NEW COLOMBIA RESOURCES INC - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32.1 SECTION 906 CERTIFICATION - NEW COLOMBIA RESOURCES INC	vsus10q063008ex321.htm
EX-31 - EX-31.1 SECTION 302 CERTIFICATION - NEW COLOMBIA RESOURCES INC	vsus10q063008ex311.htm

U.S. Securities and Exchange Commission

Washington, D.C. 20549

___________________

FORM 10-Q

____________________

(Mark One)

X . Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2008.

. Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act

For the transition period from N/A to N/A

____________________

Commission File No. 333-51274

____________________

VSUS TECHNOLOGIES INCORPORATED

(Name of small business issuer in its charter)


Delaware		43-2033337
(State or other		(I.R.S. Employer
jurisdiction of incorporation)		identification No.)


18565 Soledad Canyon Rd., #153,Canyon Country, CA		91351

(Address and Zip Code of Principal Executive Offices)

Registrant's Telephone Number: (310) 309-9080

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.01 par value per share

(Title of Class)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value per share

(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes X . No .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non–accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b–2 of the Exchange Act. (Check one):

Large accelerated filer . Accelerated filer . Non–Accelerated filer . Small Business Issuer X .

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes . No X .

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at February 8, 2010
Common stock, $0.001 par value		6,566,702

VSUS TECHNOLOGIES INCORPORATED


	Page
Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements and Notes to

Financial Statements

(a) Condensed Consolidated Balance Sheets as of June 30, 2008	3

(b) Condensed Consolidated Statements of Operations for the Three and six months Ended June 30, 2008 and 2007 (unaudited)	4

(c) Condensed Consolidated Statements of Cash Flows for the Three and six months Ended June 30, 2008 and 2007 (unaudited)	5

(d) Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk	24

Item 4. Controls and Procedures	24

Part II. Other Information	24

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities	27

Item 3. Defaults Upon Senior Securities	27

Item 4. Submission of Matters to a Vote of Security Holders	27

Item 5. Other Information	27

Item 6. Exhibits	27

Signatures	28

PART I – FINANCIAL STATEMENTS

VSUS TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,
IN 000'S		2008
		(Unaudited)
ASSETS:

CURRENT ASSETS
Cash and cash equivalents	$	2
Other receivables		29
		31
Property and equipment, net		150
Other assets		75
TOTAL ASSETS	$	256

LIABILITIES AND STOCKHOLDERS' DEFICIENCY:

CURRENT LIABILITIES
Convertible debentures	$	215
Related parties		126
Promissory notes		1,165
		1,506
LONG-TERM LIABILITIES		-
Related Party		328
Convertible debentures		3,400
Total liabilities		5,234

STOCKHOLDERS' EQUITY
Series A Preferred Stock
Warrant and conversion options		140
Common stock		100
Additional paid-in capital		18,415
Deferred stock based compensation		(1,898)
Accumulated deficit		(21,689)
Total Stockholders Equity		(4,978)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	256

See accompanying notes to the unaudited Condensed Consolidated Financial Statements

VSUS TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Six months		Six months		Three months		Three months
		June 30,		June 30,		June 30,		June 30,
		2007		2008		2007		2008
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
in 000's
Revenue	$	--	$	--	$	-	$	-

Operating expenses:
Administrative expenses	$	141	$	--	$	44	$	-

Total operating expenses		141		--		44		-

Income (loss) from operations		(141)		--		(44)		-

Income (loss) before income taxes		(141)		--		(44)		-

Provision for income taxes		-				-		-

Net income (loss)	$	(141)	$	--	$	(44)	$	-

Basic and diluted income (loss) per share		(0.00)		(0.00)		(0.00)		(0.00)

Weighted average number of shares outstanding		54,408,524		99,646,272		54,408,524		99,646,272

See accompanying notes to the unaudited Condensed Consolidated Financial Statements

VSUS TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2007 and 2008

(Unaudited)


CASH FLOWS FROM OPERATING ACTIVITIES		June 30, 2007		June 30, 2008

Net Income	$	(141)	$	-
Adjustments to reconcile net loss to cash used in operating activities

Depreciation		-		-

(Increase) Decrease in:

Increase (Decrease) in:
Related Party		141		-

Net Cash Used In Operating Activities		-		-

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease of liabilities from merger		(3,454)		-
Securities issued for merger		3,454		-

Net Cash Used in Investing Activities		-		-

NET DECREASE IN CASH		-		-

CASH AT BEGINNING OF PERIOD		2		2

CASH AT END OF PERIOD	$	2	$	2

See accompanying notes to the unaudited Condensed Consolidated Financial Statements

VSUS TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - INTERIM FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements include the accounts of VSUS Technologies Incorporated (the “Company”), required to be consolidated in accordance with U.S. generally accepted accounting principles (GAAP). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting policies described in the December 31, 2007 Form 10-K except for the accounting policy relating to accounting for uncertainty in income taxes, and should be read in conjunction with the consolidated financial statements and notes thereto.

The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2008 and 2007 included herein have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain only normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2008, and the results of its operations and cash flows for the three and six months ended June 30, 2008 and 2007. Certain prior year amounts have been restated or reclassified to conform to the current period presentation. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.

NOTE 2 - BUSINESS

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.

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.

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.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). All material intercompany balances and transactions have been eliminated

Financial Reporting

The Company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.

Use of Estimates

The Company’s significant estimates include allowance for doubtful accounts and accrued expenses. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

Cash and Cash Equivalents

Cash and cash equivalents include all interest-bearing deposits or investments with maturities of three months or less.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution insures up to $250,000 on account balances. The amounts that are not insured by FDIC limitations are held in short-term securities.

Fair value of financial instruments

The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses, debenture and loans payable approximate their fair market value based on the short-term maturity of these instruments.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. Further, the Company regularly reviews outstanding receivables, and provides estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations of customers’ financial condition. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company accounts for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“SFAS No. 144”). SFAS No. 144 requires write-downs to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the FASB issued Statement No. 142 Goodwill and Other Intangible Assets. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements.

Goodwill and intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of 15 years.

In performing this assessment, management uses the income approach and the similar transactions method of the market approach to develop the fair value of the acquisition in order to assess its potential impairment of goodwill. The income approach is based on a discounted cash flow model which relies on a number of factors, including operating results, business plans, economic projections and anticipated future cash flows. Rates used to discount future cash flows are dependent upon interest rates and the cost of capital at a point in time. The similar transactions method is a market approach methodology in which the fair value of a business is estimated by analyzing the prices at which companies similar to the subject, which are used as guidelines, have sold in controlling interest transactions (mergers and acquisitions). Target companies are compared to the subject company, and multiples paid in transactions are analyzed and applied to subject company data, resulting in value indications. Comparability can be affected by, among other things, the product or service produced or sold, geographic markets served, competitive position, profitability, growth expectations, size, risk perception, and capital structure. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future.

