 1, 2006, we adopted SFAS No. 123 (revised 2004) (SFASNo. 123R), Share-Based Payment, which addresses the accounting for stock-basedpayment transactions in which an enterprise receives employee services inexchange for (a) equity instruments of the enterprise or (b) liabilities thatare based on the fair value of the enterprise’s equity instruments or thatmay be settled by the issuance of        such equity instruments. In January 2005, the Securities and ExchangeCommission (Commission) issued Staff Accounting Bulletin (SAB) No. 107, whichprovides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123Reliminates the ability to account for stock-based compensation transactionsusing the intrinsic value method under Accounting Principles Board (APB) OpinionNo. 25, Accounting for Stock Issued to Employees, and instead generally requiresthat such transactions be        accounted for using a fair-value-based method. We use theBlack-Scholes-Merton (“BSM”) option-pricing model to determine thefair-value of stock-based awards under SFAS No. 123R, consistent with that usedfor pro forma disclosures under SFAS No. 123, Accounting for Stock-BasedCompensation. We have elected the modified prospective transition method aspermitted by SFAS No. 123R and accordingly prior periods have not been restatedto reflect the impact of SFAS No. 123R. The        modified prospective transition method requires that stock-basedcompensation expense be recorded for all new and unvested stock options,restricted stock, restricted stock units, and employee stock purchase planshares that are ultimately expected to vest as the requisite service is renderedbeginning on January 1, 2006, the first day of our fiscal year 2006. Stock-basedcompensation expense for awards granted prior to January 1, 2006 isbased on the grant date        fair-value as determined under the pro forma provisions of SFAS No. 123.

 

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Prior to the adoption of SFAS No. 123R, we measured compensationexpense for our employee stock-based compensation plans using the intrinsicvalue method prescribed by APB Opinion No. 25. We applied the disclosureprovisions of SFAS No. 123 as amended by SFAS No. 148, Accounting forStock-Based Compensation – Transition and Disclosure, as if thefair-value-based method had been applied in measuring        compensation expense. Under APB Opinion No. 25, when the exercise priceof the Company’s employee stock options was equal to the market price ofthe underlying stock on the date of the grant, no compensation expense wasrecognized.

 

We account for equity instruments issued in exchange for thereceipt of goods or services from other than employees in accordance with SFASNo. 123 and the conclusions reached by the Emerging Issues Task Force(“EITF”) in Issue No. 96-18. Costs are measured at the estimatedfair market value of the consideration received or the estimated fair value ofthe equity instruments issued, whichever is        more reliably measurable. The value of equity instruments issued forconsideration other than employee services is determined on the earliest of aperformance commitment or completion of performance by the provider of goods orservices as defined by EITF 96-18.

 

***Recent Accounting Pronouncements***

 

In March 2008, the FASB issued SFAS 161 which amends and expandsthe disclosure requirements of SFAS 133 to provide an enhanced understanding ofan entity’s use of derivative instruments, how they are accounted forunder SFAS 133 and their effect on the entity’s financial position,financial performance and cash flows. The provisions of SFAS 161 are effectivefor the period beginning after        November 15, 2008. The Company is currently reviewing the effect, ifany, that the adoption of this statement will have on our financial statements.

 

In December 2007, the FASB issued SFAS No. 160,“Non-controlling interests in Consolidated Financial Statements – Anamendment of ARB No. 51.” This statements’ objective is to improvethe relevance, comparability, and transparency of the financial information thata reporting entity provides in its consolidated financial statements byestablishing accounting and reporting standards        that require ownership interests in the subsidiaries held by partiesother than the parent be clearly identified. The adoption of SFAS 160 did nothave an impact on the Company’s financial statements.

 

In December 2007, the FASB issued SFAS No. 141 (revised),“Business Combinations.” This revision statement’s objectiveis to improve the relevance, representational faithfulness, and comparability ofthe information that a reporting entity provides in its effects on recognizingidentifiable assets and measuring goodwill. The adoption of SFAS 141 (revised)did not have an impact on the        Company’s financial statements.

 

In February 2007, the FASB issued SFAS 159, “The Fair ValueOption for Financial Assets and Financial Liabilities.” SFAS 159 creates afair value option allowing an entity to irrevocably elect fair value as theinitial and subsequent measurement attribute for certain financial assets andfinancial liabilities, with changes in fair value recognized in earnings as theyoccur. SFAS 159 also requires        an entity to report those financial assets and financial liabilitiesmeasured at fair value in a manner that separates those reported fair valuesfrom the carrying amounts of assets and liabilities measured using anothermeasurement attribute on the face of the statement of financial position.Lastly, SFAS 159 requires an entity to provide information thatwould allow users to understand the effect on earnings of changes in the fairvalue on those instruments selected for        the fair value election. SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007 with early adoption permitted. The Company iscontinuing to evaluate SFAS 159 and to assess the impact on our results ofoperations and financial condition if an election is made to adopt the standard.

