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8-K</font></div>
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REPORT</font></div>
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to Section 13 or 15(d) of the</font></div>
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Exchange Act of 1934</font></div>
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of report (Date of earliest event reported):</font></div>
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12, 2010 (February 12, 2010)</font></div>
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Rising Inc.</font></div>
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Mastin, Suite 920</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">This Form
8-K and other reports filed by Nicaragua Rising, Inc. from time to time with the
Securities and Exchange Commission (collectively the &#8220;Filings&#8221;) contain forward
looking statements and information that are based upon beliefs of, and
information currently available to, our management as well as estimates and
assumptions made by our management.&#160;&#160;When used in the Filings the
words &#8220;anticipate&#8221;, &#8220;believe&#8221;, &#8220;estimate&#8221;, &#8220;expect&#8221;, &#8220;future&#8221;, &#8220;intend&#8221;, &#8220;plan&#8221;
or the negative of these terms and similar expressions as they relate to us or
our management identify forward looking statements.&#160;&#160;Such statements
reflect our current view with respect to future events and are subject to risks,
uncertainties, assumptions and other factors relating to our industry,
operations and results of operations and any businesses that we may
acquire.&#160;&#160;Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
expected, intended or planned.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
1.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following discussion provides only a brief description of the documents
described below.&#160;&#160;The discussion is qualified in its entirety by the
full text of the agreements, which are attached as exhibits to this Current
Report.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On
February 12, 2010, Ceelox, Inc. (&#8220;Ceelox&#8221;) and certain of its shareholders
(&#8220;Ceelox Shareholders&#8221;), on the one hand, and Nicaragua Rising, Inc.
(&#8220;Nicaragua&#8221;) and Sunflower Capital, LLC acting as indemnitor, on the other
hand, entered into an Agreement and Plan of Share Exchange (referred to in this
Current Report as the &#8220;Agreement&#8221;) pursuant to which Nicaragua acquired 95.5% of
the issued and outstanding shares of Ceelox.&#160;&#160;In exchange, Nicaragua
issued to the Ceelox Shareholders one share of $0.0001 par value common stock
for every nine (9) shares of Ceelox common stock acquired.&#160;&#160;This
transaction is referred to as the &#8220;Merger&#8221; in this Current
Report.&#160;&#160;Following the Merger, the Ceelox Shareholders will own
approximately 96.2% of the issued and outstanding common stock of
Nicaragua.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Nicaragua
was required, as a condition of the Merger, to procure the resignation of
Nicaragua&#8217;s sole officer, William P. Moore.&#160;&#160;&#160;The names and
biographies of Nicaragua&#8217;s new officers and directors are set forth in Item 2.01
of this Current Report.&#160;&#160;The Merger was completed on February 12,
2010.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
2.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;COMPLETION
OF ACQUISITION OR DISPOSITION OF ASSETS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Because
the business operations of Ceelox became the sole business operations of
Nicaragua upon the consummation of the Merger, unless the context indicates
otherwise, the words &#8220;we,&#8221; &#8220;us&#8221; &#8220;our&#8221; or the &#8220;Company&#8221; refer to Ceelox before
the closing of the Merger or to Nicaragua and Ceelox as a combined company after
the closing of the Merger.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Description
of business</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">General</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company was founded on September 17, 2003 and is headquartered in Tampa,
Florida.&#160;&#160;We were formed for the purpose of developing and marketing
advanced fingerprint biometric technology and encryption software
solutions.&#160;&#160;&#160;Our biometric identification and encryption software
solutions provide innovative and new ways for customers to securely access,
store, send and receive confidential information.&#160;&#160;Biometric
technology is the science of analyzing specific human characteristics which are
unique to each individual in order to identify a specific person from a broader
population.&#160;&#160;The use of biometrics enables enterprise and consumer
users to login to different systems and applications using secure credentials
based on their unique characteristics, while blocking unauthorized
users.&#160;&#160;We</font></div>
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      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 12pt"><font style="DISPLAY: inline; FONT-SIZE: 11pt">commenced marketing our products in the
first half of 2007 following more than three years of technology and product
development.&#160;&#160;We believe that our products meet the needs of companies
that require strong data, systems and applications security including financial
institutions, healthcare providers, insurance companies, government agencies,
utilities and any business where security and identification are key
concerns.&#160;&#160;To date we have invested over $10 million in the operations
of the business including research and development, product development and
marketing of our products.</font></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">The
Market and Our Opportunity</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Biometric Security Market is a multi-billion dollar market that is experiencing
explosive growth.&#160;&#160;At the same time the security token authentication
market is also experiencing significant growth.&#160;&#160;Identity-based access
control is a growing concern for IT and Information Security professionals
driven by increasing regulation and the need to protect consumer personally
identifiable information, personal electronic health information, and
confidential business information from data breach.&#160;&#160;Recent national
security issues are also driving demand for more effective identity
solutions.&#160;&#160;We believe that Ceelox, with its superior product line and
market strategies, is favorably positioned to exploit this growth and fulfill
the need for stronger user access authentication tools.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Passwords,
the most common form of user authentication in use, are the weakest form of
authentication and are costly to administer and support.&#160;&#160;The
Company&#8217;s biometric logical access control products replace weak username and
password authentication.&#160;&#160;In the large and medium enterprise market,
smart cards and tokens provide a more secure user
authentication.&#160;&#160;VASCO Data Security International has sized the 2013
security token authentication market at $4.5 billion.&#160;&#160;&#160;Our
products and solutions compete with token solutions.&#160;&#160;Tokens are
costly, inconvenient for users, can be lost, misplaced, stolen and
compromised.&#160;&#160;Ceelox believes it can penetrate and expand the security
token authentication market.&#160;&#160;The Company&#8217;s identity-based access
authentication products provide stronger security, are easier to use, cannot be
lost, forgotten or stolen, and are more cost effective.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We
completed the baseline design of our three major products, Ceelox ID<font style="DISPLAY: inline; FONT-WEIGHT: bold">&#8482;</font>, Ceelox Vault<font style="DISPLAY: inline; FONT-WEIGHT: bold">&#8482;</font>, and Ceelox SecureMail<font style="DISPLAY: inline; FONT-WEIGHT: bold">&#8482;</font> in 2007 and have strived to
gain market awareness and grow sales.&#160;&#160;Thereafter we began
aggressively pursuing product modifications to operate within the latest
operating system release from Microsoft, Windows 7.&#160;&#160;This latest
version of Windows contains a biometric framework which should validate and
accelerate industry adoption of biometrics.&#160;&#160;This is the first
recognition within a desktop operating system of any user authentication other
than username and password.&#160;&#160;The Company plans to exploit the recent
Microsoft move to imbed the Windows Biometric Framework (WBF) within the Windows
7 operating system.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Microsoft action is a significant event in the evolution of biometrics
security.&#160;&#160;The Windows&#174; 7 WBF provides support for fingerprint
biometric devices through a new set of components that should lead to a
standardized approach to biometric integration and represent a significant leap
in security creating a de facto industry standard.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
absence of a standard or common operating system interface led to
incompatibility between application software and fingerprint biometric devices,
as well as inconsistency in the quality and reliability of drivers and packages.
In addition, the differing nature of application stacks and driver models for
biometrics devices complicated servicing and maintaining these proprietary
solutions resulting in increased cost for support and reduced user
satisfaction.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">3</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
Windows 7, the operating system provides native support for fingerprint
biometric devices through WBF.&#160;&#160;Per Microsoft, this framework provides
support for biometric technologies, including the following:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
      WBF enables standardization of biometric hardware and software solutions,
      increasing interoperability;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">An
      improvement in the quality and reliability of fingerprint biometric
      drivers and management
applications;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">A
      more consistent user experience;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">A
      common platform and a set of interfaces for software developers;
      and</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Improved
      scalability, manageability, and serviceability of fingerprint biometric
      devices in Windows.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 36pt; MARGIN-LEFT: 36pt"><font id="TAB2" style="LETTER-SPACING: 9pt; COLOR: black">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Several
of the major fingerprint device manufacturers have announced support for
WBF.&#160;&#160;We believe that the result will be a plug-and-play environment
that does not exist today because of individual proprietary vendor
solutions.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
impact of Microsoft&#8217;s initiative reaches beyond the creation of a standard. Over
the past few years, one of the biggest challenges for biometrics has been the
inability to deploy the technology on a mass scale.&#160;&#160;This initiative
ensures scalability and availability of this technology not just for network
access control for enterprises and large deployments, i.e. the token market, but
is expected to further motivate OEMs such as Dell, Hewlett-Packard, Lenovo,
Sony, and others, to continue and expand the deployment of fingerprint readers
in more PCs or notebooks, thereby reducing the cost and making this technology
available for the mass market opportunity which Ceelox intends to exploit.
Ceelox was the first security software company to be certified to operate within
the new Windows Biometric Framework at the server level.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Products</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
products utilize biometrics to provide identity-based access authentication,
data encryption, and identity and email content security across the
Internet.&#160;&#160;Simply stated, Ceelox uses fingerprint biometrics to
replace user name and password and as a key to encrypt data. Ceelox believes
that its biometric software enhances the security of data files, networks and
websites while improving employee and asset productivity, reducing
administrative costs and improving customer satisfaction &#8211; all with the swipe of
a finger.&#160;&#160;&#160;Ceelox also believes that it has unique and
differentiated products that it is currently marketing to, or soon will be
marketing to, the major hardware, software and internet-security companies,
although we can not assure you that our marketing efforts will result in sales
to any of such companies. The general application categories Ceelox solutions
support are: <font style="DISPLAY: inline; TEXT-DECORATION: underline">Identity-Based Access
Authentication</font> &#8211; to insure only authorized individuals gain access to
hardware, networks, data and applications, websites, cloud computing
applications; <font style="DISPLAY: inline; TEXT-DECORATION: underline">File and
Folder Encryption</font> &#8211; to protect sensitive data on computers or portable
data devices; and <font style="DISPLAY: inline; TEXT-DECORATION: underline">Email Encryption</font> &#8211; to
protect sensitive information sent from desktop to desktop.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Anywhere
passwords are used today for logical access Ceelox can replace weak password
authentication with its products which:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Provide
      a simple, easy to use application with a swipe of the finger to gain
      access to applications, PCs, servers, and Internet
    websites.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Offer
      the strongest possible authentication security. The United States National
      Science and Technology Council says that biometrics is the most definitive
      real-time identity access tool
available.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Replace
      ineffective, weak passwords that can be lost, forgotten, stolen,
      compromised and shared.</font></div>
            </td>
          </tr></table>
    </div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">4</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Eliminate
      millions of dollars spent annually on password management and related
      helpdesk support.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Yield
      stronger security than tokens and cards which are more expensive, subject
      to loss, and lack interoperability without substantial added
      cost.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Sensitive
data can be protected through Ceelox products that:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Utilize
      the user&#8217;s fingerprint as a biometric key to uniquely encrypt data and
      files stored in a Ceelox Vault which is independently protected through
      separate biometric access.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Encrypt
      the content and files contained in sensitive emails without disruption to
      the users existing email system.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Create
      a secure ecosystem to transmit passwords, other personally identifiable
      information, or sensitive corporate information across the
      Internet.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Satisfy
      state regulatory requirements for email encryption such as exist in
      Nevada, Massachusetts and a growing number of other
  states.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We intend
to leverage our existing unique and patent pending product capabilities through
the development of our own WBF enabled products.&#160;&#160;Recently, we
successfully demonstrated our Biometric Unit (BU) operating within the WBF to
Microsoft and have commenced beta testing. According to Microsoft, we were the
first company to demonstrate enhancement of the Microsoft WBF design to function
across a network, i.e., LAN, VPN, or domain.&#160;&#160;The Company believes
this is a significant, unique value proposition as it will enable Microsoft
servers use of biometrics and the WBF with Ceelox
products.&#160;&#160;Subsequently, we submitted our Biometric Unit software for
Microsoft certification testing and successfully completed and passed the
testing requirements which allows us to include the Windows 7 logo on our
software packaging, website and advertising materials.&#160;&#160;We plan to
modify each of our products during the first half of 2010, submit them for
Microsoft certification testing and upon successfully completing the testing
requirements we intend to include the Windows 7 logo on each approved
product.&#160;&#160;We believe the Windows 7 logo will provide market validation
and acceptance for our products.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As an
Independent Software Vendor with a Microsoft validated product set and the
Windows logo, we plan to leverage the Microsoft Partner distribution channel,
the Microsoft enterprise sales force and the Microsoft consulting group for
distribution of Ceelox products.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
believes the market will begin to accept and embrace the Software as a Service
(SaaS) model for identity management, IDaaS.&#160;&#160;It is our plan to
exploit the IDaaS opportunity as the market moves in that
direction.&#160;&#160;Ceelox SecureMail already follows this model and in the
second half of 2010 we expect to begin to offer Ceelox ID Online as a service
and also offer a managed security service with our Ceelox ID Server
Edition.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company also believes that its biometric identity-based access authentication
will benefit from the growing cloud computing movement.&#160;&#160;As critical
business applications move to the cloud the need for strong identity-based
access control becomes even more acute.&#160;&#160;Ceelox ID Online offers
strong, affordable, easy to use biometric identity-based access authentication
for individual cloud computing applications and Federated ID (cloud computing
single sign-on) for access to multiple enterprise cloud computing and software
as a service applications.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following are <font style="DISPLAY: inline; FONT-WEIGHT: bold">Ceelox
Identity-Based User Access Control</font> <font style="DISPLAY: inline; FONT-WEIGHT: bold">Products:</font></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">5</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Ceelox ID&#8482;</font> replaces password
and other weak authentication methods with the strongest form of Identity Access
Management available today.&#160;&#160;Biometric user identification and access
controls permit access only to authorized individuals.&#160;&#160;Logical access
control is provided for sensitive customer information systems and applications,
computer devices, networks, files or Web sites.&#160;&#160;Ceelox ID&#8482; solves the
enterprise information security requirements for Financial, Health Care,
Utility, Government and other industries.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Ceelox ID Online&#8482;</font> enables
banks, credit unions and other financial institutions to eliminate identity
theft and insure the safety of online banking and meet the Federal Financial
Institution Examination Council (FFIEC) two-factor authentication
requirements.&#160;&#160;Similarly Ceelox ID Online&#8482; protects access to
electronic health information records.&#160;&#160;Any web-based application
which would benefit from stronger security is a candidate for ID Online which
sits on top of existing security and requires very little effort to
integrate.&#160;&#160;Ceelox ID Online&#8482; biometric-only or two-factor biometric
authentication overcomes the weaknesses and identity theft risks inherent in
password, token and site key solutions.&#160;&#160;Financial institutions can
feel comfortable knowing their customers&#8217; identity and financial assets are safe
and secure.&#160;&#160;Our two-factor remote access authentication also meets
FFIEC Information Security Controls for bank employees and support
vendors.&#160;&#160;Health care institutions can insure the confidentiality,
integrity and availability of electronic protected health information
(ePHI).</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Password
Weaknesses Addressed by Ceelox ID&#8482;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Historically,
businesses have relied heavily on passwords to control access to internal and
customer-facing applications.&#160;&#160;It is now commonly accepted that
passwords alone are no longer a safe method of access control because of the
numerous weaknesses associated with their use.&#160;&#160;Passwords are the most
common authentication mechanism and the weakest.&#160;&#160;Since &#8216;strong&#8217;
passwords are difficult to remember, users often weaken password security by
writing them down and hiding them in obvious places.&#160;&#160;The FDIC and FTC
regulations now require financial institutions, as well as any business that
collects, uses, and stores individuals&#8217; personal information, to identify and
address reasonably foreseeable internal and external threats that could result
in unauthorized disclosure of customer information.&#160;&#160;The following
known password weaknesses identified by the Federal Financial Institution
Examination Council, must be addressed, if institutions are to remain within the
law.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Known
Password Weaknesses:</font></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Keylogger
      attacks through which a monitoring device is placed on the user computer
      to capture passwords for the
attacker;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Dictionary
      and brute force attacks through which the attacker obtains the system
      password file and compares the hashed password against hashes of commonly
      used passwords;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Password
      guessing attacks used with some knowledge about the account holder and the
      bank&#8217;s password policies;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Social
      engineering attacks used to trick the user into giving up their
      password;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Phishing
      and man-in-the-middle attacks lure users to fake bank sites for the
      purpose of identity theft;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Relay
      attacks through which an attacker eavesdrops on communications between
      customer and the financial institution to obtain username and password
      information.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Pass
      phrases are subject to nearly all the same password weaknesses above
      although may require additional time or attempts on the part of the
      hacker.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Internet
      banking authentication presents unique challenges, because banks do not
      benefit from physical security and controlled computing and
      communications; the bank cannot control the user; and passwords are more
      likely to be static and significantly more
  vulnerable.</font></div>
            </td>
          </tr></table>
    </div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">6</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Warehouse
      attacks result in the compromise of a storage system using one or more
      attack methods described above.&#160;&#160;Warehouse attacks typically
      compromise an entire authentication system or worse, an entire customer
      database as was the case with the TJX data breach that exposed over 96M
      customer records.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Token
systems have these inherent weaknesses, also identified by the
FFIEC:</font></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Tokens
      can be lost or stolen during delivery or while in the possession of the
      end user;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ease
      in guessing any password-generating algorithm within the
      token;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ease
      in forging authentication credentials that unlock the
    token;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Tokens
      have been reverse engineered and
cloned;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Tokens
      are subject to man-in-the-middle and phishing
  attacks;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 72pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">And
      like passwords, tokens can be
shared.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Every one
of the above threats, hazards and weaknesses are either completely eliminated or
greatly reduced with Ceelox ID&#8482; biometric authentication and access
control.&#160;&#160;Keyloggers cannot capture a biotemplate rendering dictionary
and brute force attacks useless.&#160;&#160;Internet banking is more secure,
because a password, compromised by phishing or social engineering, is useless
without a biotemplate captured during a live scan.&#160;&#160;Ceelox ID&#8482; also
has none of the above token weaknesses.&#160;&#160;Management believes its
patent pending Parallel Key Infrastructure provides the strongest available
protection of the biometric credential in a network application.&#160;&#160;And
current state-of-the-art fingerprint biometric technology used by Ceelox, makes
forging biotemplate authentication nearly impossible, because a live scan is
required.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The need
for low cost, efficient access security is a competitive necessity for all
businesses.&#160;&#160;Not only is Ceelox security economical, but with Ceelox
ID&#8482;, businesses can eliminate passwords altogether and with them, eliminate all
or nearly all associated costs of password administration and helpdesk support
costs too.&#160;&#160;According to a Gartner Group and IDC estimate, 20% to 50%
of the helpdesk calls are related to username and password issues and resets,
and the average cost of a helpdesk call is $38.&#160;&#160;Per their research,
the cost of password administration and management can total $200 to $300 per
user per year, not including the cost of any breaches.&#160;&#160;Ceelox
believes the percentage of helpdesk calls for password reset is rising as
businesses attempt to make passwords stronger and require more frequent password
changes.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Ceelox Vault&#8482;</font> provides an easy
to use, drag and drop file and folder encryption solution for protecting
electronic customer, financial, health and other sensitive enterprise
information stored on local machines, portable laptops or on portable storage
devices.&#160;&#160;Ceelox Vault&#8482; Portable Edition is unique in that the
application itself resides on the portable storage device and can encrypt or
decrypt on any host PC as well as on the device it resides without leaving any
remnants on the PC.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Ceelox
Vault&#8482; solves the following information security encryption
requirements:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Protect
      Customer Personally Identifiable
Information</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As a
preventive control Ceelox Vault&#8482; protects an enterprise&#8217;s customers&#8217; Personally
Identifiable Information (PII) while at rest on the desktop, or in transit on a
laptop or any number of portable data storage media including flash memory
sticks and portable hard drives.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
Vault provides file and folder level Biometric Identity-Based, AES256
encryption.&#160;&#160;Most other encryption solutions employ weak password
access.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">File
      and Folder Level Encryption</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Many
enterprises have deployed full disc encryption solutions to protect
data.&#160;&#160;Full Disk Encryption (FDE) is a pre-boot encryption tool that
protects data while the PC is off.&#160;&#160;Ceelox Vault&#8482; provides file and
folders encryption to protect information on the PC or portable drive regardless
if the device is powered.</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">7</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Encryption
      that is Easy to Use</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Most
encryption solutions fail because they are simply too complicated and hard to
use for most users, and therefore are not utilized.&#160;&#160;If users know how
to use the Recycle Bin or the normal copy and paste functionality, Ceelox Vault
drag &amp; drop encryption is elementary.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Data
unavailability is a risk with other encryption solutions that require
complicated and costly key management systems.&#160;&#160;With Ceelox Vault the
encryption key is the user&#8217;s biometric fingerprint template hashed with 128 bit
encryption and layered twice; therefore there is no need for a complicated key
management system.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">License-Level
      Authentication Mode</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">IT and
Security Administrators can eliminate risky passwords altogether and
predetermine the authentication mode required for user encryption as either
biometric-only or two-factor authentication.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Ceelox SecureMail&#8482;</font> provides an
affordable, powerful, easy-to-use end point software application as a service
that enables users to encrypt/decrypt electronic mail over the network or
Internet.&#160;&#160;Ceelox SecureMail&#8482; provides users a means to email
sensitive information that only the intended recipient may
access.&#160;&#160;Ceelox also offers a free, downloadable, decrypt-only
capability for enterprises&#8217; business and consumer customers.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Traditionally,
most email security and protection solutions have focused on inbound threats.