REVENUE RECOGNITION

Revenue for video streaming and maintenance services is recognized monthly as services are provided pursuant to the terms of contracts or purchase orders, which have prices that are fixed and determinable. The Company assesses the client’s ability to meet the contract terms, including meeting payment obligations, before entering into the contract. Deferred revenue results from customers who are billed for monitoring in advance of the period in which the services are provided, on a monthly, quarterly or annual basis.

The Company follows Staff Accounting Bulletin 104 (SAB 104), which requires the Company to defer certain installation revenue and expenses, primarily equipment related to, and direct labor incurred. The capitalized costs and deferred revenues related to the installation are then amortized over the life of an average customer relationship, on a straight line basis. If the customer is discontinued prior to the expiration of the original expected life, the unamortized portion of the deferred installation revenue and related capitalized costs are recognized in the period the discontinuation becomes effective. In accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables”, the service contracts that include both installation and video streaming are considered a single unit of accounting. The criteria in EITF 00-21 that the Company does not meet for services and installation services to be considered separate units of accounting is that the installation service to customers has no stand alone value. The installation service alone is not functional to customers without the service.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for major betterments and additions are capitalized while replacement, maintenance and repairs, which do not extend the lives of the respective assets, are currently charged to expense. Any gain or loss on disposition of assets is recognized currently in the statement of income.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, 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.

INCOME TAXES

The Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company determine whether the benefits of the Company’s tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. The provisions of FIN 48 also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and disclosure. The Company did not have any unrecognized tax benefits and there was no effect on the financial condition or results of operations as a result of implementing FIN 48. The Company does not have any interest and penalties in the statement of operations for the years ended June 30, 2007 and 2008.

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share is computed in accordance with SFAS No. 128, "Earnings per Share". Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. The outstanding warrants for the years ended June 30, 2007 and 2008 respectively are anti-dilutive and therefore are not included in earnings (loss) per share.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company adopted SFAS No. 123R, "Accounting for Stock-Based Compensation". This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service.

In addition, a public entity is required to measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value. The fair value of that award has been re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period.

For the year ended June 30, 2008 and 2007, the Company did not grant any stock options.

NON-EMPLOYEE STOCK BASED COMPENSATION

The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Emerging Issues Task Force Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMON STOCK PURCHASE WARRANTS

The Company accounts for common stock purchase warrants in accordance with the provisions of Emerging Issues Task Force Issue (“EITF”) issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on the provisions of EITF 00-19, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

INCOME TAXES

The Company accounts for income taxes using SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. Beginning after December 15, 2006. The Company does not expect that this interpretation will have a material impact on its financial position, results of operations, or cash flows.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (“the FSP”). The FSP provides guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under the FSP, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. The Company does not expect that this interpretation will have a material impact on its financial position, results of operations, or cash flows.

NOTE 3 - GOING-CONCERN AND MANAGEMENT'S PLAN

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, as shown in the accompanying consolidated financial statements, the Company has incurred losses from operations since inception. Management anticipates incurring additional losses in 2005. Further, the Company may incur additional losses thereafter, depending on its ability to generate revenues from the licensing or sale of its technologies and products. The Company's technologies and products have never been utilized on a large-scale commercial basis and there is no assurance that any of its technologies or products will receive market acceptance. As reflected in the accompanying consolidated financial statements, the Company's operations for the year ended June 30, 2006 and 2004, resulted in a net loss of $17,717,000 and $1,715,000, respectively. In addition the Company (i) was delinquent in paying its payroll taxes at June 30, 2006, (ii) has a working capital deficiency of $10,360,000 and (iii) is in default of its promissory notes (Note 8) and its 12% convertible debentures (Note 9).

BASIS OF PRESENTATION

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. As a result of the Company's acquisition of 1stAlerts, and the anticipated cash flow from the combined company's operations, the Company believes that it will have sufficient capital to fund its operations. However, until such time as the Company generates sufficient revenues from the sale of its products, the Company will continue to be dependent on raising substantial amounts of additional capital through any one of a combination of debt offerings or equity offerings. 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.

Being a development stage company, the Company is subject to all the risks inherent in the establishment of a new enterprise and the marketing and manufacturing of a new product, many of which risks are beyond the control of the Company. All of these factors raise substantial doubt as to the ability of the Company to continue as a going concern.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These consolidated financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. This statement applies under other accounting pronouncements that require or permit fair value measurements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model. Relative to SFAS 157, the FASB issued FSP FAS 157-1, FAS 157-2, and FAS 157-3. FSP FAS 157-1 amends SFAS 157 to exclude SFAS 13 and its related interpretive accounting pronouncements that address leasing transactions, while FSP FAS 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP FAS 157-3 clarifies the application of SFAS 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. This FSP is effective immediately and includes those periods for which financial statements have not been issued. We currently do not have any financial assets that are valued using inactive markets, and as such are not impacted by the issuance of this FSP. We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure eligible financial instruments at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value options is determined on an instrument by instrument basis, it should be applied to an entire instrument, and it is irrevocable. Assets and liabilities measured at fair value pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using another measurement attribute. SFAS No. 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company has adapted SFAS No. 159 to its consolidated financial statements. The adoption of this standard has no material effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business Combinations” (SFAS 141). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; non-controlling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date, until either abandoned or completed, at which point the useful lives will be determined; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. Upon adoption, SFAS 141(R) will not have a significant impact on our consolidated financial position and results of operations; however, any business combination entered into after the adoption may significantly impact our financial position and results of operations when compared to acquisitions accounted for under existing U.S. Generally Accepted Accounting Principles (GAAP).

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141(R). This statement includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. We have evaluated this new statement and have determined that the statement will not have a significant impact on the reporting of our financial position and results of operations.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 110. This guidance allows companies, in certain circumstances, to utilize a simplified method in determining the expected term of stock option grants

when calculating the compensation expense to be recorded under Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment . The simplified method can be used after June 30, 2007 only if a company’s stock option exercise experience does not provide a reasonable basis upon which to estimate the expected option term. Through 2007, we utilized the simplified method to determine the expected option term, based upon the vesting and original contractual terms of the option. On January 1, 2008, we began calculating the expected option term based on our historical option exercise data. This change did not have a significant impact on the compensation expense recognized for stock options granted in 2008.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and non-derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement; however, the new statement will not have an impact on the determination of our financial results.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other principles of GAAP. This FSP applies to all intangible assets, whether acquired in a business combination or otherwise, and shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with GAAP. With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.

In May 2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). ” APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance will result in companies recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. APB 14-1 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting APB 14-1 on its consolidated financial statements.

In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities". This FASB Staff Position (FSP) addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. This FSP provides that unvested share-based payment awards that contain non forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. The provisions of FSP No. 03-6-1 shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Early application is not permitted. The provisions of FSP No. 03-6-1 are effective for the Company retroactively in the first quarter ended June 30, 2009. The Company is currently assessing the impact of FSP No. EITF 03-6-1 on the calculation and presentation of earnings per share in its’ consolidated financial statements.

