Nevada
|
88-0085608
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
||
575
Madison Avenue
|
||
New York, New York
|
10022
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Page
|
|||
PART
I - FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
||
Condensed
Consolidated Balance Sheets as of September 30, 2010 (unaudited)
and June 30, 2010, as derived from audited financial
statements
|
3
|
||
Condensed
Consolidated Statements of Operations for the three months ended September
30, 2010 and 2009 (unaudited)
|
4
|
||
Condensed
Consolidated Statements of Stockholders Equity (Deficit) for the three
months ended September 30, 2010 (unaudited)
|
5
|
||
Condensed
Consolidated Statements of Cash Flows for the three months
ended September 30, 2010 and 2009 (unaudited)
|
6
|
||
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
7-15
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
15-19
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
19
|
|
Item
4.
|
Controls
and Procedures
|
19
|
|
PART
II- OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
21
|
|
Item
6.
|
Exhibits
|
21
|
|
SIGNATURES
|
22
|
September 30, 2010
|
June 30, 2010
|
|||||||
(Unaudited)
|
*
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 51,069 | $ | 160,656 | ||||
Other
current assets, principally deferred financing costs
|
178,566 | 244,400 | ||||||
Total
current assets
|
229,635 | 405,056 | ||||||
Investments
in Current Technology Corporation
|
300,000 | 300,000 | ||||||
Property
and equipment, net
|
17,773 | 19,419 | ||||||
Other
assets, principally long term deposits
|
20,305 | 17,755 | ||||||
Total
assets
|
$ | 567,713 | $ | 742,230 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable-trade
|
$ | 1,209,168 | $ | 1,206,719 | ||||
Derivative
liability for excess shares
|
740,579 | 3,170,374 | ||||||
Liability
for RFMon settlement
|
1,430,333 | 1,430,333 | ||||||
Accrued
expenses and other current liabilities
|
7,666,251 | 6,664,938 | ||||||
Advances
from strategic partner
|
238,950 | 246,950 | ||||||
Advances
from corporate officer
|
1,027,808 | 840,518 | ||||||
Other
advances
|
60,000 | 60,000 | ||||||
Convertible
term notes payable
|
3,120,004 | 3,120,004 | ||||||
10%
Callable convertible promissory notes payable
|
250,000 | 250,000 | ||||||
6%
Callable convertible notes payable
|
2,000,000 | 2,000,000 | ||||||
8%
callable convertible notes payable
|
8,000,000 | 8,000,000 | ||||||
10%
Callable convertible notes payable, net of discounts
|
||||||||
of
$929,983 and $946,464, respectively
|
20,107 | 3,536 | ||||||
Total
current liabilities
|
25,763,200 | 26,993,372 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity (deficit):
|
||||||||
Common
stock - $.01 par value; 100,000,000 shares
authorized; 82,442,033 and 73,692,033 shares issued; 82,424,371
and 73,674,371 shares outstanding as of September 30, 2010 and
June 30, 2010, respectively
|
824,419 | 736,919 | ||||||
Additional
paid-in capital
|
271,796,748 | 271,743,167 | ||||||
Accumulated
deficit
|
(296,422,944 | ) | (297,337,518 | ) | ||||
Less: 17,662
shares of common stock in treasury, at cost
|
(1,393,710 | ) | (1,393,710 | ) | ||||
Total
stockholders’ equity (deficit)
|
(25,195,487 | ) | (26,251,142 | ) | ||||
Total
liabilities and stockholders’ equity (deficit)
|
$ | 567,713 | $ | 742,230 |
2010
|
2009
|
|||||||
Total
revenue
|
$ | - | $ | - | ||||
Cost
of goods sold
|
- | - | ||||||
Gross
Profit
|
- | - | ||||||
Operating
costs and expenses:
|
||||||||
Salaries,
benefits and payroll taxes
|
209,216 | 179,468 | ||||||
Research
and Development
|
64,996 | 415,004 | ||||||
Selling,
general and administrative
|
629,322 | 581,991 | ||||||
Depreciation
and amortization
|
3,254 | 3,220 | ||||||
Total
operating costs and expenses
|
906,788 | 1,179,683 | ||||||
Loss
from operations
|
(906,788 | ) | (1,179,683 | ) | ||||
Other
income (expense):
|
||||||||
Interest
expense
|