 

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In January 2007, we adopted FIN 48. FIN 48 clarifiesthe accounting for uncertain taxes recognized in an enterprise's financialstatements in accordance with SFAS No. 109, "*Accounting for Income Taxes."*FIN 48 prescribes arecognition threshold and measurement of a tax position taken or expected to betaken in an enterprise's tax return.        In addition, FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods anddisclosure related to uncertain income tax positions.

 

| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|-------------|----------------------------------------------------------------|

 

Not required.

 

| **ITEM 4T.** | **CONTROLS AND PROCEDURES** |
|--------------|-----------------------------|

 

**Management's Report on Internal Control over Financial Reporting**

 

The Company’s management, including our chief executiveofficer and chief financial officer, is responsible for establishing andmaintaining adequate internal control over our financial reporting. Internalcontrol over financial reporting is a process designed by, or under thesupervision of, our chief executive and chief financial officers and implementedby our board of directors, management and        other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that: (i) pertain tothe maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of our assets; (ii) providereasonable assurance that transactions are        recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that our receiptsand expenditures are being made only in accordance with authorizations of ourmanagement and directors; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof our assets that could have a material effect on the financial statements.Because of their inherent        limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

Under the supervision and with the participation of ourmanagement, including our principal executive officer and principal financialofficer, we conducted an evaluation of the effectiveness of our internal controlover financial reporting based on the framework in*Internal Control* *—Integrated Framework*issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. Based on our evaluation, our management concluded thatour internal control over financial reporting was effective as of March 31,2008.

 

**Changes in Internal Controls over Financial Reporting**

During the period ended March 31, 2008, there has beenno change in internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect our internal control overfinancial reporting**.**

 

 

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**PART II – OTHER INFORMATION**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

None.

 

| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

Our future operating results are highly uncertain. Beforedeciding to invest in us or to maintain or increase your investment, you shouldcarefully consider the risks described below, in addition to the otherinformation contained in this quarterly report. If any of these risks actuallyoccur, our business, financial condition or results of operations could beseriously harmed. In that event, the market        price for our common stock could decline and you may lose all or part ofyour investment.

 

**Risks Related to the Company’s Business**

 

*THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN IS INQUESTION*

 

The Company’s auditors included an explanatory statement inparagraph 4 of their report on our financial statements for the years endedDecember 31, 2007 and 2006, stating that there are certain factors which raisesubstantial doubt about the Company’s ability to continue as a goingconcern. These factors include limited revenue generating activities in place,and losses since        inception.

 

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

 

The Company had an accumulated deficit of $5,323,531 as ofDecember 31, 2007. We do not expect to achieve profitability in the next twelvemonths and can provide no assurances that we will ever achieve profitability orin the event that we do achieve profitability that we will be able to sustainthat profitability over time.

 

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

 

As of March 31, 2008, the Company had a working capital deficitof $1,067,360. We do not expect to generate sufficient cash flow from operationsto cover our expenditures until the end of 2009. Until the point at which cashflow from operations can match expenditures we will have to obtain additionalworking capital from debt or equity placements to effectively continue ouroperations. However, we have no        commitment for the provision of additional working capital. Should we beunable to secure additional capital to cover our short fall in cash flow, suchcondition would cause us to reduce expenditures which could have a materialadverse effect on our business.

 

*THE COMPANY MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS*

 

We have historically had difficulty producing our productsbecause of cash flow shortages. Though we have recently resumed the productionof our products, our future success depends in a significant part on our abilityto evolve our hardware and software and to develop and introduce new productsand technologies in response to market demands. If adequate funds are notavailable, the Company’s ability        to develop or enhance products and services or otherwise respond tocompetitive pressures would be significantly limited.

 

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*THE VIDEO MONITORING SURVEILLANCE INDUSTRY IS SUBJECT TO RAPIDTECHNOLOGICAL CHANGE AND THE COMPANY'S PRODUCTS COULD BECOME OBSOLETE AT ANYTIME*

 

Evolving technology, updated industry standards, and frequent newproduct and service introductions characterize the video surveillance market;our products could become obsolete at any time. Competitors could developproducts similar to or better than our own, finish development of newtechnologies in advance of the Company’s research and development, or bemore successful at marketing new products,        any of which factors may hurt our prospects for success.

