This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and may involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with generally accepted accounting principles in the United States of America.

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars.

As used in this annual report, the terms “we”, “us”, “our company”, and “id-Confirm” mean id-Confirm, Inc., a Nevada corporation, unless otherwise indicated.

General Overview

We are a development stage company involved in developing and implementing the commercialization of portable personal biometric devices and software applications for use in personal identification, authentication, and security applications. The principal applications which will be pursued are in prevention of identity theft, assistance to homeland security and elimination of credit card fraud. Biometrics are automated methods of identifying a person or verifying the identity of a person based on a physiological or behavioural characteristics. We were previously involved in the wholesale and retail of knit silk undergarments and silk blended lounge wear by direct customer sales through the internet and by mail order.

Business Development During the Last Three Years

Our company, id-Confirm, Inc. was incorporated in Nevada on October 29, 1999. Prior to a name change on December 29, 2004, id-Confirm was known as Fidelity Capital Concepts Limited. On July 25, 2005, we changed the fiscal year end from September 30 to June 30.

Our shares of common stock were initially approved for quotation on the OTC Bulletin Board under the name “Fidelity Capital Concepts Limited” under the symbol, FDCC, however, the first trade did not occur until January 4, 2005 when we commenced trading under the name “id-Confirm, Inc.” under the symbol, IDCO.

Fidelity Capital Concepts Limited (FCC) was incorporated under the laws of the State of Nevada on October 29, 1999. Until FCC effected the acquisition of a Colorado corporation on November 18, 2004, id-Confirm, Inc. (id-Confirm (Colorado)), its focus was on the wholesale and retail of knit silk undergarments and silk blended lounge wear by direct customer sales through the internet and by mail order.

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On October 8, 2004, FCC effected a forward split of its then issued and outstanding 5,400,000 shares of common stock on a one-for-eight basis. This forward split resulted in the company having 43,200,000 shares of common stock issued and outstanding as of October 8, 2004.

On November 12, 2004, FCC entered into a share exchange agreement with id-Confirm (Colorado) and its stockholders to acquire 100% of id-Confirm (Colorado)’s issued and outstanding shares of voting stock in exchange for 26,000,000 shares of common voting stock of FCC. The share consideration paid by FCC to id-Confirm (Colorado) stockholders represented 52.85% of the issued voting equity of FCC on a fully diluted basis immediately following closing. FCC’s acquisition of id-Confirm (Colorado) was an arm’s length transaction.

On November 18, 2004, FCC completed the acquisition of 100%, of the shares of common stock of id-Confirm (Colorado) in exchange for issuing 26,000,000 shares of common stock. As a result, the stockholders of id-Confirm, (Colorado) acquired a majority of the outstanding shares of common stock. Therefore, for accounting purposes, id-Confirm (Colorado) was deemed to have acquired FCC.

Concurrently, id-Confirm (Nevada) disposed of a wholly-owned subsidiary to a director and shareholder for cancellation of 1,600,000 common shares and another shareholder surrendered 18,400,000 common shares for cancellation. The subsidiary disposed of accounted for all of id-Confirm (Nevada)’s prior business operations, and on the date of reorganization the net assets of the remaining non-operating entity were $87,337, consisting principally of cash and accounts payable.

None of the stockholders of id-Confirm (Colorado) were stockholders of FCC prior to the November 2004 acquisition. Under certain circumstances, the shares of common stock issued by FCC to the former stockholders of id-Confirm (Colorado) could constitute a controlling voting block on matters which may be put before FCC’s stockholders. In consideration for the exchange of all id-Confirm (Colorado) shares of common stock held by them, the 26,000,000 shares of common stock were issued to 13 individuals in reliance upon the exemptions from registration provided by Rule 506 of Regulation D, promulgated under the Securities Act of 1933 , as amended.

On December 29, 2004, we changed our name from “Fidelity Capital Concepts Limited” to “id-Confirm, Inc”. The name change was recorded by the Nevada Secretary of State on December 29, 2004 and took effect with the Over-the-Counter Bulletin Board at the opening for trading on January 4, 2005 under the new stock symbol, IDCO.