(872,352 | ) | (1,893,253 | ) | ||||
Non-cash
loss on debt guarantee
|
- | (170,000 | ) | |||||
Gain
on change in derivative liability
|
2,698,714 | - | ||||||
Total
other income (expense)
|
1,826,362 | (2,063,253 | ) | |||||
Net
loss before provision for income taxes
|
919,574 | (3,242,936 | ) | |||||
Provision
for income taxes
|
5,000 | 6,000 | ||||||
Net
loss
|
$ | 914,574 | $ | (3,248,936 | ) | |||
Basic
and diluted loss per share:
|
0.01 | (0.10 | ) | |||||
Weighted
average common shares outstanding
|
||||||||
-
basic
|
78,321,110 | 31,229,829 | ||||||
Weighted
average common shares outstanding
|
||||||||
-
diluted
|
78,821,110 | 31,229,829 |
Common
Stock
|
Paid-in
|
Accumulated
|
Treasury
Stock
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Shares
|
Amount
|
Totals
|
||||||||||||||||||||||
Balance
June 30, 2010
|
73,692,033 | $ | 736,919 | $ | 271,743,167 | $ | (297,337,518 | ) | (17,662 | ) | $ | (1,393,710 | ) | $ | (26,251,142 | ) | ||||||||||||
Issuance
of shares under terms of various consulting and services
agreements
|
8,750,000 | 87,500 | 322,500 | 410,000 | ||||||||||||||||||||||||
Derivative
value of shares of common stock committed in excess
of authorized total available
|
(268,919 | ) | (268,919 | ) | ||||||||||||||||||||||||
Net
loss for the three months ended September 30, 2010
|
914,574 | 914,574 | ||||||||||||||||||||||||||
Balance
September 30, 2010
|
82,442.033 | $ | 824,419 | $ | 271,796,748 | $ | (296,422,944 | ) | (17,662 | ) | $ | (1,393,710 | ) | $ | (25,195,487 | ) |
2010
|
2009
|
|||||||
Operating
activities:
|
||||||||
Net
income (loss)
|
$ | 914,574 | $ | (3,248,936 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
3,254 | 3,220 | ||||||
Amortization
of deferred financing costs
|
54,992 | 93,873 | ||||||
Non-cash
compensation expense
|
- | 1,372 | ||||||
Non-cash
amortization of debt discounts
|
16,571 | 1,274,334 | ||||||
Non-cash
loss on guarantee of debt
|
- | 170,000 | ||||||
Non-cash
value of shares issued for services
|
410,000 | 480,050 | ||||||
Gain
on change in derivative liability
|
(2,698,714 | ) | - | |||||
Changes
in assets and liabilities:
|
||||||||
Other
current assets
|
10,842 | - | ||||||
Other
assets
|
7,450 | 175,000 | ||||||
Accounts
payable - trade
|
2,449 | 38,596 | ||||||
Accrued
expenses and other liabilities
|
1,001,313 | 583,223 | ||||||
Net
cash used in operating activities
|
(277,269 | ) | (429,268 | ) | ||||
Investing
activities:
|
||||||||
Purchases
of property and equipment
|
(1,608 | ) | - | |||||
Net
cash used in investing activities
|
(1,608 | ) | - | |||||
Financing
activities:
|
||||||||
Proceeds
from promissory note
|
- | 240,004 | ||||||
Additional
closing costs paid from proceeds
|
(10,000 | ) | - | |||||
Cash
advances from strategic partners, officer and others, net of
repayments
|
179,290 | 188,798 | ||||||
Net
cash provided by financing activities
|
169,290 | 428,802 | ||||||
Net
decrease in cash
|
(109,587 | ) | (466 | ) | ||||
Cash
at beginning of period
|
160,656 | 689 | ||||||
Cash
at end of period
|
$ | 51,069 | $ | 223 |
1.
|
BASIS
OF PRESENTATION
|
Low
|
High
|
|||||||
Underlying
stock price:
|
$ | 0.03 | $ | 0.18 | ||||
Exercise/conversion
price:
|
$ | 0.07 | $ | 0.51 | ||||
Term
until expiration:
|
.75
year
|
1
year
|
||||||
Dividend
yield:
|
0.00 | % | 0.00 | % | ||||
Risk
free rate:
|
0.25 | % | 0.49 | % | ||||
Volatility:
|
205 | % | 298 | % |
Low
|
High
|
|||||||
Underlying
stock price:
|
$ | 0.03 | $ | 0.03 | ||||
Exercise/conversion
price:
|
$ | 0.07 | $ | 0.25 | ||||
Term
until expiration:
|
.75
year
|
1
year
|
||||||
Dividend
yield:
|
0.00 | % | 0.00 | % | ||||
Risk
free rate:
|
0.27 | % | 0.27 | % | ||||
Volatility:
|
211 | % | 212 | % |
Instrument
|
Maturity
|
Face Amount
|
Coupon Interest
Rate
|
Carrying
Amount at
September 30,
2010, net of
discount
|
Carrying
Amount at
September 30,
2009, net of
discount
|
|||||||||
6%
Notes
|
Dec.
