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 September 30, 2010 .

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

For the transition period from                  to                 .

Commission file number: 000-51763

COMCAM INTERNATIONAL, INC.

 (Exact name of registrant as specified in its charter)

1140 McDermott Drive, West Chester, Pennsylvania 19380

 (Address of principal executive offices)    (Zip Code)

(610) 436-8089

 (Registrant’s 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 o  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 issuer’s classes of common stock, as of the latest practicable date. The number of shares outstanding of the issuer’s common stock, $0.0001 par value (the only class of voting stock), at November 11, 2010, was 12,921,618.

Explanatory Note

This Form 10Q/A has been amended to (i) to expand our discussion and analysis of financial condition and results of operations; (ii) to add to our disclosure in respect to defaults on senior securities;(iii) to incorporate by reference additional exhibits and (iv) to bring current the Rule 13a-14(a) and Section 1350 certifications required by the Sarbanes-Oxley Act of 2002.

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 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.

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

COMCAM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

Note 1 – Organization and Summary of Significant Accounting Policies

Organization

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

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

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 Company’s Form 10-K for the year ended December 31, 2009, 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, 2010.

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 Company’s Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by reference.

Note 2 – Going Concern

As of September 30, 2010, the Company has negative working capital, a stockholders’ deficit, and has incurred losses since inception. These factors taken alone raise substantial doubt about the Company’s ability to continue as a going concern. However, management is in the process of procuring additional financing to expand marketing efforts and product development which actions, if successful, will enable the Company to continue as a going concern. Nevertheless, there can be no assurance that sufficient financing will be available to the Company to successfully pursue its marketing and product development efforts.

COMCAM INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

Note 3 – Long-Term Debt

Long-term debt consists of the following:

Note 4 – Stock Benefit Plans

As of May 18, 2010 the Company terminated its previous stock benefit plan established on May 3, 2007.  On May 28, 2010 the Company adopted a new stock benefit plan (the Plan) whereby it may issue common stock or grant common stock options to employees or other individuals, including consultants or advisors, who contribute to the Company’s success. A total of 2,000,000 shares of common stock are subject to the Plan’s provisions. As of September 30, 2010 no stock has been optioned, issued or granted under the Plan.

Note 5 – Supplemental Cash Flow Information

During the nine months ended September 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 1,530,000 shares of common stock for services rendered to the Company in the amount of $390,000.

·         Issued 3,106,000 shares of common stock in exchange for $776,500 in cash.

·         Recognized debt extinguishment income of $13,725 from the discharge of certain accounts payable.

·         Cancelled the stock subscription receivable of $1,000.

During the nine months ended September 30, 2010 and 2009, cash paid for interest was $23,300 and $0, respectively.

Note 6 – Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

Note 7 – Recent Accounting Pronouncements

In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-13, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”). ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB Accounting Standards Codification (“ASC”) Topic 718 was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. We do not anticipate that the adoption of this guidance will have a material impact on our financial position and results of operations.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”), which amends ASC Topic 855, “Subsequent Events.” The amendments to ASC Topic 855 do not change existing requirements to evaluate subsequent events, but: (i) defines a “SEC Filer,” which we are; (ii) removes the definition of a “Public Entity”; and (iii) for SEC Filers, reverses the requirement to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective for us upon issuance. This guidance did not have a material impact on our financial position and results of operations.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). ASU 2010-06 requires new disclosures for (i) transfers of assets and liabilities in and out of levels one and two fair value measurements, including a description of the reasons for such transfers and (ii) additional information in the reconciliation for fair value measurements using significant unobservable inputs (level three). This guidance also clarifies existing disclosure requirements including (i) the level of disaggregation used when providing fair value measurement disclosures for each class of assets and liabilities and (ii) the requirement to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for level two and three assets and liabilities. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about activity in the roll forward for level three fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance has not had a material impact on our financial position and results of operations.

Management believes the impact of other recently issued standards and updates, which are not yet effective, will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows upon adoption.

Item 2.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this 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 three and nine month periods ended September 30, 2010.