But increasingly, orga&#173;nizations find that they must also address outgoing
mail too. In fact, nearly one in five outgoing emails (18.9%) contains content
that poses a legal, financial or regulatory risk, according to a 2007 survey of
email decision-mak&#173;ers at 308 large U.S. enterprises (conducted by
Forrester).&#160;&#160;Other studies have placed the percentage of email
containing corporate intelligence at 70%.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">And email
is simply not secure.&#160;&#160;There are many places where email messages can
be intercepted in transit or at rest.&#160;&#160;All email traffic flows through
your Internet Service Provider and/or your email provider where it can be
intercepted and read.&#160;&#160;While traveling across extensive corporate
networks email is effectively open to interception by many
employees.&#160;&#160;And email originated through hotel Internet access or
other public Internet access such as at Starbucks or internet caf&#233;s is
especially open to interception.&#160;&#160;There is no way to stop people from
intercepting email.&#160;&#160;The only thing you can do is protect email with
encryption.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Ceelox
SecureMail&#8482; solves the following information security encryption requirements
for electronic communications:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Safe,
      Secure, Confident Electronic
Communications</font></div>
            </td>
          </tr></table>
    </div>
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SecureMail&#8482; provides email encryption for In Transit electronic customer data
using the strongest commercially available form of encryption, AES
256.</font></div>
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<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
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      or password authentication mode</font></div>
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          </tr></table>
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SecureMail, for example, allows financial institutions to safely and securely
share loan documents with customers; send statements to depositors; provide
fast, electronic written response to customer account inquiries; send wire
transfer and other transaction confirmations; share legal documents with
counsel; and communicate with auditors, regulators and Board
members;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left">&#160;</div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt; FONT-WEIGHT: bold" face="Symbol, serif">&#183;&#160;&#160;</font></div>
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            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Desktop-to-Desktop
      security</font></div>
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          </tr></table>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
SecureMail encrypts sensitive customer information desktop-to-desktop and keeps
it encrypted on the desktop.&#160;&#160;Other solutions leave customer
Personally Identifiable Information unencrypted, in the open, while within the
enterprise network and/or while on the desktop exposed to unauthorized internal
access.</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
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        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">8</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Ease
of Use</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Enterprises
need email encryption that is easy to use for employees and their business and
consumer customers.&#160;&#160;Ceelox SecureMail&#8482; supports Microsoft Outlook&#8482;
and all browser-based email systems such as gmail&#8482; and hotmail&#8482;.&#160;&#160;An
Outlook plug-in makes email encryption as easy as the swipe of your finger and
an Internet Explorer&#8482; plug-in makes encryption easier for users of popular
browser-based email systems above.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Unlimited
Free Decrypt-Only Software</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Email
encryption must be economical.&#160;&#160;Per seat pricing that includes a B2C
enterprise&#8217;s entire consumer customer base would be cost
prohibitive.&#160;&#160;Ceelox offers downloadable decrypt-only software
free.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Competition</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
markets for our products and technologies are developing and characterized by
intense competition and rapid technological change. No assurance can be given
that our competitors will not develop new or enhanced technologies that will
offer superior price, performance, or features, or render our products or
technologies obsolete.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
addition to companies that provide existing commonplace methods of restricting
access to facilities and logical access points such as pass cards, PIN numbers,
passwords, locks and keys, there are numerous companies involved in the
development, manufacturing and marketing of fingerprint biometrics products to
commercial and consumer markets. These companies include, but are not limited
to, Bio-Key, Cogent, NEC, L-1 Identity Solutions, SAFRAN, Digital Persona,
Precise Biometrics and U S Biometrics.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Although
most companies that target consumer application markets have completed
development of their biometric products, such technologies have not been widely
accepted in the commercial markets to date. Most companies competing for
commercial opportunities are in the business of selling scanning devices and tie
their algorithm to a specific device.&#160;&#160;We have created a biometric
platform that is &#8220;device independent&#8221; and have implemented our products with
fingerprint scanners, the most common biometric hardware device available in the
marketplace.&#160;&#160;Nonetheless, other biometric devices, such as retina or
vein scanners, provide a Software Developer Kit (SDK) which can be used for
integration with Ceelox products.&#160;&#160;Therefore, by being agnostic to
hardware, the Company offers flexibility to customers in their implementation
designs.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
commercial markets have been slow to widely accept biometrics as a viable
alternative to their current security methods. As a result, the primary
competition for biometric technology consists of traditional security methods
such as passwords, PINs, cards and tokens and device
authentication.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">With
respect to competing biometrics technologies, each has its strength and
weaknesses and none has emerged as a market leader:</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
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      </font>is generally viewed as inexpensive and
    non-intrusive.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="">
<tr valign="top">
            <td style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;
      </font></div>
            </td>
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Iris scanning </font>is viewed
      as accurate, but can be expensive and inconvenient to
  use.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="">
<tr valign="top">
            <td style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;
      </font></div>
            </td>
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Facial recognition </font>has
      recently received substantial attention; however, it can have accuracy
      limitations associated with the quality and capability of the video
      capture device and be highly dependent on ambient lighting conditions,
      angle of view and other
factors.</font></div>
            </td>
          </tr></table>
    </div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">9</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
market for biometric technology is evolving. Computer breaches, identity theft,
phishing and other events in the recent past are driving a large-scale shift to
biometric deployments. In addition, companies such as Lenovo/IBM, Dell, Gateway,
MPC, Samsung, Sony, Toshiba, Acer and HP have all introduced computers with
integrated finger scanning devices to complement the conventional
username/password technique since it is highly susceptible to hackers and
security breaches.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
competitiveness depends on our ability to offer high-quality products that meet
our customers&#8217; needs on a timely basis.&#160;&#160;The principal competitive
factors of our products are time to market, quality, price and breadth of
product line.&#160;&#160;Many of our competitors have significant advantages
over us such as far greater name recognition and financial resources than we
have.&#160;&#160;At this time we do not represent a significant competitive
presence in our industry.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">License
Agreement</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On July
20, 2007, Ceelox granted CIP, LLC, of which Mr. Moore our Chairman is a control
person, an exclusive, fully paid-up, royalty-free, irrevocable, perpetual,
worldwide, transferable, assignable license, with the right to sublicense in and
to all of Ceelox&#8217;s intellectual property (the &#8220;License Agreement&#8221;). Subject to
the License Agreement, Ceelox maintains all of its right, title and interest in
and to the intellectual property. The License Agreement was effective
immediately and continues indefinitely, unless and until terminated by mutual
agreement.&#160;&#160;Additionally and in connection with the License Agreement,
the Company entered into a Software Services Agreement with CIP, LLC whereby
they agreed to pay Ceelox&#8217;s costs associated with marketing its products and
maintaining and developing Ceelox&#8217;s products based on its biweekly cash burn
rate, net of sales collections.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
agreements contain a provision allowing for the reassignment of the intellectual
property back to Ceelox at both the option of Ceelox and CIP, each option
independent of the other. Nicaragua, Ceelox and CIP entered into a License
Reacquisition Letter Agreement (&#8220;Reacquisition Agreement&#8221;) on February 12,
2010.&#160;&#160;Pursuant to the Reacquisition Agreement, Ceelox will reacquire
all of the rights to its intellectual property granted pursuant to the License
Agreement in exchange for the issuance of 10,271,203 shares of Nicaragua&#8217;s
common stock to CIP, LLC at such time as CIP, LLC determines in its sole
discretion that adequate financing to support the Company&#8217;s business will be
obtained from an unrelated third party.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the years ended December 31, 2008 and 2007, the Company received advances under
this agreement of $2,632,185 and $1,060,778, respectively. Interest accrued for
the years ended December 31, 2008 and 2007 amounted to $658,047 and $265,195,
respectively.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Total
advances including interest accrued under the reassignment consideration
provision, amounted to $4,616,205 and $1,325,973 as of December 31, 2008 and
2007, respectively.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the nine months ended September 30, 2009 and 2008, the Company received advances
under this agreement of $466,873 and $1,982,923, respectively. Interest accrued
for the nine months ended September 30, 2009 and 2008 amounted to $116,718 and
$495,731 respectively.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Intellectual
Property</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We have
filed for patent protection for each of our products with the U.S. Patent and
Trademark Office, but to date have not received approval of such
patents.&#160;&#160;&#160;The granting of any patent involves complex legal and
factual questions.&#160;&#160;The scope of allowable claims is often
uncertain.&#160;&#160;As a result, we cannot be sure that any patent application
filed by us will result in a patent being issued, or that any</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
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        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">10</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">patents
issued will afford adequate protection against competitors with similar
technology, nor can we provide assurance that patents issued to us will not be
infringed upon or designed around by others.&#160;&#160;The Company intends to
explore international patent protection at such time as it feels such protection
is warranted.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We
currently protect our intellectual property through contractual arrangements,
including confidentiality, non-competition and non-disclosure agreements, and
will continue to use such contractual arrangements in the future to help protect
our proprietary intellectual property.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>We have filed with and received from
the U.S Patent and Trademark Office registered trademarks for each of Ceelox ID,
Ceelox ID Online, Ceelox SecureMail and Ceelox Vault.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Research
and Development</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We employ
a skilled research and development team based in our Tampa, Florida headquarters
that is responsible for identifying and creating new products and applications
along with improving and enhancing existing products.&#160;&#160;The markets in
which we compete are characterized by rapid technological change and evolving
standards and in order to establish our presence in the biometrics market we
will need to continue to expend significant resources on enhancing our existing
products and creating new products.&#160;&#160;As our sales have been minimal to
date, our research and development activities have been funded through outside
sources of capital.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Government
Regulation</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We are
not currently subject to direct regulation by any government agency, other than
regulations generally applicable to businesses.&#160;&#160;In the event that we
sell our products internationally, we could be subject to various domestic and
foreign laws regulating such exports and export activities.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Property</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
offices are located at 13976 Lynmar Blvd., Tampa, FL 33626 where we lease
approximately 7,000 square feet of office space.&#160;&#160;Pursuant to our
lease, we currently pay $6,700 per month in rent, and our lease is currently up
for renewal and under re-negotiation.&#160;&#160;&#160;We believe that our
facilities are adequate for our current and future needs through 2011, and we
believe we will be successful in negotiating a favorable two-year
lease.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Employees</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As of
February 12, 2010, we had 11 employees, comprised of four in
management,&#160;&#160;one in sales, and six in our development
group.&#160;&#160;Since inception, we have never had a work stoppage and none of
our employees are represented by a labor union.&#160;&#160;We consider our
relationship with our employees to be good.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Legal
Proceedings</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">From time
to time, we may be involved in litigation relating to claims arising out of our
operations in the normal course of our business.&#160;&#160;We are not currently
a part to any legal proceedings.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
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        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">11</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">RISK
FACTORS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">RISKS
RELATING TO OUR BUSINESS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
have a history of losses and may not be profitable in the future.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We have
incurred substantial losses and had negative cash flow in operating activities
for the last two fiscal years and for the nine month period ended September 30,
2009, and as of September 30, 2009 we had an accumulated deficit of
$20,832,777.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We
sustained net losses of $3,482,777 and $3,975,649 for the years ended December
31, 2008 and 2007, respectively, and a net loss of $1,287,513 for the nine
months ended September 30, 2009.&#160;&#160;We cannot assure you that we will
generate sufficient cash flow to meet our obligations or achieve operating
profits in the future.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
have granted an exclusive license to CIP, LLC for all of our intellectual
property.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>On July 20, 2007, Ceelox granted CIP,
LLC, of which Mr. Moore our Chairman is a control person, an exclusive, fully
paid-up, royalty-free, irrevocable, perpetual, worldwide, transferable,
assignable license, with the right to sublicense in and to all of Ceelox&#8217;s
intellectual property. Subject to the License Agreement, Ceelox maintains all of
its right, title and interest in and to the intellectual property. The License
Agreement was effective immediately and continues indefinitely, unless and until
terminated by mutual agreement.&#160;&#160;Additionally and in connection with
the License Agreement, the Company entered into a Software Services Agreement
with CIP, LLC whereby they agreed to pay Ceelox&#8217;s costs associated with
marketing its products and maintaining and developing Ceelox&#8217;s products based on
its biweekly cash burn rate, net of sales collections.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
agreements contain a provision allowing for the reassignment of the intellectual
property back to Ceelox at both the option of Ceelox and CIP, each option
independent of the other. Nicaragua, Ceelox and CIP entered into a License
Reacquisition Letter Agreement on February 12, 2010.&#160;&#160;Pursuant to the
Reacquisition Agreement, Ceelox will reacquire all of the rights to its
intellectual property granted pursuant to the License Agreement in exchange for
the issuance of 10,271,203 shares of Nicaragua&#8217;s common stock to CIP, LLC at
such time as CIP, LLC determines in its sole discretion that adequate financing
to support the Company&#8217;s business will be obtained from an unrelated third
party.&#160;&#160;We cannot assure you that we will be able to secure adequate
financing to support our future business, or that if we do secure what we
believe to be adequate funding, CIP, LLC may not believe in its sole discretion
that any such funding will be adequate to support our business
plan.&#160;&#160;If we do not reacquire our rights to the intellectual property
covered by the License Agreement, CIP, LLC could in the future determine to
exploit our technology without having to pay us any royalties on any revenues
they generate.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Our
biometric technology has yet to gain widespread market acceptance and we do not
know how large of a market will develop for our technology.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Biometric
technology has received only limited market acceptance, particularly in the
private sector. Our technology represents a novel security solution and we have
not yet generated significant sales. Although recent security concerns relating
to identification of individuals and systems and data access control has
increased interest in biometrics generally, it remains an undeveloped, evolving
market. Biometric based solutions compete with more traditional security methods
including keys, cards, personal identification numbers and security personnel.
Acceptance of biometrics as an alternative to such traditional methods depends
upon a number of factors including:</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="">
<tr valign="top">
            <td style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;
      </font></div>
            </td>
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#183;&#160;&#160;&#160;&#160;&#160;
      the reliability of biometric
solutions;&#160;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="">
<tr valign="top">
            <td style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;
      </font></div>
            </td>
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#183;&#160;&#160;&#160;&#160;&#160;
      public perception regarding privacy
  concerns;&#160;and</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table align="center" border="0" cellpadding="0" cellspacing="0" id="hangingindent" width="100%" style="">
<tr valign="top">
            <td style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;
      </font></div>
            </td>
            <td>
              <div align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#183;&#160;&#160;&#160;&#160;&#160;
      costs involved in adopting and integrating biometric
      solutions.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">For these
reasons, we are uncertain whether our biometric technology will gain widespread
acceptance in any commercial markets or that demand will be sufficient to create
a market large enough to produce significant revenue or earnings. Our future
success depends, in part, upon business customers and ultimately consumers
adopting biometrics generally, and our solution specifically.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Biometric
technology is a new approach to Internet security which must be accepted in
order for our products and solutions to generate significant
revenue.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
biometric products and solutions represent a new approach to Internet security
which has been adopted on a limited basis by companies which distribute goods,
content or software applications over the Internet. The implementation of our
products and solutions requires the distribution and use of a finger scanning
device and integration of database and server side software. Although we believe
our solutions provide a higher level of security for ecommerce, banking and
other Internet transactions and information transmitted over the Internet than
existing traditional methods, unless business and consumer markets embrace the
use of a scanning device and believe the benefits of increased accuracy outweigh
implementation costs, our solutions will not gain market
acceptance.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Our
software products may&#160;contain defects which will make it more difficult for
us to establish and maintain customers.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Despite
extensive testing during development, our software may&#160;contain undetected
design faults and software errors, or &#8220;bugs&#8221; that are discovered only after it
has been installed and used by customers. Any such defect or error in new or
existing software or applications could cause delays in delivering our
technology or require design modifications. These could adversely affect our
competitive position and cause us to lose potential customers or opportunities.
Since our technologies are intended to be utilized to secure electronic access,
the effect of any such bugs or delays will likely have a detrimental impact on
us. In addition, given that biometric technology generally, and our biometric
technology specifically, has yet to gain widespread acceptance in the market,
any delays would likely have a more detrimental impact on our business than if
we were a more established company.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">In
order to generate revenue from our biometric products, we are dependent upon
third party distributors including Microsoft Partners, Citrix Solutions
Partners, other systems integrators and value-added resellers, Internet security
solutions providers, and others, which we do not control. As a result, it
may&#160;be more difficult to generate sales.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As a
security software and services company, our success will depend upon the ability
of these distribution channel partners to effectively integrate our technology
into products and services which they market and sell. We have no control over
these partners and cannot assure you that they have the financial, marketing or
technical resources to successfully sell, integrate and distribute products or
applications to end users or generate any meaningful revenue for us. These third
parties may&#160;also offer the products of our competitors to end
users.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">12</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
will need to raise additional capital in order to implement our long-term
business plan.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
ability to implement our long-term strategy and expand our operations largely
depends on our access to capital.&#160;&#160;To implement our long-term
strategy, we plan to make ongoing expenditures for the expansion and improvement
of our product line and the promotion of our products.&#160;&#160;We may also
wish to make expenditures to acquire other businesses.&#160;&#160;To date, we
have financed our operations primarily through sales of equity, the issuance of
notes and advances from a related party.&#160;&#160;If we were to attempt to
expand our business at a faster pace than currently contemplated, or if we were
to identify an acquisition target, we would need to raise additional capital
through the sale of our equity securities or debt
instruments.&#160;&#160;However, additional capital may not be available on
terms acceptable to us.&#160;&#160;Our failure to obtain sufficient additional
capital could curtail or alter our long-term growth strategy or delay needed
capital expenditures.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
may not be able to effectively manage our growth.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
strategy envisions growing our business.&#160;&#160;We plan to continue to
develop our technology and to hire additional sales, software engineers,
administrative and marketing personnel.&#160;&#160;Any growth in or expansion of
our business is likely to place a strain on our management and administrative
resources, infrastructure and systems.&#160;&#160;In order to expand our
business, we may be required to purchase or lease additional machinery and
equipment, hire, train and supervise additional personnel and make significant
outlays of capital.&#160;&#160;These measures are time consuming and expensive,
will increase management&#8217;s responsibilities and will divert management&#8217;s
attention from our day-to-day operations. We cannot assure you that we will be
able to:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">expand
      our systems effectively or efficiently or in a timely
    manner;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">allocate
      our human resources optimally;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">meet
      our capital needs;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">identify
      and hire qualified employees or retain valued employees;
  or</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">incorporate
      effectively the components of any business or product line that we may
      acquire in our effort to achieve
growth.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
inability or failure to manage our growth effectively could harm our business
and materially and adversely affect our operating results and financial
condition.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Competition
may force us to shorten our product life cycles and more rapidly introduce new
and enhanced products, which could have a material adverse effect on our results
of operations.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
may not be able to adequately protect our intellectual property
rights.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">&#160;</font><br>&#160;</div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We try to
protect our intellectual property in a number of different ways.&#160;&#160;We
rely in part on patent, trade secret, unfair competition and trademark law to
protect our rights to certain aspects of our products, including product
designs, proprietary development processes and technologies, product research
and concepts and recognized trademarks, all of which we believe are important to
the success of our products and our competitive position.&#160;&#160;There can
be no assurance that any of our pending patent or trademark applications will
result in the issuance of a registered patent or trademark, or that any future
patent or trademark granted will be effective in thwarting competition or be
held valid if subsequently challenged.&#160;&#160;In addition, there can be no
assurance that the actions taken by us to protect our proprietary rights will be
adequate to prevent imitation of our products, that our proprietary information
will not become known to competitors, that we can meaningfully protect our
rights to unpatented proprietary information or that others will not
independently develop substantially equivalent or better products
that</font></div><br>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">do not
infringe on our intellectual property rights.&#160;&#160;We could be required to
devote substantial resources to enforce any future patents that may be issued to
us and protect our intellectual property, which could divert our resources and
result in increased expenses.&#160;&#160;In addition, an adverse determination
in litigation could subject us to the loss of our rights to a particular patent
or other intellectual property, could require us to obtain from or grant
licenses to third parties, could prevent us from selling or using certain
aspects of our products or could subject us to substantial liability, any of
which could harm our business.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">We may become subject to litigation
for infringing the intellectual property rights of others</font>.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Others
may initiate claims against us for infringing on their intellectual property
rights.&#160;&#160;We may be subject to costly litigation relating to such
infringement claims and we may be required to pay compensatory and punitive
damages or license fees if we settle or are found culpable in such
litigation.&#160;&#160;In addition, we may be precluded from offering products
that rely on intellectual property that is found to have been infringed by
us.&#160;&#160;We also may be required to cease offering the affected products
while a determination as to infringement is considered.&#160;&#160;These
developments could cause a decrease in our operating income and reduce our
available cash flow, which could harm our business.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
may be unable to attract and retain qualified, experienced, highly skilled
personnel, which could adversely affect the implementation of our business
plan.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
success depends to a significant degree upon our ability to attract, retain and
motivate skilled and qualified personnel.&#160;&#160;If we fail to attract,
train and retain sufficient numbers of these qualified people, our prospects,
business, financial condition and results of operations will be materially and
adversely affected.&#160;&#160;In particular, we are heavily dependent on the
continued services of Gerry Euston, our Chief Executive Officer, Mark Grannell,
our Chief Operating Officer, Erix Pizano, our Director of Technology Development
and Engineering and the other members of our senior management
team.&#160;&#160;Although our operating subsidiary has employment agreements
with each of Messrs. Euston and Grannell, the agreements may be terminated with
or without cause by either party on 30 days prior written
notice.&#160;&#160;&#160;&#160;&#160;&#160;The loss of any key employee,
including members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industry could harm
our business. Our success depends on our ability to attract, train and retain
employees with expertise in developing, marketing and selling software
solutions. In order to successfully market our technology, we will need to
retain additional engineering, technical support and marketing personnel. The
market for such persons remains highly competitive and our limited financial
resources will make it more difficult for us to recruit and retain qualified
persons.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
face intense competition and may&#160;not have the financial and human resources
necessary to keep up with rapid technological changes, which may&#160;result in
our technology becoming obsolete.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Internet and information security markets are subject to rapid technological
change and intense competition. We compete with both established biometric
companies and a significant number of startup enterprises as well as providers
of more traditional methods of access control. Most of our competitors have
substantially greater financial and marketing resources than we do and
may&#160;independently develop superior technologies, which may&#160;result in
our technology becoming less competitive or obsolete. We may&#160;not be able to
keep pace with this change. If we are unable to develop new applications or
enhance our existing technology in a timely manner in response to technological
changes, we will be unable to compete in our chosen markets. In addition, if one
or more other biometric technologies such as voice, face, iris, hand geometry or
blood vessel recognition are widely adopted, it may cause us delays in adapting
our products and services to these other biometric form factors.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Our
products may become obsolete due to rapid technological change within the
industry.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Product
technology evolves rapidly, making timely product innovation essential to
success in the marketplace.&#160;&#160;The introduction of products with
improved technologies or features may render our existing products obsolete and
unmarketable.&#160;&#160;If we cannot develop products in a timely manner in
response to industry changes, or if our products do not perform well, our
business and financial condition will be adversely affected.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Risks
Related To Our Common Stock</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">A
Majority of our Common Stock is owned and controlled by William P. Moore, our
Chairman, which will limit your ability to voice your opinion on corporate
matters over which you will effectively have no vote.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">CIP, LLC,
our majority shareholder, of which our Chairman, William P. Moore is a control
person, currently owns approximately 51.7% of our issued and outstanding common
stock.&#160;&#160;Additionally, CIP, LLC has the right to acquire an additional
10,271,203 shares of our common stock pursuant to the License Reacquisition
Agreement and 4,208,102 additional shares upon the exercise of outstanding
warrants which would increase their ownership percentage in our
company.&#160;&#160;Since CIP, LLC controls more than 50% of our issued and
outstanding common stock, you effectively have no vote in how we conduct our
corporate affairs.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Applicable
SEC Rules&#160;governing the trading of &#8220;penny stocks&#8221; limits the trading and
liquidity of our common stock, which may affect the trading price of our common
stock.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
common stock currently trades on the OTC Bulletin Board. Since our common stock
trades below $5.00 per share, our common stock is considered a &#8220;penny stock&#8221; and
is subject to SEC rules&#160;and regulations, which impose limitations upon the
manner in which our shares can be publicly traded. These regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule&#160;explaining the penny stock market and the associated risks. Under
these regulations, certain brokers who recommend such securities to persons
other than established customers or certain accredited investors must make a
special written suitability determination regarding such a purchaser and receive
such purchaser&#8217;s written agreement to a transaction prior to sale. These
regulations have the effect of limiting the trading activity of our common stock
and reducing the liquidity of an investment in our common stock.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">We
do not intend to pay dividends in the foreseeable future.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We have
never declared or paid a dividend on our common stock. We intend to retain
earnings, if any, for use in the operation and expansion of our business and,
therefore, do not anticipate paying any dividends on our common stock in the
foreseeable future.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">The
trading price of our common stock may&#160;be volatile.</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
trading price of our shares has from time to time fluctuated widely and in the
future may&#160;be subject to similar fluctuations. The trading price
may&#160;be affected by a number of factors including the risk factors set forth
in this Report as well as our operating results, financial condition,
announcements of innovations or new products by us or our competitors, general
conditions in the biometrics and access control industries, and other events or
factors. In recent years broad stock market indices, in general, and the
securities of technology companies, in particular, have experienced substantial
price fluctuations. Such broad market fluctuations may&#160;adversely affect the
future-trading price of our common stock.</font></div><br>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
information contained in this section should be read in conjunction with our
consolidated financial statements and related notes and the information
contained elsewhere in this Current Report under the captions "Risk Factors,"
and "Business&#8221;.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Overview</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We were
formed for the purpose of developing and marketing advanced security solutions
using fingerprint and other biometric technology and encryption software
solutions.&#160;&#160;&#160;Our biometric identification and encryption software
solutions provide innovative and new ways for customers to securely access,
store, send and receive confidential information.&#160;&#160;Biometric
technology is the science of analyzing specific human characteristics which are
unique to each individual in order to identify a specific person from a broader
population.&#160;&#160;The use of biometrics enables enterprise and consumer
users to login to different systems and applications using secure credentials
based on their unique characteristics, while blocking unauthorized
users.&#160;&#160;Our biometric authentication provides strong protection
against identity theft.&#160;&#160;We commenced marketing our products in the
first half of 2007 following more than three years of technology and product
development.&#160;&#160;We believe that our products meet the needs of companies
that require strong data, systems and applications security including financial
institutions, healthcare providers, insurance companies, government agencies,
utilities and any business where security and identification are key
concerns.&#160;&#160;To date we have invested over $10 million in the operations
of the business including research and development, product development and
marketing of our products.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Results
of Operations</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Net
Revenue</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In early
2007 the Company completed development of its initial product line and began
marketing its solutions.&#160;&#160;For the years ended December 31, 2008 and
2007 the Company had revenues of $89,014 and $135,641,
respectively.&#160;&#160;The main reason for the decrease in revenue in 2008
from 2007 was the third quarter 2008 financial crisis that shook the U.S.
banking industry which had a significant impact on the pending sales and
prospects of the Company.&#160;&#160;&#160;&#160;With slowing sales and critical
cash funding shortfalls, management curtailed operating activities and minimized
cash outflows beginning in the third quarter of 2008 and continuing into the
nine months ended September 30, 2009.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Total
Costs and Expenses</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our total
cost and expenses which consist of payroll and related benefits, consulting
expenses, marketing, general and administrative expenses, depreciation and
amortization, and research and development expenses increased by $51,529 or 1.8%
for the year ended December 31, 2008 from December 31, 2007.&#160;&#160;While
overall expense was relatively flat, there were several changes within the
categories that make up total cost and expense.&#160;&#160;Our cost of hardware
sales declined by $38,680 or 48.7% in 2008 from 2007 primarily as a result of
the decline in revenue.&#160;&#160;Payroll and related benefits and consulting
expenses were up $324,372 or 19% in 2008 from 2007 due to increased staffing
prior to the</font></div><br>
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      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">sales
downturn experienced in the third quarter of 2008 and an increase in stock-based
compensation of $68,064 due to issuance of employee stock options in
2008.&#160;&#160;Marketing, general and administrative expenses were lower by
$232,750 or 24% in 2008 from 2007 due primarily to a reduction in marketing
spending to $199,574 from $405,156.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Loss
from Operations</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
operating loss for the 12 months ended December 31, 2008 was $2,801,445 compared
to a loss of $2,703,289 for the 12 months ended December 31, 2007, an increase
of $98,156 or 3.6%.&#160;&#160;The increased loss was due to lower revenue and
slightly higher expenses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Interest
Expense</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Interest
expense for the year ended December 31, 2008 was $681,337 compared to $1,272,360
for year the ended December 31, 2007, a reduction of $591,023.&#160;&#160;In
August 2005 the Company entered into a convertible note from a related party
(see footnote 7 of the Company&#8217;s financial statements).&#160;&#160;Interest on
that note was $26,591 in 2008 compared to $86,526 in 2007.&#160;&#160;During the
years 2006 and 2007 the Company modified the loan agreement and as additional
consideration for the modifications and increased borrowing capacity, the
Company provided shares of its common stock and warrants to the
lender.&#160;&#160;The fair value of the common stock and warrants were deemed
to be financing fees and amortized over the term of each of the modifications to
the instrument.&#160;&#160;On June 21, 2007, upon notification from the lender,
the Company converted $3,133,764 of the $3,436,193 then outstanding
line-of-credit advances, including accrued interest, into shares of the
Company&#8217;s common stock and warrants to purchase common stock.&#160;&#160;The
conversion triggered acceleration of the amortization of the related financing
fees.&#160;&#160;In 2007 amortization and accelerated amortization of the
related financing fees amounted to $891,781.&#160;&#160;In 2008 there were no
financing fees.&#160;&#160;On July 20, 2007 the Company granted a related party
an exclusive, fully paid-up, royalty-free, irrevocable, perpetual, worldwide,
transferable, assignable license, with the right to sublicense in and to all the
Company&#8217;s intellectual property (the &#8220;License Agreement&#8221;). Subject to the
License Agreement the Company maintains all of its right, title and interest in
and to the intellectual property. The License Agreement was effective
immediately and continues indefinitely, unless and until terminated by mutual
agreement.&#160;&#160;Additionally and in connection with this agreement, the
Company entered into a Software Services Agreement with the related party
whereby they agreed to pay Ceelox costs associated with marketing its products
and maintaining and developing our products based on our biweekly cash burn
rate, net of sales collections.&#160;&#160;During the years ended December 31,
2008 and 2007, the Company received advances under this agreement of $2,632,185
and $1,060,778, respectively. On an accounting basis, the interest accrued for
the years ended December 31, 2008 and 2007 amounted to $658,047 and $265,195,
respectively. See Footnote 6 of the Company&#8217;s financial statements for
additional detail.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Net
Loss</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the years ended December 31, 2008 and 2007 the Company incurred net losses of
$3,482,777 and $3,975,649, respectively.&#160;&#160;The reduced losses of
$492,872 were primarily due to reduced interest expenses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Seasonality
and Quarterly Results</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We do not
expect to experience any seasonality in our operating results.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Results
of Operations</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Nine
Months Ended September 30, 2009 Compared with Nine Months Ended September 30,
2008</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Net
Sales</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Revenue
for the periods ending September 30, 2009 and 2008 were $76,837 and $76,407,
respectively.&#160;&#160;Management curtailed operating activities, and
minimized cash outflows during the nine months ended September 30,
2009.&#160;&#160;As a result our revenue performance was, as expected, flat.