 

*THE MARKET ACCEPTANCE OF THE COMPANY’S PRODUCTS IS CRITICALTO THE COMPANY’S GROWTH*

 

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

 

*THE COMPANY COMPETES WITH LARGER AND BETTER-FINANCED CORPORATIONS*

 

Competition within the international market for fixed and mobilecommercial video cameras and other equipment communication systems is intense.While the Company’s products are distinguished by next-generationinnovations that are more sophisticated, flexible and cost effective than manycompetitive products currently in the market place, a number of entities offervideo surveillance systems, and new        competitors may enter the market in the future. Some of our existing andpotential competitors have longer operating histories, greater name recognition,larger customer bases and significantly greater financial, technical andmarketing resources than we do, including well known multi-national corporationslike Sony and JVC.

 

*THE COMPANY IS LARGELY DEPENDENT UPON FEW CUSTOMERS*

 

During the year ended December 31, 2007, one customer, the U.S.Department of Homeland Security’s Immigration and Customs Enforcement,accounted for over 95% of our net sales through work contracted to a third partyvendor. The loss of this customer could have an adverse effect on our business.

 

We have in the past, and may in the future, lose our customers ora substantial portion of our business with one or more major customers. If we donot sell products to our existing customers in the quantities anticipated, or ifour customers reduce or terminate their relationships with us, market perceptionof our products and technology, growth prospects, and financial condition andresults of operations        could be harmed. Any termination of our relationship with our largestcustomer or any other customers could materially reduce our revenue.

 

*THE COMPANY DEPENDS UPON ONE MANUFACTURER AND LIMITED SOURCESUPPLIERS*

 

Pennsylvania-based Strategic Manufacturing Technologies, Inc.currently procures our components and manufactures our video surveillancesystems. Our components are purchased for us from such source suppliers asMotorola, Inc., and Analog Devices, Inc. We anticipate that the Company willcontinue to depend upon one or few manufacturers, as well as a limited number ofsource suppliers, which dependence,        reduces the level of control we have and exposes us to significant riskssuch as inadequate capacity, late delivery, substandard quality and higherprices, all of which could adversely affect the Company’s business. Wecurrently have no agreement with Strategic Manufacturing Technologies, Inc. forthe manufacture of our video surveillance systems.

 

 

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If our suppliers were unable to provide parts in the volumesneeded or at an acceptable price, our manufacturer and the Company would have toidentify and qualify acceptable replacements from alternative sources of supply.If the Company was unable to obtain these components in a timely fashion, itwould likely not be able to meet demand. Any disruption of either componentprocurement or manufacturing delays        could adversely affect the Company’s results of operations.

 

*OUR CHIEF EXECUTIVE OFFICER MAY NOT BE ABLE TO OFFER HISUNDIVIDED ATTENTION TO THE COMPANY*

 

Don Gilbreath serves as our chief executive officer and also asthe chief executive officer of ComCam, Inc. Mr. Gilbreath’s dualresponsibilities cause him to divide his time between two corporations withdisparate interests. Currently, Mr. Gilbreath devotes significant time to themarketing of our products and services. However, ComCam, Inc. may increase itseffort to seek out unrelated business        opportunities in the technology sector, which pursuit will reduce theamount of time Mr. Gilbreath currently spends on the development of ourbusiness.

 

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

 

The Company’s future success will depend substantially onthe continued services and performance of Don Gilbreath and other key personnel.We have relatively few senior personnel, and so the loss of the services of DonGilbreath or any other key employees could have a material adverse effect on theCompany’s business prospects, financial condition and results ofoperations. 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 willsucceed in attracting and retaining such personnel. Our failure to attract andretain the necessary technical, managerial and sales personnel could have amaterial adverse effect on our business prospects, financial condition andresults of operations.

 

*MISAPPROPRIATION OF PROPRIETARY RIGHTS OR CLAIMS OF INFRINGEMENTOR LEGAL ACTIONS RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT THECOMPANY'S FINANCIAL CONDITION*

 

The Company's success depends significantly on protectingproprietary technology. Despite the Company's efforts to protect its proprietaryrights, unauthorized parties may attempt to copy or otherwise obtain and use ourtechnology or products. Monitoring unauthorized use of the Company's technologyis difficult, and we cannot be certain that the steps we have taken will preventmisappropriation of our        technology, particularly in foreign countries where the laws may notprotect 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 uswith respect to existing or future products or technology. If there is asuccessful claim of infringement and the Company fails or is unable to developnon-infringing technology or license the infringed or similar technology on atimely basis, the Company's business        and results of operations could be seriously harmed.