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 through our fiscal year end. 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.

Summary

The Company is both a network solutions innovator and a provider of fusion technologies for security products and modern networks. Our proprietary digital wireless camera systems and security integration solutions address complex command-and-control applications for rapid-deployment military situations, borders, ports, airports, and detention facilities.

Our video fusion platform 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 and third-party security solutions to improve real-time decision making for critical events over any wireless network. We accomplish this through the sale or licensing of: i) intelligent camera and micro-server devices, ii) a suite of software and software toolkits for command-and-control, mobile display, and storage/data management, and iii) specialized "Intelligent Video Analysis" software applications using biometrics, sensors, motion detection/tracking, access control, and other functions. 

The Company’s applications have been deployed with the Department of Defense (DOD), Federal Bureau of Investigation (FBI), Immigration & Customs Enforcement (ICE), 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 business expanded in 2009 with our acquisition of Pinnacle Integrated Systems, Inc. (“Pinnacle”), a security systems integrator of correctional facilities across the United States. Pinnacle provides turnkey system design and installation, maintenance contracts, and field support technicians. As a systems integrator Pinnacle can take the role of the prime contractor or can play a key support role to leading government integrators. Over the past three years Pinnacle has completed more than 15 projects, with the largest topping $4.2 million, utilizing a skill set and the resources to successfully complete projects in the $10-$15 million range. 

Results of Operations

During the nine month period ended September 30, 2010, we were engaged in (i) the ongoing development of our Internet Protocol remote control platform cameras, micro servers, associated software, and unique end-to-end network solutions, (ii) providing turnkey system design and installation, maintenance contracts, and field support technicians through Pinnacle, (iii) servicing maintenance contracts, providing software development expertise and consulting on security surveillance systems, and (iv) satisfying continuous public disclosure requirements.

Revenue

Revenue for the three months ended September 30, 2010, increased to $1,028,863 from $1,620 for the three months ended September 30, 2009.  Revenue for the nine months ended September 30, 2010, increased to $2,527,387 from $18,130 for the nine months ended September 30, 2009. The increase in revenue over the comparable periods is primarily due to the consolidation of sales attributable to Pinnacle in the current three and nine month periods. During the three months ended September 30, 2010, $998,863 of our revenue was derived from sales attributable to Pinnacle, and $30,000 of our sales were derived from the rendition of contract work. During the nine months ended September 30, 2010, $2,433,593 of our revenue was derived from sales attributable to Pinnacle, and $93,794 from the rendition of contract work and consulting. The Company did not derive any revenue from the sale of its Internet Protocol remote control platform cameras, micro servers, associated software, and unique end-to-end network solutions over the current three and nine month comparative periods though we continue to market a limited range of these products.  We expect revenues to continue to increase in the near term based on the amount of work Pinnacle currently has under contract and the steady increase in the number of bids Pinnacle generates in the pursuit of a growing number of projects.

Cost of revenue for the three months ended September 30, 2010, was $682,082 compared to $1,200 for the three months ended September 30, 2009. Cost of revenue for the nine months ended September 30, 2010, was $1,881,195 compared to $4,200 for the nine months ended September 30, 2009. The increase in the cost of revenue in the current three and nine month periods can be primarily attributed to the inclusion of salaries associated with the operations of Pinnacle. During the three months ended September 30, 2010 $609,975 of our consolidated cost of revenue was derived from costs attributable to Pinnacle while during the nine months ended September 30, 2010 $1,581,201of our consolidated cost of revenue was derived from costs attributable to Pinnacle. We expect the cost of revenue to increase in the near term in line with our expectation that revenues will increase as a result of Pinnacle’s operations.

Gross profit for the three months ended September 30, 2010, increased to $346,781 from $420 for the three months ended September 30, 2009. Gross profit for the nine months ended September 30, 2010, increased to $646,192 from $13,930 for the nine months ended September 30, 2009. The increase in gross profit in the current three and nine month periods can be primarily attributed to the revenue generated through the operations of Pinnacle. During the three months ended September 30, 2010 $388,888 of our consolidated gross profit was derived from profit attributable to Pinnacle. During the nine months ended September 30, 2010 $852,392 of our consolidated gross profit was derived from profit attributed to Pinnacle. We expect that gross profit will increase in the near term in line with our expectation that revenues will increase as a result of Pinnacle’s operations.