</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Total
Costs and Expenses</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">For the
period ended September 30, 2009 total costs and expenses were down $932,250, or
43%, to $1,224,267 from $2,156,517 for the same period in 2008.&#160;&#160;In
its efforts to minimize expenses, management reduced marketing expenses in 2009
by $153,923 from $173,807 in the same period of 2008.&#160;&#160;Payroll,
benefits and consulting expenses were reduced $527,386 from
$1,467,546.&#160;&#160;In addition, other general and administrative expenses
were reduced $223,604 from $431,481.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Loss
from Operations</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">For the
periods ended September 30, 2009 and 2008 losses from operations were $1,147,430
and $2,080,110, respectively.&#160;&#160;The reduced loss from operations of
$932,680 or 45% was due largely to management&#8217;s efforts to minimize
expenses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-WEIGHT: bold">Interest
Expense</font></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Interest
expenses for the periods ended September 30, 2009 and 2008 were $140,626 and
$558,410, respectively.&#160;&#160;The primary difference in our interest
expense is due to decreased interest expense incurred from the advances under
the July 20, 2007 licensing and software management agreements described in
Footnote 6 of the Company&#8217;s financial statements attached hereto.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Net
Loss</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">For the
periods ended September 30, 2009 and 2008 net losses were $1,287,513 and
$2,638,514, respectively.&#160;&#160;The reduced net loss of $1,351,002 or 51%
was due largely to management&#8217;s efforts to minimize expenses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Liquidity
and Capital Resources</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As of
September 30, 2009, we had a working capital deficit of $5,767,602, as compared
to a working capital deficit of $4,986,002 as of December 31,
2008.&#160;&#160;In the past we have relied on sales of our equity to raise
funds for our working capital requirements, as well as loans from our majority
stockholder.&#160;&#160;We will need to raise additional capital in order to
implement our business plan and will seek to sell additional equity and/or debt
to accomplish this objective.&#160;&#160;There can be no assurance that we will
be able to raise funds sufficient to carry out our business plan, or that if
funds are available to us that they will be on acceptable terms.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Operating
Activities</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Cash used
in operations of $984,378 during the nine months ended September 30, 2009 was
primarily a result of our $1,287,513 net loss reconciled with our net non-cash
expenses relating to stock-based compensation expense, accrued interest,
depreciation and amortization expense.&#160;&#160;Cash used in operations of
$1,955,136 during the nine months ended September 30, 2008 was primarily a
result of our $2,638,514 net loss reconciled with our net non-cash expenses
relating to stock-based compensation expense, amortization of deferred finance
fees, accrued interest, depreciation and amortization expense.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Cash used
in operations of $2,552,089 during the year ended December 31, 2008 was
primarily a result of our $3,482,777 net loss reconciled with our net non-cash
expenses relating to stock-based compensation expense, accrued interest,
depreciation and amortization expense.&#160;&#160;Cash used in operations of
$2,555,328 during the year ended December 31, 2007 was primarily a result of our
$3,975,649 net loss reconciled with our net non-cash expenses relating to
stock-based compensation expense, amortization of deferred finance fees, accrued
interest, depreciation and amortization expense.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Investing
Activities</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We did
not generate cash flows from investing activities during the nine months ended
September 30, 2009 or the year ended December 31, 2008.&#160;&#160;We expended
$3,638 during the nine months ended September 30, 2009, $13,931 during the nine
months ended September 30, 2008, $16,624 during the year ended December 31, 2008
and $87,460 during the year ended December 31, 2007.&#160;&#160;The amounts we
expended in 2009 were for the purchase of property and equipment and for the
years ended December 31, 2008 and 2007 were for purchase of property and
equipment and costs incurred for patent and software development.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Financing
Activities</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the nine months ended September 30, 2009, we generated proceeds of $916,873 from
our financing activities which consisted of: (i) $350,000 from sales of our
common stock, (ii) advances from related parties of $466,873, and (3) the sale
of convertible notes in the amount of $100,000.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the year ended December 31, 2008, we generated proceeds of $2,632,185 from our
financing activities which consisted solely of advances from related
parties.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">During
the year ended December 31, 2007, we generated net proceeds of $2,645,294 from
our financing activities which consisted of: (i) $440,000 from sales of our
common stock, (ii) advances from related parties of $1,060,778, (3) the sale of
convertible notes in the amount of $1,154,078, and (4) the payment of $9,562
towards our capital leases.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><br><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font id="TAB2" style="LETTER-SPACING: 9pt">&#160;&#160;&#160;</font>&#160;Off-Balance
Sheet Arrangements</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We
currently do not have any off-balance sheet arrangements or financing activities
with special purpose entities.</font></div>
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    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Critical
Accounting Policies and Estimates</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Management&#8217;s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. To prepare these
financial statements, we must make estimates and assumptions that affect the
reported amounts of assets and liabilities. These estimates also affect our
reported revenues and expenses.&#160;&#160;On an ongoing basis, management
evaluates its estimates and judgment, including those related to revenue
recognition, accrued expenses, financing operations and contingencies and
litigation.&#160;&#160;Management bases its estimates and judgment on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources.&#160;&#160;Actual results may differ from these estimates
under different assumptions or conditions.&#160;&#160;The most significant
accounting estimates inherent in the preparation of our financial statements are
set forth in Note 1 to our audited financial statements.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Use
of Estimates</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Fair
Value of Financial Instruments</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
amounts reported for cash equivalents, marketable securities, account
receivables, unbilled receivables, accounts payable, and accrued liabilities are
considered to approximate fair values based upon comparable market information
available at the respective balance sheet dates. The Company adopted Statement
of Financial Accounting Standards (&#8220;SFAS&#8221;)&#160;No.&#160;157 effective
January&#160;1, 2008 for financial assets and liabilities measured on a
recurring basis. SFAS&#160;No.&#160;157 applies to all financial assets and
financial liabilities that are being measured and reported on a fair value basis
and requires disclosure that establishes a framework for measuring fair value
and expands disclosure about fair value measurements. The Company has not
elected the fair value option for financial instruments not already carried at
fair value.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Cash
and Cash Equivalents</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;Cash
equivalents are highly liquid investments with original maturity of three months
or less at the date of purchase. The Company maintains its cash balances with
high quality financial institutions and has not experienced any material
losses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Accounts
Receivable and Allowance for Doubtful Accounts</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. Ceelox Inc.&#8217;s allowance for doubtful accounts is determined using a
combination of factors to ensure that Ceelox Inc.&#8217;s trade and unbilled
receivables balances are not overstated due to uncollectibility. The Company
performs ongoing customer credit evaluation within the context of the industry
in which it operates, does not require collateral, and maintains allowances for
potential credit losses on customer accounts when deemed necessary. A specific
allowance for a doubtful account up to 100% of the invoice will be provided for
any problematic customer balances. Delinquent account balances are written-off
after management has determined that the likelihood of collection is not
possible. For all periods presented, Ceelox Inc. had no allowance for doubtful
accounts.</font></div><br>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Inventory</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Inventories
consist of computer equipment merchandise that is in its finished form and ready
for sale to end-user customers. Inventories are recorded at the lower of average
cost or market. In-bound freight-related costs from our vendors are included as
part of the net cost of merchandise inventories. Other costs associated with
acquiring, storing and transporting merchandise inventories are expensed as
incurred. Our inventories are acquired and carried for retail sale and,
accordingly, the carrying value is susceptible to, among other things, market
trends and conditions and overall customer demand. We use our best estimates of
all available information to establish reasonable inventory quantities. However,
these conditions may cause our inventories to become obsolete and/or excessive.
We review our inventories periodically for indications that reserves are
necessary to reduce the carrying values to the lower of cost or market values.
For all periods presented, Ceelox Inc. determined that no reserves were
necessary.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Property
and Equipment</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Computer
equipment, computer software and furniture and fixtures are stated at cost and
depreciated on a straight-line basis over an estimated useful life of five
years. Upon disposal, assets and related accumulated depreciation are removed
from the accounts and the related gain or loss is included in results from
operations.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Software
Development Costs, Patents and Trademarks</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company capitalizes certain direct software development costs based upon stages
of development. Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalization ceases upon the
products market introduction.&#160;&#160;Amortization of software development
cost is computed on an individual product basis on the straight-line method over
the estimated economic life ranging from three to five years, and begins when a
product is available for general release to customers.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Patents
and trademarks costs consist of internal and external costs relating to the
filing patents and costs of licensing trademarks. Patent and trademark costs are
recorded at cost and amortized on a straight-line basis over ten years, the
expected period of future utility and economic benefit.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Impairment
of Long-Lived Assets and Other Intangible Assets</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
Inc. evaluates the recoverability of long-lived assets with finite lives in
accordance with SFAS&#160;No.&#160;144, &#8220;Accounting for the Impairment of
Long-Lived Assets&#8221;. Intangible assets, including purchased technology and other
intangible assets, are carried at cost less accumulated amortization.
Finite-lived intangible assets are being amortized on a straight-line basis over
their estimated useful lives of five to ten years. SFAS&#160;No.&#160;144
requires recognition of impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value amount of an asset may
not be recoverable. An impairment charge is recognized in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. A significant impairment of finite-lived intangible assets could
have a material adverse effect on Ceelox Inc.&#8217;s financial position and results
of operations. For all periods presented, Ceelox Inc. determined that no
impairment charges were incurred.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Revenue
Recognition</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Overview</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font><br>&#160;</div>
    <div style="TEXT-INDENT: 27pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We
recognize revenue when persuasive evidence of an arrangement exists, we have
delivered the product or performed the service, the fee is fixed or determinable
and collection is reasonably assured. If any of these criteria are not met, we
defer recognizing the revenue until such time as all criteria are met.
Determination of whether or not these criteria have been met may require us to
make judgments, assumptions and estimates based upon current information and
historical experience.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 27pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
markets its software products direct to commercial customers, to Value Added
Resellers and Systems Integrators and to Original Equipment Manufacturers
(&#8220;OEM&#8221;).&#160;&#160;Revenue may have four components: 1) license software
revenue which provides a right to use Ceelox software products on a per
seat/client or per server basis for an unlimited period; 2) software
maintenance, 3) hardware, such as fingerprint readers and flash memory devices,
and 4) professional services, primarily installation support. The Company also
performs custom software development on a limited basis when necessary to
support significant account or revenue opportunities.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Ceelox
has developed suggested retail pricing for all revenue components which include
volume related discounting where appropriate.&#160;&#160;In addition the Company
may negotiate prices on an individual case basis for significant volume or
significant account opportunities.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Hardware
and Software Revenue</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company recognizes hardware revenue upon invoicing.&#160;&#160;Invoicing is
triggered upon shipping.&#160;&#160;In products that have a hardware and
software component that is not broken out in the Company&#8217;s pricing, such as with
Ceelox Portable Vault that includes hardware in the form of flash memory, the
Company considers the value of the hardware to be de minimis and records the
sale under the Software/Hardware classification.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Software
License Revenue</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">License
software revenue is recognized at the time of invoicing.&#160;&#160;Invoicing is
timed with shipment or delivery of licensed software.&#160;&#160;There is a 30
day right to return or exchange licensed software.&#160;&#160;The Company
warrants that its software is free from material defects and will replace any
defective products with a functional replacement.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Maintenance
includes customer access to and right to software bug fixes and new releases of
the company&#8217;s software.&#160;&#160;These releases are made available to
customers who download releases at their discretion.&#160;&#160;The Company&#8217;s
licensed software includes first-year maintenance.&#160;&#160;Subsequent year
maintenance is offered, at a percentage of the initial software license revenue,
on an annual basis on the anniversary of the original purchase
date.&#160;&#160;When deemed material, this revenue is amortized over the life
of the license agreement on a straight-line basis.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Contract
Revenue</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Professional
Services<font style="FONT-STYLE: italic; DISPLAY: inline">: </font>Our customers
occasionally request professional services support related to server
installation support.&#160;&#160;The Company recognizes professional services
revenue at the time the support is provided.&#160;&#160;Billing is on a rate per
day basis.</font></div>
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    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Custom
Software Development: Revenues from multi-element arrangements are allocated to
the individual elements based upon relative fair values using vendor-specific
objective evidence of fair value. Revenues received from customers where all
revenue recognition criteria have not been established are deferred until such
criteria have been achieved.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Research
and Development</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company expenses research and development costs as they are
incurred.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Advertising
and marketing costs</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
company expenses advertising and marketing costs as they are
incurred.</font></div>
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    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 9pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Stock-Based
Compensation and Equity Incentive Plans</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 9pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">For the
nine months ended September 30, 2009 and 2008, and the years ended
December&#160;31, 2008 and 2007, the Company maintained a stock plan covering
equity grants including stock options and warrants.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Effective
January&#160;1, 2006, the Company adopted Statement of Financial Accounting
Standards (&#8220;SFAS&#8221;) No.&#160;123(R), &#8220;Share-Based Payment&#8221;, which is a revision
of SFAS&#160;No.&#160;123 &#8220;Accounting for Stock-Based Compensation&#8221;.
SFAS&#160;No.&#160;123(R) requires the measurement and recognition of
compensation expense in the Company&#8217;s statement of operations for all
share-based payment awards made to Ceelox Inc. employees, directors and
consultants including employee stock options, non-vested equity stock and equity
stock units, and employee stock purchase grants. Stock-based compensation
expense is measured at grant date, based on the estimated fair value of the
award, reduced by an estimate of the annualized rate of expected forfeitures,
and is recognized as expense over the employees&#8217; expected requisite service
period, generally using the straight-line method. In addition,
SFAS&#160;No.&#160;123(R) requires the benefits of tax deductions in excess of
recognized compensation expense to be reported as a financing cash flow, rather
than as an operating cash flow as prescribed under previous accounting rules.
The Company selected the modified prospective method of adoption, which
recognizes compensation expense for the fair value of all share-based payments
granted after January&#160;1, 2006 and for the fair value of all awards granted
to employees prior to January&#160;1, 2006 that remain unvested on the date of
adoption. This method did not require a restatement of prior periods. However,
awards granted and still unvested on the date of adoption are attributed to
expense under SFAS&#160;No.&#160;123(R), including the application of a
forfeiture rate on a prospective basis. Ceelox Inc.&#8217;s forfeiture rate represents
the historical rate at which Ceelox Inc.&#8217;s stock-based awards were surrendered
prior to vesting. SFAS&#160;No.&#160;123(R) requires forfeitures to be estimated
at the time of grant and revised on a cumulative basis, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Computation
of (Loss) Per Share</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Basic
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares and potentially dilutive securities
outstanding during the period. Potentially dilutive common shares consist of
incremental common shares issuable upon exercise of stock options, warrants and
shares issuable upon the conversion of convertible notes. The dilutive effect of
the convertible notes is calculated under the if-converted method. The dilutive
effect of outstanding shares is reflected in diluted earnings per share by
application of the treasury stock method. This method includes consideration of
the amounts to be paid by the employees, the amount of excess tax benefits that
would be recognized in equity if the instruments</font></div><br>
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    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">were
exercised and the amount of unrecognized stock-based compensation related to
future services. No potential dilutive common shares are included in the
computation of any diluted per share amount when a loss is reported.
Accordingly, we did not include 144,558,056 of potentially dilutive warrants and
convertible debt instruments at September 30, 2009. Additionally, we did not
include 133,732,258 and 75,061,582 of potentially dilutive warrants and
convertible debt instruments at December 31, 2008 and 2007
respectively.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Recent
Accounting Pronouncements</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In June
2009, the Financial Accounting Standards Board (&#8220;FASB&#8221;) issued SFAS No. 168, The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles&#8212;a replacement of FASB Statement No. 162 (&#8220;SFAS
168&#8221;). The statement confirmed that the FASB Accounting Standards Codification
(the &#8220;Codification&#8221;) will become the single official source of authoritative
U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
(&#8220;EITF&#8221;), and related literature. After that date, only one level of
authoritative U.S. GAAP will exist. All other literature will be considered
non-authoritative. The Codification does not change U.S. GAAP; instead, it
introduces a new structure that is organized in an easily accessible,
user-friendly online research system. The Codification, which changes the
referencing of financial standards, becomes effective for interim and annual
periods ending on or after September 15, 2009. We will apply the Codification
beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 is not
expected to have any substantive impact on our financial statements or related
footnotes.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In May
2009, the Financial Accounting Standards Board (&#8220;FASB&#8221;) issued Statement of
Financial Accounting Standards (&#8220;SFAS&#8221;) No. 165, &#8220;Subsequent Events&#8221; (&#8220;SFAS
165&#8221;). This standard is intended to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this standard sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.&#160;&#160;SFAS 165 is effective for
fiscal years and interim periods ended after June 15, 2009 and will be applied
prospectively. We adopted SFAS 165 during the second quarter of 2009, and its
adoption did not have a material impact on our results of operations and
financial position.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In May
2008, the Financial Accounting Standards Board (&#8220;FASB&#8221;) issued Statement of
Financial Accounting Standards (&#8220;SFAS&#8221;) No.&#160;162, &#8220;The Hierarchy of General
Accepted Accounting Principle.&#8221; SFAS&#160;No.&#160;162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. This statement shall be effective
60&#160;days following the Securities and Exchange Commission&#8217;s approval of the
Public Company Accounting Oversight Board amendments to AU Section&#160;411,
&#8220;The Meaning of Present Fairly in Conformity With General Accepted Accounting
Principles.&#8221; The adoption of this pronouncement did not have a material impact
on the Company&#8217;s financial statements.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In May
2008, the FASB issued FASB Staff Position (&#8220;FSP&#8221;) APB 14-1, &#8220;Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)&#8221; (&#8220;FSP APB 14-1&#8221;), which clarifies the
accounting for convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement. FSP APB 14-1 specifies that an
issuer of such instruments should separately account for the liability and
equity components of the instruments in a</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">24</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">manner
that reflect the issuer&#8217;s non-convertible debt borrowing rate when interest
costs are recognized in subsequent periods. FSP APB 14-1 is effective for fiscal
years beginning after December&#160;15, 2008, and retrospective application is
required for all periods presented. The Company is currently evaluating the
potential impact of the adoption of FSP APB 14-1 on its previously issued
financial statements. The Company does not expect to record any non-cash
interest expense related to its outstanding convertible debt instruments
resulting from the implementation of this standard.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In April
2008, the FASB issued FSP FAS&#160;142-3, &#8220;Determination of Useful Life of
Intangible Assets&#8221; (&#8220;FSP FAS&#160;142-3&#8221;). FSP FAS&#160;142-3 amends the factors
that should be considered in developing the renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under
FAS&#160;142, &#8220;Goodwill and Other Intangible Assets.&#8221; FSP FAS&#160;142-3 also
requires expanded disclosure related to the determination of intangible asset
useful lives. FSP FAS&#160;142-3 is effective for fiscal years beginning after
December&#160;15, 2008. Earlier adoption is not permitted. The Company is
currently evaluating the potential impact the adoption of
FAS&#160;FSP&#160;142-3 will have on its financial statements.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
December 2007, the FASB issued SFAS&#160;No.&#160;141R, &#8220;Business Combinations.&#8221;
This Statement replaces SFAS&#160;No.&#160;141. SFAS&#160;No.&#160;141R
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. SFAS&#160;No.&#160;141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS&#160;No.&#160;141R is effective for the Company&#8217;s business combinations on
or after January&#160;1, 2009.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 18pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">&#160;</font></div>
    <div style="TEXT-INDENT: 18pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
February 2007, the FASB issued SFAS&#160;No.&#160;159, &#8220;The Fair Value Option
for Financial Assets and Financial Liabilities&#160;&#8212; including an amendment of
FASB Statement No.&#160;115.&#8221; SFAS&#160;No.&#160;159 is effective for the
Company in the fiscal year beginning January&#160;1, 2008.
SFAS&#160;No.&#160;159 permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
Subsequent unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings. SFAS&#160;No.&#160;159 became
effective in the first quarter of fiscal 2008. The Company has not elected to
apply the fair value option to any of its financial instruments that are
presently accounted for at cost.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Qualitative
and Quantitative Disclosures About Market Risk</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="FONT-STYLE: italic; DISPLAY: inline">Interest Rates</font></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We are
not being exposed to market risks relating to changes in interest rates because
all outstanding debt bears interest at a fixed rate.&#160;&#160;We currently do
not engage in any interest rate hedging activity and have no intention of doing
so in the foreseeable future.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="FONT-STYLE: italic; DISPLAY: inline">Foreign Exchange
</font></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
company has no exposure to foreign exchange fluctuations.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Inflation</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">25</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">expenses
as a percentage of net sales if the selling prices of our products do not
increase with these increased costs.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Security
Ownership of Certain Beneficial Owners and Management</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following table presents information regarding the beneficial ownership of our
common stock upon the closing of the Merger, with respect to:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">each
      of our executive officers listed in the summary compensation
      table;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">each
      of our directors and director
designees;</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">all
      of our directors, director designees and executive officers as a group;
      and</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">-&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">each
      stockholder known by us to be the beneficial owner of 5% or more of our
      common stock.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. <font style="DISPLAY: inline; FONT-SIZE: 11pt">&#160;</font>Unless otherwise indicated
below, to our knowledge, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.&#160;&#160;Shares of our
common stock subject to options or warrants that are currently exercisable or
that will be issued and exercisable within 60 days of the closing of the Merger,
are deemed to be outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
information presented in this table is based on 11,164,183 shares of common
stock of Nicaragua Rising, Inc. issued and outstanding on February 12,
2010.<font style="DISPLAY: inline; FONT-WEIGHT: bold">&#160;</font>Unless
otherwise indicated, the address of each of the executive officers, directors
and 5% or more stockholders named below is Ceelox, Inc., 13976 Lynmar Blvd.,
Tampa, FL 33626.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Security
Ownership Table</font></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td align="left" valign="bottom" width="35%" style="BORDER-BOTTOM: black 1pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Name
      of Beneficial Owner</font></div>
            </td>
            <td valign="bottom" width="19%" style="BORDER-BOTTOM: black 1pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Number
      of Shares Beneficially Owned</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%" style="BORDER-BOTTOM: black 1pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Percentage
      of Shares Outstanding (1)</font></div>
            </td>
          </tr><tr>
            <td valign="bottom" width="35%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Executive Officers and
      Directors</font>:</font></div>
            </td>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">William
      P. Moore III Revocable Trust(1)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">9,982,123</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">64.9%</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Philip
      E. Tearney(1)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">1,197,851</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">10.3%</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Phillip
      H. Snowden(1)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">412,539</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">3.6%</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Gerry
      F. Euston(2)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">1,768,877</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">13.7%</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Mark
      L. Grannell(3)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">805,308</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">6.7%</font></div>
            </td>
          </tr><tr>
            <td valign="bottom" width="35%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">All
      officers, directors and director designees as a group</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">14,166,698</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">76.1%</font></div>
            </td>
          </tr><tr>
            <td valign="bottom" width="35%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Other
      Stockholders with 5% or more of our common stock:</font></div>
            </td>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">CIP,
      LLC(4)</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">11,575,068</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">72.2%</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="35%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Endeavor
      Group, LLC</font></div>
            </td>
            <td align="right" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="right"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">894,755</font></div>
            </td>
            <td valign="bottom" width="3%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">8.0%</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">26</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(1)&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">All
      shares included herein are held through this individual&#8217;s ownership
      interest in CIP, LLC.&#160;&#160;Mr. Moore is the Sole Trustee of the
      William P. Moore, III Revocable Trust and controls the Trust&#8217;s
      shares.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(2)&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Includes
      1,768,877 shares of common stock issuable upon the exercise of currently
      vested options and warrants.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(3)&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Includes
      805,308 shares of common stock issuable upon the exercise of currently
      vested options and warrants.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 54pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(4)&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Includes
      4,878,702 shares issuable upon the exercise of currently outstanding
      warrants at an exercise price of $3.60 per share.&#160;&#160;Does not
      include 10,271,203 shares of common stock that may be acquired by CIP, LLC
      in connection with the License Reacquisition Letter Agreement as we cannot
      currently predict whether this issuance will occur within 60 days from the
      date hereof.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Directors
and Executive Officers, Promoters and Control Persons</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following table sets forth the name, age and position of each of our officers,
directors, director designees and key employees.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td valign="top" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Name</font></font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Age</font></font></div>
            </td>
            <td valign="top" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Position</font></font></div>
            </td>
          </tr><tr>
            <td valign="top" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Gerry
      Euston</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">56</font></div>
            </td>
            <td valign="top" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Chief
      Executive Officer, Acting Chief Financial Officer and
    Director</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="middle" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Mark
      Grannell</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">47</font></div>
            </td>
            <td align="left" valign="middle" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Chief
      Operating Officer and Secretary</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="middle" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Erix
      Pizano</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">41</font></div>
            </td>
            <td align="left" valign="middle" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Director
      of Technology Development and Engineering</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="middle" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">William
      P. Moore</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">64</font></div>
            </td>
            <td align="left" valign="middle" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Chairman
      of the Board</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="middle" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Philip
      Tearney</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">50</font></div>
            </td>
            <td align="left" valign="middle" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Director
      Designee</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="middle" width="21%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Phillip
      Snowden</font></div>
            </td>
            <td valign="middle" width="7%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">71</font></div>
            </td>
            <td align="left" valign="middle" width="50%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Director
      Designee</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Gerry Euston</font> became our Chief
Executive Officer on February 12, 2010, in connection with our acquisition of
Ceelox.&#160;&#160;Mr. Euston joined Ceelox as its Chief Executive Officer in
early 2007. Mr. Euston brings over 30 years of extensive executive-level
experience in division level general management, marketing, product management
and development, finance, strategic planning, line management and corporate
staff positions. Prior to joining Ceelox, Mr. Euston ran his own consulting
business from 2002 through 2006.&#160;&#160;From May, 2000 to April, 2001 Mr.
Euston was a founder and the Chief Executive Officer of Falcon
Wireless.&#160;&#160;From 1976 to 2000, Mr. Euston enjoyed a successful career
at Sprint Communications.&#160;&#160;In 1983 to1985 Mr. Euston ran Sprint&#8217;s
national account marketing where he conceived and brought to market the
industry&#8217;s first virtual private network service offering and helped deliver
triple digit growth during his tenure.&#160;&#160;In his role as Vice President
Finance Management from the second quarter of 1986 to the fourth quarter of
1988, he was responsible for Sprint&#8217;s financial planning, analysis and
reporting.&#160;&#160;For the next two years Mr. Euston managed Sprint&#8217;s Federal
Systems Division&#8217;s finance, information systems, bid and proposal, accounting
and administration functions while that division grew from start up to over
$300M in revenue.&#160;&#160;From the fourth quarter of 1990 to the fourth
quarter of 1993 he ran product marketing, management and development for
Sprint&#8217;s long distance division with responsibility for product lines totaling
$2.8B revenue, which during his tenure, grew by over 20% per year adding $1B
revenue over three years.&#160;&#160;&#160;He then ran the Enhanced Services
Division from the fourth quarter of 1993 to year end1996, which grew from under
$50M to over $500M in revenue in a three year period.&#160;&#160;From the first
quarter of 1997 to the fourth quarter of 1998 he was responsible
for</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">27</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Business
Marketing for Sprint&#8217;s local service division.&#160;&#160;During his career at
Sprint, Mr. Euston participated in several pivotal strategic planning efforts
such as the fiber network business plan, the GTE/Sprint merger business plan and
post merger implementation planning, and Sprint&#8217;s $1.2B broadband wireless cable
TV acquisitions.&#160;&#160;Mr. Euston received a Bachelor of Science degree and
a Master of Business Administration with an emphasis in Marketing from Rockhurst
University.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Mark Grannell </font>became our Chief
Operating Officer on February 12, 2010, in connection with our acquisition of
Ceelox.&#160;&#160;Mr. Grannell joined Ceelox during the second quarter of 2008
as Chief Operating Officer bringing over 20 years engineering and management
experience with Motorola, Sprint, Level 3, and SiriCOMM&#160;&#160;His career
includes satellite, wireline and wireless telecommunication, data and voice
design and engineering; business development; sales and executive-level
management.&#160; Prior to joining Ceelox, Mr. Grannell&#8217;s career began at
Motorola as a system engineer working on satellites. He then spent over twelve
years, from 1989 to 2000, at Sprint where he enjoyed a steady progression of
management responsibilities.&#160; Past duties at Sprint include direct
responsibility over a $180M annual budget for national wireless network
deployment including hardware and software design and a staff exceeding 250
people.&#160; After leaving Sprint, Mr. Grannell worked at Level 3 from 2002 to
2007 performing business development and sales functions.&#160;&#160;In January
2007, Mr. Grannell left Level 3 to become President and CEO of SiriCOMM,
Inc.&#160;&#160;During the next 14 months Mr. Grannell oversaw network redesign
and development of new network operations software resulting in 30% maintenance
reduction and 60% data throughput performance improvement.&#160; SiriCOMM filed
for U.S. federal bankruptcy protection in December 2007. Mr.&#160;Grannell
earned his Bachelor of Science degree in Electrical Engineering from Kansas
State University and his MS Electrical Engineering from the University of
Missouri.&#160; He is an elected member of the Gardner/Edgerton Board of
Education.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Erix Pizano</font> became our
Director of Technology Development and Engineering on February 12,
2010.&#160;&#160;Mr. Pizano has been responsible for Software Design &amp;
Development with Ceelox since 2005.&#160;&#160;&#160;Mr. Pizano has over 15
years experience leading the successful development and deployment of custom
software products. His prior experience includes successful development and
deployment of commercial and custom software products for entertainment,
corporate training, education, home automation, and other industries. Mr. Pizano
has received an Associate Bachelor degree in Electronics Technology from the
Mexican-French Institute of Technology, Mexico, a Bachelor of Science degree in
Electronic Systems Engineering from the Technological Institute of Monterrey,
Mexico, and post graduate work towards a Masters Degree in Information
Technologies and Business Administration from the Autonomous Mexican Institute
of Technology, Mexico.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">William P. Moore</font> has been
Chairman of the Board of the Company since November 5, 2009.&#160;&#160;Prior to
our acquisition of Ceelox, Mr. Moore was the President, Chief Executive Officer,
Chief Financial Officer and Secretary of the Company since November 5,
2009.&#160;&#160;Since 1994, Mr. Moore has been a co-owner, director and
secretary of Continental Coal Inc., a privately-held surface mining company
operating in Kansas and Missouri.&#160;&#160;Mr. Moore received his Bachelor of
Science degree from the United States Military Academy at West Point and a
Master of Business Administration degree from Havard University.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Director
Designees</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Each of
Mr. Tearney and Mr. Snowden will become directors of the Company ten days after
the Company has filed a Schedule 14f-1 with the Securities and Exchange
Commission.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">28</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Philip Tearney</font> is an
entrepreneur who has founded, operated and invested in numerous small
businesses.&#160; Mr. Tearney participated with Mr. Moore in a majority of these
activities.&#160; Mr. Tearney is a certified public accountant and from 1981
through 1987 Mr. Tearney was an accountant with Arthur Andersen.&#160;&#160;Mr.