On October 6, 2006, pursuant to the approval of our shareholders, we filed an Amendment to Articles of Incorporation with the Nevada Secretary of State wherein we amended our Articles of Incorporation by increasing our authorized number of common stock from 100,000,000 to 200,000,000 shares with a par value of $0.0001 and authorizing the issuance of 100,000,000 shares of preferred stock with a par value of $0.0001 per share.

Our Current Business

Our business involves developing and implementing the commercialization of portable personal biometric devices and software applications for use in personal identification, authentication, and security applications. The principal applications which will be pursued are in prevention of identity theft, assistance to homeland security and elimination of credit card fraud.

Biometrics are automated methods of identifying a person or verifying the identity of a person based on physiological or behavioural characteristics. Biometric technologies are becoming the foundation of an extensive array of highly secure identification and personal verification solutions. Essentially, all current biometric technologies work on the same principle. Each user is enrolled by the biometrics system and a copy of the enrollment data is stored in a secured database. When users present themselves for authentication, a new scan/sample is taken and compared with the one stored in the secured database. If the new sample matches, verification is confirmed. To date, our company and its management have developed intellectual property, software applications and technology with respect to mobile personal biometrics. We are a development stage company and will require significant debt or equity financing to continue the development of our intellectual property, software and technology and to continue as a going concern.

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We are still in our infancy as a viable commercial entity, and consequently our focus has been on the identification of market needs, the development of products and services to meet these needs, and the branding of our company and our services. We anticipate that the expected growth in revenues will assist us in attracting additional financing to allow us to add the needed resources in order to further support the growth of our operations. To June 30, 2006, we have had $50,732 of revenues and we expect sales to grow. Despite our expectations, there are no assurances that revenues can be achieved, or that we will be able to attract additional financing on acceptable terms, if at all. Should we be unable to achieve anticipated revenues or to attract additional financing on acceptable terms, we will not be able to achieve profitable operations.

On December 1, 2004, we announced a letter of intent between our company and Aeros Aviation, LLC (Aeros), and affiliated companies located in McKinney, Texas for Aeros to create a new generation of mobile biometric identity devices for id-Confirm, Inc.’s exclusive use. The terms of the letter of intent call for delivery of a working version of the initial device, along with its associated proprietary intellectual property, to id-Confirm, Inc. We have employed this initial device in the introduction of our mobile identification and verification system to selected industries and applications. No further agreements have been entered into regarding this technology.

On April 1, 2005, we announced a memorandum of understanding with Inner Circle Logistics, Inc. (Inner Circle) for an active pilot program using a biometric component in a net-centric supply chain infrastructure. The purpose was to enhance productivity and transportation effectiveness among trading partners crossing regional borders as well as helping private businesses to achieve higher capital efficiency ratios. As of June 30, 2006, the Inner Circle agreement had not been completed, but remains in process at this time.

In April, 2005, we entered into a memorandum of understanding with Aeros which contemplates the acquisition of certain products of Aeros that include the touchStar TM and Mini-touchStar TM products. These products are the Time and Attendance and building access products and accompanying software components. No further agreements have been entered into regarding this technology.

On August 8, 2005, we announced that we were assigned patent rights from Robert A. Morrison IV and Ronald N. Baird, our directors and officers, for a new mobile biometric communications device incorporating several unique innovations. The device combines the attributes of a mobile telephone, with biometric security features, and the characteristics of a credit identification system. The mobile biometric communications device is designed to take the place of a number of devices and identification mechanisms that people carry with them on a day-to-day basis. The product is designed to add security both to the use of a mobile communications system as well as credit verification methods.

Principal Products

Our web store (www.id-confirm.com) became fully operational in September of 2005. This secure purchase site allows consumers the ability to acquire biometrically-based identification, authentication, and security devices in a speedy transaction with swift product delivery from in-stock inventory.