On January 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Statement No. 141R, Business Combinations (“FAS 141R”), FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”), Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“FSP 160”), Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”), EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”), EITF Issue No. 08-7, Accounting for Defensive Intangible Assets (“EITF 08-7”), FASB Staff Position EITF 03-6-1 , Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”) and FASB Staff Position APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(“APB 14-1”).

FAS 141R expands the scope of acquisition accounting to all transactions under which control of a business is obtained. This standard requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date fair values with limited exceptions. Additionally, FAS 141R requires that contingent consideration as well as contingent assets and liabilities be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. Transactions are now being accounted for under this standard. On April 1, 2009, the FASB issued Staff Position FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which is effective January 1, 2009, and amends the guidance in FAS 141R to require that assets acquired and liabilities assumed in a business combination that arise fromcontingencies be recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability would be recognized in accordance with FASB Statement No. 5, Accounting for Contingencies (“FAS 5”) , and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. If the fair value is not determinable and the FAS 5 criteria are not met, no asset or liability would be recognized.

FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other principles of GAAP. This FSP applies to all intangible assets, whether acquired in a business combination or otherwise. The adoption of this standard in 2009 has not had a significant impact on the determination or reporting of our financial results.

FAS 160 provides guidance for the accounting, reporting and disclosure of noncontrolling interests and requires, among other things, that noncontrolling interests be recorded as equity in the consolidated financial statements. The adoption of FAS 160 did not affect the Company’s consolidated financial position or consolidated results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires entities that use derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. The Company does not currently hold derivative instruments and was not impacted by the adoption of SFAS 161.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), and FSP FASB 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1). These two staff positions relate to fair value measurements and related disclosures. The FASB also issued a third FSP relating to the accounting for impaired debt securities titled FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2). These standards are effective for interim and annual periods ending after September 15, 2009. The Company has determined that FSP 157-4 and FSP 115-2 do not currently apply to its activities.

In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”), which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted the provisions of SFAS 165 for the quarter ended September 30, 2009. The adoption of these provisions did not have a material effect on the Company’s consolidated financial statements.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - RECENT ACCOUNTING PRONOUCEMENTS (CONTINUED)

EITF 08-6, which is effective January 1, 2009, clarifies the accounting for certain transactions and impairment considerations involving equity method investments and is applied on a prospective basis to future transactions.

EITF 08-7, which is effective January 1, 2009, clarifies that a defensive intangible asset (an intangible asset that the entity does not intend to actively use, but intends to hold to prevent others from obtaining access to the asset) should be accounted for as a separate unit of accounting and should be assigned a useful life that reflects the entity’s consumption of the expected benefits related to the asset. EITF 08-7 is applied on a prospective basis to future transactions.

FSP EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive nonforfeitable dividends before they vest will be considered participating securities and included in the earnings per share calculation pursuant to the two class method. The effect of adoption of FSP EITF 03-6-1 was not material to the Company’s consolidated results of operations.

APB 14-1 requires the issuer to separately account for the liability and equity components of convertible debt instruments in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance will result in companies recognizing higher interest expense in the statement of operations due to amortization of the discount that results from separating the liability and equity components. APB 14-1 was adopted on January 1, 2009, and did not affect the Company’s consolidated financial position or consolidated results of operations.

In September 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140 (SFAS 166). SFAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The Company will adopt SFAS 166 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In September 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt SFAS 167 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In September 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 replaces FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes the FASB Accounting Standards Codification ^TM (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). SFAS 168 is effective for interim and annual periods ending after September 15, 2009. The Company will begin to use the new Codification when referring to GAAP in its quarterly report on Form 10-Q for the quarter ending September 30, 2009. This will not have an impact on the consolidated results of the Company.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 5 - RECLASSIFICATIONS

Certain prior periods' balances have been reclassified to conform to the current period's financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' equity.

In assessing the amount of deferred tax asset to be recognized, management considers whether it is more likely than not that some of the losses will be used in the future. Management expects that they will not have benefit in the future. Accordingly, a fully valuation allowance has been established.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - COMMON STOCK

LOSS PER COMMON SHARE

Basic loss per common share is computed based upon weighted-average shares outstanding and excludes any potential dilution. Diluted loss per share reflects the potential dilution from the exercise or conversion of all dilutive securities into Common Stock based upon the average market price of common shares outstanding during the period. For the year ended June 30, 2006 and 2004, no effect has been given to outstanding options, warrants, convertible debentures and convertible preferred stock in the diluted computation, as their effect would be anti-dilutive.

Securities that could potentially dilute basic earnings per share (EPS) in the future, that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of the following:


Options to purchase Common Stock	2,088,258

Total as of March 31, 2008	2,088,258


	(1)	Based on conversion rate of $.25.

Substantial and potential issuances after June 30, 2007:


Stock options issued for services	8,400,000

NOTE 7 - ACQUISITION

On April 14, 2005, the Company consummated the acquisition of all of the issued and outstanding shares of Common Stock of 1stAlerts. At the time of the 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 pre-acquisition stockholders of 1stAlerts have been granted the option to purchase up to 95% of the shares of First Info Network, Inc. from the Company under certain circumstances, pursuant to a Call Option Agreement the Company entered into with them.

The Company concludes that since, at the effective time of the 1stAlerts Acquisition, the Company maintained (i) a majority of the outstanding shares of Common Stock of the combined company, (ii) officers who ranked higher than the incoming pre-acquisition 1stAlerts officers, and (iii) the ability to elect and appoint a voting majority of the governing board, the acquisition will be treated as a forward merger with the Company as the accounting acquirer. The transaction was accounted for using the purchase method of accounting.

The following table sets forth the calculation of the purchase price:

Value of VSUS stock issued in connection with the acquisition with 1stAlerts.


	Estimated Fair Values		Equity Value per Share		Consideration
Common Stock	$	13,000,000	$	.37	$	4,810,000
Warrants (as determined under Black Scholes)	$	1,861,841	$	.20	$	376,399
Series B Preferred Stock	$	200	Not Determinable
Total Consideration					$	5,186,399
Total liabilities assumed, net of debt discount of $376,399					$	4,816,955
Total Consideration, Net					$	10,003,354

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As required by paragraph 74 of APB No. 16, “APB 16: Business Combinations”, “The fair value of securities traded in the market is normally more clearly evident than the fair value of an acquired company (paragraph 67). Thus, the quoted market price of an equity security issued to effect a business combination may usually be used to approximate the fair value of an acquired company after recognizing possible effects of price fluctuations, quantities traded, issue costs, and the like (paragraph 23). The market price for a reasonable period before and after the date the terms of the acquisition are agreed to and announced should be considered in determining the fair value of securities issued.”