Tearney received a Bachelor of Science degree from Kansas State
University.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">Phillip Snowden </font>has for the
past 24 years been active as a principal, consultant, partner and member in many
business ventures including, mini-storage units, cable television franchises,
oil and gas ventures, several real estate ventures and numerous technology and
start up companies.&#160;&#160;Mr. Snowden practiced law for 21 years and was
the senior partner in the law firm of Snowden, Crain and DeCuyper until
1985.&#160;&#160;From 1967 &#8211; 1977 Mr. Snowden served in the Missouri House of
Representatives and thereafter served 8 years in the Missouri State
Senate.&#160; Mr. Snowden graduated with a BA in Economics and LLB in Law from
the University of Missouri in 1964.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Executive
Compensation</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><a name="BM_1_">The following table sets forth information concerning all
compensation paid to Ceelox&#8217;s Executive Officers for services to Ceelox in all
capacities for each of the two years ended December 31 indicated
below.</a></font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Summary
Compensation Table</font></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td valign="bottom" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="10%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td colspan="5" valign="bottom" width="34%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Annual
      Compensation</font></div>
            </td>
            <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="13%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Long-Term</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Compensation
      Awards</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Name
      and</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Principal
      Position</font></font></div>
            </td>
            <td valign="bottom" width="10%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Year</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Ended</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">December
      31,</font></div>
            </td>
            <td valign="bottom" width="9%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Salary</font></div>
            </td>
            <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="8%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Bonus</font></div>
            </td>
            <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="14%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Other
      Annual Compensation (1)</font></div>
            </td>
            <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="13%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Number
      of</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Securities</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Underlying</font></div>
              <div align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Options</font></div>
            </td>
          </tr><tr>
            <td align="left" rowspan="3" valign="top" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Gerry
      Euston</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Chief
      Executive Officer and Acting Chief Financial Officer</font></div>
            </td>
            <td valign="top" width="10%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">2008</font></div>
            </td>
            <td valign="top" width="9%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">$149,151</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">$
      0</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="14%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">$30,974</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="13%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">1,403,333</font></div>
            </td>
          </tr><tr>
            <td valign="top" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">2007</font></div>
            </td>
            <td valign="top" width="10%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">$144,231</font></div>
            </td>
            <td valign="top" width="9%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">$
      0</font></div>
            </td>
            <td valign="top" width="8%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="14%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">-</font></div>
            </td>
          </tr><tr>
            <td valign="top" width="19%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="10%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="9%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="8%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="14%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" valign="top" width="19%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">&#160;Mark
      Grannell</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Chief
      Operating Officer and Secretary</font></div>
            </td>
            <td valign="top" width="10%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">2008</font></div>
            </td>
            <td valign="top" width="9%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">$100,944</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">$
      0</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="14%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">$19,454</font></div>
            </td>
            <td valign="top" width="2%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="13%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">638,889</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(1)&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
      amounts included represent the fair market value of options granted to Mr.
      Euston and to Mr. Grannell.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Compensation
of Directors</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Directors do not currently receive compensation for their services as directors,
but are reimbursed for expenses incurred in attending board
meetings.&#160;&#160;In addition, there have been no options granted to any
directors, other than in connection with the terms of the share exchange between
Nicaragua and Ceelox.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Employment
Contracts</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company has no employment agreements with any of its executive officers,
however, each of Gerry Euston and Mark Grannell have entered into employment
agreements with Ceelox, the Company&#8217;s majority-owned
subsidiary.</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">29</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On April
15, 2008, Mr. Euston and Ceelox entered into an employment pursuant to which Mr.
Euston has agreed to serve as the Chief Executive Officer of Ceelox and is to be
paid an annual salary of $150,000.&#160;&#160;The term of the agreement is for a
period of five (5) years, unless earlier terminated by either party, which
termination may be with or without cause by either party.&#160;&#160;There are
standard non-disclosure provisions as well as a twelve month
non-compete/non-solicitation provisions that becomes effective upon the
termination of Mr. Euston&#8217;s employment with Ceelox.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On April
15, 2008, Mr. Grannell and Ceelox entered into an employment pursuant to which
Mr. Grannell has agreed to serve as Chief Operating Officer of Ceelox and is to
be paid an annual salary of $150,000.&#160;&#160;The term of the agreement is
for a period of five (5) years, unless earlier terminated by either party, which
termination may be with or without cause by either party.&#160;&#160;There are
standard non-disclosure provisions as well as a twelve month
non-compete/non-solicitation provisions that becomes effective upon the
termination of Mr. Grannell&#8217;s employment with Ceelox.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Description
of 2010 Stock Option Plan</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following is a description of the purpose and certain of the provisions of the
2010 Stock Option Plan. The summary is qualified in its entirety by reference to
the complete text of the 2010 Stock Option Plan, which is attached hereto as
Exhibit 10.1.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">The Purpose of the
Plan</font>.&#160;&#160;The purpose of the Plan is to provide additional
incentive to the directors, officers, employees and consultants of the Company
who are primarily responsible for the management and growth of the Company. Each
option shall be designated at the time of grant as either an incentive stock
option (an &#8220;ISO&#8221;) or as a non-qualified stock option (a &#8220;NQSO&#8221;).</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font>The Board of Directors believes that
the ability to grant stock options to employees which qualify for ISO treatment
provides an additional material incentive to certain key employees. The Internal
Revenue Code requires that ISOs be granted pursuant to an option plan that
receives stockholder approval within one year of its adoption. The Company
adopted the Plan in order to comply with this statutory requirement and preserve
its ability to grant ISOs.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font>The benefits to be derived from the
Plan, if any, are not quantifiable or determinable.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Administration of the Plan</font>.
The Plan shall be administered by the Board of Directors of the Company, or by
any committee that the Company may in the future form and to which the Board of
Directors may delegate the authority to perform such functions (in either case,
the &#8220;Administrator&#8221;).&#160;&#160;The Board of Directors shall appoint and remove
members of the committee in its discretion in accordance with applicable
laws.&#160;&#160;In the event that the Company establishes such a committee and
is required to comply with Rule 16b-3 under the Exchange Act and Section 162(m)
of the Internal Revenue Code (the &#8220;Code&#8221;), the committee shall, in the Board of
Director's discretion, be comprised solely of &#8220;non-employee directors&#8221; within
the meaning of said Rule 16b-3 and &#8220;outside directors&#8221; within the meaning of
Section 162(m) of the Code.&#160;&#160;Notwithstanding the foregoing, the
Administrator may delegate non-discretionary administrative duties to such
employees of the Company as it deems proper and the Board of Directors, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the Plan.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font>Subject to the other provisions of
the Plan, the Administrator shall have the authority, in its discretion: (i) to
grant options; (ii) to determine the fair market value of the Common Stock
subject to options; (iii) to determine the exercise price of options granted;
(iv) to determine the persons to whom, and the time or times at which, options
shall be granted, and the number of shares subject to each option; (v) to
interpret the Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to the Plan;</font></div><br>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(vii) to
determine the terms and provisions of each option granted (which need not be
identical), including but not limited to, the time or times at which options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any option; (ix) to defer (with the consent of the optionee) the exercise
date of any option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of the
Plan.&#160;&#160;The Administrator may delegate non-discretionary administrative
duties to such employees of the Company as it deems proper.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Shares of Stock Subject to the
Plan</font>. Subject to the conditions outlined below, the total number of
shares of stock which may be issued under options granted pursuant to the Plan
shall not exceed 6,000,000 shares of Common Stock, $.00001 par value per
share.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font>The number of shares of Common Stock
subject to options granted pursuant to the Plan may be adjusted under certain
conditions.&#160;&#160;If the stock of the Company is changed by reason of a
stock split, reverse stock split, stock dividend, recapitalization, combination
or reclassification, appropriate adjustments shall be made by the Board of
Directors in (i) the number and class of shares of stock subject to the Plan,
and (ii) the exercise price of each outstanding option; provided, however, that
the Company shall not be required to issue fractional shares as a result of any
such adjustments.&#160;&#160;Each such adjustment shall be subject to approval
by the Board of Directors in its sole discretion.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font>In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least thirty days prior to such proposed action.&#160;&#160;To the
extent not previously exercised, all options will terminate immediately prior to
the consummation of such proposed action; provided, however, that the
Administrator, in the exercise of its sole discretion, may permit exercise of
any options prior to their termination, even if such options were not otherwise
exercisable.&#160;&#160;In the event of a merger or consolidation of the Company
with or into another corporation or entity in which the Company does not
survive, or in the event of a sale of all or substantially all of the assets of
the Company in which the Stockholders of the Company receive securities of the
acquiring entity or an affiliate thereof, all options shall be assumed or
equivalent options shall be substituted by the successor corporation (or other
entity) or a parent or subsidiary of such successor corporation (or other
entity); provided, however, that if such successor does not agree to assume the
options or to substitute equivalent options therefor, the Administrator, in the
exercise of its sole discretion, may permit the exercise of any of the options
prior to consummation of such event, even if such options were not otherwise
exercisable.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Participation</font>. Every person
who at the date of grant of an option is an employee of the Company or of any
Affiliate (as defined below) of the Company is eligible to receive NQSOs or ISOs
under the Plan.&#160;&#160;Every person who at the date of grant is a consultant
to, or non-employee director of, the Company or any Affiliate (as defined below)
of the Company is eligible to receive NQSOs under the Plan.&#160;&#160;The term
&#8220;Affiliate&#8221; as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Code.&#160;&#160;The term &#8220;employee&#8221; includes an officer or
director who is an employee of the Company.&#160;&#160;The term &#8220;consultant&#8221;
includes persons employed by, or otherwise affiliated with, a
consultant.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Option Price.</font> The exercise
price of a NQSO shall be not less than 85% of the fair market value of the stock
subject to the option on the date of grant.&#160;&#160;To the extent required by
applicable laws, rules and regulations, the exercise price of a NQSO granted to
any person who owns, directly or by attribution under the Code (currently
Section 424(d)), stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a &#8220;10%
Stockholder&#8221;) shall in no event be less than 110% of the fair market value of
the stock covered by the option at the time the option is</font></div>
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    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">granted.&#160;&#160;The
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
of the stock covered by the option at the time the option is
granted.&#160;&#160;The exercise price of an ISO granted to any 10% Stockholder
shall in no event be less than 110% of the fair market value of the stock
covered by the Option at the time the Option is granted.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Term of the
Options.</font>&#160;&#160;The Administrator, in its sole discretion, shall fix
the term of each option, provided that the maximum term of an option shall be
ten years. ISOs granted to a 10% Stockholder shall expire not more than five
years after the date of grant. The Plan provides for the earlier expiration of
options in the event of certain terminations of employment of the
holder.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Restrictions on Grant and
Exercise</font>. Except with the express written approval of the Administrator
which approval the Administrator is authorized to give only with respect to
NQSOs, no option granted under the Plan shall be assignable or otherwise
transferable by the optionee except by will or by operation of
law.&#160;&#160;During the life of the optionee, an option shall be exercisable
only by the optionee.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Termination of the Plan.</font> The
Plan shall become effective upon adoption by the Board or Directors; provided,
however, that no option shall be exercisable unless and until written consent of
the Stockholders of the Company, or approval of Stockholders of the Company
voting at a validly called Stockholders&#8217; meeting, is obtained within twelve
months after adoption by the Board of Directors.&#160;&#160;If such Stockholder
approval is not obtained within such time, options granted pursuant to the Plan
shall be of the same force and effect as if such approval was obtained except
that all ISOs granted pursuant to the Plan shall be treated as NQSOs. Options
may be granted and exercised under the Plan only after there has been compliance
with all applicable federal and state securities laws.&#160;&#160;The Plan shall
terminate within ten years from the date of its adoption by the Board of
Directors.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Termination of
Employment.</font>&#160;&#160;If for any reason other than death or permanent
and total disability, an optionee ceases to be employed by the Company or any of
its Affiliates (such event being called a &#8220;Termination&#8221;), options held at the
date of Termination (to the extent then exercisable) may be exercised in whole
or in part at any time within three months of the date of such Termination, or
such other period of not less than thirty days after the date of such
Termination as is specified in the Option Agreement or by amendment thereof (but
in no event after the expiration date of the option (the &#8220;Expiration Date&#8221;));
provided, however, that if such exercise of the option would result in liability
for the optionee under Section 16(b) of the Exchange Act, then such three-month
period automatically shall be extended until the tenth day following the last
date upon which optionee has any liability under Section 16(b) (but in no event
after the Expiration Date).&#160;&#160;If an optionee dies or becomes
permanently and totally disabled (within the meaning of Section 22(e)(3) of the
Code) while employed by the Company or an Affiliate or within the period that
the option remains exercisable after Termination, options then held (to the
extent then exercisable) may be exercised, in whole or in part, by the optionee,
by the optionee's personal representative or by the person to whom the option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
&#8220;Employment&#8221; includes service as a director or as a consultant.&#160;&#160;For
purposes of the Plan, an optionee's employment shall not be deemed to terminate
by reason of sick leave, military leave or other leave of absence approved by
the Administrator, if the period of any such leave does not exceed 90 days or,
if longer, if the optionee's right to reemployment by the Company or any
Affiliate is guaranteed either contractually or by statute.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 45.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Amendments to the Plan.</font> The
Board of Directors may at any time amend, alter, suspend or discontinue the
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding options except to conform the
Plan and ISOs granted under the Plan to the requirements of federal or other tax
laws relating to ISOs.&#160;&#160;No amendment, alteration, suspension or
discontinuance shall require Stockholder approval unless (i) stockholder
approval is required to preserve incentive stock option treatment for federal
income tax purposes or (ii) the Board of Directors otherwise concludes that
stockholder approval is advisable.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 9.8pt"></font><font style="FONT-STYLE: italic; DISPLAY: inline">Tax Treatment of the
Options</font>.&#160;&#160;Under the Code, neither the grant nor the exercise of
an ISO is a taxable event to the optionee (except to the extent an optionee may
be subject to alternative minimum tax); rather, the optionee is subject to tax
only upon the sale of the Common Stock acquired upon exercise of the
ISO.&#160;&#160;Upon such a sale, the entire difference between the amount
realized upon the sale and the exercise price of the option will be taxable to
the optionee.&#160;&#160;Subject to certain holding period requirements, such
difference will be taxed as a capital gain rather than as ordinary income.
Optionees who receive NQSOs will be subject to taxation upon exercise of such
options on the spread between the fair market value of the Common Stock on the
date of exercise and the exercise price of such options.&#160;&#160;This spread
is treated as ordinary income to the optionee, and the Company is permitted to
deduct as an employee expense a corresponding amount.&#160;&#160;NQSOs do not
give rise to a tax preference item subject to the alternative minimum
tax.</font></div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Transactions
with Officers and Directors</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Purchase
of Nicaragua Rising, Inc. Shares</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On
November 4, 2009, Mr. Moore, our Chairman, acquired control of Nicaragua by
purchasing an aggregate of 11,091,100, of the 11,260,000 shares outstanding
directly from Nicaragua&#8217;s shareholders, which represented 98.5% of Nicaragua&#8217;s
issued and outstanding shares at the time of such purchase.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>In connection with Mr. Moore&#8217;s
agreement to cancel 9,916,000 shares in connection with the Merger with Ceelox
we have agreed to pay him an aggregate of $350,000 in consideration for such
shares.&#160;&#160;On February 12, 2010 we issued to Mr. Moore an 8% convertible
note in the principal amount of $350,000.&#160;&#160;The note, plus accrued
interest, can be converted at anytime into shares of Nicaragua&#8217;s common stock at
a conversion price of $0.81 per share.&#160;&#160;Additionally, on 30 days
written notice to the Company Mr. Moore can demand repayment in full in cash
prior to the maturity date of February 12, 2011.&#160;&#160;Additionally, the
Company can prepay the note in full prior to its maturity date without
penalty.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>In connection with Mr. Moore&#8217;s payment
of $100,000 on behalf of the Company to an unaffiliated third-party for investor
relations services, the Company issued to Mr. Moore an 8% convertible note in
the principal amount of $100,000 on February 12, 2010.&#160;&#160;The note, plus
accrued interest, can be converted at anytime into shares of Nicaragua&#8217;s common
stock at a conversion price of $0.81 per share.&#160;&#160;Additionally, on 30
days written notice to the Company Mr. Moore can demand repayment in full in
cash prior to the maturity date of February 12, 2011.&#160;&#160;Additionally,
the Company can prepay the note in full prior to its maturity date without
penalty.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">Description
of Our Capital Stock</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
information set forth below is a general summary of our capital stock structure,
on a pro forma basis, after giving effect to the Merger. As a summary, this
section is qualified by, and not a substitute for, the provisions of our amended
and restated Articles of Incorporation and amended and restated
Bylaws.</font></div>
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      </div>
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Authorized
Capital Stock</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
authorized capital stock consists of 200,000,000 shares, par value $0.00001 per
share, consisting of 100,000,000 shares of common stock (&#8220;Common Shares&#8221;) and
100,000,000 shares of preferred stock.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Common
Stock</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company has 11,164,183 Common Shares issued and outstanding.&#160;&#160;In
addition, the Company has reserved 8,246,296 Common Shares for issuance in
respect of:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Warrants
      to purchase 5,410,665 Common Shares at an exercise price of $3.60 per
      share.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Warrants
      to purchase 436,391 Common Shares at an exercise price of $0.81 per
      share.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Warrants
      to purchase 83,333 Common Shares at a weighted average exercise price of
      $0.96 per share.&#160;&#160;The remaining term on these warrants range
      from May 18, 2010 to September 30,
2012.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Options
      to purchase 2,315,907 shares of common stock pursuant to the Company&#8217;s
      2010 Stock Option Plan.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Dividend
Rights</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
holders of outstanding shares of the Company&#8217;s common stock are entitled to
receive dividends out of funds legally available at the times and in the amounts
that the Board of Directors may determine.&#160;&#160;We have never paid a cash
dividend on our common stock and we have no present intention to declare or pay
cash dividends on our common stock in the foreseeable future.&#160;&#160;We
intend to retain any earnings which we may realize in the foreseeable future to
finance our operations.&#160;&#160;Future dividends, if any, will depend on
earnings, financing requirements and other factors.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Voting
Rights</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Each
holder of common stock is entitled to one vote for each share held on all
matters submitted to a vote of stockholders.&#160;&#160;Cumulative voting for
the election of directors is not provided for in our Articles of Incorporation,
which means that the holders of a majority of the voting shares voted can elect
all of the directors then standing for election.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">No
Preemptive or Similar Rights</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Holders
of our common stock do not have preemptive rights, and the common stock is not
convertible or redeemable.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Right
to Receive Liquidation Distributions</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Upon our
dissolution, liquidation or winding-up, our assets legally available for
distribution to our stockholders are distributable ratably among the holders of
our common stock.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Preferred
Stock</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We have
100,000,000 shares of preferred stock authorized for issuance, none of which are
issued or outstanding. Our Board of Directors, without obtaining the approval of
our stockholders, may issue shares of preferred stock from time to time in one
or more series and with such designations, preferences,</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">34</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">rights,
qualifications, limitations and restrictions as the Board
approves.&#160;&#160;These designations, preferences, rights, qualifications,
limitations and restrictions may include, but are not limited to, the power to
determine</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      redemption and liquidation
preferences,</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      rate of dividends payable, the time for and the priority of payment of the
      dividends, and whether or not the dividends will be
      cumulative,</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      terms of conversion of the preferred stock into common stock,
      and</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      voting power of the preferred
stock.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We do not
currently have plans to issue shares of preferred stock.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Anti-Takeover
Provisions</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Sections
78.411 through 78.444 of the Nevada Revised Statutes are designed to afford
stockholders of public corporations in Nevada protection against acquisitions in
which a person, entity or group seeks to gain voting control.&#160;&#160;With
enumerated exceptions, the statute provides that shares acquired within certain
specific ranges will not possess voting rights in the election of directors
unless the voting rights are approved by a majority vote of the public
corporation&#8217;s disinterested stockholders.&#160;&#160;Disinterested shares are
shares other than those owned by the acquiring person or by a member of a group
with respect to a control share acquisition, or by any officer of the
corporation or any employee of the corporation who is also a
director.&#160;&#160;The specific acquisition ranges that trigger the statute
are: acquisitions of shares possessing one-fifth or more but less than one-third
of all voting power; acquisitions of shares possessing one-third or more but
less than a majority of all voting power; or acquisitions of shares possessing a
majority or more of all voting power.&#160;&#160;Our Articles of Incorporation
specifically provide that the corporation will <font style="DISPLAY: inline; TEXT-DECORATION: underline">not</font> be governed by
the provisions of NRS 78.411 through 78.444.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
authorized but unissued shares of common stock and preferred stock are available
for future issuance without stockholder approval.&#160;&#160;The existence of
authorized but unissued shares of common stock and preferred stock may enable
our Board of Directors to issue shares of stock to persons friendly to existing
management, thereby making it more difficult and more expensive for an
independent party to obtain voting control.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Transfer
Agent and Registrar</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
transfer agent and registrar for our common stock is Transferonline,
Inc.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Market
Price of and Dividends on Common Equity and Related Shareholder
Matters.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Our
common stock was listed for trading on the OTC Bulletin Board (&#8220;OTCBB&#8221;) operated
by the Financial Industry Regulatory Authority (FINRA) on December 26, 2008
under the symbol &#8220;NCRG.&#8221;&#160;&#160;There are no outstanding options or warrants
to purchase, or securities convertible into, our common stock.&#160;&#160;Our
common stock has only traded on four trading days since our common stock was
listed for trading on the OTCBB&#160;&#160;Our common stock traded 4,000 shares
at $0.26 on December 26, 2008, 5,000 shares at $0.20 on January 15, 2009, 2,000
shares at $0.04 on May 11, 2009 and 50,000 shares at $0.06 on November 4,
2009.&#160;&#160;Below are the high and low quarterly sales information relating
to trading in our common stock during our fiscal year ended October 31, 2009 and
the first quarter of our 2010 fiscal year. As soon as practicable under
applicable federal securities laws the Company&#8217;s trading symbol will be changed
concurrent with a planned change of our corporate name from Nicaragua Rising,
Inc. to Ceelox, Inc.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">35</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">We have
never paid a cash dividend on our common stock and we have no present intention
to declare or pay cash dividends on our common stock in the foreseeable
future.&#160;&#160;We intend to retain any earnings which we may realize in the
foreseeable future to finance our operations.&#160;&#160;Future dividends, if
any, will depend on earnings, financing requirements and other
factors.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td align="left" colspan="2" valign="bottom" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">Fiscal
      Year</font></div>
            </td>
            <td align="left" valign="bottom" width="17%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="15%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td align="left" colspan="2" valign="bottom" width="45%" style="BORDER-BOTTOM: black 0.5pt solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="17%" style="BORDER-BOTTOM: black 0.5pt solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="15%" style="BORDER-BOTTOM: black 0.5pt solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr bgcolor="#cccccc">
            <td align="left" colspan="2" valign="bottom" width="45%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">2010</font></div>
            </td>
            <td valign="bottom" width="17%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">High</font></div>
            </td>
            <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">Low</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="6%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="39%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">First
      Quarter: 11/1/09 through 2/12/10</font></div>
            </td>
            <td valign="bottom" width="17%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">$0.06</font></div>
            </td>
            <td valign="bottom" width="15%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">$0.06</font></div>
            </td>
          </tr><tr>
            <td valign="bottom" width="6%" style="BORDER-BOTTOM: black 1px solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="39%" style="BORDER-BOTTOM: black 1px solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="17%" style="BORDER-BOTTOM: black 1px solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 1px solid"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr bgcolor="#cccccc">
            <td align="left" colspan="2" valign="bottom" width="45%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">2009</font></div>
            </td>
            <td valign="bottom" width="17%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">High</font></div>
            </td>
            <td valign="bottom" width="15%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt; FONT-WEIGHT: bold">Low</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="6%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="39%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Fourth
      Quarter: 8/1/09 to 10/31/09</font></div>
            </td>
            <td valign="bottom" width="17%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">$0</font></div>
            </td>
            <td valign="bottom" width="15%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">$0</font></div>
            </td>
          </tr><tr>
            <td align="left" valign="bottom" width="6%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="39%">
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      Quarter: 5/1/09 to 7/31/09</font></div>
            </td>
            <td valign="bottom" width="17%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">$0.04</font></div>
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            <td align="left" valign="bottom" width="6%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="39%">
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      Quarter: 2/1/09 to 4/30/09</font></div>
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            <td valign="bottom" width="15%">
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            <td align="left" valign="bottom" width="6%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td align="left" valign="bottom" width="39%">
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    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As of
February 12, 2010 there were approximately 80 holders of record of our common
stock.&#160;&#160;This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
Company considers its common stock to be &#8220;thinly traded&#8221; and any reported sale
prices may not be a true market-based valuation of its common
stock.&#160;&#160;Some of the bid quotations from the OTC Bulletin Board set
forth above may reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Legal
Proceedings</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">From time
to time we may be involved in litigation relating to claims arising out of our
operations in the normal course of our business.&#160;&#160;We are not currently
parties to any legal proceedings, the adverse outcome of which, in management&#8217;s
opinion, individually or in the aggregate, would have a material adverse effect
on our results of operations or financial position.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Changes
in and Disagreements with Accountants</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As
reported in our Current Report on Form 8-K dated January 5, 2010, Malone &amp;
Bailey P.C. (&#8220;Malone&#8221;), the independent certified public accountants who had
been engaged by Nicaragua as the principal accountant to audit Nicaragua&#8217;s
consolidated financial statements, was dismissed effective December 29, 2009,
which dismissal was approved by Nicaragua&#8217;s board of directors on such date. The
reports by Malone on the financial statements of Nicaragua during the fiscal
years ended October 31, 2008 and 2007 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles, except for an explanatory paragraph
describing the uncertainty as to Nicaragua&#8217;s ability to continue as a going
concern. During Nicaragua&#8217;s two most recent fiscal years and subsequent period
up to December 29, 2009, Nicaragua did not have any disagreements with Malone on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Malone, would have caused them to make reference to the
subject matter of the disagreements in connection with their reports. In
addition, no reportable events as set forth in Item 304(a)(1)(v) of Regulation
S-K have occurred.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">36</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt"><font id="TAB1" style="MARGIN-LEFT: 36pt"></font>At Nicaragua&#8217;s request, Malone
furnished to it a letter addressed to the Securities and Exchange Commission
stating that it agreed with the above statements. A copy of the letter from
Malone, dated December 31, 2009, was filed as Exhibit 16.1 to our Current Report
filed on Form 8-K dated January 5, 2010.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Also on
December 29, 2009, Nicaragua&#8217;s Board of Directors approved the engagement of
Rothstein Kass &amp; Company, P.C. (&#8220;Rothstein Kass&#8221;) as its new principal
independent certified public accountants to audit its consolidated financial
statements for the year ending October 31, 2009.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Prior to
engaging Rothstein Kass, Nicaragua had not consulted Rothstein Kass regarding
the application of accounting principles to a specified transaction, completed
or proposed, or the type of audit opinion that might be rendered on Nicaragua&#8217;s
financial statements.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Recent
Sales of Unregistered Securities</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">On
February 12, 2010, in conjunction with the Merger, Nicaragua Rising, Inc. issued
to certain of the former shareholders of Ceelox, Inc. 10,745,823 shares of our
common stock, $0.00001 par value, in exchange for 96.2% of the issued and
outstanding shares of capital stock of Ceelox, Inc.&#160;&#160;The market price
of our common stock on the date it was issued was $0.06 per
share.&#160;&#160;The shares were issued in reliance on the exemption provided
by Section 4(2) of the Securities Act of 1933, as amended.&#160;&#160;The common
