Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis or Plan of Operation
Item 8. Financial Statements
Contents
Auditor’s Reports
Consolidated Balance Sheets
Consolidated Statement of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Deficiency
Notes to the Consolidated Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of Exchange Act
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits
Signatures
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements that we make in this report. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. This report contains statements that constitute “forward-looking statements.” These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as “believes,” “anticipates,” “expects,” “estimates,” “plans,” “may,” “will,” or similar terms. These statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations with respect to many things. Some of these things are:
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trends affecting our financial condition or results of operations for our limited history;
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our business and growth strategies;
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our technology;
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the Internet; and
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our financing plans.
We caution readers that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. In fact, actual results most likely will differ materially from those projected in the forward-looking statements as a result of various factors. Some factors that could adversely affect actual results and performance include:
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our limited operating history;
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our lack of sales to date;
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our future requirements for additional capital funding;
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the failure of our technology and products to perform as specified;
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the discontinuance of growth in the use of the Internet;
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our failure to integrate certain acquired businesses with our business;
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the enactment of new adverse government regulations; and
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the development of better technology and products by others.
You should carefully consider and evaluate all of these factors. In addition, we do not undertake to update forward-looking statements after we file this report with the Securities and Exchange Commission, even if new information, future events or other circumstances have made them incorrect or misleading.
PART I
Item 1. Business.
Our Corporate History
VSUS Technologies Incorporated (“the Company”) was incorporated in Delaware on September 20, 2000. Following its establishment, the Company organized, at the end of 2000, two wholly-owned subsidiaries: Safe Mail International Ltd., a company registered in the British Virgin Islands and Safe Mail Development Ltd., a company registered in Israel. As of August 31, 2004, the Company established two additional wholly-owned subsidiaries: VSUS Secured Services, Inc., a Delaware corporation and First Info Network, Inc., a Delaware corporation. Since inception, and until a recent shift in the focus of its business operations, the Company had been a developer and marketer of highly secure communications systems for use over the Internet.
Effective as of April 13, 2005, the Company reorganized its business by transferring substantially all of its business assets into VSUS Secured Services, Inc., its wholly-owned subsidiary. Consequently, its two subsidiaries, Safe Mail Development Ltd. and Safe Mail International Ltd., became subsidiaries of VSUS Secured Services, Inc.
On April 14, 2005, VSUS Technologies Incorporated acquired 1stAlerts, Inc., a Delaware corporation (“1stAlerts”), a company that develops, markets and sells software applications, when 1stAlerts merged with and into the Company's wholly-owned Delaware subsidiary, First Info Network, Inc., hereinafter referred to as the “1stAlerts Acquisition”. At the time of the 1stAlerts Acquisition, among other things: (i) the Company exchanged 13,000,000 shares of its Common Stock, and 200 shares of its Series B Participating Preferred Stock, for all of the issued and outstanding shares of capital stock of 1stAlerts, (ii) the Company issued 1,861,841 of its Class A Warrants in exchange for warrants to purchase shares of Common Stock of 1stAlerts, (iii) the Company assumed $4,565,000 of promissory and convertible notes from 1stAlerts, and (iv) certain officers and directors of 1stAlerts became officers and directors of the Company. The 200 shares of series B Participating Preferred Stock, the 1,861,841 Class A Warrants which were never registered and a portion of the Convertible Notes were cancelled as a part of the June 24, 2009 Rescission Agreement with 1st Alerts. The Company returned all of the Capitol stock of 1st Alerts as part of the 2009 Rescission Agreement. No remaining 1st Alerts Officers and Directors currently serve as Officers or Directors of the Company.
Each of the 1,861,841 Class A Warrants the Company issued in connection with the 1stAlerts Acquisition have a term of a term of two years from the effective date of a registration statement the Company's obligated to file to register, among other of its securities, the shares of the Company's Common Stock underlying these warrants, and an exercise price of $0.19. The class A Warrants and the registration obligation of the company have been negated and cancelled pursuant to the 2009 Rescission Agreement.
1st Alerts agrees that as consideration for the execution of this Rescission Agreement, it shall: (a) relinquish and forever waive any ownership claim or right to the 13,000,000 shares of VSUT common stock issued to the shareholders of 1st, or their designees pursuant to the terms of the Acquisition Agreement; including 200 shares of participating preferred shares issued subsequent to the Acquisition Agreement, and (b) to delivered forthwith to VSUT said shares, medallion guaranteed, with a notarized third party release, and notarized corporate resolution from 1st.
Following our acquisition of 1stAlerts, we shifted our business operations to primarily focus on the 1stAlerts business model. In connection with this change, we have terminated our operations in Israel.
In June 2005, we were introduced to NetCurrents Information Services, Inc. (“NetCurrents”), which owns a patented REAL-TIME search engine technology called “FIRST.” Our management believed that incorporating FIRST into the company's MyOneScreen software application would give it a competitive advantage over its competitors. On June 9, 2005, we entered into a strategic relationship with NetCurrents, pursuant to which NetCurrents granted us a 50-year license to modify and integrate NetCurrent’s patented FIRST (Fast Internet Real-Time Search Technology) Internet search technology (the "NetCurrents Technology") into our products.
In March 2006, we entered into a Memo of Understanding with Scientigo, Inc. (“Scientigo”), to integrate their patented TIGO Artificial Intelligence technology with FIRST. Scientigo is an emerging technology company that invented, patented and licenses the next-generation of intelligent document recognition, intelligent enterprise content management and intelligent search technologies. Their patented TIGO technology creates order from chaos by using artificial intelligence, machine learning, rule-based systems and patented XML technology to make it faster, easier and less costly to capture, file, organize and retrieve any type of information.
In March of 2009 we entered into an LOI with My Vintage Baby, Inc. the company was going to acquire a majority interest in MVBY. Due to certain circumstances the company was not able to complete the acquisition. In September 2009 the company signed an LOI with ZenZuu, Inc., a leader in the internet social networking field; the company is in the process of completing that acquisition. The company is also currently seeking, and entertaining businesses with internet technology and other Intellectual properties that fulfill and complete our current business plan.
On February 24, 2011, VSUS Technologies, Inc., a Delaware corporation (the “Company”), closed the Final Purchase Agreement (the “Agreement”) with Erasmo Alfredo Almanza Latorre, a Columbian Citizen. The agreement provides for the acquisition of LA TABAQUERA COAL MINE (LA TABAQUERA) with Concession Contract No. ILE-09551, granted for the Exploration and Exploitation of a Carbon Mineral and other Grantable Mineral Deposits by the Colombian Institute of Geology and Mining.
Pursuant to the Agreement and addendum, the Company purchased 100% of LA TABAQUERA and any and all of its subsidiaries. The consideration paid to Erasmo Almanza is an aggregate of 5,606,410 full paid and nonassessable shares of Common Stock of the Company (the “Shares”), for 100% of all of the outstanding shares of LA TABAQUERA, and $100,000.00 in cash payments.
