Here's the letter
August 27, 2007
To Homeland Integrated Security Systems, Inc. Shareholders:
I have decided to take a slightly different approach to this CEO letter. Since our last letter was
published earlier this year (all the CEO letters can be accessed at our web site,
www.hissusa.com), we have received many emails and calls from our shareholders and other
interested parties. Our Investor Relations firm, Lynx Consulting as well as those of us in the
company, field your calls and emails. While we have not answered every email, we do read
them. So what I thought I would do with this letter is answer specific questions we have
received from our shareholders. In the course of answering these questions, I will update you on
current activities and some of our future plans.
1) What steps are being taken to decrease the number of outstanding common shares?
This is perhaps the most important and reoccurring question to most stock holders, including
myself. Like many of you, I have invested a significant amount of money to purchase Homeland
stock. Believe me; I want to see our float reduced as much as the rest of you. But the reality of
the business is that the company must continue to utilize stock for funding product development,
product manufacturing and day-to-day operations.
Since early 2005 the company has used equity investment as its primary source of funds to
develop two versions of the Cyber Tracker; the iDen (Sprint/Nextel) and GSM (ATT, T-Mobile
and most other parts of the world) platform models. Each of these platform models required
significant funding in their development. In addition, we developed software and the hardware
system to utilize the Cyber Tracker in a Machine-to-Machine (M2M) monitor and control
function. The result is that we have a state-of-the art product that is poised to capture share in the
rapidly growing M2M wireless world that is evolving.
However, to capture this market we continue to have additional funding needs that, at this stage
of our growth, will require further equity investment. These needs include:
• Inventory for both iDen and GSM systems
• Building a solid sales network that is dedicated to Cyber Tracker sales both in North
America and the rest of the world
• Continued development of satellite and other cellular platforms
• Daily operations
Without doubt our most critical current cash needs are for the purchase of inventory and the
development of our sales channels. Company stock sales are not sufficient to purchase
inventory. Therefore, we are talking with several private sources about funding our inventory
needs, using inventory based loans and purchase order funding.
Homeland Integrated Security Systems, Inc.
A GLOBAL TECHNOLOGY COMPANY
2) Will there be a buyback/retirement of shares and when?
Buyback and retirement of shares would be our first choice for reducing the number of shares
outstanding. To accomplish this, the company must have funds available for the purchase. The
optimal way to accomplish this would be to use operating profits for the buyback funding.
However, at the present time, Homeland is not a break-even company. In addition, because of
the funding needs which I discussed earlier, we have no plans to buy back shares in the
immediate future.
3) Management needs to reach out more to shareholders as being part of the team.
Our management group welcomes help from our shareholders. I can assure you that I get a great
deal of advice on how to promote our products and manage the company from our shareholders.
We have also received leads from shareholders and have taken action on them. Recently, I met
with one of our shareholders at our Asheville offices for more than three hours. I have also
suggested to shareholders that a more formal vehicle such as an advisory council might be
established to enable our management team to utilize the contributions that shareholders can
offer to us. One “out of the box” thought is that we tap the professional skills of our
shareholders to help us develop promotional materials, conduct marketing calls and perform
other activities for payment in stock or commissions. We will continue to determine how we
might be able to tap our vast shareholder base. I certainly encourage our shareholders to contact
us if they think they can help us in any way.
4) Are any acquisitions being considered?
At the moment, we have no specific plans for acquisitions. However, we would always look at
any proposals, whether to acquire or be acquired by other companies.
5) What is the status of current lawsuits?
I think that it is very important that our shareholders are aware of the legal issues that the
company has with former Homeland Integrated Security Systems Chairman and CEO Frank
Moody II. Moody resigned his position in Homeland on June 30, 2006. Moody is now Chairman
and CEO of Evans Systems, Inc. (recently renamed WatchIt Technologies, Inc.). On September
11, 2006 Homeland Integrated Security Systems acquired 50.1% of Evans Systems Inc. On
October 17, 2006 Moody filed a suit against Homeland Integrated Security Systems, Inc. and its
board of directors. In the suit Moody sought to be named CEO and President of Evans Systems,
Inc. and to be awarded 5 million shares of Evans Stock.