Operating Expenses

Operating expenses for the three months ended September 30, 2010, increased to $343,412 from $191,048 for the three months ended September 30, 2009. Operating expenses for the nine months ended September 30, 2010, increased to $1,664,848 from $306,657 for the nine months ended September 30, 2009. The increase in operating expenses over the comparative periods is primarily attributable to an increase in general and administrative expenses to $341,550 from $191,048 for the three month periods and to $1,657,011 from $306,607 for the nine month periods. The increase in operating expenses over the comparable periods is primarily attributable to the addition of the operations of Pinnacle, the Company’s wholly owned subsidiary in the current three and nine month periods. We expect that operating expenses will decrease in the near term as the Company moves to consolidate its day to day operations with that of Pinnacle.

Depreciation and amortization expenses for the nine months ended September 30, 2010 and 2009 were $321,741 and $9,512, respectively. The increase in depreciation and amortization expenses in the nine month period ended can be attributed to the addition of fixed assets owned by Pinnacle as well as the amortization of intangible assets related to the acquisition of Pinnacle.

Other Income (Expense)

Interest income for the three months ended September 30, 2010, was $97 as compared to $1,671 for the three months ended September 30, 2009. Interest income for the nine months ended September 30, 2010, was $667 as compared to $1,671 for the nine months ended September 30, 2009. The decrease in interest income over the comparable periods is primarily attributable to the repayment of a note receivable from a related party in the current nine month period. We expect that interest income that interest income will continue to decrease in the near terms as the Company uses current assets to maintain operations and meet debt obligations.

Interest expense for the three months ended September 30, 2010, decreased to $20,597 from $22,724 for the three months ended September 30, 2009. Interest expense for the nine months ended September 30, 2010, increased to $74,534 from $65,549 for the nine months ended September 30, 2009. The decrease in interest expense followed by an increase in interest expense over the comparable periods can be attributed to the interest associated with the secured promissory note incurred in connection with the acquisition of Pinnacle offset by the conversion of certain accrued interest expense to common stock that resulted in a net increase in the current nine month period over the prior nine month period. The Company expects that interest expense will decrease in the near term as management strives to reduce debt pursuant to debt settlement or equity financing.

Net Losses

Net losses for the three months ended September 30, 2010, decreased to $17,131 from $211,681 for the three months ended September 30, 2009. Net losses for the nine months ended September 30, 2010, increased to $1,078,798 from $356,605 for the nine months ended September 30, 2009. The decrease in losses over the comparative three month periods is primarily due to the increase in revenues in the current three month period primarily attributed to revenue generated by Pinnacle’s operations. The increase in losses over the comparative nine month periods can be primarily attributed to the increase in general and administrative expenses in the current nine month period due to the added expenses associated with the operations of Pinnacle. We expect net losses to transition to net income in 2011 as revenues continue to increase, operating costs decrease, and interest expense falls along with the reduction of outstanding debt.

Income Tax Expense (Benefit)

The Company has an income tax benefit resulting from net operating losses to offset any future operating profit. The net operating loss carry forwards at September 30, 2010, was over $7,000,000. These losses will begin to expire in the year 2019. The amount of net operating loss carry forwards that can be used in any one year can be limited by significant changes in the ownership of the Company and by the applicable tax laws which are in effect at the time such carry forwards are utilized.

Impact of Inflation

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

Capital Expenditures

The Company made no significant capital expenditures on property or equipment for the three and nine months ended September 30, 2010 or 2009.