Overview
About VSUS Technologies, Inc. (Coking Coal) Burns Hotter
Preferred By Steel Mills (VSUT.PK)
VSUS Technologies is a growing company specializing in acquisitions of revenue generating businesses. The company has daily interactions with possible acquisition targets looking to expand our operations and the company revenue stream. We have acquired a mining concession by the name of La Tabaquera in Colombia. Over the past year the Company has continued to search for the right business plan and business model to add to the company's overall value. With core values of environmental and capital stewardship, we will strive to become good environmental neighbors and provide all shareholders operating and financial transparency. Our Company will have three revenue producing business units in Colombia: coking and coal mining in Guaduas, Colombia, docks and river transportation along the Magdalena River, and a coal export terminal on the northern coast of Colombia. The Company is also exploring allegiances with U.S. universities to study capturing Coal Bed Methane (CBM) in Colombia.
Industry Background
The company has moved into the coal industry in Colombia, due to the rising prices in oil worldwide we feel that this industry is beneficial to our company and our strategy to move forward while drawing attention from the public to invest in a promising industry and company.
About Guaduas, Colombia
Our first mining acquisition is in the town of Guaduas, Colombia. VSUS Technologies will become a responsible neighbor in Guaduas. The company will sponsor health centers, schools, and many other causes when needed. Under Colombian law, mining companies are required to donate for social benefit. Mr. Erasmo Almanza, shareholder, has strong ties to the community and expects VSUS Technologies to have the full faith and support of the Town of Guaduas. Guaduas is a municipality of 35,000 people with excellent electrical and water supply and an ample workforce. For more information on Guaduas, click... http://translate.google.com.co/translate?u=http://www.guaduas-cundinamarca.gov.co&hl=es&ie=UTF-8&sl=es&tl=en. VSUS Technologies, Inc. (VSUT.PK), through its wholly owned subsidiary, will acquire, explore and develop coal mining concessions in Colombia. Our first acquisition, La Tabaquera Concession Contract No. ILE-09551 (“The Concession”) granted for the Exploration and Exploitation of a Carbon Mineral and other Grantable Mineral Deposits by the Colombian Institute of Geology and Mining (INGEOMINAS), will allow us to enter the growing Colombian coal mining industry. We will implement new US mining technologies to provide innovative approaches to geological engineering, and clean coal mining in Colombia.
Colombia Coal Sector
According to the World Energy Council, Colombia had 6,814 million short tons (MMst) of recoverable coal reserves in 2007, consisting largely of bituminous coal and a small amount of metallurgical coal. The country has the second-largest coal reserves in South America, slightly behind Brazil. Colombia’s coal is relatively clean-burning, with a sulfur content of less than 1 percent. Over the past decade, production has more than doubled, reaching 86.7 MMst in 2008. Colombia’s coal consumption was only 5.2 MMst in 2008, leaving most of the country’s production available for export; in 2008, Colombia was the fourth-largest net coal exporter in the world.
Sector Organization
Colombia completed the privatization of its coal sector in 2004 with the closing of Minercol, the former state-owned coal company. The largest coal producer in Colombia is the Carbones del Cerrejon consortium, composed of Anglo-American, BHP Billiton, and Glencore. Drummond Co. operates the second-largest coal mine in Colombia, La Loma producing about 20 MMst per year.
Exports
Currently, most Colombia coal exports go to Europe, North America, and Latin America, as the vast majority of Colombia’s coal producing and exporting infrastructure is located on the Caribbean coast. Coal is an important part of the Colombian economy: in 2009, coal represented about one-quarter of total export earnings, and mining taxes and royalties paid to the Colombian government exceeded $1 billion. During the first nine months of 2009, the United States imported 13.6 MMst of coal from Colombia, about 80 percent of total U.S. coal imports.
According to media reports, Colombia began exporting sizable quantities of coal to Asian markets, especially China, in 2009. A combination of higher prices in Asia, lower freight costs, and falling exports to the United States created the conditions for such an opportunity. It is possible that the expansion of the Panama Canal (currently slated for completion by 2015) could facilitate greater exports of Colombian coal to Asia in the future.
Coal Bed Methane
Coal bed methane (CBM) is a gaseous hydrocarbon that occurs along with coal reserves. It is similar to natural gas and can be transported and used in similar ways. CBM has the potential to dramatically increase Colombia’s proven natural gas reserves, facilitate greater domestic production, and potentially allow additional exports to neighboring countries.
Employees
The Company’s team currently consists of three (3) employees and several independent contractors. Each management hire has been carefully selected to address immediate needs in particular functional areas, but also with consideration of the Company’s future needs during a period of expected rapid growth and expansion. Value is placed not only on outstanding credentials in specific areas of functional expertise, but also on cross-functionality, collegiality, a strong knowledge of content acquisition and distribution, along with hands-on experience in scaling operations from initial beta and development stage through successful commercial deployment.
Item 1A.
Item 1A. Risk Factors.
There are many risks that may affect our company or the value of our Common Stock, including those described below. If any of these or other risks actually occur, our business, financial condition and operating results, as well as the trading price or value of our securities could be materially adversely affected and you may lose all or part of your investment.
We are a development stage company, and our limited operating history makes it difficult to evaluate our current business and prospects or to accurately predict our future revenues or results of operations. Our revenue and income potential are unproven, and our business plan is constantly evolving. The Internet is constantly changing and software technology is constantly improving. Therefore we may need to continue to modify our business plan to adapt to these changes. As a result of our being in the early stages of development, particularly in the emerging technology industry, we are more vulnerable to risks, uncertainties, expenses and difficulties than more established companies. If we cannot successfully address the risks associated with early stage development companies in emerging technologies, we may never achieve profitability and we may not be able to continue operations.
We may require additional capital to proceed with our long-term business plan. If we are unable to obtain such capital in future years, we may be unable to proceed with our long-term business plan.
Our future success depends, to a significant extent, on the continued services of our key personnel. Our loss of any of these key personnel most likely would have an adverse effect on our business.
The Sarbanes-Oxley Act requires public companies to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time required. This includes controls and procedures to ensure that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, so as to allow timely decisions regarding required disclosure of such information. The Sarbanes-Oxley Act also requires documentation of internal control procedures, remediation as needed, and periodic testing of these controls. We are in the process of reviewing our internal controls with a view toward documenting the required controls and procedures, remediating existing deficiencies and adopting a testing plan. This process is in the initial stages. Because these controls are all designed to protect the interests of investors in our securities, without these elements, purchasers of our Common Stock in this offering would lack this protection until their absence is remedied.
Our operating results may prove unpredictable, and may fluctuate significantly.