Our primary product that is available for purchase is the id-Confirm Biometric USB Secure Data Drive, which works with any USB-enabled computer. Activated by the owner's unique fingerprint biometric, the Secure Data Drive creates a secure method of storing and transporting confidential computer files and making them available only to their owner -- on any computer. To use, the owner initializes the Secure Data Drive to recognize only the owner's biometric identification (fingerprint). The id-Confirm Biometric USB Secure Data Drive can recognize up to 10 uniquely different fingerprints.

Once activated, the user can then store data files or other information on the Secure Data Drive. The owner can then remove the Secure Data Drive from the home or office computer, put it in a pocket for transportation, and later access, work, and add to the information on any USB-enabled computer anywhere in the world. About the size of an adult thumb, the id-Confirm Biometric USB Secure Data Drive is completely portable. To access data files on it, away from the home or office computer, the user merely inserts it into the USB port of any PC computer, opens it with his or her fingerprint, and then retrieves files in the traditional way. Price of this product is currently $99.95 from the web store. We believe that the Secure Data Drive will attract purchase interest from students as well as business people who have to work on projects or manage their files from multiple computers. It eliminates the

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danger that files sent over the internet may be intercepted or compromised since control of the files remains totally in the hands of the owner.

We have also made our touchStar products available through the web store as well. At the touch of a finger, touchStar’s integrated technologies provide a solution to management identity access needs. touchStar eliminates the burdensome management issues related to security cards, pin number issuance, and regulation. touchStar tracks hours worked and payroll costs while monitoring personnel movements and access. The integrated system will signal alarms if access is denied to a potential user, allowing for real-time threat assessment. The touchStar integrated fingerprint authentication system is specifically designed to provide personal identification. We believe that touchStar is an effective, foolproof, time and attendance system; preventing unauthorized access, deterring ghost employees, buddy punching, and unauthorized access in remote areas.

We are of the view that there are potential touchStar applications in a variety of access, time and attendance control intensive industries such as: schools, research labs, manufacturers, engineering, banking, medical facilities, retail stores, computer server rooms, safe deposit area, water supply and electric power stations, warehouses, hospitals, chemical and nuclear security, and pharmaceutical production plants.

Two versions of the touchStar product are offered at our web store: the touchStar currently priced at $1,200 and the touchStar Mini, with slightly less capabilities than touchStar, currently priced at $850.

On October 5, 2005, we announced that we entered into Distributorship Agreement with BBD Best Brands Distribution Ltd. effective August 31, 2005. This agreement sets forth terms and conditions for the delivery of our biometric security devices and accompanying software to BBD for their distribution in the Black Sea Region. In the first year of the three-year agreement, we would deliver mobile biometric products, touchStar biometric time and attendance devices as well as USB biometric flash drives. The initial shipment would include 220 USB biometric Secure Data Drives (1GB) and 20 touchStar devices. The agreement sets forth terms that as sales occur additional product will be shipped from our company to maintain a base inventory at BBD. On June 26, 2006, we completed delivery of an initial order to BBD.

Research and Development

As a development stage company with a unique multi-faceted technique for biometric authentication devices, much of the current year budget has been spent on research and development. We spent $274,855 for the year ended June 30, 2006 on research and development activities. From October 28, 2004 (inception) through June 30, 2006 we have spent $455,749 on research and development activities. We expect that our annual research and development expenses will continue to increase as we complete work on products currently in development.

We anticipate expending approximately $200,000 during the twelve-month period ending June 30, 2007 on research and development activities, which would include approximately $100,000 on salaries and $100,000 on related supplies to conduct these activities and the production of future prototypes. We intend to develop our own key components as part of our objective to reduce product cost.