APB 16 continues to state under paragraph, 75, “If the quoted market price is not the fair value of stock, either preferred or common, the consideration received should be estimated even though measuring directly the fair values of assets received is difficult. Both the consideration received, including goodwill, and the extent of the adjustment of the quoted market price of the stock issued should be weighed to determine the amount to be recorded. All aspects of the acquisition, including the negotiations, should be studied, and independent appraisals may be used as an aid in determining the fair value of securities issued. Consideration other than stock distributed to effect an acquisition may provide evidence of the total fair value received”.

In reviewing the transaction, the Company has determined that quoted market price at April 14, 2005, is not indicative of the fair value of the stock. This is because at the time of the 1stAlerts Acquisition, the Company's Common Stock was thinly traded. It was not until August of 2005 that a reasonable volume of shares began to be traded. Since the beginning of August the price ranged from about $0.30 to $0.54. From the date of the 1stAlerts Acquisition to the date that a more active volume of shares began to trade, the Company had no significant announcements or developments in their business.

Based on the above facts, the initial fair value of the Company's Common Stock for the purposes determining the purchase price of the 1stAlerts acquisition was $0.37 per share. The Company intends to have its Common Stock and Series B Preferred Stock valued by a qualified appraiser by June 30, 2006.

The fair value of the 1stAlerts warrants was determined using the Black-Scholes valuation model. To determine the fair value of these warrants, the following assumptions were used: expected volatility of 50.0%, risk-free interest rate of 2.0%, and expected life of two years.

Since, the Series B Participating Preferred Stock has no voting rights, cannot be converted for a period of 3 years from the date of the 1stAlerts Acquisition (other than a liquidity event defined above), and the number of shares of Common Stock which could be issued upon conversion is not estimatable as of the acquisition date, the value of the Series B Preferred Stock is not determinable at this time and therefore has not been valued.

The transaction is being accounted for using the purchase method of accounting as required by Statement of Financial Accounting Standards (“SFAS”) Statement No. 141, “Business Combinations,” with the Company's as the accounting acquirer. Accordingly, the purchase price has been allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. The excess of the purchase price over the fair value of net assets acquired was recorded as goodwill. The results of 1stAlerts for the period April 14, 2005 through September 30, 2005, are included in the consolidated statement of operations for the three and nine months ended September 30, 2005. Goodwill and acquired technology recorded in the acquisition will be tested periodically for impairment as required by SFAS Statement No. 142, “Goodwill and Other Intangible Assets”. The allocation of the purchase price to specific assets and liabilities is based, in part, upon internal estimates of assets and liabilities. The Company is in the process of beginning the independent appraisal for certain assets, and refining its internal fair value estimates. Therefore, the allocation of the purchase price is preliminary and the final allocation will likely differ. Based on the preliminary purchase price allocation, the following table summarizes estimated fair values of the assets acquired:


Loan Receivable	$	228,207
Security deposit		26,612
Property and equipment		703,743
Acquired technology		4,522,396
Goodwill		4,522,396
Total	$	10,003,354

Based on this initial allocation of the purchase price, $4,522,396 was allocated to amortizable intangible assets. The future amortization for this assets using the initial valuation and assuming a five-year economic life would be approximately $905,000 per year.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the acquisition of 1stAlerts on April 14, 2005, the Company recorded goodwill and other intangible assets in accordance with SFAS No. 141, “Business Combinations”. The $9.0 million of goodwill and other intangible assets was recorded as the excess of the purchase price of $10.0 million over the fair value of the net amounts assigned to assets acquired and liabilities assumed. In accordance with SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets”, the Company will continue to assess on an annual basis whether goodwill and other intangible assets acquired in the acquisition of 1stAlerts's are impaired. Additional impairment assessments may be performed on an interim basis if the Company deems it necessary. Finite-lived intangible assets will be amortized over their useful lives, if determinable, and periodically reviewed for impairment. No amounts assigned to any intangible assets are deductible for tax purposes.

The Company’s annual impairment review of goodwill and other intangible assets identified that a goodwill and other intangible asset impairment charge amounting to approximately $8,509,000.

NOTE 9 - PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2007 consisted of the following (in thousands):


Computer hardware	$	349
		-
	$	-
Less: Accumulated depreciation		199
	$	150

NOTE 10 - TRANSACTIONS WITH RELATED PARTIES

Effective as of January 28, 2005, the Company entered into a settlement agreement (the “Settlement Agreement”) with a former officer and director.

Pursuant to the Settlement Agreement, among other things, (i) the former officer and director resigned from his duties with the Company and sold all of the Company's Common Stock held by him; (ii) the Company granted to the former officer and director a worldwide, perpetual license to use and market certain of its intellectual property; (iii) the former officer and director agreed to provide the Company with certain customer service and support, and development services; (iv) the Company agreed to reimburse the former officer and director for certain amounts paid by him on behalf of the Company, and sell him, or a company founded by him, certain assets with a carrying value of $49,000 without additional consideration; (v) the former officer and director agreed to forfeit certain amounts due to him from the Company; and (vi) the Company canceled an aggregate of 1,183,750 options to purchase shares of its Common Stock, at exercise prices ranging between $0.001 and $0.01 per share, which the Company previously granted to him under its 2003 Stock Option Plan, and replaced them with an aggregate of 1,183,750 non-plan options to purchase shares of the Company's Common Stock, at exercise prices ranging between $0.001 and $0.01 per share.

Pursuant to the Settlement Agreement (described above), among other things, 5,038,000 shares of the Company's Common Stock held and controlled by the former officer and director were sold to the Company's newly appointed President and director, for an aggregate purchase price of $170,000. The purchase price was negotiated as part of the Company's settlement with the former officer and director, and, therefore, does not necessarily represent the fair market value of our Common Stock on the date of the transaction. As a result of this transaction and an employment agreement with the Company's newly appointed President dated April 28, 2005, the Company recorded a charge of $1,694,000 to reflect the excess of the fair value of the shares purchased over the $170,000 during the quarter ended June 30, 2005. As of September 2, 2005, the Company's President and director resigned, and in connection therewith, returned 453,000 of these shares to the Company's treasury.

Effective January 28, 2005, the Company signed a promissory note of $62,384 with a former officer of the Company to reimburse him for expenses paid by him on behalf of the Company. Principal and accrued interest are payable on or prior to the one year anniversary of the date of this Note. The loan bears an interest rate of 12% per annum.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - CONVERTIBLE LOAN AND SERIES A CONVERTIBLE PREFERRED STOCK

In November 2003, the Company signed two loan agreements. Pursuant to the first loan agreement, the Company was to receive loans from several lenders in the total amount of $1,500,000. The Company issued promissory notes in this amount. Principal and accrued interest at the rate of 12% per annum were payable in full after one year. As of June 30, 2003, a total of $900,000 was received, and an aggregate amount of $475,000 was received during 2004. Pursuant to the second loan agreement, the Company was to receive a loan from a lender in the total amount of $200,000. This loan amount bears interest at the non-negotiable rate of 24% per annum. During 2004, the Company received $100,000, and, during 2005, the Company has received an additional $66,334, The Company expects to pay accrued and unpaid interest on the Loan to the lenders in cash, with the exception of $50,000 in interest, which was added to the amount of the Loans.