Liquidity and Capital Resources

The Company had a working capital deficit of $556,489 as of September 30, 2010 and of $1,786,500 as of December 31, 2009. The Company had current assets of $1,497,597 and total assets of $2,099,494 as of September 30, 2010. Current assets consisted primarily of cash totaling $728,451 and accounts receivable of $673,559, estimated earnings in excess of billings on uncompleted contracts of $80,062 and prepaid expenses of $15,525. Total assets include current assets and intangible assets of $407,648, property and equipment of $169,853 and other assets of $24,396. The Company had current liabilities of $2,054,086 and total liabilities of $2,537,737 as of September 30, 2010. Liabilities consisted primarily of accounts payable of $435,959, accrued expenses of $182,591, excess billings on uncompleted contracts of $417,318, the current portion of long-term debt of $1,018,218, and long-term debt of $465,000.

Liquidity and capital resources improved over the nine month period ended September 30, 2010 due primarily to a reduction in current liabilities as a result of Pinnacle’s operations.

Current assets held at the subsidiary level by Pinnacle of those consolidated with the Company at September 30, 2010 consisted of $706,648 in cash, $649,159 in accounts receivable, and estimated earnings in excess of billings on uncompleted contracts of $80,062. Working capital held at the subsidiary level by Pinnacle at September 30, 2010 was $753,834. The Company has no immediate plans to repatriate cash from Pinnacle to satisfy the terms and conditions of a secured promissory note due to the former owners of Pinnacle, including one of our directors, but rather intends to meet its commitments thereto from the proceeds of additional debt or equity placements though no arrangement to do so is currently in place.

Cash flows used in operating activities were $9,135 for the nine months ended September 30, 2010, as compared to $67,565 for the nine months ended September 30, 2009. Cash flows used in operating activities in the current period can be primarily attributed to expenses related to the issuance of stock for services to the Company, depreciation and amortization expenses associated with the operation of Pinnacle, and accounts receivable generated by Pinnacle’s operations offset by the payment of accounts payable primarily incurred by Pinnacle’s operations. We expect to continue to use cash flows in operating activities until such time as net losses transition to net income.

Cash flows used in investing activities were $61,680 for the nine months ended September 30, 2010, as compared to $36,667 for the nine months ended September 30, 2009. Cash flows used in investing activities in the current period are from the purchase of property and equipment by Pinnacle offset by payments received from an unrelated party on a note receivable. We expect to continue to use cash flows in investing activities as the Company looks forward to expand operations in future periods.

Cash flows provided by financing activities were $581,483 for the nine months ended September 30, 2010, as compared to $103,208 for the nine months ended September 30, 2009. Cash flows provided by financing activities for the current period are attributable to the issuance of common stock for cash in a private placement for $776,500 to unrelated persons offset by a payment of $158,350 on long-term debt to Mr. Robert Betty against a note payable in connection with the acquisition of Pinnacle and payments of $36,667 to a related party. We expect to continue to provide cash flows from financing activities as the Company seeks to reduce debt and expand operations through additional equity financings.

The Company has certain long- term debt obligations as of September 30, 2010.

·         Note payable to Robert Betty in the amount of $1,000,000, bearing interest at 3%, secured by the common stock and assets of Pinnacle due in five monthly installments of $200,000, beginning on February 15, 2010. The note payable was in default as of September 30, 2010 in the amount of $841,650 plus accrued interest of $3,597. The Company intends to meet the terms of its obligation by realizing new financing objectives and is in discussions with Mr. Betty to reach an amended note payable that would permit the conversion of a portion of the outstanding amount to stock in combination with a new payment schedule.  No agreement to revise the terms of the note payable has been reached.

·         Unsecured note payable to Global Convertible Megatrend, Ltd. (“Global Megatrend”) in the amount of $179,568 bearing interest at 7.5% and due on August 30, 2008. 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. The note payable was in default as of September 30, 2010 in the amount of $179,568 plus accrued interest of $90,981. The Company intends to meet the terms of its obligation by realizing new financing objectives and has had discussions with the principal of Global Megatrend for the purpose of converting the outstanding amount due to equity. No agreement to revise the terms of the note payable has been reached and no conversion has been instructed.