stock was issued without any form of general solicitation or general advertising
and the offerees provided information to us verifying that they were accredited
investors.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
conjunction with the Merger, on February 12, 2010, we issued an aggregate of
2,177,019 options to our employees pursuant to the 2010 Stock Option
Plan.&#160;&#160;In addition we issued 5,930,389 warrants and 138,889 options to
certain Ceelox related parties.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Indemnification
of Directors and Executive Officers and Limitation of Liability</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Nicaragua
Rising, Inc. is a Nevada Corporation.&#160;&#160;The Nevada Revised Statutes and
certain provisions of our Articles of Incorporation provide for indemnification
of our officers, directors and controlling persons against liabilities which
they may incur in such capacities.&#160;&#160;A summary of the circumstances in
which indemnification is provided is discussed below, but this description is
qualified in its entirety by reference to our Articles of Incorporation and to
the statutory provisions.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Section
78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys&#8217; fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding if he:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Is
not liable pursuant to Nevada Revised Statute 78.138 (a breach of fiduciary duty
involving intentional misconduct, fraud, or knowing violation of the law);
or</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">37</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">In
addition, Section 78.7502 permits a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys&#8217; fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Is
not liable pursuant to Nevada Revised Statute 78.138; or</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">To the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter, the
corporation is required to indemnify him against expenses, including attorneys&#8217;
fees, actually and reasonably incurred by him in connection with the
defense.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Section
78.752 of the Nevada Revised Statutes allows a corporation to purchase and
maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Other
financial arrangements made by the corporation pursuant to Section 78.752 may
include the following:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
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            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      creation of a trust fund.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      establishment of a program of
self-insurance.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      securing of its obligation of indemnification by granting a security
      interest or other lien on any assets of the
  corporation.</font></div>
            </td>
          </tr></table>
    </div>
    <div>
      <table cellpadding="0" cellspacing="0" id="list" width="100%" style="">
<tr valign="top">
            <td align="right" style="WIDTH: 36pt">
              <div><font style="DISPLAY: inline; FONT-SIZE: 11pt" face="Symbol, serif">&#183;&#160;&#160;</font></div>
            </td>
            <td>
              <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">the
      establishment of a letter of credit, guaranty or
  surety.</font></div>
            </td>
          </tr></table>
    </div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">No
financial arrangement made pursuant to Section 78.752 may provide protection for
a person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals, to be liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or indemnification
ordered by a court.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Any
discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court
or advanced pursuant to an undertaking to repay the amount if it is determined
by a court that the indemnified party is not entitled to be indemnified by the
corporation, may be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The determination must be
made:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(a) By
the stockholders;</font></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">38</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(b) By
the board of directors by majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding;</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(c) If a
majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding so orders, by independent legal counsel in a written
opinion; or</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(d) If a
quorum consisting of directors who were not parties to the action, suit or
proceeding cannot be obtained, by independent legal counsel in a written
opinion.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Section 5
of our Articles of Incorporation requires us to indemnify all of our directors,
officers, employees and agents to the fullest extent permitted by Nevada law as
provided within NRS 78.7502 and NRS 78.751 or any other law then in effect or as
it may hereafter be amended.&#160;&#160;Pursuant to our Articles of
Incorporation, we must indemnify each present and future director, officer,
employee or agent who becomes a party or is threatened to be made a party to any
suit or proceeding, whether pending, completed or merely threatened, and whether
said suit or proceeding is civil, criminal, administrative, investigative, or
otherwise, except an action by or in the right of the corporation, by reason of
the fact that he is or was a director, officer, employee or agent of we or is or
was serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses, including, but not limited to, attorneys&#8217; fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suite, proceeding or settlement, provided such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to our best interest of&#160;&#160;and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.&#160;&#160;The expenses of our directors, officers, employees or
agents of&#160;&#160;incurred in defending a civil or criminal action, suit or
proceeding may be paid by us as they are incurred and in advance of the final
disposition of the action if the director, officer, employee or agent undertakes
to repay the expenses to us if it is ultimately determined by a court, after
exhaustion of all appeals, that he is not entitled to be
indemnified.&#160;&#160;No indemnification shall be provided and any advancement
of expenses to or on behalf of any director, officer, employee or agent must be
returned to us if a final adjudication establishes that the person&#8217;s acts or
omissions involved a breach of any fiduciary duties and, if applicable,
intentional misconduct, fraud or knowing violation of the law which was material
to the cause of action.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Neither
Nicaragua nor Ceelox has any indemnification agreements with any of their
respective directors and executive officers, although either may do so in the
future.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">A
stockholder&#8217;s investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers as required
by these indemnification provisions.&#160;&#160;At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
regarding which indemnification by us is sought, nor are we aware of any
threatened litigation that may result in claims for
indemnification.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
3.02&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;UNREGISTERED
SALES OF EQUITY SECURITIES</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Please
refer to the information included in Item 2.01 above.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">39</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
4.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;CHANGES
IN REGISTRANT&#8217;S CERTIFYING ACCOUNTANT</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Please
refer to the information included in Item 2.01 above.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
5.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;CHANGES
IN CONTROL OF THE REGISTRANT</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As a
result of the Merger, control of our company changed.&#160;&#160;Please refer to
the information included in Item 2.01 above.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
5.02&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;APPOINTMENT
OF PRINCIPAL OFFICERS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As a
result of the Merger, our sole director, William P. Moore, appointed new
officers on February 12, 2010 and appointed Mr. Gerry Euston as a director to
take office upon completion of the Merger.&#160;&#160;Additionally, Mr. Moore
appointed each of Philip Tierney and Phillip Snowden to the board of directors,
however, their appointments will not become effective until 10 days after the
Company has filed a Schedule 14f-1 with the SEC. Please refer to the information
included in Item 2.01 above.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
5.06&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;CHANGE
IN SHELL COMPANY STATUS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">As a
result of the Merger, we ceased to be a shell company as defined in Rule 12b-2
of the United States Securities Exchange Act of 1934, as
amended.&#160;&#160;Please refer to Item 2.01 above for a detailed description
of the Merger and our business following the consummation of the
Merger.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
8.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;OTHER
MATTERS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">Subject
to compliance with applicable federal securities laws and state corporate laws,
as soon as practicable following the Merger, the Company intends to change its
name to &#8220;Ceelox, Inc.&#8221; and procure a new trading symbol which bears a closer
resemblance to our new name. We will also change our address to 13976 Lynmar
Blvd., Tampa, Florida 33626 and our telephone number to
813-769-0918.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">ITEM
9.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;FINANCIAL
STATEMENTS AND EXHIBITS</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">The
following financial statements are filed with this Current Report:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Audited
financial statements of Ceelox, Inc. for the fiscal years ended December 31,
2008 and December 31, 2007, including unaudited interim financial statements as
of September 30, 2008 and for the periods ended September 30, 2009 and September
30, 2008, are attached hereto as Exhibit 99.3.</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;The
following exhibits are filed with this report on Form 8-K:</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Exhibit
Index</font></div>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td align="left" valign="top" width="13%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Exhibit
      No.</font></div>
            </td>
            <td align="left" valign="top" width="56%" style="BORDER-BOTTOM: black 0.5pt solid">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt; FONT-WEIGHT: bold">Description</font></div>
            </td>
            <td valign="top" width="31%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td valign="top" width="13%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="56%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
            <td valign="top" width="31%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
      </font></td>
          </tr><tr>
            <td valign="top" width="13%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">2.1</font></div>
            </td>
            <td align="left" valign="top" width="56%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Agreement
      and Plan of Share Exchange dated February 12, 2010 between Ceelox, Inc.,
      certain of the shareholders of Ceelox, Inc., Nicaragua Rising, Inc. and
      Sunflower Capital, LLC</font></div>
            </td>
            <td align="left" valign="top" width="31%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Filed
      herewith.</font></div>
            </td>
          </tr></table>
    </div><br>
    <div id="PGBRK" style="TEXT-INDENT: 0pt; WIDTH: 100%; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="TEXT-ALIGN: center; WIDTH: 100%"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">40</font></div>
        <div style="TEXT-ALIGN: center; WIDTH: 100%">
          <hr style="COLOR: silver" noshade size="3">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 8pt">&#160;
</font></div>
      </div>
    </div><br>
    <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%" style="">
<tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">3.1</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Articles
      of Incorporation of Nicaragua Rising, Inc.</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 3.1 to our Form SB-2 dated December 21, 2007</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">3.2</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Bylaws
      of Nicaragua Rising, Inc.</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 3.2 to our Form SB-2 dated December 21, 2007</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">4.1</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Specimen
      Common Stock Certificate</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 4.1 to our Form SB-2 dated December 21, 2007</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">10.1</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">2010
      Stock Option Plan</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Filed
      herewith.</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">14.1</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Code
      of Ethics</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 14.1 to our Form 10-K dated January 30, 2009</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">16</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Letter
      re: change in certifying accountant</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 16.1 to our Form 8-K dated January 5, 2010</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">99.1</font></div>
            </td>
            <td align="left" valign="top" width="45%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">Audit
      Committee Charter</font></div>
            </td>
            <td align="left" valign="top" width="24%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
      filed as Exhibit 99.1 to our Form 10-K dated January 30, 2009</font></div>
              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
          </tr><tr>
            <td valign="top" width="8%">
              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 11pt">99.2</font></div>
            </td>
            <td align="left" valign="top" width="45%">
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            </td>
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              <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 12pt">Previously
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              <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div>
            </td>
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            <td valign="top" width="8%"><font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt">&#160;
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      </font></td>
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      </font></td>
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            </td>
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      and for the years ended December 31, 2008 and 2007</font></div>
            </td>
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  Officer</font></div>
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nri8k21110.htm
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of report (Date of earliest event reported):
February
12, 2010 (February 12, 2010)
Nicaragua
Rising Inc.
(Exact
name of registrant as specified in Charter)
Nevada
000-53597
26-1319217
(State
      or other jurisdiction of
incorporation
      or organization)
(Commission
      File No.)
(IRS
      Employee Identification No.)
10801
Mastin, Suite 920
Overland
Park, KS 66210
(Address
of Principal Executive Offices)
(913)
491-1717
(Issuer
Telephone number)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the Registrant under any of the following
provisions (see General Instruction A.2 below).
[  ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[  ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR240.14a-12)
[  ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b)).
[  ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13(e)-4(c))
This Form
8-K and other reports filed by Nicaragua Rising, Inc. from time to time with the
Securities and Exchange Commission (collectively the "Filings") contain forward
looking statements and information that are based upon beliefs of, and
information currently available to, our management as well as estimates and
assumptions made by our management.  When used in the Filings the
words "anticipate", "believe", "estimate", "expect", "future", "intend", "plan"
or the negative of these terms and similar expressions as they relate to us or
our management identify forward looking statements.  Such statements
reflect our current view with respect to future events and are subject to risks,
uncertainties, assumptions and other factors relating to our industry,
operations and results of operations and any businesses that we may
acquire.  Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
expected, intended or planned.
ITEM
1.01                      ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT
The
following discussion provides only a brief description of the documents
described below.  The discussion is qualified in its entirety by the
full text of the agreements, which are attached as exhibits to this Current
Report.
On
February 12, 2010, Ceelox, Inc. ("Ceelox") and certain of its shareholders
("Ceelox Shareholders"), on the one hand, and Nicaragua Rising, Inc.
("Nicaragua") and Sunflower Capital, LLC acting as indemnitor, on the other
hand, entered into an Agreement and Plan of Share Exchange (referred to in this
Current Report as the "Agreement") pursuant to which Nicaragua acquired 95.5% of
the issued and outstanding shares of Ceelox.  In exchange, Nicaragua
issued to the Ceelox Shareholders one share of $0.0001 par value common stock
for every nine (9) shares of Ceelox common stock acquired.  This
transaction is referred to as the "Merger" in this Current
Report.  Following the Merger, the Ceelox Shareholders will own
approximately 96.2% of the issued and outstanding common stock of
Nicaragua.
Nicaragua
was required, as a condition of the Merger, to procure the resignation of
Nicaragua's sole officer, William P. Moore.   The names and
biographies of Nicaragua's new officers and directors are set forth in Item 2.01
of this Current Report.  The Merger was completed on February 12,
2010.
ITEM
2.01                      COMPLETION
OF ACQUISITION OR DISPOSITION OF ASSETS
Because
the business operations of Ceelox became the sole business operations of
Nicaragua upon the consummation of the Merger, unless the context indicates
otherwise, the words "we," "us" "our" or the "Company" refer to Ceelox before
the closing of the Merger or to Nicaragua and Ceelox as a combined company after
the closing of the Merger.
Description
of business
General
The
Company was founded on September 17, 2003 and is headquartered in Tampa,
Florida.  We were formed for the purpose of developing and marketing
advanced fingerprint biometric technology and encryption software
solutions.   Our biometric identification and encryption software
solutions provide innovative and new ways for customers to securely access,
store, send and receive confidential information.  Biometric
technology is the science of analyzing specific human characteristics which are
unique to each individual in order to identify a specific person from a broader
population.  The use of biometrics enables enterprise and consumer
users to login to different systems and applications using secure credentials
based on their unique characteristics, while blocking unauthorized
users.  We
2
commenced marketing our products in the
first half of 2007 following more than three years of technology and product
development.  We believe that our products meet the needs of companies
that require strong data, systems and applications security including financial
institutions, healthcare providers, insurance companies, government agencies,
utilities and any business where security and identification are key
concerns.  To date we have invested over $10 million in the operations
of the business including research and development, product development and
marketing of our products.
The
Market and Our Opportunity
The
Biometric Security Market is a multi-billion dollar market that is experiencing
explosive growth.  At the same time the security token authentication
market is also experiencing significant growth.  Identity-based access
control is a growing concern for IT and Information Security professionals
driven by increasing regulation and the need to protect consumer personally
identifiable information, personal electronic health information, and
confidential business information from data breach.  Recent national
security issues are also driving demand for more effective identity
solutions.  We believe that Ceelox, with its superior product line and
market strategies, is favorably positioned to exploit this growth and fulfill
the need for stronger user access authentication tools.
Passwords,
the most common form of user authentication in use, are the weakest form of
authentication and are costly to administer and support.  The
Company's biometric logical access control products replace weak username and
password authentication.  In the large and medium enterprise market,
smart cards and tokens provide a more secure user
authentication.  VASCO Data Security International has sized the 2013
security token authentication market at $4.5 billion.   Our
products and solutions compete with token solutions.  Tokens are
costly, inconvenient for users, can be lost, misplaced, stolen and
compromised.  Ceelox believes it can penetrate and expand the security
token authentication market.  The Company's identity-based access
authentication products provide stronger security, are easier to use, cannot be
lost, forgotten or stolen, and are more cost effective.
We
completed the baseline design of our three major products, Ceelox ID
™
, Ceelox Vault
™
, and Ceelox SecureMail
™
in 2007 and have strived to
gain market awareness and grow sales.  Thereafter we began
aggressively pursuing product modifications to operate within the latest
operating system release from Microsoft, Windows 7.  This latest
version of Windows contains a biometric framework which should validate and
accelerate industry adoption of biometrics.  This is the first
recognition within a desktop operating system of any user authentication other
than username and password.  The Company plans to exploit the recent
Microsoft move to imbed the Windows Biometric Framework (WBF) within the Windows
7 operating system.
The
Microsoft action is a significant event in the evolution of biometrics
security.  The Windows® 7 WBF provides support for fingerprint
biometric devices through a new set of components that should lead to a
standardized approach to biometric integration and represent a significant leap
in security creating a de facto industry standard.
The
absence of a standard or common operating system interface led to
incompatibility between application software and fingerprint biometric devices,
as well as inconsistency in the quality and reliability of drivers and packages.
In addition, the differing nature of application stacks and driver models for
biometrics devices complicated servicing and maintaining these proprietary
solutions resulting in increased cost for support and reduced user
satisfaction.
3
In
Windows 7, the operating system provides native support for fingerprint
biometric devices through WBF.  Per Microsoft, this framework provides
support for biometric technologies, including the following:
-
The
      WBF enables standardization of biometric hardware and software solutions,
      increasing interoperability;
-
An
      improvement in the quality and reliability of fingerprint biometric
      drivers and management
applications;
-
A
      more consistent user experience;
-
A
      common platform and a set of interfaces for software developers;
      and
-
Improved
      scalability, manageability, and serviceability of fingerprint biometric
      devices in Windows.
Several
of the major fingerprint device manufacturers have announced support for
WBF.  We believe that the result will be a plug-and-play environment
that does not exist today because of individual proprietary vendor
solutions.
The
impact of Microsoft's initiative reaches beyond the creation of a standard. Over
the past few years, one of the biggest challenges for biometrics has been the
inability to deploy the technology on a mass scale.  This initiative
ensures scalability and availability of this technology not just for network
access control for enterprises and large deployments, i.e. the token market, but
is expected to further motivate OEMs such as Dell, Hewlett-Packard, Lenovo,
Sony, and others, to continue and expand the deployment of fingerprint readers
in more PCs or notebooks, thereby reducing the cost and making this technology
available for the mass market opportunity which Ceelox intends to exploit.
Ceelox was the first security software company to be certified to operate within
the new Windows Biometric Framework at the server level.
Products
Ceelox
products utilize biometrics to provide identity-based access authentication,
data encryption, and identity and email content security across the
Internet.  Simply stated, Ceelox uses fingerprint biometrics to
replace user name and password and as a key to encrypt data. Ceelox believes
that its biometric software enhances the security of data files, networks and
websites while improving employee and asset productivity, reducing
administrative costs and improving customer satisfaction – all with the swipe of
a finger.   Ceelox also believes that it has unique and
differentiated products that it is currently marketing to, or soon will be
marketing to, the major hardware, software and internet-security companies,
although we can not assure you that our marketing efforts will result in sales
to any of such companies. The general application categories Ceelox solutions
support are:
Identity-Based Access
Authentication
– to insure only authorized individuals gain access to
hardware, networks, data and applications, websites, cloud computing
applications;
File and
Folder Encryption
– to protect sensitive data on computers or portable
data devices; and
Email Encryption
– to
protect sensitive information sent from desktop to desktop.
Anywhere
passwords are used today for logical access Ceelox can replace weak password
authentication with its products which:
·
Provide
      a simple, easy to use application with a swipe of the finger to gain
      access to applications, PCs, servers, and Internet
    websites.
·
Offer
      the strongest possible authentication security. The United States National
      Science and Technology Council says that biometrics is the most definitive
      real-time identity access tool
available.
·
Replace
      ineffective, weak passwords that can be lost, forgotten, stolen,
      compromised and shared.
4
·
Eliminate
      millions of dollars spent annually on password management and related
      helpdesk support.
·
Yield
      stronger security than tokens and cards which are more expensive, subject
      to loss, and lack interoperability without substantial added
      cost.
Sensitive
data can be protected through Ceelox products that:
·
Utilize
      the user's fingerprint as a biometric key to uniquely encrypt data and
      files stored in a Ceelox Vault which is independently protected through
      separate biometric access.
·
Encrypt
      the content and files contained in sensitive emails without disruption to
      the users existing email system.
·
Create
      a secure ecosystem to transmit passwords, other personally identifiable
      information, or sensitive corporate information across the
      Internet.
·
Satisfy
      state regulatory requirements for email encryption such as exist in
      Nevada, Massachusetts and a growing number of other
  states.
We intend
to leverage our existing unique and patent pending product capabilities through
the development of our own WBF enabled products.  Recently, we
successfully demonstrated our Biometric Unit (BU) operating within the WBF to
Microsoft and have commenced beta testing. According to Microsoft, we were the
first company to demonstrate enhancement of the Microsoft WBF design to function
across a network, i.e., LAN, VPN, or domain.  The Company believes
this is a significant, unique value proposition as it will enable Microsoft
servers use of biometrics and the WBF with Ceelox
products.  Subsequently, we submitted our Biometric Unit software for
Microsoft certification testing and successfully completed and passed the
testing requirements which allows us to include the Windows 7 logo on our
software packaging, website and advertising materials.  We plan to
modify each of our products during the first half of 2010, submit them for
Microsoft certification testing and upon successfully completing the testing
requirements we intend to include the Windows 7 logo on each approved
product.  We believe the Windows 7 logo will provide market validation
and acceptance for our products.
As an
Independent Software Vendor with a Microsoft validated product set and the
Windows logo, we plan to leverage the Microsoft Partner distribution channel,
the Microsoft enterprise sales force and the Microsoft consulting group for
distribution of Ceelox products.
Ceelox
believes the market will begin to accept and embrace the Software as a Service
(SaaS) model for identity management, IDaaS.  It is our plan to
exploit the IDaaS opportunity as the market moves in that
direction.  Ceelox SecureMail already follows this model and in the
second half of 2010 we expect to begin to offer Ceelox ID Online as a service
and also offer a managed security service with our Ceelox ID Server
Edition.
The
Company also believes that its biometric identity-based access authentication
will benefit from the growing cloud computing movement.  As critical
business applications move to the cloud the need for strong identity-based
access control becomes even more acute.  Ceelox ID Online offers
strong, affordable, easy to use biometric identity-based access authentication
for individual cloud computing applications and Federated ID (cloud computing
single sign-on) for access to multiple enterprise cloud computing and software
as a service applications.
The
following are
Ceelox
Identity-Based User Access Control
Products:
5
Ceelox ID™
replaces password
and other weak authentication methods with the strongest form of Identity Access
Management available today.  Biometric user identification and access
controls permit access only to authorized individuals.  Logical access
control is provided for sensitive customer information systems and applications,
computer devices, networks, files or Web sites.  Ceelox ID™ solves the
enterprise information security requirements for Financial, Health Care,
Utility, Government and other industries.
Ceelox ID Online™
enables
banks, credit unions and other financial institutions to eliminate identity
theft and insure the safety of online banking and meet the Federal Financial
Institution Examination Council (FFIEC) two-factor authentication
requirements.  Similarly Ceelox ID Online™ protects access to
electronic health information records.  Any web-based application
which would benefit from stronger security is a candidate for ID Online which
sits on top of existing security and requires very little effort to
integrate.  Ceelox ID Online™ biometric-only or two-factor biometric
authentication overcomes the weaknesses and identity theft risks inherent in
password, token and site key solutions.  Financial institutions can
feel comfortable knowing their customers' identity and financial assets are safe
and secure.  Our two-factor remote access authentication also meets
FFIEC Information Security Controls for bank employees and support
vendors.  Health care institutions can insure the confidentiality,
integrity and availability of electronic protected health information
(ePHI).
Password
Weaknesses Addressed by Ceelox ID™
Historically,
businesses have relied heavily on passwords to control access to internal and
customer-facing applications.  It is now commonly accepted that
passwords alone are no longer a safe method of access control because of the
numerous weaknesses associated with their use.  Passwords are the most
common authentication mechanism and the weakest.  Since 'strong'
passwords are difficult to remember, users often weaken password security by
writing them down and hiding them in obvious places.  The FDIC and FTC
regulations now require financial institutions, as well as any business that
collects, uses, and stores individuals' personal information, to identify and
address reasonably foreseeable internal and external threats that could result
in unauthorized disclosure of customer information.  The following
known password weaknesses identified by the Federal Financial Institution
Examination Council, must be addressed, if institutions are to remain within the
law.
Known
Password Weaknesses:
·
Keylogger
      attacks through which a monitoring device is placed on the user computer
      to capture passwords for the
attacker;
·
Dictionary
      and brute force attacks through which the attacker obtains the system
      password file and compares the hashed password against hashes of commonly
      used passwords;
·
Password
      guessing attacks used with some knowledge about the account holder and the
      bank's password policies;
·
Social
      engineering attacks used to trick the user into giving up their
      password;
·
Phishing
      and man-in-the-middle attacks lure users to fake bank sites for the
      purpose of identity theft;
·
Relay
      attacks through which an attacker eavesdrops on communications between
      customer and the financial institution to obtain username and password
      information.
·
Pass
      phrases are subject to nearly all the same password weaknesses above
      although may require additional time or attempts on the part of the
      hacker.
·
Internet
      banking authentication presents unique challenges, because banks do not
      benefit from physical security and controlled computing and
      communications; the bank cannot control the user; and passwords are more
      likely to be static and significantly more
  vulnerable.
6
·
Warehouse
      attacks result in the compromise of a storage system using one or more
      attack methods described above.  Warehouse attacks typically
      compromise an entire authentication system or worse, an entire customer
      database as was the case with the TJX data breach that exposed over 96M
      customer records.
Token
systems have these inherent weaknesses, also identified by the
FFIEC:
·
Tokens
      can be lost or stolen during delivery or while in the possession of the
      end user;
·
Ease
      in guessing any password-generating algorithm within the
      token;
·
Ease
      in forging authentication credentials that unlock the
    token;
·
Tokens
      have been reverse engineered and
cloned;
·
Tokens
      are subject to man-in-the-middle and phishing
  attacks;
·
And
      like passwords, tokens can be
shared.
Every one
of the above threats, hazards and weaknesses are either completely eliminated or
greatly reduced with Ceelox ID™ biometric authentication and access
control.  Keyloggers cannot capture a biotemplate rendering dictionary
and brute force attacks useless.  Internet banking is more secure,
because a password, compromised by phishing or social engineering, is useless
without a biotemplate captured during a live scan.  Ceelox ID™ also
has none of the above token weaknesses.  Management believes its
patent pending Parallel Key Infrastructure provides the strongest available
protection of the biometric credential in a network application.  And
current state-of-the-art fingerprint biometric technology used by Ceelox, makes
forging biotemplate authentication nearly impossible, because a live scan is
required.
The need
for low cost, efficient access security is a competitive necessity for all
businesses.  Not only is Ceelox security economical, but with Ceelox
ID™, businesses can eliminate passwords altogether and with them, eliminate all
or nearly all associated costs of password administration and helpdesk support
costs too.  According to a Gartner Group and IDC estimate, 20% to 50%
of the helpdesk calls are related to username and password issues and resets,
and the average cost of a helpdesk call is $38.  Per their research,
the cost of password administration and management can total $200 to $300 per
user per year, not including the cost of any breaches.  Ceelox
believes the percentage of helpdesk calls for password reset is rising as
businesses attempt to make passwords stronger and require more frequent password
changes.
Ceelox Vault™
provides an easy
to use, drag and drop file and folder encryption solution for protecting
electronic customer, financial, health and other sensitive enterprise
information stored on local machines, portable laptops or on portable storage
devices.  Ceelox Vault™ Portable Edition is unique in that the
application itself resides on the portable storage device and can encrypt or
decrypt on any host PC as well as on the device it resides without leaving any
remnants on the PC.
Ceelox
Vault™ solves the following information security encryption
requirements:
·
Protect
      Customer Personally Identifiable
Information
As a
preventive control Ceelox Vault™ protects an enterprise's customers' Personally
Identifiable Information (PII) while at rest on the desktop, or in transit on a
laptop or any number of portable data storage media including flash memory
sticks and portable hard drives.
Ceelox
Vault provides file and folder level Biometric Identity-Based, AES256
encryption.  Most other encryption solutions employ weak password
access.
·
File
      and Folder Level Encryption
Many
enterprises have deployed full disc encryption solutions to protect
data.  Full Disk Encryption (FDE) is a pre-boot encryption tool that
protects data while the PC is off.  Ceelox Vault™ provides file and
folders encryption to protect information on the PC or portable drive regardless
if the device is powered.
7
·
Encryption
      that is Easy to Use
Most
encryption solutions fail because they are simply too complicated and hard to
use for most users, and therefore are not utilized.  If users know how
to use the Recycle Bin or the normal copy and paste functionality, Ceelox Vault
drag & drop encryption is elementary.
Data
unavailability is a risk with other encryption solutions that require
complicated and costly key management systems.  With Ceelox Vault the
encryption key is the user's biometric fingerprint template hashed with 128 bit
encryption and layered twice; therefore there is no need for a complicated key
management system.
·
License-Level
      Authentication Mode
IT and
Security Administrators can eliminate risky passwords altogether and
predetermine the authentication mode required for user encryption as either
biometric-only or two-factor authentication.
Ceelox SecureMail™
provides an
affordable, powerful, easy-to-use end point software application as a service
that enables users to encrypt/decrypt electronic mail over the network or
Internet.  Ceelox SecureMail™ provides users a means to email
sensitive information that only the intended recipient may
access.  Ceelox also offers a free, downloadable, decrypt-only
capability for enterprises' business and consumer customers.
Traditionally,
most email security and protection solutions have focused on inbound threats.
But increasingly, orga­nizations find that they must also address outgoing
mail too. In fact, nearly one in five outgoing emails (18.9%) contains content
that poses a legal, financial or regulatory risk, according to a 2007 survey of
email decision-mak­ers at 308 large U.S. enterprises (conducted by
Forrester).  Other studies have placed the percentage of email
containing corporate intelligence at 70%.