Permits or licenses may be required from federal, state or local governmental authorities to operate or to sell certain coal material. No assurances can be given that such permits or licenses will be obtainable. We may be required to comply with future national and/or international legislation.
Risks relating to our Common Stock and other securities
Our Common Stock price may be volatile.
The market prices of securities of Coal Mining companies are volatile and sometimes reach unsustainable levels that bear no relationship to the past or present operating performance of such companies. Factors that may contribute to the volatility of the trading price of our Common Stock include, without limitation:
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our quarterly results of operations;
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the variance between our actual quarterly results of operations and predictions by stock analysts;
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financial predictions and recommendations by stock analysts concerning Internet companies and companies competing in our market in general, and concerning us in particular;
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public announcements of technical innovations relating to our business, new products or technology by us or our competitors, or acquisitions or strategic alliances by us or our competitors;
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public reports concerning our products or technology or those of our competitors; and
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the operating and stock price performance of other companies that investors or stock analysts may deem comparable to us. In addition to the foregoing factors, the trading prices for equity securities in the stock market in general.
Our Common Stock is tradable in the over-the-counter market and is quoted on the OTC Bulletin Board under the symbol “VSUT.” Many institutional and other investors refuse to invest in stocks that are traded at levels below the Nasdaq Small Cap Market, which could make our efforts to raise capital more difficult. In addition, the firms that make a market for our Common Stock could discontinue that role. OTC Bulletin Board stocks are often lightly traded or not traded at all on any given day. We cannot predict whether a more active market for our Common Stock will develop in the future. In the absence of an active trading market:
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investors may have difficulty buying and selling or obtaining market quotations;
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market visibility for our Common Stock may be limited; and
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a lack of visibility for our Common Stock may have a depressive effect on the market price for our Common Stock.
Our current executive officers, directors and major stockholders own a significant percentage of our voting stock. As a result, they exercise significant control over our business affairs and policy.
As of the date hereof, our current executive officers, directors and holders of 5% or more of our outstanding Common Stock together beneficially owned approximately 68.41 of our outstanding Common Stock, assuming they exercised all of the currently vested stock options and warrants held by them. These stockholders are able to significantly influence all matters requiring approval by stockholders, including the election of directors and the approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying, deterring or preventing a change in control and may make some transactions more difficult or impossible to complete without the support of these stockholders.
As of the date hereof, we had outstanding 50,344,097 shares of Common Stock of which approximately a large number are shares are “restricted securities” as that term is defined under Rule 144 promulgated under the Securities Act of 1933. These restricted shares are eligible for sale under Rule 144 at various times. We have entered into registration rights agreements requiring us to register the resale of certain shares of our issued and outstanding Common Stock. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of our Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair our ability to raise capital through the sale of our equity securities.
We have authorized 20,000,000 shares of preferred stock, 10,000,000 shares are issued, which may affect the likelihood of a change of control in our company.
Our board of directors has the authority, without further action by the stockholders, to issue 10,000,000 shares of preferred stock on such terms and with such rights, preferences and designations as it may determine, in its sole discretion. Such terms may include restricting dividends on our Common Stock, dilution of the voting power of our Common Stock, or impairing the liquidation rights of the holders of our Common Stock. The board has already authorized classes of Series A Convertible Preferred Stock and Series B Participating Preferred Stock. Issuance of such preferred stock, depending on the rights, preferences and designations thereof, may have the effect of delaying, deterring or preventing a change in control.
We do not intend to pay dividends in the near future.
Our board of directors determines whether to pay dividends on our issued and outstanding shares. The declaration of dividends will depend upon our future earnings, our capital requirements, our financial condition and other relevant factors. Our board does not intend to declare any dividends on our shares for the foreseeable future.
Our Common Stock is a “penny stock,” as that term is defined in Rule 3a51-1 of the Securities and Exchange Act of 1934, because it is selling at a price below five dollars per share. In the future, if we are unable to list our Common Stock on Nasdaq, or a national securities exchange, or the per share sale price is not at least $5.00, our Common Stock may continue to be deemed to be a “penny stock.” Penny stocks are stocks:
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with a price of less than five dollars per share;
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that are not traded on a recognized national exchange;
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whose prices are not quoted on the Nasdaq automated quotation system ; or
of issuers with net tangible assets less than (i) $2,000,000 if the issuer has been in continuous operation for at least three years; or (ii) $5,000,000 if in continuous operation for less than three years; or (iii) of issuers with average revenues of less than $6,000,000 for the last three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange Act of 1934, require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 of the Securities and Exchange Act of 1934 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer:
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to obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;
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to determine reasonably, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions;
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to provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and
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to receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for holders of our Common Stock to resell their shares to third parties or to otherwise dispose of them.
Our restated certificate of incorporation, and Delaware law, contain provisions that could discourage an acquisition or change of control of our company.
Our restated certificate of incorporation authorizes our board of directors to issue preferred stock without stockholder approval. Provisions of our certificate of incorporation, such as the provision allowing our board of directors to issue preferred stock with rights more favorable than our Common Stock, could make it more difficult for a third party to acquire control of us, even if that change of control might benefit our stockholders. In addition, certain “anti-takeover” provisions in Delaware law may restrict the ability of our stockholders to authorize a merger, business combination or change of control.
Effect of Existing or Probable Governmental Regulations on Business
The integrated disclosure system for small business issuers adopted by the Securities and Exchange Commission in Release No. 34-30968 and effective as of August 13, 1992, substantially modified the information and financial requirements of a “Small Business Issuer,” defined to be an issuer that (i) has revenues of less than $25 million; (ii) is a U.S. or Canadian issuer, (iii) is not an investment company, and (iv) if a majority-owned subsidiary, the parent is also a small business issuer; provided, however, an entity is not a small business issuer if it has a public float (the aggregate market value of the issuer's outstanding securities held by non-affiliates) of $25 million or more. Our company is deemed to be a “small business issuer.”
The Securities and Exchange Commission, state securities commissions and the North American Securities Administrators Association, Inc. have expressed an interest in adopting policies that will streamline the registration process and make it easier for a small business issuer to have access to the public capital markets.
Sarbanes-Oxley Act
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act imposes a wide variety of new regulatory requirements on publicly held companies and their insiders. Many of these requirements will affect us. For example:
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Our principal executive officer and principal financial officer must now certify the accuracy of all of our periodic reports that contain financial statements;
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Our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; and
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We may not make any loan to any director or executive officer and we may not materially modify any existing loans.
The Sarbanes-Oxley Act has required us to review our current procedures and policies to determine whether they comply with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take whatever actions are necessary to ensure that we are in compliance.
Item 2.
Item 2. Description of Property.
Our executive and operations offices are located in Canyon Country, California, and also in Bogota Colombia. The Company shares office space with other related parties.
