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, 2010, filed with the Securities and Exchange Commission. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operations are not necessarily indicative of the results to be expected for the full year ended December 31, 2011.

Reclassifications

Certain amounts for 2010 have been reclassified to conform to the 2011 presentation.

Convertible Debts

In accordance with ASC 470-20, the Company calculates the value of any beneficial conversion features embedded in its convertible debts. If the debt is contingently convertible, the intrinsic value of the beneficial conversion feature is not recorded until the debt becomes convertible.

Convertible debts are split into two components: a debt component and a component representing the embedded derivatives in the debt. The debt component represents the Company’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that debt holders have to convert into ordinary shares of the Company. If the number of shares that may be required to be issued upon conversion of the convertible debt is indeterminate, the embedded conversion option of the convertible debt is accounted for as a derivative instrument liability rather than equity in accordance with ASC 815-40.

This convertible debt is recorded at face value and is reduced as principal payments are made. A discount has been recorded as a contra account to the convertible debt. The discount (contra account) is amortized to expense over the term of the underlying contract which creates the discount. For presentation purposes, the convertible debt is presented as net of the discount.

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, 2010, filed with the Securities and Exchange Commission. Therefore, those footnotes are included herein by reference.

Note 2 – Going Concern

As of September 30, 2011, the Company has negative working capital and has incurred losses since inception. These factors taken alone raise substantial doubt about the Company’s ability to continue as a going concern. However, management is in the process of procuring additional financing to expand marketing efforts and product development, which actions, if successful, will enable the Company to continue as a going concern. Nevertheless, there can be no assurance that sufficient financing will be available to the Company to successfully pursue its marketing and product development efforts.

Note 3 – Line of Credit

The line of credit disclosed in the Company’s June 30, 2011 financial statements with a balance outstanding of $50,000 was paid in full and cancelled during the three months ended September 30, 2011.

Note 4 – Long-Term Debt

Long-term debt consists of the following:

		September 30,	December 31,
		2011	2010
		(Unaudited)	(Audited)

Note payable to Robert Betty, bearing interest at
3%, secured by the common stock and assets of
Pinnacle, and due in five monthly installments of
$200,000, beginning February 2010.	$	-	841,650

Notes payable to Paul Higbee, bearing interest
at 8%, due March 2012, secured by the intellectual
property of the Company.		465,000	465,000

Notes payable to Bartek Investments -1, Ltd. bearing interest at 18%, secured by the common stock and
assets of Pinnacle, and due February 2012.		400,000	-

Unsecured note payable to Global Megatrend,
bearing interest at 7.5% and due December 2012.
The note may be converted to common shares of
the Company, at the option of the holder, based
on certain terms related to outstanding shares
and per share prices.		176,568	176,568

Unsecured note payable to Bayberry Capital, Inc.,
bearing interest at 12% and due October 2012.
The note may be converted to common shares of
the Company, at the option of the holder, based
on certain terms related to outstanding shares
and per share prices.		50,000	-

Unsecured note payable to La Jolla Cove Investors, Inc.
bearing interest at 4.75% and due September 2015.
The note may be converted to common shares of
the Company, at the option of the holder, based
on certain terms related to outstanding shares
and per share prices.		50,000	-

		1,141,568	1,483,218
Less unamortized discount		(54,440)	-

		1,087,128	1,483,218
Less current portion		(865,000)	(841,650)

	$	222,128	641,568

The fair values of the conversion options are recorded as discounts on the face values of the notes and are $54,440 and $0 at September 30, 2011 and December 31, 2010, respectively. These amounts are amortized using the straight-line method over the term of the notes. During the nine months ended September 30, 2011 and 2010, the Company recorded $2,220 and $0, respectively, as interest expense due to amortization of the discounts.

Note 5 – Supplemental Cash Flow Information

During the nine months ended September 30, 2011, the Company:

· Issued 352,000 shares of common stock in satisfaction of $110,475 of accrued expenses and $47,925 of deferred stock compensation.

· Issued 800,000 shares of common stock in exchange for $426,650 of long-term debt, $14,189 of accrued expenses, and recognized debt extinguishment income of $88,839. The debt extinguishment income was recorded as an increase to additional paid-in capital due to the related party nature of the transaction.

· Issued 292,000 shares of common stock for services rendered to the Company in the amount of $118,390.

· Issued 1,402,385 shares of common stock in exchange for $368,251 in cash.

· Issued 320,000 warrants to purchase shares of common stock in conjunction with the issuance of certain notes payable valued at $166,786.

· Granted 885,000 stock options to purchase shares of common stock for services valued at $384,043.

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, 2011 and 2010, cash paid for interest was $0 and $23,300 respectively, and cash paid for income taxes was approximately $27,000 and $0, respectively.

Note 6 – Common Stock Options and Warrants

Common stock options and warrants consist of:

				Exercise
	Number of			Price
	Options	Warrants		Per Share

Outstanding at January 1, 2011	-	-	$	-
Granted, vested, and excercisable	885,000	320,000		.50 - .75

Outstanding at September 30, 2011	885,000	320,000	$	.50 - .75

Note 7 – Distribution Rights Acquisition

In April 2011, the Company entered into a letter of intent to acquire the distribution rights of 1st Choice Security Solutions (1st Choice) of Georgia for cash and common stock. The distribution rights will allow the Company to distribute products of Protrac iD in North and South America.

As of September 30, 2011, the Company had paid $42,734 to 1^st Choice and expects to finalize the purchase of this intangible asset by December 31, 2011. As of the date of these financial statements, the Company expects to spend $70,000 more and issue 200,000 shares of common stock to finalize this intangible asset purchase.

Note 8 – Subsequent Events

The Company evaluated its September 30, 2011 financial statements for subsequent events through the date the financial statements were issued. Except as noted below, the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

In October 2011, the Company issued 620,000 shares of common stock in exchange for services.

In November 2011, the Company issued 200,000 shares of common stock in exchange for services.

Note 9 – Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Testing Goodwill for Impairment. This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then there is no need to perform the two-step impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements, as it is intended to simplify the assessment for goodwill impairment.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. ASU 2011-05 requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the continuous statement approach, the statement would include the components and total of net income, the components and total of other comprehensive income and the total of comprehensive income. Under the two statement approach, the first statement would include the components and total of net income and the second statement would include the components and total of other comprehensive income and the total of comprehensive income. ASU 2011-05 does not change the items that must be reported in other comprehensive income. ASU 2011-05 is effective retrospectively for interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2011-05 on its financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRSs”. ASU 2011-04 does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it already is required and permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. ASU 2011-04 is effective on a prospective basis for interim and annual periods beginning after December 15, 2011, with early adoption not permitted. In the period of adoption, a reporting entity will be required to disclose a change, if any, in valuation technique and related inputs that result from applying ASU 2011-04 and to quantify the total effect, if practicable. The Company is currently evaluating the impact of the adoption of ASU 2011-04 on its financial position, results of operations and disclosures.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.

- Definition

The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements.

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COMCAM INTERNATIONAL INC 10-Q