And email
is simply not secure.  There are many places where email messages can
be intercepted in transit or at rest.  All email traffic flows through
your Internet Service Provider and/or your email provider where it can be
intercepted and read.  While traveling across extensive corporate
networks email is effectively open to interception by many
employees.  And email originated through hotel Internet access or
other public Internet access such as at Starbucks or internet cafés is
especially open to interception.  There is no way to stop people from
intercepting email.  The only thing you can do is protect email with
encryption.
Ceelox
SecureMail™ solves the following information security encryption requirements
for electronic communications:
·
Safe,
      Secure, Confident Electronic
Communications
Ceelox
SecureMail™ provides email encryption for In Transit electronic customer data
using the strongest commercially available form of encryption, AES
256.
·
Biometric
      or password authentication mode
Ceelox
SecureMail, for example, allows financial institutions to safely and securely
share loan documents with customers; send statements to depositors; provide
fast, electronic written response to customer account inquiries; send wire
transfer and other transaction confirmations; share legal documents with
counsel; and communicate with auditors, regulators and Board
members;
·
Desktop-to-Desktop
      security
Ceelox
SecureMail encrypts sensitive customer information desktop-to-desktop and keeps
it encrypted on the desktop.  Other solutions leave customer
Personally Identifiable Information unencrypted, in the open, while within the
enterprise network and/or while on the desktop exposed to unauthorized internal
access.
8
Ease
of Use
Enterprises
need email encryption that is easy to use for employees and their business and
consumer customers.  Ceelox SecureMail™ supports Microsoft Outlook™
and all browser-based email systems such as gmail™ and hotmail™.  An
Outlook plug-in makes email encryption as easy as the swipe of your finger and
an Internet Explorer™ plug-in makes encryption easier for users of popular
browser-based email systems above.
Unlimited
Free Decrypt-Only Software
Email
encryption must be economical.  Per seat pricing that includes a B2C
enterprise's entire consumer customer base would be cost
prohibitive.  Ceelox offers downloadable decrypt-only software
free.
Competition
The
markets for our products and technologies are developing and characterized by
intense competition and rapid technological change. No assurance can be given
that our competitors will not develop new or enhanced technologies that will
offer superior price, performance, or features, or render our products or
technologies obsolete.
In
addition to companies that provide existing commonplace methods of restricting
access to facilities and logical access points such as pass cards, PIN numbers,
passwords, locks and keys, there are numerous companies involved in the
development, manufacturing and marketing of fingerprint biometrics products to
commercial and consumer markets. These companies include, but are not limited
to, Bio-Key, Cogent, NEC, L-1 Identity Solutions, SAFRAN, Digital Persona,
Precise Biometrics and U S Biometrics.
Although
most companies that target consumer application markets have completed
development of their biometric products, such technologies have not been widely
accepted in the commercial markets to date. Most companies competing for
commercial opportunities are in the business of selling scanning devices and tie
their algorithm to a specific device.  We have created a biometric
platform that is "device independent" and have implemented our products with
fingerprint scanners, the most common biometric hardware device available in the
marketplace.  Nonetheless, other biometric devices, such as retina or
vein scanners, provide a Software Developer Kit (SDK) which can be used for
integration with Ceelox products.  Therefore, by being agnostic to
hardware, the Company offers flexibility to customers in their implementation
designs.
The
commercial markets have been slow to widely accept biometrics as a viable
alternative to their current security methods. As a result, the primary
competition for biometric technology consists of traditional security methods
such as passwords, PINs, cards and tokens and device
authentication.
With
respect to competing biometrics technologies, each has its strength and
weaknesses and none has emerged as a market leader:
-
Fingerprint identification
is generally viewed as inexpensive and
    non-intrusive.
-
Iris scanning
is viewed
      as accurate, but can be expensive and inconvenient to
  use.
-
Facial recognition
has
      recently received substantial attention; however, it can have accuracy
      limitations associated with the quality and capability of the video
      capture device and be highly dependent on ambient lighting conditions,
      angle of view and other
factors.
9
The
market for biometric technology is evolving. Computer breaches, identity theft,
phishing and other events in the recent past are driving a large-scale shift to
biometric deployments. In addition, companies such as Lenovo/IBM, Dell, Gateway,
MPC, Samsung, Sony, Toshiba, Acer and HP have all introduced computers with
integrated finger scanning devices to complement the conventional
username/password technique since it is highly susceptible to hackers and
security breaches.
Our
competitiveness depends on our ability to offer high-quality products that meet
our customers' needs on a timely basis.  The principal competitive
factors of our products are time to market, quality, price and breadth of
product line.  Many of our competitors have significant advantages
over us such as far greater name recognition and financial resources than we
have.  At this time we do not represent a significant competitive
presence in our industry.
License
Agreement
On July
20, 2007, Ceelox granted CIP, LLC, of which Mr. Moore our Chairman is a control
person, an exclusive, fully paid-up, royalty-free, irrevocable, perpetual,
worldwide, transferable, assignable license, with the right to sublicense in and
to all of Ceelox's intellectual property (the "License Agreement"). Subject to
the License Agreement, Ceelox maintains all of its right, title and interest in
and to the intellectual property. The License Agreement was effective
immediately and continues indefinitely, unless and until terminated by mutual
agreement.  Additionally and in connection with the License Agreement,
the Company entered into a Software Services Agreement with CIP, LLC whereby
they agreed to pay Ceelox's costs associated with marketing its products and
maintaining and developing Ceelox's products based on its biweekly cash burn
rate, net of sales collections.
The
agreements contain a provision allowing for the reassignment of the intellectual
property back to Ceelox at both the option of Ceelox and CIP, each option
independent of the other. Nicaragua, Ceelox and CIP entered into a License
Reacquisition Letter Agreement ("Reacquisition Agreement") on February 12,
2010.  Pursuant to the Reacquisition Agreement, Ceelox will reacquire
all of the rights to its intellectual property granted pursuant to the License
Agreement in exchange for the issuance of 10,271,203 shares of Nicaragua's
common stock to CIP, LLC at such time as CIP, LLC determines in its sole
discretion that adequate financing to support the Company's business will be
obtained from an unrelated third party.
During
the years ended December 31, 2008 and 2007, the Company received advances under
this agreement of $2,632,185 and $1,060,778, respectively. Interest accrued for
the years ended December 31, 2008 and 2007 amounted to $658,047 and $265,195,
respectively.
Total
advances including interest accrued under the reassignment consideration
provision, amounted to $4,616,205 and $1,325,973 as of December 31, 2008 and
2007, respectively.
During
the nine months ended September 30, 2009 and 2008, the Company received advances
under this agreement of $466,873 and $1,982,923, respectively. Interest accrued
for the nine months ended September 30, 2009 and 2008 amounted to $116,718 and
$495,731 respectively.
Intellectual
Property
We have
filed for patent protection for each of our products with the U.S. Patent and
Trademark Office, but to date have not received approval of such
patents.   The granting of any patent involves complex legal and
factual questions.  The scope of allowable claims is often
uncertain.  As a result, we cannot be sure that any patent application
filed by us will result in a patent being issued, or that any
10
patents
issued will afford adequate protection against competitors with similar
technology, nor can we provide assurance that patents issued to us will not be
infringed upon or designed around by others.  The Company intends to
explore international patent protection at such time as it feels such protection
is warranted.
We
currently protect our intellectual property through contractual arrangements,
including confidentiality, non-competition and non-disclosure agreements, and
will continue to use such contractual arrangements in the future to help protect
our proprietary intellectual property.
We have filed with and received from
the U.S Patent and Trademark Office registered trademarks for each of Ceelox ID,
Ceelox ID Online, Ceelox SecureMail and Ceelox Vault.
Research
and Development
We employ
a skilled research and development team based in our Tampa, Florida headquarters
that is responsible for identifying and creating new products and applications
along with improving and enhancing existing products.  The markets in
which we compete are characterized by rapid technological change and evolving
standards and in order to establish our presence in the biometrics market we
will need to continue to expend significant resources on enhancing our existing
products and creating new products.  As our sales have been minimal to
date, our research and development activities have been funded through outside
sources of capital.
Government
Regulation
We are
not currently subject to direct regulation by any government agency, other than
regulations generally applicable to businesses.  In the event that we
sell our products internationally, we could be subject to various domestic and
foreign laws regulating such exports and export activities.
Property
Our
offices are located at 13976 Lynmar Blvd., Tampa, FL 33626 where we lease
approximately 7,000 square feet of office space.  Pursuant to our
lease, we currently pay $6,700 per month in rent, and our lease is currently up
for renewal and under re-negotiation.   We believe that our
facilities are adequate for our current and future needs through 2011, and we
believe we will be successful in negotiating a favorable two-year
lease.
Employees
As of
February 12, 2010, we had 11 employees, comprised of four in
management,  one in sales, and six in our development
group.  Since inception, we have never had a work stoppage and none of
our employees are represented by a labor union.  We consider our
relationship with our employees to be good.
Legal
Proceedings
From time
to time, we may be involved in litigation relating to claims arising out of our
operations in the normal course of our business.  We are not currently
a part to any legal proceedings.
11
RISK
FACTORS
RISKS
RELATING TO OUR BUSINESS
We
have a history of losses and may not be profitable in the future.
We have
incurred substantial losses and had negative cash flow in operating activities
for the last two fiscal years and for the nine month period ended September 30,
2009, and as of September 30, 2009 we had an accumulated deficit of
$20,832,777.
We
sustained net losses of $3,482,777 and $3,975,649 for the years ended December
31, 2008 and 2007, respectively, and a net loss of $1,287,513 for the nine
months ended September 30, 2009.  We cannot assure you that we will
generate sufficient cash flow to meet our obligations or achieve operating
profits in the future.
We
have granted an exclusive license to CIP, LLC for all of our intellectual
property.
On July 20, 2007, Ceelox granted CIP,
LLC, of which Mr. Moore our Chairman is a control person, an exclusive, fully
paid-up, royalty-free, irrevocable, perpetual, worldwide, transferable,
assignable license, with the right to sublicense in and to all of Ceelox's
intellectual property. Subject to the License Agreement, Ceelox maintains all of
its right, title and interest in and to the intellectual property. The License
Agreement was effective immediately and continues indefinitely, unless and until
terminated by mutual agreement.  Additionally and in connection with
the License Agreement, the Company entered into a Software Services Agreement
with CIP, LLC whereby they agreed to pay Ceelox's costs associated with
marketing its products and maintaining and developing Ceelox's products based on
its biweekly cash burn rate, net of sales collections.
The
agreements contain a provision allowing for the reassignment of the intellectual
property back to Ceelox at both the option of Ceelox and CIP, each option
independent of the other. Nicaragua, Ceelox and CIP entered into a License
Reacquisition Letter Agreement on February 12, 2010.  Pursuant to the
Reacquisition Agreement, Ceelox will reacquire all of the rights to its
intellectual property granted pursuant to the License Agreement in exchange for
the issuance of 10,271,203 shares of Nicaragua's common stock to CIP, LLC at
such time as CIP, LLC determines in its sole discretion that adequate financing
to support the Company's business will be obtained from an unrelated third
party.  We cannot assure you that we will be able to secure adequate
financing to support our future business, or that if we do secure what we
believe to be adequate funding, CIP, LLC may not believe in its sole discretion
that any such funding will be adequate to support our business
plan.  If we do not reacquire our rights to the intellectual property
covered by the License Agreement, CIP, LLC could in the future determine to
exploit our technology without having to pay us any royalties on any revenues
they generate.
Our
biometric technology has yet to gain widespread market acceptance and we do not
know how large of a market will develop for our technology.
Biometric
technology has received only limited market acceptance, particularly in the
private sector. Our technology represents a novel security solution and we have
not yet generated significant sales. Although recent security concerns relating
to identification of individuals and systems and data access control has
increased interest in biometrics generally, it remains an undeveloped, evolving
market. Biometric based solutions compete with more traditional security methods
including keys, cards, personal identification numbers and security personnel.
Acceptance of biometrics as an alternative to such traditional methods depends
upon a number of factors including:
·     
      the reliability of biometric
solutions;
·     
      public perception regarding privacy
  concerns; and
·     
      costs involved in adopting and integrating biometric
      solutions.
For these
reasons, we are uncertain whether our biometric technology will gain widespread
acceptance in any commercial markets or that demand will be sufficient to create
a market large enough to produce significant revenue or earnings. Our future
success depends, in part, upon business customers and ultimately consumers
adopting biometrics generally, and our solution specifically.
Biometric
technology is a new approach to Internet security which must be accepted in
order for our products and solutions to generate significant
revenue.
Our
biometric products and solutions represent a new approach to Internet security
which has been adopted on a limited basis by companies which distribute goods,
content or software applications over the Internet. The implementation of our
products and solutions requires the distribution and use of a finger scanning
device and integration of database and server side software. Although we believe
our solutions provide a higher level of security for ecommerce, banking and
other Internet transactions and information transmitted over the Internet than
existing traditional methods, unless business and consumer markets embrace the
use of a scanning device and believe the benefits of increased accuracy outweigh
implementation costs, our solutions will not gain market
acceptance.
Our
software products may contain defects which will make it more difficult for
us to establish and maintain customers.
Despite
extensive testing during development, our software may contain undetected
design faults and software errors, or "bugs" that are discovered only after it
has been installed and used by customers. Any such defect or error in new or
existing software or applications could cause delays in delivering our
technology or require design modifications. These could adversely affect our
competitive position and cause us to lose potential customers or opportunities.
Since our technologies are intended to be utilized to secure electronic access,
the effect of any such bugs or delays will likely have a detrimental impact on
us. In addition, given that biometric technology generally, and our biometric
technology specifically, has yet to gain widespread acceptance in the market,
any delays would likely have a more detrimental impact on our business than if
we were a more established company.
In
order to generate revenue from our biometric products, we are dependent upon
third party distributors including Microsoft Partners, Citrix Solutions
Partners, other systems integrators and value-added resellers, Internet security
solutions providers, and others, which we do not control. As a result, it
may be more difficult to generate sales.
As a
security software and services company, our success will depend upon the ability
of these distribution channel partners to effectively integrate our technology
into products and services which they market and sell. We have no control over
these partners and cannot assure you that they have the financial, marketing or
technical resources to successfully sell, integrate and distribute products or
applications to end users or generate any meaningful revenue for us. These third
parties may also offer the products of our competitors to end
users.
12
We
will need to raise additional capital in order to implement our long-term
business plan.
Our
ability to implement our long-term strategy and expand our operations largely
depends on our access to capital.  To implement our long-term
strategy, we plan to make ongoing expenditures for the expansion and improvement
of our product line and the promotion of our products.  We may also
wish to make expenditures to acquire other businesses.  To date, we
have financed our operations primarily through sales of equity, the issuance of
notes and advances from a related party.  If we were to attempt to
expand our business at a faster pace than currently contemplated, or if we were
to identify an acquisition target, we would need to raise additional capital
through the sale of our equity securities or debt
instruments.  However, additional capital may not be available on
terms acceptable to us.  Our failure to obtain sufficient additional
capital could curtail or alter our long-term growth strategy or delay needed
capital expenditures.
We
may not be able to effectively manage our growth.
Our
strategy envisions growing our business.  We plan to continue to
develop our technology and to hire additional sales, software engineers,
administrative and marketing personnel.  Any growth in or expansion of
our business is likely to place a strain on our management and administrative
resources, infrastructure and systems.  In order to expand our
business, we may be required to purchase or lease additional machinery and
equipment, hire, train and supervise additional personnel and make significant
outlays of capital.  These measures are time consuming and expensive,
will increase management's responsibilities and will divert management's
attention from our day-to-day operations. We cannot assure you that we will be
able to:
·
expand
      our systems effectively or efficiently or in a timely
    manner;
·
allocate
      our human resources optimally;
·
meet
      our capital needs;
·
identify
      and hire qualified employees or retain valued employees;
  or
·
incorporate
      effectively the components of any business or product line that we may
      acquire in our effort to achieve
growth.
Our
inability or failure to manage our growth effectively could harm our business
and materially and adversely affect our operating results and financial
condition.
Competition
may force us to shorten our product life cycles and more rapidly introduce new
and enhanced products, which could have a material adverse effect on our results
of operations.
We
may not be able to adequately protect our intellectual property
rights.
We try to
protect our intellectual property in a number of different ways.  We
rely in part on patent, trade secret, unfair competition and trademark law to
protect our rights to certain aspects of our products, including product
designs, proprietary development processes and technologies, product research
and concepts and recognized trademarks, all of which we believe are important to
the success of our products and our competitive position.  There can
be no assurance that any of our pending patent or trademark applications will
result in the issuance of a registered patent or trademark, or that any future
patent or trademark granted will be effective in thwarting competition or be
held valid if subsequently challenged.  In addition, there can be no
assurance that the actions taken by us to protect our proprietary rights will be
adequate to prevent imitation of our products, that our proprietary information
will not become known to competitors, that we can meaningfully protect our
rights to unpatented proprietary information or that others will not
independently develop substantially equivalent or better products
that
13
do not
infringe on our intellectual property rights.  We could be required to
devote substantial resources to enforce any future patents that may be issued to
us and protect our intellectual property, which could divert our resources and
result in increased expenses.  In addition, an adverse determination
in litigation could subject us to the loss of our rights to a particular patent
or other intellectual property, could require us to obtain from or grant
licenses to third parties, could prevent us from selling or using certain
aspects of our products or could subject us to substantial liability, any of
which could harm our business.
We may become subject to litigation
for infringing the intellectual property rights of others
.
Others
may initiate claims against us for infringing on their intellectual property
rights.  We may be subject to costly litigation relating to such
infringement claims and we may be required to pay compensatory and punitive
damages or license fees if we settle or are found culpable in such
litigation.  In addition, we may be precluded from offering products
that rely on intellectual property that is found to have been infringed by
us.  We also may be required to cease offering the affected products
while a determination as to infringement is considered.  These
developments could cause a decrease in our operating income and reduce our
available cash flow, which could harm our business.
We
may be unable to attract and retain qualified, experienced, highly skilled
personnel, which could adversely affect the implementation of our business
plan.
Our
success depends to a significant degree upon our ability to attract, retain and
motivate skilled and qualified personnel.  If we fail to attract,
train and retain sufficient numbers of these qualified people, our prospects,
business, financial condition and results of operations will be materially and
adversely affected.  In particular, we are heavily dependent on the
continued services of Gerry Euston, our Chief Executive Officer, Mark Grannell,
our Chief Operating Officer, Erix Pizano, our Director of Technology Development
and Engineering and the other members of our senior management
team.  Although our operating subsidiary has employment agreements
with each of Messrs. Euston and Grannell, the agreements may be terminated with
or without cause by either party on 30 days prior written
notice.      The loss of any key employee,
including members of our senior management team, and our inability to attract
highly skilled personnel with sufficient experience in our industry could harm
our business. Our success depends on our ability to attract, train and retain
employees with expertise in developing, marketing and selling software
solutions. In order to successfully market our technology, we will need to
retain additional engineering, technical support and marketing personnel. The
market for such persons remains highly competitive and our limited financial
resources will make it more difficult for us to recruit and retain qualified
persons.
We
face intense competition and may not have the financial and human resources
necessary to keep up with rapid technological changes, which may result in
our technology becoming obsolete.
The
Internet and information security markets are subject to rapid technological
change and intense competition. We compete with both established biometric
companies and a significant number of startup enterprises as well as providers
of more traditional methods of access control. Most of our competitors have
substantially greater financial and marketing resources than we do and
may independently develop superior technologies, which may result in
our technology becoming less competitive or obsolete. We may not be able to
keep pace with this change. If we are unable to develop new applications or
enhance our existing technology in a timely manner in response to technological
changes, we will be unable to compete in our chosen markets. In addition, if one
or more other biometric technologies such as voice, face, iris, hand geometry or
blood vessel recognition are widely adopted, it may cause us delays in adapting
our products and services to these other biometric form factors.
14
Our
products may become obsolete due to rapid technological change within the
industry.
Product
technology evolves rapidly, making timely product innovation essential to
success in the marketplace.  The introduction of products with
improved technologies or features may render our existing products obsolete and
unmarketable.  If we cannot develop products in a timely manner in
response to industry changes, or if our products do not perform well, our
business and financial condition will be adversely affected.
Risks
Related To Our Common Stock
A
Majority of our Common Stock is owned and controlled by William P. Moore, our
Chairman, which will limit your ability to voice your opinion on corporate
matters over which you will effectively have no vote.
CIP, LLC,
our majority shareholder, of which our Chairman, William P. Moore is a control
person, currently owns approximately 51.7% of our issued and outstanding common
stock.  Additionally, CIP, LLC has the right to acquire an additional
10,271,203 shares of our common stock pursuant to the License Reacquisition
Agreement and 4,208,102 additional shares upon the exercise of outstanding
warrants which would increase their ownership percentage in our
company.  Since CIP, LLC controls more than 50% of our issued and
outstanding common stock, you effectively have no vote in how we conduct our
corporate affairs.
Applicable
SEC Rules governing the trading of "penny stocks" limits the trading and
liquidity of our common stock, which may affect the trading price of our common
stock.
Our
common stock currently trades on the OTC Bulletin Board. Since our common stock
trades below $5.00 per share, our common stock is considered a "penny stock" and
is subject to SEC rules and regulations, which impose limitations upon the
manner in which our shares can be publicly traded. These regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the associated risks. Under
these regulations, certain brokers who recommend such securities to persons
other than established customers or certain accredited investors must make a
special written suitability determination regarding such a purchaser and receive
such purchaser's written agreement to a transaction prior to sale. These
regulations have the effect of limiting the trading activity of our common stock
and reducing the liquidity of an investment in our common stock.
We
do not intend to pay dividends in the foreseeable future.
We have
never declared or paid a dividend on our common stock. We intend to retain
earnings, if any, for use in the operation and expansion of our business and,
therefore, do not anticipate paying any dividends on our common stock in the
foreseeable future.
The
trading price of our common stock may be volatile.
The
trading price of our shares has from time to time fluctuated widely and in the
future may be subject to similar fluctuations. The trading price
may be affected by a number of factors including the risk factors set forth
in this Report as well as our operating results, financial condition,
announcements of innovations or new products by us or our competitors, general
conditions in the biometrics and access control industries, and other events or
factors. In recent years broad stock market indices, in general, and the
securities of technology companies, in particular, have experienced substantial
price fluctuations. Such broad market fluctuations may adversely affect the
future-trading price of our common stock.
15
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
information contained in this section should be read in conjunction with our
consolidated financial statements and related notes and the information
contained elsewhere in this Current Report under the captions "Risk Factors,"
and "Business".
Overview
We were
formed for the purpose of developing and marketing advanced security solutions
using fingerprint and other biometric technology and encryption software
solutions.   Our biometric identification and encryption software
solutions provide innovative and new ways for customers to securely access,
store, send and receive confidential information.  Biometric
technology is the science of analyzing specific human characteristics which are
unique to each individual in order to identify a specific person from a broader
population.  The use of biometrics enables enterprise and consumer
users to login to different systems and applications using secure credentials
based on their unique characteristics, while blocking unauthorized
users.  Our biometric authentication provides strong protection
against identity theft.  We commenced marketing our products in the
first half of 2007 following more than three years of technology and product
development.  We believe that our products meet the needs of companies
that require strong data, systems and applications security including financial
institutions, healthcare providers, insurance companies, government agencies,
utilities and any business where security and identification are key
concerns.  To date we have invested over $10 million in the operations
of the business including research and development, product development and
marketing of our products.
Results
of Operations
Year
Ended December 31, 2008 Compared with Year Ended December 31, 2007
Net
Revenue
In early
2007 the Company completed development of its initial product line and began
marketing its solutions.  For the years ended December 31, 2008 and
2007 the Company had revenues of $89,014 and $135,641,
respectively.  The main reason for the decrease in revenue in 2008
from 2007 was the third quarter 2008 financial crisis that shook the U.S.
banking industry which had a significant impact on the pending sales and
prospects of the Company.    With slowing sales and critical
cash funding shortfalls, management curtailed operating activities and minimized
cash outflows beginning in the third quarter of 2008 and continuing into the
nine months ended September 30, 2009.
Total
Costs and Expenses
Our total
cost and expenses which consist of payroll and related benefits, consulting
expenses, marketing, general and administrative expenses, depreciation and
amortization, and research and development expenses increased by $51,529 or 1.8%
for the year ended December 31, 2008 from December 31, 2007.  While
overall expense was relatively flat, there were several changes within the
categories that make up total cost and expense.  Our cost of hardware
sales declined by $38,680 or 48.7% in 2008 from 2007 primarily as a result of
the decline in revenue.  Payroll and related benefits and consulting
expenses were up $324,372 or 19% in 2008 from 2007 due to increased staffing
prior to the
16
sales
downturn experienced in the third quarter of 2008 and an increase in stock-based
compensation of $68,064 due to issuance of employee stock options in
2008.  Marketing, general and administrative expenses were lower by
$232,750 or 24% in 2008 from 2007 due primarily to a reduction in marketing
spending to $199,574 from $405,156.
Loss
from Operations
Our
operating loss for the 12 months ended December 31, 2008 was $2,801,445 compared
to a loss of $2,703,289 for the 12 months ended December 31, 2007, an increase
of $98,156 or 3.6%.  The increased loss was due to lower revenue and
slightly higher expenses.
Interest
Expense
Interest
expense for the year ended December 31, 2008 was $681,337 compared to $1,272,360
for year the ended December 31, 2007, a reduction of $591,023.  In
August 2005 the Company entered into a convertible note from a related party
(see footnote 7 of the Company's financial statements).  Interest on
that note was $26,591 in 2008 compared to $86,526 in 2007.  During the
years 2006 and 2007 the Company modified the loan agreement and as additional
consideration for the modifications and increased borrowing capacity, the
Company provided shares of its common stock and warrants to the
lender.  The fair value of the common stock and warrants were deemed
to be financing fees and amortized over the term of each of the modifications to
the instrument.  On June 21, 2007, upon notification from the lender,
the Company converted $3,133,764 of the $3,436,193 then outstanding
line-of-credit advances, including accrued interest, into shares of the
Company's common stock and warrants to purchase common stock.  The
conversion triggered acceleration of the amortization of the related financing
fees.  In 2007 amortization and accelerated amortization of the
related financing fees amounted to $891,781.  In 2008 there were no
financing fees.  On July 20, 2007 the Company granted a related party
an exclusive, fully paid-up, royalty-free, irrevocable, perpetual, worldwide,
transferable, assignable license, with the right to sublicense in and to all the
Company's intellectual property (the "License Agreement"). Subject to the
License Agreement the Company maintains all of its right, title and interest in
and to the intellectual property. The License Agreement was effective
immediately and continues indefinitely, unless and until terminated by mutual
agreement.  Additionally and in connection with this agreement, the
Company entered into a Software Services Agreement with the related party
whereby they agreed to pay Ceelox costs associated with marketing its products
and maintaining and developing our products based on our biweekly cash burn
rate, net of sales collections.  During the years ended December 31,
2008 and 2007, the Company received advances under this agreement of $2,632,185
and $1,060,778, respectively. On an accounting basis, the interest accrued for
the years ended December 31, 2008 and 2007 amounted to $658,047 and $265,195,
respectively. See Footnote 6 of the Company's financial statements for
additional detail.
Net
Loss
During
the years ended December 31, 2008 and 2007 the Company incurred net losses of
$3,482,777 and $3,975,649, respectively.  The reduced losses of
$492,872 were primarily due to reduced interest expenses.
Seasonality
and Quarterly Results
We do not
expect to experience any seasonality in our operating results.
17
Results
of Operations
Nine
Months Ended September 30, 2009 Compared with Nine Months Ended September 30,
2008
Net
Sales
Revenue
for the periods ending September 30, 2009 and 2008 were $76,837 and $76,407,
respectively.  Management curtailed operating activities, and
minimized cash outflows during the nine months ended September 30,
2009.  As a result our revenue performance was, as expected, flat.
Total
Costs and Expenses
For the
period ended September 30, 2009 total costs and expenses were down $932,250, or
43%, to $1,224,267 from $2,156,517 for the same period in 2008.  In
its efforts to minimize expenses, management reduced marketing expenses in 2009
by $153,923 from $173,807 in the same period of 2008.  Payroll,
benefits and consulting expenses were reduced $527,386 from
$1,467,546.  In addition, other general and administrative expenses
were reduced $223,604 from $431,481.