Item 3.
Item 3. Legal Proceedings.
The company is not involved in any legal proceedings at the time of this filing.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
During the year ended December 31, 2011, and subsequent periods through the date hereof, no matters were submitted to a vote of our stockholders, whether through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our Common Stock is quoted on the OTC Bulletin Board of the National Association of Securities Dealers (“NASD”). Our trading symbol is “VSUT.”
Until the first quarter of 2005, there was no “public market” for our shares of Common Stock. For the periods indicated, the following table presents the range of high and low bid prices for the common stock as reported by the OTC Bulletin Board during the quarter being reported.
Holders
As of the date hereof, the aggregate number of shares of our Common Stock outstanding is 59,244,247 held of record by approximately 258 registered holders.
Dividends
We have not declared any cash dividends with respect to our Common Stock and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty.
Under our restated certificate of incorporation, our board of directors, without further action by our stockholders, is authorized to issue up to 20,000,000 shares of preferred stock, in one or more series. The board of directors may designate the preferred shares as to series, preferences, limitations and other provisions as the board of directors may designate from time to time. Of our 20,000,000 authorized shares of preferred stock, (i) 10,000,000 shares have been designated as Series A Convertible Preferred Stock, of which 10,000,000 are currently issued and outstanding, and issued to Kyle Gotshalk, and voting power if shares were to be converted equates to 51%, and 66 2/3% voting rights (ii) are undesignated.
Securities Authorized for Issuance Under Equity Compensation.
None.
Item 6.
Item 6. Selected Financial Data.
Not required for smaller reporting companies.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto set forth in Item 7 of this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management's expectations. Factors that could cause differences include, but are not limited to, expected market demand for our products, as well as general conditions of the Internet security marketplace.
The company has moved into the coal industry in Colombia, due to the rising prices in oil worldwide we feel that this industry is beneficial to our company and our strategy to move forward while drawing attention from the public to invest in a promising industry and company.
We are a development stage enterprise. To date we have incurred significant losses from operations and, at December 31, 2011, had an accumulated deficit of approximately $24,000,000. At December 31, 2011 we had $49 of cash and cash equivalents. In 2003, 2004 and 2005, we raised an aggregate of approximately $3,943,000 in financing to fund our operations. Until such time as we generate sufficient revenues from operations, we will continue to be dependent on raising substantial amounts of additional capital through any one of a combination of debt offerings or equity offerings. There is no assurance that we will be able to raise additional capital when necessary.
Results of Operations
The Year Ended December 31, 2011 compared to the Year Ended December 31, 2010
Revenue: Revenue was $-0- in the year ended December 31, 2011, as compared to $800 in the year ended December 31, 2010.
General and Administrative Expenses: Selling, general and administrative expenses increased from $4,260 for the year ended December 31, 2010 to $697,560 for year ended December 31, 2011 due to costs associated with the operations of the public company in including professional fees.
Net loss increased to $2,099,183 for the year ended December 31, 2011 from net loss of $153,460 for the year ended December 31, 2010, due increased stock issuances for services and a loss on derivative instruments.
Our revenues and future profitability are substantially dependent on our ability to:
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raise substantial amounts of additional capital through any one of a combination of debt offerings or equity offerings, if necessary; and
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continue to grow our business through acquisitions.
Liquidity and Capital Resources
General: We are a development stage enterprise. As such, our historical results of operations are unlikely to provide a meaningful understanding of the activities expected to take place over the next twelve months. Our major initiatives through that period are:
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furthering the development of our products;
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obtaining commercial sales of our products, and continuing our current marketing program; and
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seeking acquisitions of additional businesses and assets that will be beneficial to our company and its stockholders.
Since inception, we have primarily funded our operations from private placements of debt and equity. Until such time as we are able to generate adequate revenues we cannot assure that cash from the issuance of debt securities, the exercise of existing warrants and the placements of additional equity securities will be sufficient to fund our long-term research and development and general and administrative expenses.
Off-Balance Sheet Arrangements
None.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Financial Statements for the years ended December 31, 2011 and 2010 (see pages through, hereof)
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011 and 2010
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
CONSOLIDATED FINANCIAL STATEMENTS:
Auditor’s Reports
Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010
Consolidated Statement of Operations for the Years Ended December 31, 2011 and 2010 and for the
Period from September 20, 2000 (inception) to December 31, 2011 (Unaudited)
Consolidated Statement of Cash Flows for the Years Ended December 31, 2011 and 2010 and for the
Period from September 20, 2000 (inception) to December 31, 2011 (Unaudited)
Consolidated Statement of Changes in Stockholders' Deficiency for the Period from January 1, 2006 to December 31, 2011
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
VSUS Technologies, Inc. and Subsidiaries
Canyon Country, California
We have audited the accompanying consolidated balance sheet of VSUS Technologies, Inc. and its subsidiary, a development stage company, (collectively, the “Company") as of December 31, 2011, and the related consolidated statement of operations, changes in stockholders' deficit and cash flows for the year then ended These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VSUS Technologies, Inc. and its subsidiary as of December 31, 2011, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of business, realization of assets, and liquidation of liabilities in the ordinary course of business. As discussed in Note 3 to the consolidated financial statements, the Company has a working capital deficit and has incurred significant losses. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas
April 16, 2012
Board of Directors
VSUS Technologies, Incorporated
Canyon Country, California
We have audited the accompanying consolidated balance sheets of VSUS Technologies, Incorporated and subsidiaries as of December 31, 2009 and 2010, and the related consolidated statements of operations, changes in stockholders’ deficiency, and cash flows for the years then ended and from inception (September 20, 2000) to December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Company has not generated significant revenues or profits to date. This factor, among others, raises substantial doubt about its ability to continue as a going concern. The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flow to conduct its operations and its ability to obtain additional sources of capital and financing. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2010 and 2009, the results of its operations, changes in stockholders’ equity, and its cash flows for the years ended December 31, 2010 and 2009 and from inception (September 20, 2000) to December 31, 2010, in conformity with U.S. generally accepted accounting standards.
/s/ Malcolm L. Pollard, Inc.
Malcolm L. Pollard, Inc.