Pursuant to those two loan agreements, the loans, (the “Loan”), are convertible into units of the Company's securities (the “Units”), at a purchase price of $5,000 per Unit (the “Original Purchase Price”). Each Unit will consist of: (i) one share of the Company's Series A Convertible Preferred Stock (the “ Series A Preferred Stock”); (ii) 5,000 Class A Warrants; (iii) 5,000 Class B Warrants; and (iv) 5,000 Class C Warrants (the Class A Warrants, Class B Warrants and Class C Warrants are hereinafter sometimes referred to collectively as the “Warrants”).

On November 3, 2004 (the “Closing Date”), the outstanding balance of the Loan of $1,591,334 was converted into 318 Units, at a purchase price of $5,000 per Unit.

Due to the immaterial value of the Warrants as of November 3, 2004, no value was allocated to the Warrants.

The Series A Preferred Stock agreement provides for restrictions and limitations on defined managements actions.

The holders of the Series A Preferred Stock (the “Holders”) have certain preferential dividend and liquidation rights including cumulative preferred dividends of 12% per annum. In addition, the Convertible Preferred Stock is redeemable: (i) at the election of any Holder after thirteen months following the Closing Date, subject to the Holder's option to have the Company redeem the Series A Preferred Stock from the proceeds of any offering of the Company's securities resulting in gross proceeds of $5,000,000 or more (a “Qualified Offering”), at a purchase price equal to the Original Purchase Price, plus any accrued and unpaid dividends; or (ii) at the Company's election after sixteen months following the Closing Date, at a purchase price equal to 130% of the Series A Preferred Stock's Original Purchase Price, plus any accrued and unpaid dividends. Also, each of the shares of Series A Preferred Stock outstanding is convertible into such number of shares of the Company's Common Stock as is determined by dividing $5,000, by $0.51 (Amended in April, 2005). At June 30, 2006, the Company had recorded approximately $138,000 of preferred stock dividends. Since the Series A Preferred Stock was classified as a liability, the preferred stock dividends are included in financing expenses in the accompanying consolidated statements of operations.

Each of the Class A Warrants the Company issued in connection with this transaction have a term of one year from the effective date of issuance, and an exercise price of $0.38 (Amended in April 2005). Each of the 1,750,000 Class B Warrants the Company issued in connection with this transaction have a term of three years from the date of issuance, and an exercise price of $0.68. Each of the 1,750,000 Class C Warrants the Company issued in connection with this transaction have a term of five years from the date of issuance, and an exercise price of $0.93 (Amended in April 2005).

As a result of the sale of convertible debentures in April 2005, pursuant to antidilution provisions in the Series A Preferred Stock and the Class A Warrants, Class B Warrants, and Class C Warrants, the company: (i) reduced the conversion price of the Series A Preferred Stock, so that each share of Series A Preferred Stock is convertible into such number of shares of the Company's Common Stock as is determined by dividing $5,000, by $0.25; (ii) reduced the exercise price of the Class A Warrants to $0.19 per share, and extend the term to two years from the effective date of the Registration Statement; (iii) reduced the exercise price of the Class B Warrants to $0.34 per share, and extend the term to five years from the effective date of the Registration Statement; and (iv) reduced the exercise price of the Class C Warrants to $0.47 per share.

The Company agreed to file a registration statement (the “Registration Statement”) to register the shares of Common Stock underlying the Series A Preferred Stock, Class A Warrants, Class B Warrants and Class C Warrants no later than 45 days after the Closing Date (the “Required Filing Date”). For various reasons, the Company was not able to satisfy its requirement to file the Registration Statement on or prior to the Required Filing Date. Subsequently, the Holders waived their rights to any penalties through May 31, 2005 related to the company's failure to file the registration statement. Liquidating damages are uncapped and accrue at the rate of 3% per month or $47,740 for each month that the Company fails to register the underlying common shares. The Company accrued $634,512 at June 30, 2006 in connection with the liquidating damages.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of the uncapped liquidating damages provision related to a failure to register the common shares contained in the registration rights agreement, the conversion option and the Class A, Class B and Class C warrants do not qualify as equity and have been recorded as a derivative liability. The derivative liability is adjusted to its fair value at each reporting period. Any increase or decrease to such liability is recognized as a loss or gain in the Company's consolidated statement of operations. At June 30, 2006, the fair value of these derivative instruments was $845,562 which resulted in a loss of $845,562 for the year ended December 30, 2005.

Contemporaneously with its acquisition of 1stAlerts, Inc., the Company converted the accrued interest on the convertible loans of $177,066 into 708,263 shares of its Common Stock, as full and complete payment thereof.

As of December 3, 2005, the Series A Preferred Stock became redeemable as the election of the Holders. As of the date of this filing, none of the Holders have exercised their right.

NOTE 12 - PROMISSORY NOTES

As of April 14, 2005, the Company acquired 1stAlerts and, in connection therewith, assumed convertible debentures totaling $3,400,000 discussed in Note 9 and promissory notes in the aggregate amount of $1,165,000.

The loans are evidenced by a promissory note (the “1stAlerts Notes””) issued by 1stAlerts to the lenders. Interest on the principal amount of the loan outstanding accrues at the annual rate of 12% and is payable on the maturity of the loan. Prior to the acquisition, 1stAlerts had defaulted on the 1stAlert Notes. The Company is currently negotiating a resolution with the holders of the 1stAlerts Notes; however the loan remains in default.

Pursuant to the acquisition with 1stAlerts, the Company exchanged warrants to purchase 1,861,841 shares of 1stAlerts Common Stock for 1,861,841 of its Class A Warrants.

Each of the 1,861,841 Class A Warrants the Company issued in connection with the 1stAlerts Acquisition have a term of two years from the effective date of the Registration Statement, and is exercisable at $.19 per share. The value assigned to these warrants was $376,399 and was recorded as a debt discount at the date of 1stAlerts Acquisition. The debt discount of $376,399 was charged to financing expenses during the quarter ended June 30, 2005.

NOTE 13 - CONVERTIBLE DEBENTURES

FORMER SHAREHOLDERS OF 1STALERTS

Pursuant to the 1stAlerts Acquisition, First Info Network, Inc. assumed the promissory notes in the aggregate principal amount of $3,400,000 which 1stAlerts had issued to two of the pre-acquisition 1stAlerts stockholders (the “Notes”). The Notes bear interest at the rate of one percentage point per annum above the prime rate and is due June 30, 2009. Pursuant to the Notes, concurrently with any public sale, spin-off or other similar disposition of the shares of First Info Network, Inc., the Notes are convertible into shares of Common Stock of First Info Network, Inc at 70% of the “Market Price” (as determined at the time of such transaction). As security for the repayment of the Notes, the Company pledged all of the Company's shares of First Info Network, Inc. No value has been currently assigned to this contingent beneficial conversion feature.