Sales and Marketing

We are promoting our products and accompanying software through multiple channels, namely through soliciting master distributors in the United States and foreign countries, through security consultants and through our own sales team. We plan to direct our marketing effort to target sales in U.S. homeland security, identity theft prevention and eliminating credit card fraud. We will demonstrate the feasibility of our products and software to our potential customers via pilot projects. For example, we participated in a pilot project in Bulgaria to test the feasibility of using systems such as we can produce in the fight against illegal border crossings and theft of merchandise being transported across various border/customs points. In a report released in September 2005 by the United States Agency for International Development (USAID)/Bureau for Europe and Eurasia, the Bulgarian project has been deemed successful. The report further stated that this kind of technology will be useful for companies and governments to realize efficiencies in their market delivery systems and their border/customs security. We also have on-going pilot projects in Mexico and Romania. We have entered into a distributorship agreement with BBD Best

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Brands Distribution LTD of Constanta, Romania to distribute our products/technology. The agreement is a multiple year agreement with the initial installment calling for the sale of touchStar units, USB flashdrive units, and mobile biometric products in the amount of $50,000. On June 26, 2006, we completed delivery of an initial order to BBD earning revenues of $41,500. Equally important to us is the internet as a marketing tool. In this regard, we have built a secure website to disseminate information about our products and accompanying software. Our company’s e-store is accessible on the website and ready for product sales via the internet. The secure purchase site is accessible from our company’s website address, www.id-confirm.com. Products like the one gigabyte USB biometric flash drive can be purchased on the e-store site. The customer is able to use any major credit card to purchase our products. As we develop additional biometric security devices, these will also be available through the e-store. We anticipate that we will expend approximately $610,000 during the twelve-month period ending June 30, 2007 on sales and marketing activities, including the salaries for new and existing employees and consultants involved in sales and marketing.

Competition

Although management is not aware of similar products and software which would compete directly with our products and technology, it is anticipated that larger, better-financed companies will or could develop products similar or superior to our products and technology. Such competition will potentially affect our chances of achieving profitability, and ultimately adversely affect our ability to expand and achieve a profitable level of operations in the biometric security industry.

Manufacturing and Engineering

We currently plan to have our products manufactured for us by third parties, under the supervision of qualified personnel. Our consultants in the design and development of our products have long-term relationships with manufacturers and assemblers and we intend to use those relationships to our company’s advantage as it pertains to manufacturing and assembly of products. Engineering for our products is conducted through our consultants. Development of our “back office” software likewise has been accomplished through the use of independent consultants.

Intellectual Property

We have registered the trademark “id-Confirm, Inc.” (with a finger print in the “o” position in the word Confirm),

We have applied for the trademark, “id4u”

We have applied for the trademark “id-Confirm SecureLink System” and

We have applied for two patents in the United States covering a personal mobile biometric authentication system and a privacy friendly authentication method. In addition, we applied for foreign patent protection in the European Union, Mexico, Romania, Russia and Ireland.

Government Approval

We expect approval of pending patents by the United States Patent Office within the next eighteen months.

Employees

As of September 13, 2006, we employed 6 full-time people. In addition, we have five consultants who have been utilized for their expertise in biometrics hardware/software and market distribution channels and are compensated as independent contractors. We expect that we will add employees, mostly in the information technology, sales and marketing areas which will cause a substantial increase in the amount of money spent on salaries. We intend to spend $1,500,000 for salaries during the twelve months ending June 30, 2007 with most of the increase being due to our information technology, sales and marketing staff in tandem with our business programs.

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Capital Expenditures

We intend to invest $50,000 during the twelve-month period ending June 30, 2007 in computers, servers, and other equipment deemed necessary for continuing research and testing of new products.

General and Administrative Expenses

We expect to spend $880,000 during the twelve-month period ending June 30, 2007 on general and administrative expenses including legal and auditing fees, insurance, public relations, salaries, rent, office equipment and other administrative related expenses.

Future Operations

We have generated $50,732 of net sales revenues since the inception of our Company to June 30, 2006. Consequently, we have incurred accumulated losses of $1,138,156 for the year ended June 30, 2006 and $2,741,411 from inception through June 30, 2006.