Erie, Pennsylvania
July 14, 2011
VSUS TECHNOLOGIES, INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
ASSETS:
CURRENT ASSETS
Cash and Cash Equivalents
$
$
3,103
Notes Receivable
-
200,000
Other Receivables
-
4,029
Total Current Assets
207,132
Mining Rights
100,000
75,000
Total Assets
$
100,049
$
282,132
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES
Accrued Liabilities
$
256,229
$
230,905
Accrued Liabilities & Accrued Interest - Related Parties
406,482
152,311
Derivative Liability
107,575
-
Short Term Convertible Debt - Related Party
76,728
-
Short Term Debt - Related Party
328,000
-
Total Current Liabilities
1,175,014
383,216
LONG-TERM LIABILITIES
Long Term Debt - Related Party
-
328,000
Long Term Debt - Related Party
-
797,200
Total Liabilities
1,175,014
1,508,416
CONTINGENCIES AND COMMITMENTS
-
-
STOCKHOLDERS' DEFICIT
Common Stock $0.001 par value (Shares authorized-100,000,000; Shares issued and outstanding-50,344,097 at December 31, 2011 and 64,716,701 at December 31, 2010)
50,344
64,716
Preferred Stock $0.001 par value (Shares authorized-20,000,000; 10,000,000 shares undesignated)
Series A Convertible: 10,0000,000 Shares designated. Shares issued and outstanding-10,000,000 at December 31, 2011 and -0- at December 31, 2010
10,000
-
Additional paid-in-capital
22,868,334
22,451,460
Subscription Receivable
(60,000)
-
Deferred stock based compensation
-
(1,898,000)
Deficit accumulated during the development stage
(23,943,643)
(21,844,460)
Total stockholders’ deficit
(1,074,965)
(1,226,284)
Total Liabilities and Stockholders’ Deficit
$
100,049
$
282,132
The accompanying notes to these consolidated financial statements form an integral part thereof.
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
Year ended
For the
Year ended
From
September 20,
(Inception) to
December 31,
December 31,
December 31,
(Unaudited)
Revenue
$
-
$
$
1,728,800
Operating expenses:
Impairment of assets
75,000
150,000
225,000
Administrative expenses
667,560
4,260
20,303,820
Total operating expenses
742,560
4,260
20,528,820
Loss from operations
(742,560)
(3,460)
(18,800,020)
Financing expenses, net
-
-
3,017,000
Loss on settlement of debt
298,996
-
298,996
Interest expense
127,245
-
127,245
Loss on derivatives
930,382
-
1,700,382
Net loss
$
(2,099,183)
$
(153,460)
$
(23,943,643)
Basic and diluted loss per share
$
(0.03)
$
(0.00)
Weighted average number of shares outstanding
70,160,610
64,716,702
The accompanying notes to these consolidated financial statements form an integral part thereof.
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes to these consolidated financial statements form an integral part thereof.
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(CONTINUED)
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
The accompanying notes to these consolidated financial statements form an integral part thereof
VSUS TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND HISTORY
VSUS Technologies Incorporated (the “Company”) was incorporated in Delaware on September 20, 2000. Following its establishment, the Company organized, at the end of 2000, two wholly-owned subsidiaries: Safe Mail International Ltd., a company registered in the British Virgin Islands and Safe Mail Development Ltd., a company registered in Israel. As of August 31, 2004, the Company established two additional wholly-owned subsidiaries: VSUS Secured Services, Inc., a Delaware corporation and First Info Network, Inc., a Delaware corporation. Since inception, and until a recent shift in the focus of its business operations, the Company had been a developer and marketer of highly secure communications systems for use over the Internet.
Effective as of April 13, 2005, the Company reorganized its business by transferring substantially all of its business assets into VSUS Secured Services, Inc., its wholly-owned subsidiary. Consequently, its two subsidiaries, Safe Mail Development Ltd. and Safe Mail International Ltd., became subsidiaries of VSUS Secured Services, Inc.
On April 14, 2005, VSUS Technologies Incorporated acquired 1stAlerts, Inc., a Delaware corporation (“1stAlerts”), a company that develops, markets and sells software applications, when 1stAlerts merged with and into the Company's wholly-owned Delaware subsidiary, First Info Network, Inc., hereinafter referred to as the “1stAlerts Acquisition”. At the time of the 1stAlerts Acquisition, among other things: (i) the Company exchanged 13,000,000 shares of its Common Stock, and 200 shares of its Series B Participating Preferred Stock, for all of the issued and outstanding shares of capital stock of 1stAlerts, (ii) the Company issued 1,861,841 of its Class A Warrants in exchange for warrants to purchase shares of Common Stock of 1stAlerts, (iii) the Company assumed $4,565,000 of promissory and convertible notes from 1stAlerts, and (iv) certain officers and directors of 1stAlerts became officers and directors of the Company. The 200 shares of series B Participating Preferred Stock, the 1.861,841 Class A Warrants which were never registered and a portion of the Convertible Notes were cancelled as a part of the June 24, 2009 Rescission Agreement with 1st Alerts. The Company returned all of the Capitol stock of 1st Alerts as part of the 2009 Rescission Agreement. No remaining 1st Alerts Officers and Directors currently serve as Officers or Directors of the Company.
VSUS Technologies, Inc. (the “Company”) specializes in acquisitions of revenue generating businesses. During 2011, we have signed an agreement and acquired La Tabaquera, a Columbian company whose sole asset is a mining concession in Colombia. See Note 4 for details.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America.
Consolidation
The accompanying consolidated financial statements represent the consolidated operations of VSUS Technologies, Inc. and its wholly-owned subsidiary La Tabaquera. Intercompany balances and transactions have been eliminated in consolidation.
Development Stage
The Company has not produced significant revenues from its principal business and is a development stage company as defined by ASC 915, Development Stage Entities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the condensed financial statements are published, and (iii) the reported amount of net sales and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of condensed financial statements; accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of year ended or less to be cash equivalents. Cash equivalents include cash on hand and cash in the bank.
Impairment of Long-Lived Assets
Management of the Company will periodically review the net carrying value of its properties on a property-by-property basis. These reviews will consider the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. An impairment loss will be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss will be based on the estimated fair value of the asset if the asset is expected to be held and used.
Although management will make its best estimate of the factors that affect net realizable value based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.
During 2011, the Company evaluated its mining rights for impairment and determined that the fair value of its mining rights acquired during 2010 was $0, resulting in an impairment loss of $75,000 for the year ended December 31, 2011.
Asset Retirement Obligations
The Company plans to recognize liabilities for statutory, contractual or legal obligations, including those associated with the reclamation of properties and any plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation will be recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost will be added to the carrying amount of the related asset and the cost will be amortized as an expense over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability will be increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. As of December 31, 2011, the Company had not begun development activities and therefore has not recorded a liability.
Goodwill and Other Intangible Assets
In accordance with ASC Topic 350 "Goodwill and Other Intangible Assets," the Company assesses goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.
Income Taxes
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”). ASC 740-10 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
Concentration of Credit Risk
The Company maintains its operating cash balances in banks in California. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.
Share-Based Compensation
The Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based compensation, which requires the measurement of the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Compensation cost is recognized when the event occurs. The Black-Scholes option-pricing model is used to estimate the fair value of options granted.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Basic and Diluted Net Loss Per Share
Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted net loss per share for the Company is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive.