SALE OF 12% CONVERTIBLE DEBENTURES AND WARRANTS

As of April 14, 2005, contemporaneously with the 1stAlerts Acquisition, the Company sold an aggregate of: (i) $215,000 of its 12% Convertible Debentures (the “Debentures”), (ii) 215,000 Class A Warrants, (iii) 215,000 Class B Warrants, and (iv) 215,000 Class C Warrants to four lenders.

The Debentures, which have a maturity date of December 3, 2005, are convertible into such number of shares of the Company's Common Stock as is determined by dividing the amount of the Debentures, by $0.25. Each of the Class A Warrants has a term of two years from the effective date of the Registration Statement, and an exercise price of $0.19. Each of the Class B Warrants has a term of five years from the effective date of the Registration Statement, and an exercise price of $0.34. Each of the Class C Warrants has a term of five years from the date of issuance, and an exercise price of $0.47.

The fair value of $215,000 Debentures were allocated 71% or $153,741 to the Debenture and 29% or $61,259 to the Debenture warrants. The value of the conversion option was limited to $153,741. The combined value of the warrants and conversion option totaled $215,000 and was accounted for as the debt discount of $215,000 and a derivative liability of $215,000.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to a registration rights agreement, the Company agreed to use its best efforts to register the common shares underlying the convertible debenture and warrants. The agreements provides for uncapped liquidating damages at the rate of 2% per month or $4,300 for each month after May 31, 2005 that it fails to register the common shares. Accrued liquidity damages at June 30, 2006 approximated $43,000.

As a result of the uncapped liquidating damages provision related to a failure to register the common shares contained in the registration rights agreement, the conversion option and the Class A, Class B and Class C warrants do not qualify as equity and have been recorded as a derivative liability. The derivative liability is adjusted to its fair value at each reporting period. Any increase or decrease to such liability is adjusted to its fair value at each reporting period. Any increase or decrease to such liability is recognized as a loss or gain in the Company's consolidated statement of operations. At June 30, 2006, the fair value of these derivative instruments was $139,883 which resulted in a gain of $75,117 for the year ended June 30, 2006.

The debt discount of $215,000 is being charged to financing costs over the period ended June 30, 2006. The Company is in default under these debentures as of December 3, 2005. The Company is currently negotiating a resolution with the holders of these debentures.

NOTE 14- SHAREHOLDERS' EQUITY

STOCK OPTION GRANTS AND EXERCISES

In March 2005, the Company granted to a consultant for professional services stock options to purchase 80,000 shares of its Common Stock at an exercise price of $.01 per share. The options vest on January 31, 2006. Since the Company's stock has had a historically limited "public market", the fair value of the stock options estimated on the date of grant was determined using the value of the services of $60,000. The $60,000 and has been recorded as Deferred Compensation and is being amortized over the period of service.

In March 2005, the Company granted to a consultant stock options for professional services rendered to purchase 8,258 shares of its Common Stock at an exercise price of $1.70 per share. The options vest on July 14, 2005. Since the Company's stock has had a historically limited "public market", the fair value of the stock options estimated on the date of grant was determined using the value of the services rendered. The value of services was determined to be $5,000 and has been recorded as a compensatory stock element expense in the accompanying consolidated statement of operations for the quarter ended June 30, 2005.

Effective as of January 6, 2005, a former officer, director and consultant of the Company was removed as an officer and director of the Company, and his Consulting Agreement was terminated As a result of such removal, 341,250 of his options to purchase shares of Common Stock of the Company, which had not already vested, automatically expired on the date thereof.

Simultaneously with the 1stAlerts Acquisition, the former officer, director and consultant was reinstated as a director of the Company, and, the Company entered into a new Consulting Agreement with him. In consideration for his services as a director, the Company reissued 341,250 stock options, which had automatically expired at the time of his removal. Also, in connection with the new Consulting Agreement, the consultant was issued options to purchase an additional 1,000,000 shares of the Company's Common Stock, at an exercise price of $.001 per share.. Since the company's stock has had a historically limited "public market", the fair value of $.37 per share or $433,131. The $433,131 had been originally recorded as Deferred Compensation and was being amortized over the term of the agreement. As of September 2, 2005, the date thereof, the former officer, director and consultant resigned as a director of the Company, and the new Consultant Agreement was terminated. As a result of the termination of the new Consulting Agreement, the Company recognized the remaining unearned compensation of $277,500 in the accompanying consolidated statement of operations for the year ended June 30, 2006.

During the nine months ended September 30, 2005, the former officer exercised all of the 1,952,000 options.

ADDITIONAL ISSUANCES OF STOCK OPTIONS PURSUANT TO THE COMPANY'S 2003 STOCK OPTION PLAN

Contemporaneously with the Company's acquisition of 1stAlerts, as of April 14, 2005, the Company granted options to purchase an aggregate of 4,000,000 shares of its Common Stock, at an exercise price of $0.001 per share, to two service providers. These options vested 100% upon their grant and have a term of five (5) years from their date of grant. As of September 20, 2005, options to purchase 2,000,000 of these shares were rescinded by one of the grantees. Since the Company's stock has had a historically limited "public market", the fair vale of the stock options estimated on the date of grant was determined using the value of $.37 per share or $740,000. The $740,000 has been recorded as compensatory stock element expense in the accompanying consolidated statement of operations for the year ended June 30, 2007.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In May 2005, the Company granted to a consultant stock options for professional services rendered to purchase 50,000 shares of its Common Stock at an exercise price of $0.01 per share. The options were exercised in June 2005. Since the Company's stock has had a historically limited "public market", the fair vale of the stock options estimated on the date of grant was determined using the value of $.37 per share or $18,500. The $18,500 has been recorded as Deferred Compensation and is being amortized over the period of service of one year.

In May 2005, the Company granted to a consultant stock options for professional services rendered to purchase 100,000 shares of its Common Stock at an exercise price of $0.01 per share. The options were exercised in May 2005. Since the Company's stock has had a historically limited "public market", the fair vale of the stock options estimated on the date of grant was determined using the value of the services rendered. Since the Company's stock has had a historically limited "public market", the fair vale of the stock options estimated on the date of grant was determined using the value of $.37 per share or $37,000. The $37,000 has been recorded as Deferred Compensation and is being amortized over the period of service of one year.

In May 2005, the Company granted to a consultant stock options for professional services rendered to purchase 500,000 shares of its Common Stock at an exercise price of $0.01 per share. The options were exercised in May 2005. Since the Company's stock has had a historically limited "public market", the fair valUe of the stock options estimated on the date of grant was determined using the value of $.37 per share or $185,000. The $185,000 has been recorded as Deferred Compensation and is being amortized over the period of service of one year.

In May 2005, the Company granted to a consultant stock options for professional services rendered to purchase 100,000 shares of its Common Stock at an exercise price of $0.01 per share. The options were exercised in May 2005. Since the Company's stock has had a historically limited "public market", the fair value of the stock options estimated on the date of grant was determined using the value of $.37 per share or $37,000. The $37,000 has been recorded as Deferred Compensation and is being amortized over the period of service of one year.