As noted above, management of our company projects that we may require approximately $1,500,000 to fund our ongoing operating expenses, and working capital requirements for the twelve-month period ending June 30, 2007. These estimates do not include any unanticipated capital requirements that may be needed should we identify any products or business acquisitions that may add value to our current product and service offerings.

In the long-term, our ability to continue as a going concern is dependent upon successful and sufficient market acceptance of our current product and software authentication offerings and any new product offerings and production of software that we may introduce. The continuing successful development and sales of our products and related technologies, and, finally, achieving a profitable level of operations will contribute to our ongoing success.

RISK FACTORS

Much of the information included in this annual report includes or is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other “forward-looking statements” involve various risks and uncertainties as outlined below. We caution readers of this annual report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward-looking statements”. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.

Our new business operations will be subject to a number of risks and uncertainties, including those set forth below:

RISKS RELATED TO OUR BUSINESS

We have had negative cash flows from operations. Our business operations may fail if our actual cash requirements exceed our estimates, and we are not able to obtain further financing.

Our company has had negative cash flows from operations as we have not yet commenced the sale of our products and technology. To date, we have incurred significant expenses in product development and administration in order to ready our products and software for market. Our business plan calls for additional significant expenses necessary to bring our biometric products to market. We have estimated that we will require approximately $1,500,000 to

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carry out our business plan for the twelve months ending June 30, 2007. There is no assurance that actual cash requirements will not exceed our estimates, in which case we will require additional financing to bring our products into commercial operation, finance working capital and pay for operating expenses and capital requirements until we achieve a positive cash flow. In particular, additional capital may be required in the event that:

 

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we incur unexpected costs in completing the development of our technology or encounter any unexpected technical or other difficulties;

 

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we incur delays and additional expenses as a result of technology failure;

 

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we are unable to create a substantial market for our services; or

 

 

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we incur any significant unanticipated expenses.

 


We may not be able to obtain additional equity or debt financing on acceptable terms if and when we need it. Even if financing is available it may not be available on terms that are favourable to us or in sufficient amounts to satisfy our requirements. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results, and compete effectively. More importantly, if we are unable to raise further financing when required, our continued operations may have to be scaled down or even ceased and our ability to generate revenues would be negatively affected.

We have a history of losses and negative cash flows, which is likely to continue unless our products gain sufficient market acceptance to generate a commercially viable level of sales.

Since inception through June 30, 2006, we have incurred aggregate net losses of $2,741,411 and we had working capital of $1,775,706 as of June 30, 2006. There is no assurance that we will operate profitably or will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as market acceptance of our products, the unpredictability of when customers will order products, the size of customers’ orders, the demand for our products, and the level of competition and general economic conditions.

Although we anticipate that we will be able to start generating revenues during the next six months, we also expect an increase in development and operating costs. Consequently, we expect to incur operating losses and net cash outflows unless and until our existing products, and/or any new products that we may develop or acquire, gain market acceptance sufficient to generate a commercially viable and sustainable level of sales.

Unless we can establish significant sales of our current products, our potential revenues may be significantly reduced.

We expect that a substantial portion, if not all, of our future revenue will be derived from the sale of our security products. We expect that these product offerings and their extensions and derivatives will account for a majority, if not all, of our revenue for the foreseeable future. The successful introduction and broad market acceptance of our security products - as well as the development, introduction and market acceptance of any future enhancements - are, therefore, critical to our future success and our ability to generate revenues. Unfortunately, there can be no assurance that we will be successful in marketing our current product offerings, or any new product offerings, applications or enhancements. Failure to achieve broad market acceptance of our security products, as a result of competition, technological change, or otherwise, would significantly harm our business.

There is a high risk of business failure due to the fact that we have not commenced commercial operations.

Although we are in the initial stages of developing and implementing the commercialization of our mobile personal biometric device for use in personal security applications, there is no assurance that we will be able to successfully develop sales of our products and technology. Thus we have no way of evaluating whether we will be able to operate the business successfully, and there is no assurance that we will be able to achieve profitable operations.