Loss
from Operations
For the
periods ended September 30, 2009 and 2008 losses from operations were $1,147,430
and $2,080,110, respectively.  The reduced loss from operations of
$932,680 or 45% was due largely to management's efforts to minimize
expenses.
Interest
Expense
Interest
expenses for the periods ended September 30, 2009 and 2008 were $140,626 and
$558,410, respectively.  The primary difference in our interest
expense is due to decreased interest expense incurred from the advances under
the July 20, 2007 licensing and software management agreements described in
Footnote 6 of the Company's financial statements attached hereto.
Net
Loss
For the
periods ended September 30, 2009 and 2008 net losses were $1,287,513 and
$2,638,514, respectively.  The reduced net loss of $1,351,002 or 51%
was due largely to management's efforts to minimize expenses.
Liquidity
and Capital Resources
As of
September 30, 2009, we had a working capital deficit of $5,767,602, as compared
to a working capital deficit of $4,986,002 as of December 31,
2008.  In the past we have relied on sales of our equity to raise
funds for our working capital requirements, as well as loans from our majority
stockholder.  We will need to raise additional capital in order to
implement our business plan and will seek to sell additional equity and/or debt
to accomplish this objective.  There can be no assurance that we will
be able to raise funds sufficient to carry out our business plan, or that if
funds are available to us that they will be on acceptable terms.
18
Operating
Activities
Cash used
in operations of $984,378 during the nine months ended September 30, 2009 was
primarily a result of our $1,287,513 net loss reconciled with our net non-cash
expenses relating to stock-based compensation expense, accrued interest,
depreciation and amortization expense.  Cash used in operations of
$1,955,136 during the nine months ended September 30, 2008 was primarily a
result of our $2,638,514 net loss reconciled with our net non-cash expenses
relating to stock-based compensation expense, amortization of deferred finance
fees, accrued interest, depreciation and amortization expense.
Cash used
in operations of $2,552,089 during the year ended December 31, 2008 was
primarily a result of our $3,482,777 net loss reconciled with our net non-cash
expenses relating to stock-based compensation expense, accrued interest,
depreciation and amortization expense.  Cash used in operations of
$2,555,328 during the year ended December 31, 2007 was primarily a result of our
$3,975,649 net loss reconciled with our net non-cash expenses relating to
stock-based compensation expense, amortization of deferred finance fees, accrued
interest, depreciation and amortization expense.
Investing
Activities
We did
not generate cash flows from investing activities during the nine months ended
September 30, 2009 or the year ended December 31, 2008.  We expended
$3,638 during the nine months ended September 30, 2009, $13,931 during the nine
months ended September 30, 2008, $16,624 during the year ended December 31, 2008
and $87,460 during the year ended December 31, 2007.  The amounts we
expended in 2009 were for the purchase of property and equipment and for the
years ended December 31, 2008 and 2007 were for purchase of property and
equipment and costs incurred for patent and software development.
Financing
Activities
During
the nine months ended September 30, 2009, we generated proceeds of $916,873 from
our financing activities which consisted of: (i) $350,000 from sales of our
common stock, (ii) advances from related parties of $466,873, and (3) the sale
of convertible notes in the amount of $100,000.
During
the year ended December 31, 2008, we generated proceeds of $2,632,185 from our
financing activities which consisted solely of advances from related
parties.
During
the year ended December 31, 2007, we generated net proceeds of $2,645,294 from
our financing activities which consisted of: (i) $440,000 from sales of our
common stock, (ii) advances from related parties of $1,060,778, (3) the sale of
convertible notes in the amount of $1,154,078, and (4) the payment of $9,562
towards our capital leases.
Off-Balance
Sheet Arrangements
We
currently do not have any off-balance sheet arrangements or financing activities
with special purpose entities.
19
Critical
Accounting Policies and Estimates
Management's
Discussion and Analysis of Financial Condition and Results of Operations
discusses our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. To prepare these
financial statements, we must make estimates and assumptions that affect the
reported amounts of assets and liabilities. These estimates also affect our
reported revenues and expenses.  On an ongoing basis, management
evaluates its estimates and judgment, including those related to revenue
recognition, accrued expenses, financing operations and contingencies and
litigation.  Management bases its estimates and judgment on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources.  Actual results may differ from these estimates
under different assumptions or conditions.  The most significant
accounting estimates inherent in the preparation of our financial statements are
set forth in Note 1 to our audited financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair
Value of Financial Instruments
The
amounts reported for cash equivalents, marketable securities, account
receivables, unbilled receivables, accounts payable, and accrued liabilities are
considered to approximate fair values based upon comparable market information
available at the respective balance sheet dates. The Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 157 effective
January 1, 2008 for financial assets and liabilities measured on a
recurring basis. SFAS No. 157 applies to all financial assets and
financial liabilities that are being measured and reported on a fair value basis
and requires disclosure that establishes a framework for measuring fair value
and expands disclosure about fair value measurements. The Company has not
elected the fair value option for financial instruments not already carried at
fair value.
Cash
and Cash Equivalents
Cash
equivalents are highly liquid investments with original maturity of three months
or less at the date of purchase. The Company maintains its cash balances with
high quality financial institutions and has not experienced any material
losses.
Accounts
Receivable and Allowance for Doubtful Accounts
The
Company carries its accounts receivable at cost less an allowance for doubtful
accounts. Ceelox Inc.'s allowance for doubtful accounts is determined using a
combination of factors to ensure that Ceelox Inc.'s trade and unbilled
receivables balances are not overstated due to uncollectibility. The Company
performs ongoing customer credit evaluation within the context of the industry
in which it operates, does not require collateral, and maintains allowances for
potential credit losses on customer accounts when deemed necessary. A specific
allowance for a doubtful account up to 100% of the invoice will be provided for
any problematic customer balances. Delinquent account balances are written-off
after management has determined that the likelihood of collection is not
possible. For all periods presented, Ceelox Inc. had no allowance for doubtful
accounts.
20
Inventory
Inventories
consist of computer equipment merchandise that is in its finished form and ready
for sale to end-user customers. Inventories are recorded at the lower of average
cost or market. In-bound freight-related costs from our vendors are included as
part of the net cost of merchandise inventories. Other costs associated with
acquiring, storing and transporting merchandise inventories are expensed as
incurred. Our inventories are acquired and carried for retail sale and,
accordingly, the carrying value is susceptible to, among other things, market
trends and conditions and overall customer demand. We use our best estimates of
all available information to establish reasonable inventory quantities. However,
these conditions may cause our inventories to become obsolete and/or excessive.
We review our inventories periodically for indications that reserves are
necessary to reduce the carrying values to the lower of cost or market values.
For all periods presented, Ceelox Inc. determined that no reserves were
necessary.
Property
and Equipment
Computer
equipment, computer software and furniture and fixtures are stated at cost and
depreciated on a straight-line basis over an estimated useful life of five
years. Upon disposal, assets and related accumulated depreciation are removed
from the accounts and the related gain or loss is included in results from
operations.
Software
Development Costs, Patents and Trademarks
The
Company capitalizes certain direct software development costs based upon stages
of development. Capitalization of software development costs begins upon the
establishment of technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalization ceases upon the
products market introduction.  Amortization of software development
cost is computed on an individual product basis on the straight-line method over
the estimated economic life ranging from three to five years, and begins when a
product is available for general release to customers.
Patents
and trademarks costs consist of internal and external costs relating to the
filing patents and costs of licensing trademarks. Patent and trademark costs are
recorded at cost and amortized on a straight-line basis over ten years, the
expected period of future utility and economic benefit.
Impairment
of Long-Lived Assets and Other Intangible Assets
Ceelox
Inc. evaluates the recoverability of long-lived assets with finite lives in
accordance with SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets". Intangible assets, including purchased technology and other
intangible assets, are carried at cost less accumulated amortization.
Finite-lived intangible assets are being amortized on a straight-line basis over
their estimated useful lives of five to ten years. SFAS No. 144
requires recognition of impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value amount of an asset may
not be recoverable. An impairment charge is recognized in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. A significant impairment of finite-lived intangible assets could
have a material adverse effect on Ceelox Inc.'s financial position and results
of operations. For all periods presented, Ceelox Inc. determined that no
impairment charges were incurred.
21
Revenue
Recognition
Overview
We
recognize revenue when persuasive evidence of an arrangement exists, we have
delivered the product or performed the service, the fee is fixed or determinable
and collection is reasonably assured. If any of these criteria are not met, we
defer recognizing the revenue until such time as all criteria are met.
Determination of whether or not these criteria have been met may require us to
make judgments, assumptions and estimates based upon current information and
historical experience.
Ceelox
markets its software products direct to commercial customers, to Value Added
Resellers and Systems Integrators and to Original Equipment Manufacturers
("OEM").  Revenue may have four components: 1) license software
revenue which provides a right to use Ceelox software products on a per
seat/client or per server basis for an unlimited period; 2) software
maintenance, 3) hardware, such as fingerprint readers and flash memory devices,
and 4) professional services, primarily installation support. The Company also
performs custom software development on a limited basis when necessary to
support significant account or revenue opportunities.
Ceelox
has developed suggested retail pricing for all revenue components which include
volume related discounting where appropriate.  In addition the Company
may negotiate prices on an individual case basis for significant volume or
significant account opportunities.
Hardware
and Software Revenue
The
Company recognizes hardware revenue upon invoicing.  Invoicing is
triggered upon shipping.  In products that have a hardware and
software component that is not broken out in the Company's pricing, such as with
Ceelox Portable Vault that includes hardware in the form of flash memory, the
Company considers the value of the hardware to be de minimis and records the
sale under the Software/Hardware classification.
Software
License Revenue
License
software revenue is recognized at the time of invoicing.  Invoicing is
timed with shipment or delivery of licensed software.  There is a 30
day right to return or exchange licensed software.  The Company
warrants that its software is free from material defects and will replace any
defective products with a functional replacement.
Maintenance
includes customer access to and right to software bug fixes and new releases of
the company's software.  These releases are made available to
customers who download releases at their discretion.  The Company's
licensed software includes first-year maintenance.  Subsequent year
maintenance is offered, at a percentage of the initial software license revenue,
on an annual basis on the anniversary of the original purchase
date.  When deemed material, this revenue is amortized over the life
of the license agreement on a straight-line basis.
Contract
Revenue
Professional
Services
:
Our customers
occasionally request professional services support related to server
installation support.  The Company recognizes professional services
revenue at the time the support is provided.  Billing is on a rate per
day basis.
22
Custom
Software Development: Revenues from multi-element arrangements are allocated to
the individual elements based upon relative fair values using vendor-specific
objective evidence of fair value. Revenues received from customers where all
revenue recognition criteria have not been established are deferred until such
criteria have been achieved.
Research
and Development
The
Company expenses research and development costs as they are
incurred.
Advertising
and marketing costs
The
company expenses advertising and marketing costs as they are
incurred.
Stock-Based
Compensation and Equity Incentive Plans
For the
nine months ended September 30, 2009 and 2008, and the years ended
December 31, 2008 and 2007, the Company maintained a stock plan covering
equity grants including stock options and warrants.
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment", which is a revision
of SFAS No. 123 "Accounting for Stock-Based Compensation".
SFAS No. 123(R) requires the measurement and recognition of
compensation expense in the Company's statement of operations for all
share-based payment awards made to Ceelox Inc. employees, directors and
consultants including employee stock options, non-vested equity stock and equity
stock units, and employee stock purchase grants. Stock-based compensation
expense is measured at grant date, based on the estimated fair value of the
award, reduced by an estimate of the annualized rate of expected forfeitures,
and is recognized as expense over the employees' expected requisite service
period, generally using the straight-line method. In addition,
SFAS No. 123(R) requires the benefits of tax deductions in excess of
recognized compensation expense to be reported as a financing cash flow, rather
than as an operating cash flow as prescribed under previous accounting rules.
The Company selected the modified prospective method of adoption, which
recognizes compensation expense for the fair value of all share-based payments
granted after January 1, 2006 and for the fair value of all awards granted
to employees prior to January 1, 2006 that remain unvested on the date of
adoption. This method did not require a restatement of prior periods. However,
awards granted and still unvested on the date of adoption are attributed to
expense under SFAS No. 123(R), including the application of a
forfeiture rate on a prospective basis. Ceelox Inc.'s forfeiture rate represents
the historical rate at which Ceelox Inc.'s stock-based awards were surrendered
prior to vesting. SFAS No. 123(R) requires forfeitures to be estimated
at the time of grant and revised on a cumulative basis, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
Computation
of (Loss) Per Share
Basic
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share is calculated by dividing the earnings (loss) by the
weighted average number of common shares and potentially dilutive securities
outstanding during the period. Potentially dilutive common shares consist of
incremental common shares issuable upon exercise of stock options, warrants and
shares issuable upon the conversion of convertible notes. The dilutive effect of
the convertible notes is calculated under the if-converted method. The dilutive
effect of outstanding shares is reflected in diluted earnings per share by
application of the treasury stock method. This method includes consideration of
the amounts to be paid by the employees, the amount of excess tax benefits that
would be recognized in equity if the instruments
23
were
exercised and the amount of unrecognized stock-based compensation related to
future services. No potential dilutive common shares are included in the
computation of any diluted per share amount when a loss is reported.
Accordingly, we did not include 144,558,056 of potentially dilutive warrants and
convertible debt instruments at September 30, 2009. Additionally, we did not
include 133,732,258 and 75,061,582 of potentially dilutive warrants and
convertible debt instruments at December 31, 2008 and 2007
respectively.
Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board ("FASB") issued SFAS No. 168, The
FASB Accounting Standards Codification TM and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162 ("SFAS
168"). The statement confirmed that the FASB Accounting Standards Codification
(the "Codification") will become the single official source of authoritative
U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force
("EITF"), and related literature. After that date, only one level of
authoritative U.S. GAAP will exist. All other literature will be considered
non-authoritative. The Codification does not change U.S. GAAP; instead, it
introduces a new structure that is organized in an easily accessible,
user-friendly online research system. The Codification, which changes the
referencing of financial standards, becomes effective for interim and annual
periods ending on or after September 15, 2009. We will apply the Codification
beginning in the third quarter of fiscal 2009. The adoption of SFAS 168 is not
expected to have any substantive impact on our financial statements or related
footnotes.
In May
2009, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 165, "Subsequent Events" ("SFAS
165"). This standard is intended to establish general standards of accounting
for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this standard sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  SFAS 165 is effective for
fiscal years and interim periods ended after June 15, 2009 and will be applied
prospectively. We adopted SFAS 165 during the second quarter of 2009, and its
adoption did not have a material impact on our results of operations and
financial position.
In May
2008, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 162, "The Hierarchy of General
Accepted Accounting Principle." SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. This statement shall be effective
60 days following the Securities and Exchange Commission's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With General Accepted Accounting
Principles." The adoption of this pronouncement did not have a material impact
on the Company's financial statements.
In May
2008, the FASB issued FASB Staff Position ("FSP") APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1"), which clarifies the
accounting for convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement. FSP APB 14-1 specifies that an
issuer of such instruments should separately account for the liability and
equity components of the instruments in a
24
manner
that reflect the issuer's non-convertible debt borrowing rate when interest
costs are recognized in subsequent periods. FSP APB 14-1 is effective for fiscal
years beginning after December 15, 2008, and retrospective application is
required for all periods presented. The Company is currently evaluating the
potential impact of the adoption of FSP APB 14-1 on its previously issued
financial statements. The Company does not expect to record any non-cash
interest expense related to its outstanding convertible debt instruments
resulting from the implementation of this standard.
In April
2008, the FASB issued FSP FAS 142-3, "Determination of Useful Life of
Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors
that should be considered in developing the renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under
FAS 142, "Goodwill and Other Intangible Assets." FSP FAS 142-3 also
requires expanded disclosure related to the determination of intangible asset
useful lives. FSP FAS 142-3 is effective for fiscal years beginning after
December 15, 2008. Earlier adoption is not permitted. The Company is
currently evaluating the potential impact the adoption of
FAS FSP 142-3 will have on its financial statements.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations."
This Statement replaces SFAS No. 141. SFAS No. 141R
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. SFAS No. 141R also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
SFAS No. 141R is effective for the Company's business combinations on
or after January 1, 2009.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities — including an amendment of
FASB Statement No. 115." SFAS No. 159 is effective for the
Company in the fiscal year beginning January 1, 2008.
SFAS No. 159 permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
Subsequent unrealized gains and losses on items for which the fair value option
has been elected will be reported in earnings. SFAS No. 159 became
effective in the first quarter of fiscal 2008. The Company has not elected to
apply the fair value option to any of its financial instruments that are
presently accounted for at cost.
Qualitative
and Quantitative Disclosures About Market Risk
Interest Rates
We are
not being exposed to market risks relating to changes in interest rates because
all outstanding debt bears interest at a fixed rate.  We currently do
not engage in any interest rate hedging activity and have no intention of doing
so in the foreseeable future.
Foreign Exchange
The
company has no exposure to foreign exchange fluctuations.
Inflation
Inflationary
factors such as increases in the cost of our product and overhead costs may
adversely affect our operating results. Although we do not believe that
inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling,
general and administrative
25
expenses
as a percentage of net sales if the selling prices of our products do not
increase with these increased costs.
Security
Ownership of Certain Beneficial Owners and Management
The
following table presents information regarding the beneficial ownership of our
common stock upon the closing of the Merger, with respect to:
-
each
      of our executive officers listed in the summary compensation
      table;
-
each
      of our directors and director
designees;
-
all
      of our directors, director designees and executive officers as a group;
      and
-
each
      stockholder known by us to be the beneficial owner of 5% or more of our
      common stock.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities.
Unless otherwise indicated
below, to our knowledge, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.  Shares of our
common stock subject to options or warrants that are currently exercisable or
that will be issued and exercisable within 60 days of the closing of the Merger,
are deemed to be outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
The
information presented in this table is based on 11,164,183 shares of common
stock of Nicaragua Rising, Inc. issued and outstanding on February 12,
2010.
Unless
otherwise indicated, the address of each of the executive officers, directors
and 5% or more stockholders named below is Ceelox, Inc., 13976 Lynmar Blvd.,
Tampa, FL 33626.
Security
Ownership Table
Name
      of Beneficial Owner
Number
      of Shares Beneficially Owned
Percentage
      of Shares Outstanding (1)
Executive Officers and
      Directors
:
William
      P. Moore III Revocable Trust(1)
9,982,123
64.9%
Philip
      E. Tearney(1)
1,197,851
10.3%
Phillip
      H. Snowden(1)
412,539
3.6%
Gerry
      F. Euston(2)
1,768,877
13.7%
Mark
      L. Grannell(3)
805,308
6.7%
All
      officers, directors and director designees as a group
14,166,698
76.1%
Other
      Stockholders with 5% or more of our common stock:
CIP,
      LLC(4)
11,575,068
72.2%
Endeavor
      Group, LLC
894,755
8.0%
26
(1)
All
      shares included herein are held through this individual's ownership
      interest in CIP, LLC.  Mr. Moore is the Sole Trustee of the
      William P. Moore, III Revocable Trust and controls the Trust's
      shares.
(2)
Includes
      1,768,877 shares of common stock issuable upon the exercise of currently
      vested options and warrants.
(3)
Includes
      805,308 shares of common stock issuable upon the exercise of currently
      vested options and warrants.
(4)
Includes
      4,878,702 shares issuable upon the exercise of currently outstanding
      warrants at an exercise price of $3.60 per share.  Does not
      include 10,271,203 shares of common stock that may be acquired by CIP, LLC
      in connection with the License Reacquisition Letter Agreement as we cannot
      currently predict whether this issuance will occur within 60 days from the
      date hereof.
Directors
and Executive Officers, Promoters and Control Persons
The
following table sets forth the name, age and position of each of our officers,
directors, director designees and key employees.
Name
Age
Position
Gerry
      Euston
56
Chief
      Executive Officer, Acting Chief Financial Officer and
    Director
Mark
      Grannell
47
Chief
      Operating Officer and Secretary
Erix
      Pizano
41
Director
      of Technology Development and Engineering
William
      P. Moore
64
Chairman
      of the Board
Philip
      Tearney
50
Director
      Designee
Phillip
      Snowden
71
Director
      Designee
Gerry Euston
became our Chief
Executive Officer on February 12, 2010, in connection with our acquisition of
Ceelox.  Mr. Euston joined Ceelox as its Chief Executive Officer in
early 2007. Mr. Euston brings over 30 years of extensive executive-level
experience in division level general management, marketing, product management
and development, finance, strategic planning, line management and corporate
staff positions. Prior to joining Ceelox, Mr. Euston ran his own consulting
business from 2002 through 2006.  From May, 2000 to April, 2001 Mr.
Euston was a founder and the Chief Executive Officer of Falcon
Wireless.  From 1976 to 2000, Mr. Euston enjoyed a successful career
at Sprint Communications.  In 1983 to1985 Mr. Euston ran Sprint's
national account marketing where he conceived and brought to market the
industry's first virtual private network service offering and helped deliver
triple digit growth during his tenure.  In his role as Vice President
Finance Management from the second quarter of 1986 to the fourth quarter of
1988, he was responsible for Sprint's financial planning, analysis and
reporting.  For the next two years Mr. Euston managed Sprint's Federal
Systems Division's finance, information systems, bid and proposal, accounting
and administration functions while that division grew from start up to over
$300M in revenue.  From the fourth quarter of 1990 to the fourth
quarter of 1993 he ran product marketing, management and development for
Sprint's long distance division with responsibility for product lines totaling
$2.8B revenue, which during his tenure, grew by over 20% per year adding $1B
revenue over three years.   He then ran the Enhanced Services
Division from the fourth quarter of 1993 to year end1996, which grew from under
$50M to over $500M in revenue in a three year period.  From the first
quarter of 1997 to the fourth quarter of 1998 he was responsible
for
27
Business
Marketing for Sprint's local service division.  During his career at
Sprint, Mr. Euston participated in several pivotal strategic planning efforts
such as the fiber network business plan, the GTE/Sprint merger business plan and
post merger implementation planning, and Sprint's $1.2B broadband wireless cable
TV acquisitions.  Mr. Euston received a Bachelor of Science degree and
a Master of Business Administration with an emphasis in Marketing from Rockhurst
University.
Mark Grannell
became our Chief
Operating Officer on February 12, 2010, in connection with our acquisition of
Ceelox.  Mr. Grannell joined Ceelox during the second quarter of 2008
as Chief Operating Officer bringing over 20 years engineering and management
experience with Motorola, Sprint, Level 3, and SiriCOMM  His career
includes satellite, wireline and wireless telecommunication, data and voice
design and engineering; business development; sales and executive-level
management.  Prior to joining Ceelox, Mr. Grannell's career began at
Motorola as a system engineer working on satellites. He then spent over twelve
years, from 1989 to 2000, at Sprint where he enjoyed a steady progression of
management responsibilities.  Past duties at Sprint include direct
responsibility over a $180M annual budget for national wireless network
deployment including hardware and software design and a staff exceeding 250
people.  After leaving Sprint, Mr. Grannell worked at Level 3 from 2002 to
2007 performing business development and sales functions.  In January
2007, Mr. Grannell left Level 3 to become President and CEO of SiriCOMM,
Inc.  During the next 14 months Mr. Grannell oversaw network redesign
and development of new network operations software resulting in 30% maintenance
reduction and 60% data throughput performance improvement.  SiriCOMM filed
for U.S. federal bankruptcy protection in December 2007. Mr. Grannell
earned his Bachelor of Science degree in Electrical Engineering from Kansas
State University and his MS Electrical Engineering from the University of
Missouri.  He is an elected member of the Gardner/Edgerton Board of
Education.
Erix Pizano
became our
Director of Technology Development and Engineering on February 12,
2010.  Mr. Pizano has been responsible for Software Design &
Development with Ceelox since 2005.   Mr. Pizano has over 15
years experience leading the successful development and deployment of custom
software products. His prior experience includes successful development and
deployment of commercial and custom software products for entertainment,
corporate training, education, home automation, and other industries. Mr. Pizano
has received an Associate Bachelor degree in Electronics Technology from the
Mexican-French Institute of Technology, Mexico, a Bachelor of Science degree in
Electronic Systems Engineering from the Technological Institute of Monterrey,
Mexico, and post graduate work towards a Masters Degree in Information
Technologies and Business Administration from the Autonomous Mexican Institute
of Technology, Mexico.
William P. Moore
has been
Chairman of the Board of the Company since November 5, 2009.  Prior to
our acquisition of Ceelox, Mr. Moore was the President, Chief Executive Officer,
Chief Financial Officer and Secretary of the Company since November 5,
2009.  Since 1994, Mr. Moore has been a co-owner, director and
secretary of Continental Coal Inc., a privately-held surface mining company
operating in Kansas and Missouri.  Mr. Moore received his Bachelor of
Science degree from the United States Military Academy at West Point and a
Master of Business Administration degree from Havard University.
Director
Designees
Each of
Mr. Tearney and Mr. Snowden will become directors of the Company ten days after
the Company has filed a Schedule 14f-1 with the Securities and Exchange
Commission.
28
Philip Tearney
is an
entrepreneur who has founded, operated and invested in numerous small
businesses.  Mr. Tearney participated with Mr. Moore in a majority of these
activities.  Mr. Tearney is a certified public accountant and from 1981
through 1987 Mr. Tearney was an accountant with Arthur Andersen.  Mr.
Tearney received a Bachelor of Science degree from Kansas State
University.
Phillip Snowden
has for the
past 24 years been active as a principal, consultant, partner and member in many
business ventures including, mini-storage units, cable television franchises,
oil and gas ventures, several real estate ventures and numerous technology and
start up companies.  Mr. Snowden practiced law for 21 years and was
the senior partner in the law firm of Snowden, Crain and DeCuyper until
1985.  From 1967 – 1977 Mr. Snowden served in the Missouri House of
Representatives and thereafter served 8 years in the Missouri State
Senate.  Mr. Snowden graduated with a BA in Economics and LLB in Law from
the University of Missouri in 1964.
Executive
Compensation
The following table sets forth information concerning all
compensation paid to Ceelox's Executive Officers for services to Ceelox in all
capacities for each of the two years ended December 31 indicated
below.
Summary
Compensation Table
Annual
      Compensation
Long-Term
Compensation
      Awards
Name
      and
Principal
      Position
Year
Ended
December
      31,
Salary
Bonus
Other
      Annual Compensation (1)
Number
      of
Securities
Underlying
Options
Gerry
      Euston
Chief
      Executive Officer and Acting Chief Financial Officer
2008
$149,151
$
      0
$30,974
1,403,333
2007
$144,231
$
      0
-
Mark
      Grannell
Chief
      Operating Officer and Secretary
2008
$100,944
$
      0
$19,454
638,889
(1)
The
      amounts included represent the fair market value of options granted to Mr.
      Euston and to Mr. Grannell.
Compensation
of Directors
The
Directors do not currently receive compensation for their services as directors,
but are reimbursed for expenses incurred in attending board
meetings.  In addition, there have been no options granted to any
directors, other than in connection with the terms of the share exchange between
Nicaragua and Ceelox.
Employment
Contracts
The
Company has no employment agreements with any of its executive officers,
however, each of Gerry Euston and Mark Grannell have entered into employment
agreements with Ceelox, the Company's majority-owned
subsidiary.
29
On April
15, 2008, Mr. Euston and Ceelox entered into an employment pursuant to which Mr.
Euston has agreed to serve as the Chief Executive Officer of Ceelox and is to be
paid an annual salary of $150,000.  The term of the agreement is for a
period of five (5) years, unless earlier terminated by either party, which
termination may be with or without cause by either party.  There are
standard non-disclosure provisions as well as a twelve month
non-compete/non-solicitation provisions that becomes effective upon the
termination of Mr. Euston's employment with Ceelox.