In July 2005, the Company entered into a Consulting Agreement. In consideration for the consulting services to be provided to the Company by the consultant, the Company agreed to, among other things (i) issue 50,000 shares of its Common Stock to the consultant upon execution of the Consulting Agreement, and (ii) issue an additional 15,000 shares of the Company's Common Stock to the consultant per month thereafter, for each month in which consulting services are to be provided. As of June 30, 2006, approximately 65,000 shares have been issued under the agreement. Since, the Company's stock has had a historically limited "public market", the fair vale of the stock options estimated on the date of grant was determined using the value of $.37 per share or $24,050. The $24,050 has been recorded as compensatory stock element expense in the accompanying consolidated statement of operations for the year ended December 30, 2005.

In September 2005, the Company entered into a consulting agreement pursuant to which a consultant shall provide strategic consulting services to the company, through September 20, 2007. As consideration for the consulting services to be provided to the Company by the consultant, the Company agreed to issue to the consultant (i) 10,000,000 restricted shares of the Company's Common Stock (the "Shares"), and (ii) stock options to purchase an additional 10,000,000 shares of the Company's Common Stock, at an exercise price of $0.01 per share (the "Options"). The market value of the Shares and Options issued was $0.09 per share or $1,800,000. The $1,800,000 has been recorded as Deferred Compensation and is being amortized over the period of service of two years. As of April 30, 2006, the consultant has not received any of the Shares, and has been granted --of the Options, all of which have been exercised.

ISSUANCE OF SHARES TO A FORMER STOCKHOLDER

The Company and a former stockholder of Formula Footwear, Inc. (“Formula”), the Company's former parent, and the predecessor filer, agreed to revise the terms of a Promissory Note in the amount of $100,000 which was issued to the former stockholder of Formula in consideration of its cancellation of shares of Formula's Common Stock held by it. According to the revised terms, the maturity date of the note is extended so that one-third of the amount is payable on April 14, 2005, one-third is payable thirty days thereafter, and the one-third is payable sixty days thereafter. As of June 30, 2006, there remains an outstanding balance of $33,666. In addition, in consideration for the stockholder's agreement to extend the maturity date of the note, the Company issued it, and certain of its affiliates, an aggregate of 124,750 shares of the Company's Common. Since the Company's stock has had a historically limited “public market”, the fair vale of the stock issued estimated on the date of issuance was determined using the value of $.37 per share or approximately $46,000. The $46,000 has been recorded as interest expense in the accompanying consolidated statement of operations for the year ended June 30, 2006.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK

As part of the 1stAlerts Acquisition, the Company issued 1stAlerts, 200 shares of its Series B Participating Preferred Stock. As set forth in the Certificate of Designation of Series B Participating Preferred Stock that the Company filed, the holders of the Company's Series B Participating Preferred Stock: (i) are entitled to participate, on an “as if converted” basis, in any and all dividends paid with respect to our Common Stock, (ii) have a liquidation preference, which provides that, upon certain “liquidity events,” they will be paid out of the Company's assets prior to the holders of the Company's Common Stock, in parity with the holders of the Company's other series of preferred stock, and (iii) have no voting rights.

Shares of the Company's Series B Participating Preferred Stock will be automatically converted into shares of the Company's Common Stock upon the occurrence of: (i) the liquidation, dissolution, or winding up of the Company, (ii) the consolidation, merger or reorganization of the company, which results in a change of control, or (iii) the sale of all or substantially all of the Company's assets, or the Company's issued and outstanding shares of Common Stock. In such event, the Company's outstanding shares of Series B Participating Preferred Stock will be converted into shares of the Company's Common Stock, so that after such issuance, the holders of shares of the Company's Series B Participating Preferred Stock will hold, in the aggregate, a number of shares of the Company's Common Stock equal to the percentage of the total “Fair Market Value” of the Company represented by the “Fair Market Value” of First Info Network, Inc., the Company's wholly-owned subsidiary, determined by a mutually agreed upon independent appraiser.

In addition, any time on or after the third anniversary of the effective date of the 1stAlerts Acquisition, any holder of shares of the Company's Series B Participating Preferred Stock may convert such shares into the number of shares of the Company's Common Stock as is determined by the following formula:


	x = y ((A/B) x (C/D))

A = Number of shares of Series B Participating Preferred Stock owned by the holder.

B = Total number of issued and outstanding shares of Series B Participating Preferred Stock.

C = Fair Market Value of First Info Network, Inc. on the conversion date.

D = Fair Market Value of the Company on the conversion date.

y = Total number of shares of the Company's Common Stock issued and outstanding on the conversion date.

x = Number of shares of the Company's Common Stock into which the holder of shares of Series B Participating Preferred Stock is entitled to convert.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

ROYALTY AND LOAN AGREEMENT

As of September 9, 2005, the Company amended its Memorandum of Understanding (the "MOU"), dated June 9, 2005, with NetCurrents Information Services, Inc., a Delaware corporation ("NetCurrents"), so that, as amended, the MOU provides that NetCurrents will grant the Company a 50-year license (the "License") to, at the Company's sole cost and expense, (i) in consultation with NetCurrents, modify and integrate NetCurrent's patented Internet search technology (the "NetCurrents Intellectual Property") into certain software applications the company currently markets, licenses, sells and distributes to customers (the "VSUS Intellectual Property") to create bundled products therefrom (the "Bundled Applications"); and (ii) develop and create modified versions and derivative works from the NetCurrents Intellectual Property, which the Company intends to market, license, sell and distribute to third parties ("Additional Applications").

As consideration for such License, the Company will (i) within one hundred eighty (180) days after the Effective Date, loan to NetCurrents an aggregate of $200,000 (the "Initial Loan Amount"), in such increments as are to be agreed to by the parties; (ii) if requested by NetCurrents, use its best efforts to thereafter loan to NetCurrents an additional $50,000 (the "Additional Loan Amount," and together with the Initial Loan Amount, the "Loan"); (iii) issue to NetCurrents 500,000 shares of its Common Stock; and (iv) pay to NetCurrents, on a quarterly basis, royalties (the "Royalties") equal to fifteen (15%) of the gross revenues the Company receives from the sale, license, or other distribution of the Bundled Applications and/or any Additional Applications (the "Revenues").

The Loan shall be (i) provided by the Company to NetCurrents without interest; (ii) secured against the NetCurrents Intellectual Property; and (iii) repayable to the Company by NetCurrents only from fifty (50%) percent of any Royalties otherwise payable to NetCurrents pursuant to the MOU. In consideration for providing NetCurrents the Loan, NetCurrents shall issue to the Company 500,000 shares of its Common Stock, within thirty (30) days of their receipt of the Initial Loan Amount.