Fair Value of Financial Instruments
The Company financial instruments consist primarily of cash, affiliate receivable, settlement receivable, accounts payable and accrued expenses and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.
The Company adopted ASC Topic 820, Fair Value Measurements (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. The standard provides a consistent definition of fair value, which focuses on an exit
price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based measurements.
The three-level hierarchy for fair value measurements is defined as follows:
·
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
·
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable of the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active;
·
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following table sets for the Company’s liabilities that are measured at fair value on a recurring basis:
Liabilities
Total
Level 1
Level 2
Level 3
Derivative Liability
$ 107,575
-
-
$ 107,575
Reclassifications
Certain prior year amounts have been reclassified to conform to the current period presentation for comparative purposes.
Recent Accounting Pronouncements
The Company does not believe any recently issued accounting pronouncements issued by the FASB and the SEC will have a material impact on the Company’s present or future consolidated financial statements.
NOTE 3 - GOING CONCERN
As shown in the accompanying financial statements, VSUS Technologies, Inc. incurred net losses of $2,099,183 and $153,460 for the years ended December 31, 2011, and 2010, respectively and had a working capital deficit of $1,074,965 as of December 31, 2011. These conditions raise substantial doubt as to VSUS Technologies’ ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if VSUS Technologies is unable to continue as a going concern.
Management's plans in this regard include raising additional cash from current and potential stockholders and lenders, making strategic acquisitions and increasing the marketing of its products and services. The Company has no current arrangements with respect to any additional financing. Consequently, there can be no assurance that any future financing will be available to the Company when needed, and on commercially reasonable terms. The Company's inability to derive sufficient revenues from the sale of its products, or obtain additional financing when needed, would have a material adverse effect on the company, requiring the Company to curtail or cease operations. In addition, any equity financing may involve substantial dilution to the Company's then current stockholders.
NOTE 4 - ACQUISITION OF LA TABAQUERA AND MINING RIGHTS
On February 24, 2011, the Company acquired La Tabaquera, a Columbian company whose sole asset is the “Concession Contract No. ILE-09551, granted for the Exploration and Exploitation of a Carbon Mineral and other Grantable Mineral Deposits by the Colombian Institute of Geology and Mining”.
Under the agreement, the Company issued 5,606,410 shares of common stock and agreed to pay the owner $100,000 in cash. Due to the lack of an active market for the Company’s common shares, the Company determined the fair value of the common stock was $0 on the acquisition date. As of December 31, 2011, $45,000 of the cash payment had been paid, with the remaining $55,000 still owed and included in accounts payable and accrued expenses in the consolidated balance sheet. The $55,000 has no specific terms of repayment and is unsecured. The Company expects to pay the remaining amount upon receipt of future funding. If the amounts are not paid, the Company may have to re-negotiate with the seller.
NOTE 5 - RELATED PARTY DEBT
As of December 31, 2011 and 2010, the Company had an outstanding convertible note to Ararat, LLC, a Company owned by a family member of an officer. The interest rate is 10% and the note is unsecured. The principal balance of the note is convertible into common stock at the holder’s option at 70% of the market price of the Company’s common stock on the date of conversion. During 2011, the Company converted $720,473 of the principal into 11,095,986 shares of common stock. As a part of this conversion, the Company issued more shares than would have been allowed under the conversion terms. As a result, the Company recognized a loss on conversion for the fair value of the shares of $298,996. At December 31, 2011 the principal balance of the note was $76,728 and accrued interest was $228,432. At December 31, 2010 the principal balance of the note was $797,200 and accrued interest was $152,311.
On April 14, 2008 the Company signed a related party loan agreement in which they borrowed an aggregate of $328,000 from Ararat, LLC. The note matures December 31, 2012 and carries a 10% interest rate. At December 31, 2011 the principal balance of the note was $328,000 and accrued interest was $41,124. At December 31, 2010 the principal balance of the note was $328,000 and accrued interest was $18,324.
NOTE 6- SHAREHOLDERS' EQUITY
Common Stock
During the year ended December 31, 2011, VSUS Technologies, Inc. issued an aggregate of 12,675,000 common shares for services valued at $281,725.
During the year ended December 31, 2011, VSUS Technologies, Inc. issued an aggregate of 11,095,986 common shares as repayment of a portion of related party debt amounting to $720,473. The shares were valued to be worth more than the debt extinguished and created a resulting loss on extinguishment of debt of $298,996.
During the year ended December 31, 2011, VSUS Technologies, Inc. issued an aggregate of 250,000 common shares for a subscription receivable of $20,000 which has not been collected. Another $40,000 in notes receivables from the year ended December 31, 2010 was classified in the current year as a subscription receivable as the amount has not been collected.
During the year ended December 31, 2011, VSUS Technologies, Inc. issued an aggregate of 2,000,000 common shares for cash totaling $154,000.
During the year ended December 31, 2011 an aggregate of 46,000,000 shares were returned to treasury due to non-payment on subscription receivables outstanding at December 31, 2010.
During the year ended December 31, 2011 an aggregate of 5,606,410 shares with a fair value of $0 were issued for the acquisition of the La Tabaquera mine in Columbia. See Note 4.
During 2011, the Company reclassified $1,898,000 of deferred stock based compensation to additional paid-in capital in accordance with ASC 718.
Stock Options
During the year ended December 31, 2011 an aggregate of 5,000,000 options with a fair value of $50,000 were issued to John Campo, President as part of his employment agreement. The shares have a strike price of $0.10/share and the options have no expiration date. The options vest equally over 3 years. For the year ended December 31, 2011, $12,500 was expensed.
The following table summarizes the Company’s stock options:
The fair value of the Company’s stock options was determined using a Black-Scholes option pricing model. Assumptions used include (1) 4.51% risk-free interest rate, (2) expected term is the expected amount of time until conversion, (3) expected volatility of 853%, (4) zero expected dividends (5) exercise prices as set forth in the agreements, and (6) common stock price of the underlying share on the valuation date.
Preferred Stock
There are 20,000,000 shares of authorized Preferred Stock. During 2011, the Company issued 10,000,000 shares of Series A Convertible Preferred Stock to Mr. Kyle Gotshalk for services. The shares are convertible into 51% of outstanding common stock, hold 66 2/3% voting rights and do not receive dividends. As the issuance of preferred stock gives the holder effective control of the Company, the Company determined the fair value of the shares should be based on the underlying value of the Company. On the issuance date, the Company determined that due to a lack of revenues, assets and expected future cash flows, the fair value of the Company was $0 and therefore the preferred stock was also valued at $0.
Additionally, because the conversion option can be exercised into 51% of the outstanding shares of the Company, the Company determined that holder of the preferred shares receives additional value every time the Company issues common shares, thereby increasing the number of common shares the preferred shares can be converted into. As a result, the Company has determined the incremental value gives to the preferred shareholder upon additional issuances of common shares should be recorded at fair value and charged to expense. Due to there being a net decrease in common shares outstanding in 2011, the Company has not recognized any incremental cost.