On January 22, 2007, Homeland Integrated Security Systems countersued Moody and added
Moody’s Scenic Marketing Group, LLC as a party to the suit. Key allegations we are making in
the countersuit include:
Homeland Integrated Security Systems, Inc.
A GLOBAL TECHNOLOGY COMPANY
• Moody violated his contractual and fiduciary duty by selling or disposing of substantial
shares of stock in contravention of his employment contractual and fiduciary duties.
• Moody violated his contractual and fiduciary duty by selling or disposing of substantial
shares of stock in contravention of Rule 144 of the SEC.
• Upon information and belief, Moody, without authorization, diverted funds, income and
opportunities from Homeland and to himself and/or other entities in which Moody owned a
substantial interest.
• To accomplish such diversion, Moody used Scenic, an entity which he controlled as a
conduit for said diversions.
• In using Scenic, Moody supplied Homeland with unsupported documentation (generally in
the form of spread sheets) purporting to be from Scenic, with a multitude of expenditures
listed thereon for which he was allegedly seeking reimbursement or for direct payments for
unsubstantiated expenditures.
• Moody diverted funds, income and opportunities with the intent of depriving Homeland of
them.
• In an effort to hide the fact that he was diverting and converting funds, income, and
corporate opportunities, Moody initially failed to, and later refused to supply documentation
to establish the substance of the underlying transactions. Therefore, a proper accounting
could not be made in regard to those alleged transactions.
• Moody’s conduct as noted herein was accompanied by malice, moral turpitude, wantonness,
willfulness, or reckless indifference to the rights of others.
The company is seeking compensatory and punitive damages from Moody and Scenic. The
company is continuing the countersuit.
Earlier this year we reported that we settled the lawsuit with Big Apple Consulting by providing
control of Evans to Big Apple. After the settlement Big Apple appointed Frank Moody II as
Chairman and CEO of Evans Systems, Inc. As part of his appointment, Big Apple awarded
Moody the 30,000,000 shares of Evans restricted stock that had been returned to Big Apple from
the former officers of the company.
On August 1, 2007 Evans Systems, Inc. filed a new lawsuit that could have an effect on
Homeland Integrated Security Systems’ shareholders. In the lawsuit, Evans Systems, Inc.’s
current management is attempting to expunge 31,000,000 Evans shares that Homeland
shareholders received as a dividend in October 2006. Moody had set up this dividend while he
was Chairman and CEO of Homeland. In a press release issued on April 13, 2006, Moody told
Homeland shareholders that they would receive a restricted stock dividend in Evans Systems at
the rate of 1 share of Evan’s restricted stock for every 50 shares of Homeland stock owned at the
date of record. Moody also stated in the press release:
"I am very please to announce the dividend to our loyal shareholders. This will give them
ownership in the new Bulletin Board Company that we expect to start trading at $0.50 per
Homeland Integrated Security Systems, Inc.
A GLOBAL TECHNOLOGY COMPANY
share," stated Frank Moody, President and CEO of Homeland Integrated Security Systems,
Inc. "This is a great day for all our shareholders."
After Moody resigned from Homeland on June 30, 2006, this obligation was fulfilled and the
dividend was completed in the fourth quarter of 2006. Moody and his agents also received a
significant number of Evan’s restricted shares due to his holdings in Homeland stock. In fact, he
currently owns more than 50,000,000 (FIFTY MILLION) shares of Evans Systems restricted
common stock as reported in a recent DEF-14C filing by Evans/WatchIt.
Brian Riley, Ian Riley and I do not have the 31,000,000 shares to return to Evans Systems. Nor
will we ask other Homeland shareholders to return theirs.
It is unfortunate that our board and management team must expend the time and funds to defend
this barrage of suits. Homeland merely is seeking an accounting for all transactions, funds,
income and opportunities Moody and Scenic were involved from January 1, 2005 through
December 31, 2006. No lawsuit should be necessary to obtain these records.