VSUS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In order for the Company to maintain the License, the Company must meet (i) certain milestones set forth in a timetable for the modification and integration of the NetCurrents Intellectual Property into the Bundled Applications, and the commercialization thereof, to be mutually agreed to by the parties; and (ii) certain minimum Revenue amounts, to be mutually agreed to by the parties.

NetCurrents shall continue to own all rights, title and interest in and to the NetCurrents Intellectual Property. The Company shall continue to own all rights, title and interest in and to the VSUS Intellectual Property. The parties shall each own fifty (50%) percent of the rights, title and interest in and to any Additional Applications the Company develops in accordance with the terms and conditions of the MOU.

As of June 30, 2006, the Company loaned NetCurrents $100,000. The Company has not issued any shares of its Common Stock to NetCurrents. No shares have been issued to NetCurrents and NetCurrents has not issued shares of its Common Stock to the Company.

NOTE 16-OTHER EVENTS

In January 2006, the Company entered into a consulting agreement with a consultant, pursuant to which the consultant shall provide strategic consulting services to the Company, through January 2008. As consideration for the consulting services to be provided to the Company by the consultant, the Company issued the consultant stock options to purchase 4,000,000 shares of the Company’s Common Stock, at an exercise price of $0.01 per share. The market value of the shares underlying these options was $0.34 per share, or an aggregate of $1,360,000. The $1,360,000 will be recorded as deferred compensation and will be amortized over the period of service of three years. As of this date 2,000,000 options have been exercised.

In January 2006, we entered into a consulting agreement with a consultant, pursuant to which the Consultant shall provide strategic consulting services to the Company, through January 2008. As consideration for the consulting services to be provided to the Company by the consultant, the Company issued to the Consultant stock options to purchase 4,000,000 shares of the Company’s Common Stock, at an exercise price of $0.01 per share. The market value of the shares underlying these options was $0.34 per share or $1,360,000. The $1,360,000 will be recorded as deferred compensation and will be amortized over the period of service of three years. As of this date all the options have been exercised.

ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS

THREE AND SIX MONTHS ENDED JUNE 30, 2007

COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2006

Sales were $-0- for the three and six month period ended June 30, 2008 and for the three and six month period ended June 30, 2007.

Selling, general and administrative expenses decreased to $-0- for the three month period ended June 30, 2008 from $141,000 for the three month period ended June 30, 2007 due to costs associated with the operations of the public company.

Net loss decreased from $141,000 for the six month period ended June 30, 2007 from net loss of $-0- for the three and six month period ended June 30, 2008, due to the above analysis of Income and Expenses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in any hedging activities.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation our Chief Executive Officer and Chief Financial Officer concluded that, at June 30 2008, our disclosure controls and procedures are ineffective. However as of the date of the filing of the Form 10Q/A management has implemented changes that it has determined will make it financial reporting process effective as of the date of this filing.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is not a party to any litigation and, to its knowledge, no action, suit or proceeding has been threatened against the Company.

ITEM 1A - RISK FACTORS

POSSIBLE “PENNY STOCK” REGULATION

Any trading of our common stock in the Pink Sheets or on the OTC Bulletin Board may be subject to certain provisions of the Securities Exchange Act of 1934, commonly referred to as the “penny stock” rule.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stock:

With a price of less than $5.00 per share;

That are not traded on a “recognized” national exchange;

Whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or

In issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

BECAUSE WE ARE QUOTED ON THE OTCBB INSTEAD OF AN EXCHANGE OR NATIONAL QUOTATION SYSTEM, OUR INVESTORS MAY HAVE A TOUGHER TIME SELLING THEIR STOCK OR EXPERIENCE NEGATIVE VOLATILITY ON THE MARKET PRICE OF OUR STOCK.

Our common stock is traded on the OTCBB. The OTCBB is often highly illiquid, in part because it does not have a national quotation system by which potential investors can follow the market price of shares except through information received and generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of volatility for securities that trade on the OTCBB as compared to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volume, and market conditions. Investors in our common stock may experience high fluctuations in the market price and volume of the trading market for our securities. These fluctuations, when they occur, have a negative effect on the market price for our securities. Accordingly, our stockholders may not be able to realize a fair price from their shares when they determine to sell them or may have to hold them for a substantial period of time until the market for our common stock improves.

RISKS RELATING TO OWNERSHIP OF OUR COMMON STOCK

Although there is presently a market for our common stock, the price of our common stack may be extremely volatile and investors may not be able to sell their shares at or above their purchase price, or at all. We anticipate that the market may be potentially highly volatile and may fluctuate substantially because of:

Actual or anticipated fluctuations in our future business and operating results;

Changes in or failure to meet market expectations;

Fluctuations in stock market price and volume

WE DO NOT INTEND TO PAY DIVIDENDS

We do not anticipate paying cash dividends on our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are rapid, there is no assurance with respect to the amount of any such dividend.

FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS.

It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures. If we are unable to comply with these requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires of publicly traded companies.

If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning with our annual report on Form 10-K for our fiscal period ending June 30, 2007, we will be required to prepare assessments regarding internal controls over financial reporting and beginning with our annual report on Form 10-K for our fiscal period ending June 30, 2008, furnish a report by our management on our internal control over financial reporting. We have begun the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While our management is expending significant resources in an effort to complete this important project, there can be no assurance that we will be able to achieve our objective on a timely basis. There also can be no assurance that our auditors will be able to issue an unqualified opinion on management's assessment of the effectiveness of our internal control over financial reporting. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our stock price.

In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.

In the event that a material weakness is identified, we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future.

Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY TRADED PUBLIC FLOAT, LIMITED OPERATING HISTORY AND LACK OF PROFITS WHICH COULD LEAD TO WIDE FLUCTUATIONS IN OUR SHARE PRICE.

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

VOLATILITY IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION, THEREBY DIVERTING OUR RESOURCES THAT MAY HAVE A MATERIAL EFFECT ON OUR PROFITABILITY AND RESULTS OF OPERATIONS.

As discussed in the preceding risk factors, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

OUR BUSINESS PLAN CALLS FOR EXTENSIVE AMOUNTS OF FUNDING AND WE MAY NOT BE ABLE TO OBTAIN SUCH FUNDING WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATIONS AND FINANCIAL CONDITION.

We will be relying on additional financing and funding. We are currently in discussions with potential sources of financing but no definitive agreements are in place. If we cannot achieve the requisite financing or complete the projects as anticipated, this could adversely affect our business, the results of our operations, prospects and financial condition.

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

There were no changes in securities during the period ended June 30, 2007

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities during the period ended June 30, 2007.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to the vote of securities holders during the period ended June 30, 2007.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits:

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,.


	VSUS TECHNOLOGIES INCORPORATED.


Date: February 10, 2010	By: /s/ Kyle Gotshalk
	Kyle Gotshalk
	Chief Executive Officer

NEW COLOMBIA RESOURCES INC - FORM 10-Q - February 11, 2010

Attached files

NEW COLOMBIA RESOURCES INC Reports