On April
15, 2008, Mr. Grannell and Ceelox entered into an employment pursuant to which
Mr. Grannell has agreed to serve as Chief Operating Officer of Ceelox and is to
be paid an annual salary of $150,000.  The term of the agreement is
for a period of five (5) years, unless earlier terminated by either party, which
termination may be with or without cause by either party.  There are
standard non-disclosure provisions as well as a twelve month
non-compete/non-solicitation provisions that becomes effective upon the
termination of Mr. Grannell's employment with Ceelox.
Description
of 2010 Stock Option Plan
The
following is a description of the purpose and certain of the provisions of the
2010 Stock Option Plan. The summary is qualified in its entirety by reference to
the complete text of the 2010 Stock Option Plan, which is attached hereto as
Exhibit 10.1.
The Purpose of the
Plan
.  The purpose of the Plan is to provide additional
incentive to the directors, officers, employees and consultants of the Company
who are primarily responsible for the management and growth of the Company. Each
option shall be designated at the time of grant as either an incentive stock
option (an "ISO") or as a non-qualified stock option (a "NQSO").
The Board of Directors believes that
the ability to grant stock options to employees which qualify for ISO treatment
provides an additional material incentive to certain key employees. The Internal
Revenue Code requires that ISOs be granted pursuant to an option plan that
receives stockholder approval within one year of its adoption. The Company
adopted the Plan in order to comply with this statutory requirement and preserve
its ability to grant ISOs.
The benefits to be derived from the
Plan, if any, are not quantifiable or determinable.
Administration of the Plan
.
The Plan shall be administered by the Board of Directors of the Company, or by
any committee that the Company may in the future form and to which the Board of
Directors may delegate the authority to perform such functions (in either case,
the "Administrator").  The Board of Directors shall appoint and remove
members of the committee in its discretion in accordance with applicable
laws.  In the event that the Company establishes such a committee and
is required to comply with Rule 16b-3 under the Exchange Act and Section 162(m)
of the Internal Revenue Code (the "Code"), the committee shall, in the Board of
Director's discretion, be comprised solely of "non-employee directors" within
the meaning of said Rule 16b-3 and "outside directors" within the meaning of
Section 162(m) of the Code.  Notwithstanding the foregoing, the
Administrator may delegate non-discretionary administrative duties to such
employees of the Company as it deems proper and the Board of Directors, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the Plan.
Subject to the other provisions of
the Plan, the Administrator shall have the authority, in its discretion: (i) to
grant options; (ii) to determine the fair market value of the Common Stock
subject to options; (iii) to determine the exercise price of options granted;
(iv) to determine the persons to whom, and the time or times at which, options
shall be granted, and the number of shares subject to each option; (v) to
interpret the Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to the Plan;
30
(vii) to
determine the terms and provisions of each option granted (which need not be
identical), including but not limited to, the time or times at which options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any option; (ix) to defer (with the consent of the optionee) the exercise
date of any option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of the
Plan.  The Administrator may delegate non-discretionary administrative
duties to such employees of the Company as it deems proper.
Shares of Stock Subject to the
Plan
. Subject to the conditions outlined below, the total number of
shares of stock which may be issued under options granted pursuant to the Plan
shall not exceed 6,000,000 shares of Common Stock, $.00001 par value per
share.
The number of shares of Common Stock
subject to options granted pursuant to the Plan may be adjusted under certain
conditions.  If the stock of the Company is changed by reason of a
stock split, reverse stock split, stock dividend, recapitalization, combination
or reclassification, appropriate adjustments shall be made by the Board of
Directors in (i) the number and class of shares of stock subject to the Plan,
and (ii) the exercise price of each outstanding option; provided, however, that
the Company shall not be required to issue fractional shares as a result of any
such adjustments.  Each such adjustment shall be subject to approval
by the Board of Directors in its sole discretion.
In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least thirty days prior to such proposed action.  To the
extent not previously exercised, all options will terminate immediately prior to
the consummation of such proposed action; provided, however, that the
Administrator, in the exercise of its sole discretion, may permit exercise of
any options prior to their termination, even if such options were not otherwise
exercisable.  In the event of a merger or consolidation of the Company
with or into another corporation or entity in which the Company does not
survive, or in the event of a sale of all or substantially all of the assets of
the Company in which the Stockholders of the Company receive securities of the
acquiring entity or an affiliate thereof, all options shall be assumed or
equivalent options shall be substituted by the successor corporation (or other
entity) or a parent or subsidiary of such successor corporation (or other
entity); provided, however, that if such successor does not agree to assume the
options or to substitute equivalent options therefor, the Administrator, in the
exercise of its sole discretion, may permit the exercise of any of the options
prior to consummation of such event, even if such options were not otherwise
exercisable.
Participation
. Every person
who at the date of grant of an option is an employee of the Company or of any
Affiliate (as defined below) of the Company is eligible to receive NQSOs or ISOs
under the Plan.  Every person who at the date of grant is a consultant
to, or non-employee director of, the Company or any Affiliate (as defined below)
of the Company is eligible to receive NQSOs under the Plan.  The term
"Affiliate" as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions (currently Sections 424(e) and (f),
respectively) of the Code.  The term "employee" includes an officer or
director who is an employee of the Company.  The term "consultant"
includes persons employed by, or otherwise affiliated with, a
consultant.
Option Price.
The exercise
price of a NQSO shall be not less than 85% of the fair market value of the stock
subject to the option on the date of grant.  To the extent required by
applicable laws, rules and regulations, the exercise price of a NQSO granted to
any person who owns, directly or by attribution under the Code (currently
Section 424(d)), stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate (a "10%
Stockholder") shall in no event be less than 110% of the fair market value of
the stock covered by the option at the time the option is
31
granted.  The
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
of the stock covered by the option at the time the option is
granted.  The exercise price of an ISO granted to any 10% Stockholder
shall in no event be less than 110% of the fair market value of the stock
covered by the Option at the time the Option is granted.
Term of the
Options.
The Administrator, in its sole discretion, shall fix
the term of each option, provided that the maximum term of an option shall be
ten years. ISOs granted to a 10% Stockholder shall expire not more than five
years after the date of grant. The Plan provides for the earlier expiration of
options in the event of certain terminations of employment of the
holder.
Restrictions on Grant and
Exercise
. Except with the express written approval of the Administrator
which approval the Administrator is authorized to give only with respect to
NQSOs, no option granted under the Plan shall be assignable or otherwise
transferable by the optionee except by will or by operation of
law.  During the life of the optionee, an option shall be exercisable
only by the optionee.
Termination of the Plan.
The
Plan shall become effective upon adoption by the Board or Directors; provided,
however, that no option shall be exercisable unless and until written consent of
the Stockholders of the Company, or approval of Stockholders of the Company
voting at a validly called Stockholders' meeting, is obtained within twelve
months after adoption by the Board of Directors.  If such Stockholder
approval is not obtained within such time, options granted pursuant to the Plan
shall be of the same force and effect as if such approval was obtained except
that all ISOs granted pursuant to the Plan shall be treated as NQSOs. Options
may be granted and exercised under the Plan only after there has been compliance
with all applicable federal and state securities laws.  The Plan shall
terminate within ten years from the date of its adoption by the Board of
Directors.
Termination of
Employment.
If for any reason other than death or permanent
and total disability, an optionee ceases to be employed by the Company or any of
its Affiliates (such event being called a "Termination"), options held at the
date of Termination (to the extent then exercisable) may be exercised in whole
or in part at any time within three months of the date of such Termination, or
such other period of not less than thirty days after the date of such
Termination as is specified in the Option Agreement or by amendment thereof (but
in no event after the expiration date of the option (the "Expiration Date"));
provided, however, that if such exercise of the option would result in liability
for the optionee under Section 16(b) of the Exchange Act, then such three-month
period automatically shall be extended until the tenth day following the last
date upon which optionee has any liability under Section 16(b) (but in no event
after the Expiration Date).  If an optionee dies or becomes
permanently and totally disabled (within the meaning of Section 22(e)(3) of the
Code) while employed by the Company or an Affiliate or within the period that
the option remains exercisable after Termination, options then held (to the
extent then exercisable) may be exercised, in whole or in part, by the optionee,
by the optionee's personal representative or by the person to whom the option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
"Employment" includes service as a director or as a consultant.  For
purposes of the Plan, an optionee's employment shall not be deemed to terminate
by reason of sick leave, military leave or other leave of absence approved by
the Administrator, if the period of any such leave does not exceed 90 days or,
if longer, if the optionee's right to reemployment by the Company or any
Affiliate is guaranteed either contractually or by statute.
32
Amendments to the Plan.
The
Board of Directors may at any time amend, alter, suspend or discontinue the
Plan. Without the consent of an optionee, no amendment, alteration, suspension
or discontinuance may adversely affect outstanding options except to conform the
Plan and ISOs granted under the Plan to the requirements of federal or other tax
laws relating to ISOs.  No amendment, alteration, suspension or
discontinuance shall require Stockholder approval unless (i) stockholder
approval is required to preserve incentive stock option treatment for federal
income tax purposes or (ii) the Board of Directors otherwise concludes that
stockholder approval is advisable.
Tax Treatment of the
Options
.  Under the Code, neither the grant nor the exercise of
an ISO is a taxable event to the optionee (except to the extent an optionee may
be subject to alternative minimum tax); rather, the optionee is subject to tax
only upon the sale of the Common Stock acquired upon exercise of the
ISO.  Upon such a sale, the entire difference between the amount
realized upon the sale and the exercise price of the option will be taxable to
the optionee.  Subject to certain holding period requirements, such
difference will be taxed as a capital gain rather than as ordinary income.
Optionees who receive NQSOs will be subject to taxation upon exercise of such
options on the spread between the fair market value of the Common Stock on the
date of exercise and the exercise price of such options.  This spread
is treated as ordinary income to the optionee, and the Company is permitted to
deduct as an employee expense a corresponding amount.  NQSOs do not
give rise to a tax preference item subject to the alternative minimum
tax.
Transactions
with Officers and Directors
Purchase
of Nicaragua Rising, Inc. Shares
On
November 4, 2009, Mr. Moore, our Chairman, acquired control of Nicaragua by
purchasing an aggregate of 11,091,100, of the 11,260,000 shares outstanding
directly from Nicaragua's shareholders, which represented 98.5% of Nicaragua's
issued and outstanding shares at the time of such purchase.
In connection with Mr. Moore's
agreement to cancel 9,916,000 shares in connection with the Merger with Ceelox
we have agreed to pay him an aggregate of $350,000 in consideration for such
shares.  On February 12, 2010 we issued to Mr. Moore an 8% convertible
note in the principal amount of $350,000.  The note, plus accrued
interest, can be converted at anytime into shares of Nicaragua's common stock at
a conversion price of $0.81 per share.  Additionally, on 30 days
written notice to the Company Mr. Moore can demand repayment in full in cash
prior to the maturity date of February 12, 2011.  Additionally, the
Company can prepay the note in full prior to its maturity date without
penalty.
In connection with Mr. Moore's payment
of $100,000 on behalf of the Company to an unaffiliated third-party for investor
relations services, the Company issued to Mr. Moore an 8% convertible note in
the principal amount of $100,000 on February 12, 2010.  The note, plus
accrued interest, can be converted at anytime into shares of Nicaragua's common
stock at a conversion price of $0.81 per share.  Additionally, on 30
days written notice to the Company Mr. Moore can demand repayment in full in
cash prior to the maturity date of February 12, 2011.  Additionally,
the Company can prepay the note in full prior to its maturity date without
penalty.
Description
of Our Capital Stock
The
information set forth below is a general summary of our capital stock structure,
on a pro forma basis, after giving effect to the Merger. As a summary, this
section is qualified by, and not a substitute for, the provisions of our amended
and restated Articles of Incorporation and amended and restated
Bylaws.
33
Authorized
Capital Stock
Our
authorized capital stock consists of 200,000,000 shares, par value $0.00001 per
share, consisting of 100,000,000 shares of common stock ("Common Shares") and
100,000,000 shares of preferred stock.
Common
Stock
The
Company has 11,164,183 Common Shares issued and outstanding.  In
addition, the Company has reserved 8,246,296 Common Shares for issuance in
respect of:
·
Warrants
      to purchase 5,410,665 Common Shares at an exercise price of $3.60 per
      share.
·
Warrants
      to purchase 436,391 Common Shares at an exercise price of $0.81 per
      share.
·
Warrants
      to purchase 83,333 Common Shares at a weighted average exercise price of
      $0.96 per share.  The remaining term on these warrants range
      from May 18, 2010 to September 30,
2012.
·
Options
      to purchase 2,315,907 shares of common stock pursuant to the Company's
      2010 Stock Option Plan.
Dividend
Rights
The
holders of outstanding shares of the Company's common stock are entitled to
receive dividends out of funds legally available at the times and in the amounts
that the Board of Directors may determine.  We have never paid a cash
dividend on our common stock and we have no present intention to declare or pay
cash dividends on our common stock in the foreseeable future.  We
intend to retain any earnings which we may realize in the foreseeable future to
finance our operations.  Future dividends, if any, will depend on
earnings, financing requirements and other factors.
Voting
Rights
Each
holder of common stock is entitled to one vote for each share held on all
matters submitted to a vote of stockholders.  Cumulative voting for
the election of directors is not provided for in our Articles of Incorporation,
which means that the holders of a majority of the voting shares voted can elect
all of the directors then standing for election.
No
Preemptive or Similar Rights
Holders
of our common stock do not have preemptive rights, and the common stock is not
convertible or redeemable.
Right
to Receive Liquidation Distributions
Upon our
dissolution, liquidation or winding-up, our assets legally available for
distribution to our stockholders are distributable ratably among the holders of
our common stock.
Preferred
Stock
We have
100,000,000 shares of preferred stock authorized for issuance, none of which are
issued or outstanding. Our Board of Directors, without obtaining the approval of
our stockholders, may issue shares of preferred stock from time to time in one
or more series and with such designations, preferences,
34
rights,
qualifications, limitations and restrictions as the Board
approves.  These designations, preferences, rights, qualifications,
limitations and restrictions may include, but are not limited to, the power to
determine
·
the
      redemption and liquidation
preferences,
·
the
      rate of dividends payable, the time for and the priority of payment of the
      dividends, and whether or not the dividends will be
      cumulative,
·
the
      terms of conversion of the preferred stock into common stock,
      and
·
the
      voting power of the preferred
stock.
We do not
currently have plans to issue shares of preferred stock.
Anti-Takeover
Provisions
Sections
78.411 through 78.444 of the Nevada Revised Statutes are designed to afford
stockholders of public corporations in Nevada protection against acquisitions in
which a person, entity or group seeks to gain voting control.  With
enumerated exceptions, the statute provides that shares acquired within certain
specific ranges will not possess voting rights in the election of directors
unless the voting rights are approved by a majority vote of the public
corporation's disinterested stockholders.  Disinterested shares are
shares other than those owned by the acquiring person or by a member of a group
with respect to a control share acquisition, or by any officer of the
corporation or any employee of the corporation who is also a
director.  The specific acquisition ranges that trigger the statute
are: acquisitions of shares possessing one-fifth or more but less than one-third
of all voting power; acquisitions of shares possessing one-third or more but
less than a majority of all voting power; or acquisitions of shares possessing a
majority or more of all voting power.  Our Articles of Incorporation
specifically provide that the corporation will
not
be governed by
the provisions of NRS 78.411 through 78.444.
The
authorized but unissued shares of common stock and preferred stock are available
for future issuance without stockholder approval.  The existence of
authorized but unissued shares of common stock and preferred stock may enable
our Board of Directors to issue shares of stock to persons friendly to existing
management, thereby making it more difficult and more expensive for an
independent party to obtain voting control.
Transfer
Agent and Registrar
Our
transfer agent and registrar for our common stock is Transferonline,
Inc.
Market
Price of and Dividends on Common Equity and Related Shareholder
Matters.
Our
common stock was listed for trading on the OTC Bulletin Board ("OTCBB") operated
by the Financial Industry Regulatory Authority (FINRA) on December 26, 2008
under the symbol "NCRG."  There are no outstanding options or warrants
to purchase, or securities convertible into, our common stock.  Our
common stock has only traded on four trading days since our common stock was
listed for trading on the OTCBB  Our common stock traded 4,000 shares
at $0.26 on December 26, 2008, 5,000 shares at $0.20 on January 15, 2009, 2,000
shares at $0.04 on May 11, 2009 and 50,000 shares at $0.06 on November 4,
2009.  Below are the high and low quarterly sales information relating
to trading in our common stock during our fiscal year ended October 31, 2009 and
the first quarter of our 2010 fiscal year. As soon as practicable under
applicable federal securities laws the Company's trading symbol will be changed
concurrent with a planned change of our corporate name from Nicaragua Rising,
Inc. to Ceelox, Inc.
35
We have
never paid a cash dividend on our common stock and we have no present intention
to declare or pay cash dividends on our common stock in the foreseeable
future.  We intend to retain any earnings which we may realize in the
foreseeable future to finance our operations.  Future dividends, if
any, will depend on earnings, financing requirements and other
factors.
Fiscal
      Year
2010
High
Low
First
      Quarter: 11/1/09 through 2/12/10
$0.06
$0.06
2009
High
Low
Fourth
      Quarter: 8/1/09 to 10/31/09
$0
$0
Third
      Quarter: 5/1/09 to 7/31/09
$0.04
$0.04
Second
      Quarter: 2/1/09 to 4/30/09
$0
$0
First
      Quarter: 12/26/08 to 1/31/09
$0.26
$0.20
As of
February 12, 2010 there were approximately 80 holders of record of our common
stock.  This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.
The
Company considers its common stock to be "thinly traded" and any reported sale
prices may not be a true market-based valuation of its common
stock.  Some of the bid quotations from the OTC Bulletin Board set
forth above may reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
Legal
Proceedings
From time
to time we may be involved in litigation relating to claims arising out of our
operations in the normal course of our business.  We are not currently
parties to any legal proceedings, the adverse outcome of which, in management's
opinion, individually or in the aggregate, would have a material adverse effect
on our results of operations or financial position.
Changes
in and Disagreements with Accountants
As
reported in our Current Report on Form 8-K dated January 5, 2010, Malone &
Bailey P.C. ("Malone"), the independent certified public accountants who had
been engaged by Nicaragua as the principal accountant to audit Nicaragua's
consolidated financial statements, was dismissed effective December 29, 2009,
which dismissal was approved by Nicaragua's board of directors on such date. The
reports by Malone on the financial statements of Nicaragua during the fiscal
years ended October 31, 2008 and 2007 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles, except for an explanatory paragraph
describing the uncertainty as to Nicaragua's ability to continue as a going
concern. During Nicaragua's two most recent fiscal years and subsequent period
up to December 29, 2009, Nicaragua did not have any disagreements with Malone on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Malone, would have caused them to make reference to the
subject matter of the disagreements in connection with their reports. In
addition, no reportable events as set forth in Item 304(a)(1)(v) of Regulation
S-K have occurred.
36
At Nicaragua's request, Malone
furnished to it a letter addressed to the Securities and Exchange Commission
stating that it agreed with the above statements. A copy of the letter from
Malone, dated December 31, 2009, was filed as Exhibit 16.1 to our Current Report
filed on Form 8-K dated January 5, 2010.
Also on
December 29, 2009, Nicaragua's Board of Directors approved the engagement of
Rothstein Kass & Company, P.C. ("Rothstein Kass") as its new principal
independent certified public accountants to audit its consolidated financial
statements for the year ending October 31, 2009.
Prior to
engaging Rothstein Kass, Nicaragua had not consulted Rothstein Kass regarding
the application of accounting principles to a specified transaction, completed
or proposed, or the type of audit opinion that might be rendered on Nicaragua's
financial statements.
Recent
Sales of Unregistered Securities
On
February 12, 2010, in conjunction with the Merger, Nicaragua Rising, Inc. issued
to certain of the former shareholders of Ceelox, Inc. 10,745,823 shares of our
common stock, $0.00001 par value, in exchange for 96.2% of the issued and
outstanding shares of capital stock of Ceelox, Inc.  The market price
of our common stock on the date it was issued was $0.06 per
share.  The shares were issued in reliance on the exemption provided
by Section 4(2) of the Securities Act of 1933, as amended.  The common
stock was issued without any form of general solicitation or general advertising
and the offerees provided information to us verifying that they were accredited
investors.
In
conjunction with the Merger, on February 12, 2010, we issued an aggregate of
2,177,019 options to our employees pursuant to the 2010 Stock Option
Plan.  In addition we issued 5,930,389 warrants and 138,889 options to
certain Ceelox related parties.
Indemnification
of Directors and Executive Officers and Limitation of Liability
Nicaragua
Rising, Inc. is a Nevada Corporation.  The Nevada Revised Statutes and
certain provisions of our Articles of Incorporation provide for indemnification
of our officers, directors and controlling persons against liabilities which
they may incur in such capacities.  A summary of the circumstances in
which indemnification is provided is discussed below, but this description is
qualified in its entirety by reference to our Articles of Incorporation and to
the statutory provisions.
Section
78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding if he:
(a)           Is
not liable pursuant to Nevada Revised Statute 78.138 (a breach of fiduciary duty
involving intentional misconduct, fraud, or knowing violation of the law);
or
(b)           Acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
37
In
addition, Section 78.7502 permits a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he:
(a)           Is
not liable pursuant to Nevada Revised Statute 78.138; or
(b)           Acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation.
To the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter, the
corporation is required to indemnify him against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the
defense.
Section
78.752 of the Nevada Revised Statutes allows a corporation to purchase and
maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses.
Other
financial arrangements made by the corporation pursuant to Section 78.752 may
include the following:
·
the
      creation of a trust fund.
·
the
      establishment of a program of
self-insurance.
·
the
      securing of its obligation of indemnification by granting a security
      interest or other lien on any assets of the
  corporation.
·
the
      establishment of a letter of credit, guaranty or
  surety.
No
financial arrangement made pursuant to Section 78.752 may provide protection for
a person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals, to be liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or indemnification
ordered by a court.
Any
discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court
or advanced pursuant to an undertaking to repay the amount if it is determined
by a court that the indemnified party is not entitled to be indemnified by the
corporation, may be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The determination must be
made:
(a) By
the stockholders;
38
(b) By
the board of directors by majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding;
(c) If a
majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding so orders, by independent legal counsel in a written
opinion; or
(d) If a
quorum consisting of directors who were not parties to the action, suit or
proceeding cannot be obtained, by independent legal counsel in a written
opinion.
Section 5
of our Articles of Incorporation requires us to indemnify all of our directors,
officers, employees and agents to the fullest extent permitted by Nevada law as
provided within NRS 78.7502 and NRS 78.751 or any other law then in effect or as
it may hereafter be amended.  Pursuant to our Articles of
Incorporation, we must indemnify each present and future director, officer,
employee or agent who becomes a party or is threatened to be made a party to any
suit or proceeding, whether pending, completed or merely threatened, and whether
said suit or proceeding is civil, criminal, administrative, investigative, or
otherwise, except an action by or in the right of the corporation, by reason of
the fact that he is or was a director, officer, employee or agent of we or is or
was serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses, including, but not limited to, attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suite, proceeding or settlement, provided such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to our best interest of  and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.  The expenses of our directors, officers, employees or
agents of  incurred in defending a civil or criminal action, suit or
proceeding may be paid by us as they are incurred and in advance of the final
disposition of the action if the director, officer, employee or agent undertakes
to repay the expenses to us if it is ultimately determined by a court, after
exhaustion of all appeals, that he is not entitled to be
indemnified.  No indemnification shall be provided and any advancement
of expenses to or on behalf of any director, officer, employee or agent must be
returned to us if a final adjudication establishes that the person's acts or
omissions involved a breach of any fiduciary duties and, if applicable,
intentional misconduct, fraud or knowing violation of the law which was material
to the cause of action.
Neither
Nicaragua nor Ceelox has any indemnification agreements with any of their
respective directors and executive officers, although either may do so in the
future.
A
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers as required
by these indemnification provisions.  At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
regarding which indemnification by us is sought, nor are we aware of any
threatened litigation that may result in claims for
indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
ITEM
3.02                      UNREGISTERED
SALES OF EQUITY SECURITIES
Please
refer to the information included in Item 2.01 above.
39
ITEM
4.01                      CHANGES
IN REGISTRANT'S CERTIFYING ACCOUNTANT
Please
refer to the information included in Item 2.01 above.
ITEM
5.01                      CHANGES
IN CONTROL OF THE REGISTRANT
As a
result of the Merger, control of our company changed.  Please refer to
the information included in Item 2.01 above.
ITEM
5.02                      APPOINTMENT
OF PRINCIPAL OFFICERS
As a
result of the Merger, our sole director, William P. Moore, appointed new
officers on February 12, 2010 and appointed Mr. Gerry Euston as a director to
take office upon completion of the Merger.  Additionally, Mr. Moore
appointed each of Philip Tierney and Phillip Snowden to the board of directors,
however, their appointments will not become effective until 10 days after the
Company has filed a Schedule 14f-1 with the SEC. Please refer to the information
included in Item 2.01 above.
ITEM
5.06                      CHANGE
IN SHELL COMPANY STATUS
As a
result of the Merger, we ceased to be a shell company as defined in Rule 12b-2
of the United States Securities Exchange Act of 1934, as
amended.  Please refer to Item 2.01 above for a detailed description
of the Merger and our business following the consummation of the
Merger.
ITEM
8.01                      OTHER
MATTERS
Subject
to compliance with applicable federal securities laws and state corporate laws,
as soon as practicable following the Merger, the Company intends to change its
name to "Ceelox, Inc." and procure a new trading symbol which bears a closer
resemblance to our new name. We will also change our address to 13976 Lynmar
Blvd., Tampa, Florida 33626 and our telephone number to
813-769-0918.
ITEM
9.01                      FINANCIAL
STATEMENTS AND EXHIBITS
The
following financial statements are filed with this Current Report:
(a)           Audited
financial statements of Ceelox, Inc. for the fiscal years ended December 31,
2008 and December 31, 2007, including unaudited interim financial statements as
of September 30, 2008 and for the periods ended September 30, 2009 and September
30, 2008, are attached hereto as Exhibit 99.3.
(b)           The
following exhibits are filed with this report on Form 8-K:
Exhibit
Index
Exhibit
      No.
Description
2.1
Agreement
      and Plan of Share Exchange dated February 12, 2010 between Ceelox, Inc.,
      certain of the shareholders of Ceelox, Inc., Nicaragua Rising, Inc. and
      Sunflower Capital, LLC
Filed
      herewith.
40
3.1
Articles
      of Incorporation of Nicaragua Rising, Inc.
Previously
      filed as Exhibit 3.1 to our Form SB-2 dated December 21, 2007
3.2
Bylaws
      of Nicaragua Rising, Inc.
Previously
      filed as Exhibit 3.2 to our Form SB-2 dated December 21, 2007
4.1
Specimen
      Common Stock Certificate
Previously
      filed as Exhibit 4.1 to our Form SB-2 dated December 21, 2007
10.1
2010
      Stock Option Plan
Filed
      herewith.
14.1
Code
      of Ethics
Previously
      filed as Exhibit 14.1 to our Form 10-K dated January 30, 2009
16
Letter
      re: change in certifying accountant
Previously
      filed as Exhibit 16.1 to our Form 8-K dated January 5, 2010
99.1
Audit
      Committee Charter
Previously
      filed as Exhibit 99.1 to our Form 10-K dated January 30, 2009
99.2
Disclosure
      Committee Charter
Previously
      filed as Exhibit 99.2 to our Form 10-K dated January 30, 2009
99.3
Ceelox,
      Inc.'s financial statements for the Nine Months ended September 30, 2009
      and for the years ended December 31, 2008 and 2007
Filed
      herewith.
41
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Current Report to be signed on its behalf by the undersigned
hereunto duly authorized.
Dated:  February
      12, 2010
NICARAGUA
      RISING, INC.
By:
GERRY
      EUSTON
Gerry
      Euston
Chief
      Executive Officer and Acting Chief Financial
  Officer
42