·         Secured note payable to Paul Higbee in the amount of $465,000 bearing interest at 8%, due on March 31, 2012. The note payable as of September 30, 2010 is $465,000 plus accrued interest of $18,651.

Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the next twelve months. The Company will need a minimum of $1,500,000 in debt or equity financing to reduce debt, to increase research and development activities, to provide a basis for bonding capacity and expand production. We expect to be able to realize this financing objective in the near term. However, we have no commitments or arrangements for new financing though we are pursuing a number of prospective sources that include shareholder loans, the sale of equity, or the procurement of long term debt. Further, we face certain financial obstacles to attracting new financing due to our historical and current record of net losses and working capital deficits. Therefore, despite our efforts we can provide no assurance that we will be able to obtain the financing required to meet our stated objectives or even to continue as a going concern.

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

The Company has no commitments for future capital expenditures that were material at September 30, 2010.

The Company has a 2010 Benefit Plan registered under Form S-8 pursuant to which it could issue or option shares of its common stock to employees, directors, officers, consultants or advisors on the terms and conditions set forth therein. As of September 30, 2010, 2,000,000 shares remained available for issuance or grant under this plan.

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

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

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

Off-Balance Sheet Arrangements

As of September 30, 2010, the Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to stockholders.

Going Concern

The Company’s auditors have expressed an opinion as to our ability to continue as a going concern as a result of an accumulated deficit of $6,280,351 as of December 31, 2009, which deficit has increased to $7,359,149 as of September 30, 2010. Our ability to continue as a going concern is subject to the ability of the Company to transition to net income as anticipated in 2011 and obtaining additional funding from outside sources. Management’s plan to address the Company’s ability to continue as a going concern includes (i) increases in revenue; (ii) decreases in general and administrative costs; (iii) financing from private placement sources; and (iv) converting outstanding debt to equity. Although the Company believes that it will be able to remain a going concern, through the methods discussed above, there can be no assurances that such methods will prove successful.

Critical Accounting Policies

In Note 1 to the audited financial statements for the years ended December 31, 2009 and 2008, included in our Form 10-K, the Company discussed those accounting policies that are considered to be significant in determining the results of operations and its financial position. The Company believes that the accounting principles utilized by it conform to accounting principles generally accepted in the United States. The preparation of financial statements requires Company management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, the Company evaluates estimates. The Company bases its estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying value of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

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

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

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

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

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

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

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

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

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

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

·         our anticipated financial performance;

·         the sufficiency of existing capital resources;

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

·         uncertainties related to our business;

·         increases in revenues;

·         the volatility of the stock market and;

·         general economic conditions.

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

Stock-Based Compensation

We have adopted Accounting Standards Codification Topic (“ASC”) 718, (formerly SFAS No.123) (revised 2004) (SFAS No. 123R), Share-Based-Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.

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

Recent Accounting Pronouncements

Please see Note 7 to our consolidated financial statements for recent accounting pronouncements.

ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4.          CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the chief executive officer and the chief financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, the Company’s management concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period ended September 30, 2010 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS

None.

ITEM 1A.       RISK FACTORS

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

Risks Related to the Company’s Business

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

The Company’s auditors included an explanatory statement in their report on our consolidated financial statements for the years ended December 31, 2009 and 2008, stating that there are certain factors which raise substantial doubt about the Company’s ability to continue as a going concern. 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 THE FORESEEABLE FUTURE

The Company had an accumulated deficit of over $7,000,000 as of September 30, 2010. We do not expect to achieve profitability in the next twelve months and can provide no assurances that we will ever achieve profitability or in the event that we do achieve profitability that we will be able to sustain that profitability over time.

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

As of September, 2010, the Company had a working capital deficit of $556,489. We do not expect to generate sufficient cash flow from operations to cover our expenditures until 2011. Until the point at which cash flow from operations match expenditures we will have to obtain additional working capital from debt or equity placements to effectively continue our operations. However, we have no commitment for the provision of additional working capital. Should we be unable to secure additional capital to cover our short fall in cash flow, such condition would cause us to reduce expenditures which could have a material adverse effect on our business.