NOTE 7- DERIVATIVE LIABILITY
As mentioned in Note 5, the Company had convertible notes outstanding during 2011 that were convertible into common shares at 70% of the market price of the Company’s common stock on the date of conversion. The Company analyzed these conversion options under ASC 815 “Derivatives and Hedging” and determined that these instruments should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The derivative liability had a fair value of $0 as of December 31, 2010. The following table summarizes the Company’s derivative liabilities during the year ended December 31, 2011:
The fair value of the instrument was determined using a Black-Scholes option pricing model. Assumptions used include (1) 0.11% risk-free interest rate, (2) expected term is the expected amount of time until conversion, (3) expected volatility of 457%, (4) zero expected dividends (5) exercise prices as set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.
NOTE 8 - INCOME TAX EXPENSE
At December 31, 2011, VSUS Technologies, Inc. had unused federal and state net operating loss carryforwards available of approximately $502,640, which may be applied against future taxable income, if any, and which expire in various years through 2031.
The Company’s deferred tax assets as of December 31, 2011 and 2010 are as follows:
Benefit from net operating losses
$
170,898
$
Valuation allowance
(170,898)
(700)
Net tax expense
$
-
$
-
NOTE 9- SUBSEQUENT EVENTS
On February 2, 2012 VSUS Technologies, Inc. signed convertible loan agreement with Asher Enterprises, Inc. in which Asher Enterprises loaned $37,500 at 8% interest convertible into common stock of VSUS Technologies, Inc.
On February 13, 2012 VSUS Technologies, Inc. issued an aggregate of 5,400,150 common shares as repayment of a portion of the related party convertible debt and accrued interest amounting to $108,003.
On February 17, 2012 VSUS Technologies, Inc. issued an aggregate of 2,500,000 common shares for services.
On April 5, 2012 VSUS Technologies, Inc. issued an aggregate of 1,000,000 common shares for services.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On December 14, 2010, Larry O'Donnell, CPA, P.A., its independent public accountant resigned due to Larry O'Donnell's license being revoked by the PCAOB.
Larry O'Donnell, CPA, P.A.'s reports on our financial statements as of and for the fiscal year ended December 31, 2009 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 that its report contained a going concern qualification as to the ability of us to continue.
January 1, 2010 through December 14, 2010, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement(s), if not resolved to the satisfaction of Larry O'Donnell, CPA, P.C., would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report as described in Item 304 (a)(1)(iv) of Regulation S-K.
On January 4, 2011 the board of directors of VSUS engaged the accounting firm of Malcolm L. Pollard, Inc. as principal accountants of VSUS for the fiscal year ended December 31, 2010. VSUS did not consult with Malcolm L. Pollard, Inc. during the most recent two fiscal years and the subsequent interim period preceding the engagement of Malcolm L. Pollard, Inc. on January 4, 2011 regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on VSUS’s financial statements. Neither written nor oral advice was provided that was an important factor considered by Malcolm L. Pollard, Inc. in reaching a decision as to the accounting, auditing or financial reporting issue; or any matter that was the subject of a disagreement or event identified in response to paragraph (a)(1)(iv) of Item 304 of Regulation S-K.
On February 15, 2012, Malcolm Pollard, Inc. its independent public accountant resigned.
Malcolm L. Pollard, Inc.'s reports on our financial statements as of and for the fiscal year ended December 31, 2009 and 2010 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 that its report contained a going concern qualification as to the ability of us to continue.
On March 7, 2012 the board of directors of VSUS engaged the accounting firm of MaloneBailey, LLP as principal accountants of VSUS for the fiscal year ended December 31, 2011. VSUS did not consult with MaloneBailey, LLP during the two most recent fiscal year and subsequent interim period preceding the engagement of MaloneBailey, LLP on March 7, 2012 regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on VSUS’s financial statements. Neither written nor oral advice was provided that was an important factor considered by MaloneBailey, LLP in reaching a decision as to the accounting, auditing or financial reporting issue; or any matter that was the subject of a disagreement or event identified in response to paragraph Item 304 (a)(2)(i) and (ii) of Regulation S-K.
We had no other changes of, or disagreements with, our auditors during the fiscal year ended December 31, 2011, or subsequent periods through the date hereof.
Item 9A.
Item 9A. Controls and Procedures:
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2011, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to material weaknesses in our internal controls described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Our internal control system is intended to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements and that we have controls and procedures designed to ensure that the information required to be disclosed by us in our reports that we will be required to file under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding financial disclosure.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that as of December 31, 2011, our internal control over financial reporting is not effective based on those criteria.
Management’s assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
·
Lack of appropriate segregation of duties;
·
Limited capability to interpret and apply accounting principles generally accepted in the United States;
·
Lack of formal accounting policies and procedures that include multiple levels of review.
·
Failure to properly record transactions related to asset acquisitions, derivative liabilities, and equity based payments to employees and non-employees
This annual report does not include an attestation report on our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only a management report in this annual report.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B.
Item 9B. Other Information.
There was no information we were required to disclose in a report on Form 8-K during the fourth quarter of 2011, which was not so reported.
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
Identification of Directors and Executive Officers as of December 31, 2011
The following table sets forth the names of all of our directors and executive officers, as of December 31, 2011:
Name
Age
Positions Held and Tenure
John Campo
Director and President
Cherish Adams
Kyle Gotshalk
Director and Sec/Treas.
Director and CEO
John Campo, 41, President of VSUS, has been involved in public companies for over 20 years. He began his career as a registered representative with several boutique firms in Baltimore, MD. He was President of Elite Equity Marketing, a public relations firm catering to emerging growth companies, from 2001-2008 with offices in Towson, MD and North Miami Beach, FL. He later began Wall Street International focusing on creating awareness for international companies trading in the U.S. In 2009, he introduced Mr. Erasmo Almanza, a Colombian national with coal mining concessions, to VSUS Technologies Inc. to roll up coal mining concessions and get them into production. Mr. Campo is a Colombian American who resides in Sunny Isles Beach, FL and Bogota, Colombia
Cherish Adams, 36, our Sec/Treas, was elected in October, 2008 to serve as our Secretary and Director. From May of 2001 through February 2005 Mrs. Adams served as the Chief Financial Officer and Controller of Piedmont Properties, a company in the business of securities and real estate investments. Mrs. Adams received her Bachelor of Science Degree in Business Administration with a Concentration in Hotel, Restaurant, Resort Management from the University of Southern Oregon, in Ashland, Oregon in 1997.