Since our last report, we have also settled the dispute with our former supplier, Software
Remodeling Company d/b/a SRI Product as reported in our 1Q 2007 financials. In this case the
Board of Directors felt that the out-of-court settlement was in the best interest of the
shareholders.
6) Has the GSM version of the CT been finalized, and have we applied for and received the FCC
license?
The GSM version of the Cyber Tracker is production ready. Our technical team led by Ian Riley
has done a tremendous job in completing this product. I really want our shareholders to
understand the enormous task that was accomplished by our team and supplier partners.
Developing a product like the Cyber Tracker is a complicated task fraught with unexpected
twists and turns. Successfully completing this project provides us with a major new asset.
As you know by our recent press release, AT&T has approved the GSM Cyber Tracker on its
network. T-Mobile has also approved the GSM Cyber Tracker for use on its network.
These certifications open up many international markets for the Cyber Tracker in addition to the
domestic users of AT&T and the T-Mobile Networks.
7) How does the company plan on increasing sales?
The GSM Cyber Tracker opens new sales opportunities for us. The GSM Cyber Tracker will be
sold through a sales network distinct from the network that markets the iDen version. We have
sales agents in Canada and the United States who have signed up to sell the GSM version. Our
international sales team has been working diligently to develop relations with carriers and sales
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A GLOBAL TECHNOLOGY COMPANY
agents in a number of countries including United Arab Emeritus, Saudi Arabia, Jordan, Lebanon,
Indonesia, India, Chile, Ecuador, Columbia, Brazil and Mexico.
We have made a significant number of sales of the iDen model in Saudi Arabia with Bravo
Communications. We have just completed the delivery of another order to this carrier. We are
confident that the sales to Bravo will continue in the future.
Speaking of the iDen Cyber Tracker, our North American success story continues with Colonel
McCrary Trucking in Atlanta, Georgia. McCrary Trucking, a trucking logistics company, has
ordered 300 Cyber Trackers for use in dump trucks in the Atlanta area. McCrary Trucking
utilizes the Cyber Tracker to manage independent dump truck operators who are under contract.
Other significant applications using the Cyber Tracker include: transmission of data for law
enforcement, temperature sensors in school buses, documenting the performance of street
sweepers, transmission of photos and voice communications.
Another way we will be able to increase sales of the Cyber Tracker is through new product
accessories and features. The enhanced external microphone is an example of a new accessory.
With this hardware the Cyber Tracker can be mounted out of sight and the user can still enjoy the
Cyber Tracker’s Push-To-Talk function. The solar powered Cyber Tracker is another example of
increasing Homeland revenues. We anticipate this model will be ready for sale before the end of
the year. It is currently being beta tested on a trailer owned by Champion Tire that transports for
NASCAR.
The solar powered Cyber Tracker enables customers to track, monitor and control assets that
may not be near power sources for significant periods of time. The millions of heavy duty trailers
in the U.S are now strong sales potentials for the Cyber Tracker.
Another way we are going to increase sales is to take advantage of the Cyber Trackers
capabilities as a “Smart Box” and focus the Cyber Tracker in the M2M arena. M2M stands for
Machine to Machine, Machine to Mobile, and Mobile to Machine. M2M offers significant new
opportunities for businesses across major industries to compete more effectively in our
information economy. We believe that this market vertical has tremendous potential for
increasing sales in the future. We have developed the software for the final integration of OBDII
and J-bus telemetric applications. OBDII, or “on board diagnostics” is available on all cars and
light trucks manufactured after 1996. The OBDII portal has thousands of bits of data that are
available all the time. The CT can be set up with the correct programming to send select data to
the vehicle owner/operator or any other authorized party. Some examples of functions are:
engine diagnosis, oil pressure, water temperature, airbag deployment just to name a few. J-bus is
a similar technology, but is geared to heavy equipment and trucks
We are also planning to increase sales by integrating Cyber Tracker technology with other
devices and technology. The Cyber Tracker is a sophisticated devise that utilizes unique
Homeland Integrated Security Systems, Inc.