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

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

THE COMPANY MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS

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

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

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

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

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

THE COMPANY COMPETES WITH LARGER AND BETTER-FINANCED CORPORATIONS

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

THE COMPANY IS LARGELY DEPENDENT UPON FEW CUSTOMERS

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

THE COMPANY DEPENDS UPON LIMITED SOURCE SUPPLIERS

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

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

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

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

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

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

THE COMPANY’S BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATIONS

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

THE COMPANY’S PRODUCTS ARE SUBJECT TO ENVIRONMENTAL LAWS

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

Risks Related to the Company’s Stock

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

The Company may need to raise additional capital to fund operations until such time as our revenues match our expenditures. We expect that revenue will match expenditures by 2011. Until the point at which cash flow from operations can match expenditures we may have to realize up to $3,000,000 additional capital for operations. Capital realized would be used for research and development expenses, marketing costs and general and administrative expenses. We have no commitment from any sources of financing to provide us with any needed capital requirements. Any equity financing will obligate us to issue additional shares of the Company’s common stock which will result in dilution to existing shareholders. If we are unable to obtain sufficient capital, then we will need to restrict or even cease operations, which actions would adversely affect our shareholders.

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

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

THE COMPANY’S STOCK PRICE IS VOLATILE

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

·         the Company’s perceived prospects;

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

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

·         sales or purchases of large blocks of our stock;

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

·         changes in securities analysts’ buy/sell recommendations;

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

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

·         announcements of legal claims against us;

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

·         developments in the financial markets;

·         general economic, political or stock market conditions.

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

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

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

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

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

ITEM 2.          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On July 12, 2010, the Company authorized the issuance of 30,000 shares of common stock to Windstone Capital Advisors, Inc., pursuant to the terms of an agreement dated May 4, 2010, amended on July 12, 2010, for the rendition of investor relations and capital advisory services, valued at $0.50 per share, pursuant to exemption provided by Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”).

The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction that did not involve a public offering; (2) there was one offeree; (3) the offeree stated an intention not to resell the stock; (4) there have been no subsequent or contemporaneous public offerings of the stock; (5) the stock was not broken down into smaller denominations; and (6) the discussions that lead to the issuance of the stock took place directly between the offeree and the Company.

During the three month period ended September 30, 2010, the Company authorized the issuance of 408,000 shares of common stock to 5 persons or entities in exchange for $102,000 valued at $0.25 per share, pursuant to the exemption provided by Rule 506 of Regulation D of the Securities Act and Section 4(2) of the Securities Act to the following individuals and entities:

The Corporation 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.

The Company complied with the exemption requirements of Section 4(2) of the Securities Act based on the following factors: (1) the issuance was an isolated private transaction that did not involve a public offering; (2) there were 5 offerees; (3) the offerees stated an intention not to resell the stock; (4) there have been no subsequent or contemporaneous public offerings of the stock; (5) the stock was not broken down into smaller denominations; and (6) the discussions that lead to the issuance of the stock took place directly between the offerees and the Company.

ITEM 3.          DEFAULTS ON SENIOR SECURITIES

The Company has certain long-term debt obligations that are in default as of September 30, 2010.

·         Note payable to Robert Betty in the amount of $1,000,000, bearing interest at 3%, secured by the common stock and assets of Pinnacle due in five monthly installments of $200,000, beginning on February 15, 2010. The note payable was in default as of September 30, 2010 in the amount $841,650 plus accrued interest of $3,597.

• Unsecured note payable to Global Convertible Megatrend, Ltd. (“Global Megatrend”) in the amount of $179,568 bearing interest at 7.5% and due on August 30, 2008. 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. The note payable was in default as of September 30, 2010 in the amount of $179,568 plus accrued interest of $90,981.

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.

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.

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).

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, 2 010).

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

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

99*                  Pinnacle Integrated Systems, Inc. Financial Statements (incorporated by reference to the Form 8-K/A filed with the Commission on March 1, 2010).

            *          Incorporated by reference to previous filings of the Company.