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Potential investors should be aware of the difficulties normally encountered in developing and commercializing new industrial products and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the commercialization process that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to development, manufacture and financing of our mobile personal biometric device. If we are unsuccessful in addressing these risks, our business will most likely fail.

We could lose our competitive advantages if we are not able to protect any proprietary technology and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.

Our success and ability to compete depends to a significant degree on our proprietary technology incorporated in our mobile personal biometric device. Other than registering the domain name www.id-confirm.com, we have not taken any action to protect our proprietary technology. If any of our competitors copy or otherwise gain access to our proprietary technology or develops similar technologies independently, we would not be able to compete as effectively.

We also consider our trademarks invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand. We have registered the trademark “id-Confirm” and other patents in the United States. These and any other measures that we may take to protect our intellectual property rights, which presently are based upon a combination of copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use.

Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights, including claims based upon the content we license from third parties or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies.

We operate in a highly competitive industry and our failure to compete effectively may adversely affect our ability to generate revenue .

Although management is not aware of similar products and software technology which would compete directly with our products and technology, it is anticipated that larger, better-financed companies will or could develop products and technology similar or superior to our products and technology. Such competition will potentially affect our chances of achieving profitability, and ultimately adversely affect our ability to continue as a going concern.

If we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained.

As we proceed with the commercialization of our products and software technology, we expect to experience significant and rapid growth in the scope and complexity of our business. We will need to add staff to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

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RISKS RELATED TO OUR INDUSTRY

Our services may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products and software may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products and software must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products and software or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to emerging industry standards, and our new products and software may not be favourably received.

RISKS RELATED TO OUR COMMON STOCK

A decline in the price of our shares of common stock could affect our ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our shares of common stock could result in a reduction in the liquidity of our shares of common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our shares of common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If the stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.

If we issue additional shares of common stock in the future this may result in dilution to our existing stockholders.

Our certificate of incorporation authorizes the issuance of 200,000,000 shares of common stock and 100,000,000 shares of preferred stock. Our board of directors has the authority to issue additional shares of common stock up to the authorized capital stated in the certificate of incorporation. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. It will also cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such issuance may result in a change of control of our company.

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our shares of common stock and make it difficult for our stockholders to resell their shares of common stock.

Our shares of common stock are quoted on the OTC Bulletin Board service of the National Association of Securities Dealers Inc. Trading in stocks quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our company’s operations or business prospects. This volatility could depress the market price of our shares of common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange such as the American Stock Exchange or New York Stock Exchange. Accordingly, stockholders may have difficulty reselling any of the shares of common stock.

Trading of our shares of common stock may be restricted by the Securities and Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our shares of common stock.

The United States Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of

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less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of, our shares of common stock.

NASD sales practice requirements may also limit a stockholder’s ability to buy and sell our shares of common stock.

In addition to the “penny stock” rules described above, the National Association of Securities Dealers Inc. has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the National Association of Securities Dealers Inc. believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The National Association of Securities Dealers Inc. requirements make it more difficult for broker-dealers to recommend that their customers buy our shares of common stock, which may limit your ability to buy and sell our shares of common stock and have an adverse effect on the market for its shares.

OTHER RISKS

We may be unable to continue as a going concern in which case our securities will have little or no value.

Our independent auditors have noted in their reports concerning our financial statements as of June 30, 2006 and 2005 that we have incurred substantial losses since inception, which raises substantial doubt about our ability to continue as a going concern. In the event we are not able to continue operations you will likely suffer a complete loss of your investment in our securities. See our auditors’ reports on our consolidated financial statements elsewhere in this Form 10-KSB.

Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitability.

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Our By-laws contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.

Our By-laws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been one of our directors or officers.

Our By-laws do not contain anti-takeover provisions, which could result in a change of our management and directors if there is a take-over of our company.

We do not currently have a shareholder rights plan or any anti-takeover provisions in our By-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.