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technology. Our R&D team is working on integrating the CT with taxi meters, cameras, touch
screens, WiFi, satellite modems and a complete vehicle security and safety system for buses and
RV’s.
Finally, we are in the process of adding new tracking devices to complement our Cyber Trackers.
The new products are designed for use in tracking applications where the Cyber Tracker’s
advanced capabilities are not needed. We plan on adding this product in the latter part of
September 2007.
In addition, we plan to step up promotion of both models of Cyber Tracker. We are developing
new sales promotion materials for our sales people.
8) Are the Cyber Shield and Cyber Rad and the other products Homeland used to promote still in
the picture or is all this gone?
As you know from past CEO letters, when the new management team was formed July 1, 2006,
we decided to focus on location based services (such as GPS tracking) and Machine-to-Machine
monitoring and control. We eliminated products such as the robots, under vehicle security
systems, vests and other security products not developed by Homeland. The reason for this
decision was that we believe our limited resources would better serve us if we focused them on
proprietary products and services. We didn’t have sufficient “feet-in-the-street” to sell these
products, nor sufficient funds to develop the marketing materials needed to support these sales.
One exception to this plan was Cyber Shield (window coating for explosion protection). We
decided to maintain our relationship as a sales agent for this product.
Cyber Rad is a different situation. Cyber Rad is radiation detection device we have been codeveloping
with an engineering firm. Currently, Cyber Rad is in a developmental stage. In
addition to having this radiation detection system, our technical staff has been integrating this
technology with the Cyber Tracker’s wireless capabilities. Homeland would have a coownership
in any patent that is awarded to this product.
9) Is GlobalTek still in the picture?
GlobalTek is still in the company’s strategic plan. Our plan is to form GlobalTek at a time when
uplifting the company to the bulletin board is appropriate. GlobalTek would serve as a holding
company for Homeland as well as for any acquisitions or mergers that the company would
become involved in. Global Tek’s business plan will be to acquire dynamic private companies
that offer advantages such as innovative technology, a strong potential for profitable growth, a
significant competitive advantage, marketing channel strength and current financial stability.
Homeland Integrated Security Systems, Inc.
A GLOBAL TECHNOLOGY COMPANY
10) What criteria are you using to determine when to issue a press release for orders/sales?
Our policy is to “book” a sale when we prepare and send an invoice. Our policy on issuing a
press release about a sale is to publicize sales of significant volume or news, if the sale was part
of a unique application.
11) Is Homeland still working with PRO.SEC in Lebanon?
PRO.SEC is an independent sales agent in Lebanon. Homeland worked with the company when
Homeland offered a variety of security products. One of the products was an explosion detection
device. Homeland and PRO.SEC had responded to a bid for the sale of this product in the
Middle East. The military activity in Lebanon and the resulting damage to the country’s
infrastructure resulted in a cessation of sales activities on the explosion detection opportunities in
Lebanon.
Homeland and PRO.SEC have renewed discussions about the sale of the Cyber Tracker in
Lebanon. PRO.SEC has been waiting for the development of the GSM version. Now that it is
available, sales opportunities with PRO.SEC can be pursued. The companies have also been
discussing other sales opportunities such as Cyber Shield.
12) Is the Sprint/Nextel sales force is aggressively selling the Cyber Tracker, and are you seeing
any results from Sprint/Nextel?
Yes, Sprint/Nextel sales personnel have been aggressively selling the Cyber Tracker. Many of
our North American sales are the result of Sprint/Nextel personnel.
13) What are the biggest challenges that Homeland Security Systems faces?
There are a number of challenges we are facing. Foremost is the need to stock inventory while
the market tests and adopts the Cyber Tracker’s new technology. As customers feel confident in
the results of their tests, they are beginning to purchase additional quantities. This is a market
development phenomenon that all new products and technologies experience.