Currently Mr. Gotshalk serves as the CEO and Director of VSUS Technologies, Inc. an up and coming leader in exploration, exporting and technology of coking coal. Mr. Gotshalk specializes in Public Company Consulting, Executive work, Filings and other Corporate work for Public reporting Companies. Mr. Gotshalk has successfully taken 5 companies into the public and continues to consult with as well as run these companies with great success. With a degree in Communications/Public Relations and schooled in business and business developing . He strives to be one who can change the public awareness and continue to create worthy companies for the public to invest in, and continue to do well in, for their own future as well as the company's future. He has specialized in filing 15c-211 documents, as well as preparing 10Q's and 10KSB's and other compliant filings and forms for many companies. Kyle has been very successful in running public companies for more than 5 years now. Mr. Gotshalk has also held his California Real Estate License since 2004 and won awards in Real Estate for being the highest earner ever in the first year at his Century 21 office in Santa Monica, CA. Kyle Gotshalk has also put together a great business model and advisors, consultants, and staff for his company VSUS Technologies, Inc. Information is available at the company website vsustechnologies.com. With the oil crisis in our nation, the opportunity is knocking at the door for this company, and the exploration of coal. Kyle Gotshalk has been subject to case# 2:08-cr-00737-JHS. Kyle Gotshalk has also founded and formed the BLG Leukemia Foundation which supports the siblings and families of people who have been burdened with this terrible disease. Help support the cause.
Significant Employees
Other than as mentioned above, we have no employees who are not executive officers, but who are expected to make significant contributions to our business.
Involvement in Certain Legal Proceedings
Except as stated above, during the past five years, no director, person nominated to become a director, executive officer, promoter or control person of ours:
(1) was a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Audit Committee Financial Expert
The Securities Exchange Commission has adopted rules to implement certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of the rules adopted by the SEC requires a company to disclose whether it has an “audit committee financial expert” serving on its audit committee. Our board of directors has not yet established an audit committee. As such, our board has not yet appointed an audit committee financial expert. At this time, our board of directors believes it would be desirable to have an audit committee, and for the audit committee to have an audit committee financial expert serving on the committee. While informal discussions as to potential candidates have occurred, at this time no formal search process has commenced.
Compliance with Section 16(a) of the Exchange Act
To our knowledge, based solely on a review of such materials as are required by the Securities and Exchange Commission, none of our officers, directors or beneficial holders of more than ten percent of our issued and outstanding shares of Common Stock failed to timely file with the Securities and Exchange Commission any form or report required to be so filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, during the fiscal year ended December 31, 2011.
Code of Ethics
We have not yet adopted a code of ethics policy because we are a development stage company, in the early stages of operations. We intend to adopt a code of ethics policy in the future.
Item 11.
Item 11. Executive Compensation.
Summary Compensation
The following table discloses, for the fiscal years ended December 31, 2011, 2010, certain compensation paid & accrued to our named executive officers.
Name and Principal Position
Year
Salary and
Other Annual
Compensation
($)
John Campo, President and Director
$160,000
$ 0
Cherish Adams, Sec/Treas and Director
$60,000
$60,000
Kyle Gotshalk, CEO and Director
$80,000
$80,000
These amounts are accrued and unpaid per the employment agreements with the company.
The following table provides information on option/SAR grants during the fiscal year ended December 31, 2011 to our named executive officers.
Name
Number Of
Securities
Underlying
Options/SARS
Granted (#)
Percent Of
Total Options/
SARs Granted
To Employees
In Fiscal
Year
Exercise Or
Base Price
($/SH)
Expiration Date
Kyle Gotshalk
N/A
N/A
N/A
Cherish Adams
N/A
N/A
N/A
John Campo
5,000,000
100%
$0.10
No Exp. Date
Option/SAR Exercises and Year-End Option/SAR Values
The following table sets forth information with respect to those executive officers listed above, concerning exercise of options during the last fiscal year and unexercised options and SARs held as of the end of the fiscal year:
Name
Shares Acquired on Exercise (#)
Value Realized ($)
Number of Securities Underlying Unexercised Options/SARs at FY-End (#) Exercisable/Unexercisable
Value of Unexercised In-The-Money Options/SARs at FY-End ($) (1) Exercisable/Unexercisable
Kyle Gotshalk
1,250,000/13,750,000
$62,500/$687,500
Cherish Adams
416,667/4,583,333
$20,833/$229,167
John Campo
0/5,000,000
$0/$250,000
Long-Term Incentive Awards
We made no long-term incentive awards to our named executive officers in the fiscal year ended December 31, 2011.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
John Campo, Kyle Gotshalk, and Cherish Adams have employment agreements with the company.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management, as of the Date of this Report
The following table sets forth the beneficial ownership of persons who owned more than five (5%) percent of our Common Stock, as well as the share holdings of the current members of management, as of the date hereof:
Name And
Address Of
Beneficial
Owner (1)
Amount And
Nature Of
Beneficial
Ownership
Percent Of
Class
John Campo
10,500,000
19.5%
Cherish Adams
5,000,000
9.3%
Kyle Gotshalk
6,000,000
11.1%
All Executive Officers and Directors as a Group
21,500,000
38.5%
Erasmo LaTorre
5,606,410
10.4%
Yorktown Consultancy
5,599,256
10.4%
(1)
Unless otherwise indicated, the address of all persons is c/o VSUS Technologies Incorporated, 18565 Soledad Canyon Rd., #153,Canyon Country, CA 91351
(2)
Percentage of beneficial ownership is based upon the 53,844,097 shares of our Common Stock which is outstanding as of the date hereof, plus, where applicable, the number of shares that the indicated person or group had a right to acquire within sixty (60) days of that date.
Changes in Control
To the knowledge of our management, there are no present arrangements or pledges of our securities which may result in a change in control of our company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
None.
Item 14.
Item 14. Principal Accountant Fees and Services.
The following table sets out fees billed by our principal accountant for audit and related services for each of the previous two fiscal years:
We do not currently have an audit committee; however, it is our policy to have all audit and audit-related fees pre-approved by the board of directors. All of the above fees were pre-approved by the board of directors.
Audit-related fees were incurred in relation to our quarterly reports on Form 10-Q and annual reports on Form 10-K.
Item 15.
Item 15. Exhibits
Exhibit No.
Exhibit Type
31.1
Certification pursuant to Section 13a-14(a) (3)
32.1
Certification pursuant to Section 1350 (3)
101.INS *
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
* Filed herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VSUS TECHNOLOGIES INCORPORATED
Dated: April 16, 2012
/s/ Kyle Gotshalk
By: Kyle Gotschalk
Its: Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
Dated: April 16, 2012
/s/ Kyle Gotshalk
By: Kyle Gotschalk - Director
Dated: April 16, 2012
/s/ John Campo
John Campo - Director
Dated: April 16, 2012
/s/ Cherish Adams
Cherish Adams - Director