 

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*THE COMPANY’S BUSINESS IS SUBJECT TO GOVERNMENTALREGULATIONS*

 

International, national and local standards set by governmentalregulatory authorities set the regulations by which communications aretransmitted within and across respective territories. The Company's fixed andmobile digital video cameras and communication systems are subject to suchregulation in addition to national, state and local taxation. Our products maybe required to meet Federal Communications        Commission approval, specifically for Classes A & B of Part 15 forthe telephone related applications of our hardware products. Although theCompany successfully operates within current governmental regulations it ispossible that regulatory changes could negatively impact our operations andcause us to diminish or cease operations.

 

*THE COMPANY’S PRODUCTS ARE SUBJECT TO ENVIRONMENTAL LAWS*

 

New hazardous materials restrictions have been and are beingsought 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 thecomponents we currently use. As such, current and future environmentalregulations could negatively impact our        operations.

 

**Risks Related to the Company’s Stock**

 

*THE COMPANY WILL NEED TO RAISE ADDITIONAL CAPITAL TO FUNDOPERATIONS WHICH COULD ADVERSELY AFFECT OUR SHAREHOLDERS*

 

The Company will need to raise additional capital to fundoperations until such time as our revenues match our expenditures. We expectthat revenue will match expenditures at the end of 2009. Until the point atwhich cash flow from operations can match expenditures we will have to realizeup to $3,000,000 in additional capital for operations. Capital realized would beused for research and development        expenses, marketing costs and general and administrative expenses.However, we have no commitment from any source of financing to provide us withthis necessary additional capital. Should we secure a commitment to provide uswith capital such commitment may obligate us to issue additional shares of theCompany’s common stock or warrants or other rights to acquire common stockwhich will result in dilution to existing shareholders. Nonetheless, if we areunable to obtain additional        capital, then we will need to restrict or even cease operations, whichaction would adversely affect our shareholders.

 

*THE COMPANY MAY ATTEMPT TO QUOTE ITS STOCK ON THE OTCBB*

 

The Company has no public trading market for its shares, and wecannot represent to you that a market will ever develop. Nonetheless, we havesought a quotation on the Over the Counter Bulletin Board

(OTCBB) which application is currently pending with the FinancialIndustry Regulatory Authority (FINRA). However, there can be no assurance thatwe will obtain a quotation on the OTCBB or that obtaining a quotation willgenerate a public trading market for our shares.

 

Further, if we obtain a quotation on the OTCBB, this may notincrease our ability to raise money in an equity financing since manyinstitutional investors do not consider OTCBB stocks for their portfolios.Additionally, an investors’ ability to trade our stock might be restrictedas only a limited number of market makers quote OTCBB stock. Trading volumes inOTCBB stocks are historically lower, and        stock prices for OTCBB stocks tend to be more volatile, than stockstraded on an exchange or the NASDAQ Stock Market. We may never qualify fortrading on an exchange or the NASDAQ Stock Market.

 

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*THE COMPANY’S STOCK PRICE COULD BE VOLATILE*

 

Should a public market for our shares develop, the future marketprice could be subject to significant volatility and trading volumes could below. 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 future stock price may fluctuate in waysunrelated or disproportionate to our operating performance. The generaleconomic, political and stock market conditions that may affect the market priceof the Company’s common stock are beyond our control. The market price ofthe Company’s common stock at any particular time may not remain themarket price in the future. In the past,        securities class action litigation has been instituted against companiesfollowing periods of volatility in the market price of their securities. Anysuch litigation, if instituted against us, could result in substantial costs anda diversion of management’s attention and resources.

 

*THE COMPANY’S STOCK IS A PENNY STOCK AND, THEREFORE, THECOMPANY’S SHAREHOLDERS MAY FACE SIGNIFICANT RESTRICTIONS ON THEIR STOCK*

 

The Company’s stock differs from many stocks in that it isa "penny stock." The Commission defines a penny stock in Rule 3a51-1 of theExchange Act as, generally speaking, those securities which are not listed oneither NASDAQ Stock Market or a national securities exchange and are pricedunder $5, excluding securities of issuers that (a) have net tangible assetsgreater than $2 million if they have        been in operation at least three years, (b) have net tangible assetsgreater than $5 million if in operation less than three years, or (c) averagerevenue of at least $6 million for the last three years. OTCBB securities areconsidered penny stocks unless they qualify for one of the exclusions.