However, this market adoption process results in one of our biggest challenges. Instead of being
able to book and build large orders, we have been forced to invest in “standby” inventory to
satisfy the immediate delivery expectations of customers who order small quantities of units for
their tests. Our production situation is such that we have to order certain minimum quantities of
the Cyber Tracker at a time. This requires us to raise considerable cash which is tied up for
significant periods of time until we collect our receivables.
We also face a challenge with the Cyber Tracker in conjunction with the market adoption of
more sophisticated machine-to-machine (M2M) applications. In order for the market adopt the
Homeland Integrated Security Systems, Inc.
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Cyber Tracker for more sophisticate M2M solutions, we must educate our sales partners,
prospects, and customers on the additional potential of the Cyber Tracker, beyond GPS tracking.
Another challenge is developing the sales force needed to sell our products. For the most part,
we are using independent sales agents who receive a commission when they sell our products.
We want to increase the number of “feet-in-the-street” who sell the Cyber Tracker iDen version.
To accomplish this, we are recruiting resellers who are willing to invest in iDen Cyber Tracker
inventory with a buy-back guarantee if they can’t sell our products in a reasonable time frame.
We also need a separate sales force for the GSM version. Our choice would be to develop an
internal staff to progress these sales. However, this approach requires significant capital. For
this reason, we are developing a new sales model for our GSM products. We will provide more
information on this approach in future communications.
14) What are the strengths of the company?
First and foremost is our technology. Recently, I sat at a meeting with high level technical
personnel of a multi-billion dollar company. After our presentation of the Cyber Tracker and its
capabilities, the response from the group was highly complementary. They were very impressed
with the Cyber Tracker. This type of market confirmation of our product is very encouraging.
The Cyber Tracker offers unique solutions to tracking and machine-to-machine monitor and
control applications.
Another strength is our people. They are working at Homeland, not only to have a job, but they
are dedicated to the company achieving success. It amazes me to see how flexible and hard
working they are. Whether it is to solve a technical issue or get a delivery out, they “go that
extra mile” over and over again.
Our relationship with carriers is also a strength. We have excellent relationships with Sprint/
Nextel, Cingular, T-Mobile, Bravo and many others. Without these relationships, the Cyber
Tracker would not be certified on the carriers’ networks.
15) Does the company still having to sell shares to keep the doors open?
Yes, the company must sell shares until it achieves the break even point. As I stated earlier in
this letter the Company is attempting to find alternate sources for obtaining capital, such as
factoring receivables and inventory financing. However, we must continue to rely on stock sales
to augment our revenue and income for the time being.
16) When do you feel the company will be profitable?
At this point, we cannot predict when the company will be profitable. There are many factors
involved in achieving our break even point. We are reducing administrative costs where
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A GLOBAL TECHNOLOGY COMPANY
possible. We are working with our suppliers to reduce our cost of goods sold. The rest is
dependent on sales success.
And our prospects remain very bright with respects to selling the Cyber Tracker. We currently
have open bids for projects in many countries around the world. We are bidding on a 20,000 unit
order in Dubai, 5000 units in Saudi Arabia, 1,000 units in South America. We also have an
exceptional opportunity to sell 10,000 units for a project that is being considered for the mid
western United States. There are many other opportunities that are smaller in nature that are also
on our sales prospect list.
It has been a little over one year since the new management team was formed. This team has
and is working very hard to bring success to the company. We will continue our efforts to make
Homeland Integrated Security Systems, Inc. a leader in the markets we serve so that we can
produce shareholder value. We appreciate your continued support.
Sincerely,
Fred Wicks
CEO and President
Homeland Integrated Security Systems, Inc.
Safe Harbor: This letter contains certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the ability of the Company to successfully
implement its turnaround strategy, changes in costs of raw materials, labor, and employee benefits, as well as general
market conditions, competition and pricing. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements included in this letter will prove to be
accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as representation by the Company or any other person that the
objectives and plans of the Company will be achieved. In assessing forward-looking statements included herein,
readers are urged to carefully read those statements. When used in the Annual Report on Form 10-K, the words
"estimate," "anticipate," "expect," "believe," and similar expressions are intended to be forward-looking statements |