 

The Commission has adopted a number of rules to regulate pennystocks. These rules include, but are not limited to, Rules 3a5l-l, 15g-1, 15g-2,15g-3, 15g-4, 15g-5, 15g-6 and 15g-9 under the Exchange Act. Since oursecurities constitute a "penny stock" within the meaning of the rules, the ruleswould apply to us and our securities. The rules may further affect the abilityof owners of shares to sell their        securities in any market that may develop for them. There may be alimited market for penny stocks, due to the regulatory burdens onbroker-dealers. The market among dealers may not be active. Investors in pennystock often are unable to sell stock back to the dealer that sold them thestock. The mark-ups or commissions charged by the broker-dealers may be greaterthan any profit a seller may make. Because of large dealer spreads, investorsmay be unable to sell the stock immediately        back to the dealer at the same price the dealer sold the stock to theinvestor. In some cases, the stock may fall quickly in value. Investors may beunable to reap any profit from any sale of the stock, if they can sell it atall.

 

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Shareholders should be aware that, according to the CommissionRelease No. 34-29093, the market for penny stocks has suffered in recent yearsfrom patterns of fraud and abuse. These patterns include:  

 

|   | **•** | control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------|

|   | **•** | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------|

|   | **•** | "boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
|--------|------------|--------------------------------------------------------------------------------------------|

|   | **•** | the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING MAY NOT BECONSIDERED EFFECTIVE IN THE FUTURE, WHICH COULD RESULT IN A LOSS OF INVESTORCONFIDENCE IN OUR FINANCIAL REPORTS AND IN TURN HAVE AN ADVERSE EFFECT ON ANYFUTURE STOCK PRICE.*

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we arerequired to furnish a report by our management on our internal controls overfinancial reporting. Such report must contain, among other matters, anassessment of the effectiveness of our internal controls over financialreporting as of the end of the year, including a statement as to whether or notour internal controls over financial reporting        are effective. This assessment must include disclosure of any materialweaknesses in our internal controls over financial reporting identified bymanagement. If we are unable to continue to assert that our internal controlsare effective, our investors could lose confidence in the accuracy andcompleteness of our financial reports, which in turn could cause any futurestock price to decline.

 

| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-------------|-----------------------------------------------------------------|

 

None.

 

| **ITEM 3.** | **DEFAULTS ON SENIOR SECURITIES** |
|-------------|-----------------------------------|

 

None.

 

| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|---------------------------------------------------------|

 

None.

 

| **ITEM 5.** | **OTHER INFORMATION** |
|-------------|-----------------------|

 

None.

 

| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

 

Exhibits required to be attached by Item 601 of Regulation S-Kare listed in the Index to Exhibits on page 26 of this Form 10-Q, and areincorporated herein by this reference.

 

24

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

***ComCam International, Inc.***

 

 

|   | /s/ Don Gilbreath | May 9, 2008 |
|--------|-------------------|-------------|

|   | Don Gilbreath |
|--------|---------------|

Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer

 

25

 

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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)* | Stock Exchange Agreement between ComCam, Inc. and the Company dated May 8, 2002 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 6, 2006). |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(a)* | Securities Purchase Agreement between the Company, ComCam, Inc. and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006). |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(b)* | Convertible Secured Promissory Note between the Company, ComCam, Inc. and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006). |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(c)* | Warrant to Purchase Common Stock between the Company and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006). |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(d)* | Warrant to Purchase Common Stock between the Company and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006). |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(e)* | Registration Rights Agreement between the Company and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A filed with the Commission on June 26, 2006). |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(f)* | Shareholders Agreement between Don Gilbreath and ACC Investors, LLC dated June 22, 2005 (incorporated by reference to the Form 10-SB/A2 filed with the Commission on October 31, 2006). |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 (ii)(g)* | 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 (iii)* | Joinder, Amendment and Consent Agreement between ComCam, Inc., ComCam International, Inc. 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). |
|---------|---------------------------------------------------------------------------------------------------------------------------------------|

| 14* | Code of Ethics adopted March 24, 2008 (incorporated by reference to the Form 10-K filed with the Commission on April 14, 2008). |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| 31 | Certification of the Chief Executive Officer andChief Financial Officer pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Certification of the Chief Executive Officer and ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | * | Incorporated by reference to previous filings of the Company. |
|--------|---|---------------------------------------------------------------|

 

 

 

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