13, 2009*
|
1,000,000
|
15%
|
$ |
1,000,000
|
$
|
214,858
|
|||||||
6%
April Notes
|
April
4, 2010*
|
1,000,000
|
15%
|
1,000,000
|
44,674
|
|||||||||
8%
Debentures
|
May
21, 2010*
|
4,000,000
|
18%
|
4,000,000
|
85,190
|
|||||||||
8%
Notes
|
May
21, 2010*
|
4,000,000
|
18%
|
4,000,000
|
4,000,000
|
|||||||||
10%
March Notes
|
March
31, 2011
|
650,000
|
10%
|
18,438
|
—
|
|||||||||
10%
June Notes
|
June
30, 2011
|
300,000
|
10%
|
1,670
|
—
|
|||||||||
Term
notes short-term
|
December
31, 2009*
|
420,000
|
18%
|
420,000
|
400,000
|
|||||||||
Term
note short-term
|
February
28, 2009*
|
960,000
|
18%
|
960,000
|
960,000
|
|||||||||
Term
note short-term
|
March
31, 2009*
|
1,500,000
|
18%
|
1,500,000
|
1,500,000
|
|||||||||
Term
notes short-term
|
June
17, 2009*
|
250,000
|
18%
|
250,000
|
250,000
|
|||||||||
Term
notes – short terms
|
August
21, 2009
|
240,004
|
30%
for loan term + 3% per month
|
240,004
|
240,004
|
|||||||||
Short
term borrowings from Apro Media Corp
|
N/A
|
200,000
|
N/A
|
206,950
|
206,950
|
|||||||||
Short
term borrowings from Current Technologies Corp.
|
N/A
|
70,000
|
N/A
|
32,000
|
70,000
|
|||||||||
Short
term borrowings from officer of the Company
|
N/A
|
1,027,808
|
N/A
|
1,027,808
|
355,860
|
|||||||||
Short
term borrowings from others
|
N/A
|
60,000
|
N/A
|
60,000
|
60,000
|
|||||||||
$ |
15,677,812
|
$ |
14,716,870
|
$
|
8,387,536
|
Instrument
|
Maturity
|
Face Amount
|
Discount
|
Carrying Amount
at September 30,
2010, net of
discount
|
Carrying
Amount at
September 30,
2009, net of
discount
|
|||||||||||||
10%
Notes
|
March
23, 2011
|
$ | 650,000 | $ | 631,562 | $ | 18,438 | $ | - | |||||||||
10%
Notes
|
June
30, 2011
|
300,000 | 298,330 | 1,670 | - | |||||||||||||
Total
|
$ | 950,000 | $ | 929,892 | $ | 20,108 | $ | - |
September
30,
|
June
30,
|
|||||||
2010
|
2010
|
|||||||
Salaries
and benefits
|
$ | 1,098,741 | $ | 947,706 | ||||
Payroll
taxes and penalties
|
1,570,030 | 1,543,477 | ||||||
Audit
and tax preparation fees
|
311,755 | 264,755 | ||||||
Interest
|
4,475,997 | 3,686,914 | ||||||
Taxes
|
66,907 | 66,907 | ||||||
Board
fees
|
109,000 | 104,000 | ||||||
Rent
|
11,000 | 23,314 | ||||||
Other
|
22,821 | 27,865 | ||||||
Total
|
$ | 7,666,251 | $ | 6,664,938 |
Instrument
|
Maturity
|
Face Amount
|
Coupon Interest
Rate
|
Carrying
Amount at
September 30,
2010, net of
discount
|
Carrying
Amount at
September 30,
2009, net of
discount
|
||||||||
6%
Notes
|
Dec.
13, 2009*
|
1,000,000
|
15%
|
$ |
1,000,000
|
$
214,858
|
|||||||
6%
April Notes
|
April
4, 2010*
|
1,000,000
|
15%
|
1,000,000
|
44,674
|
||||||||
8%
Debentures
|
May
21, 2010*
|
4,000,000
|
18%
|
4,000,000
|
85,190
|
||||||||
8%
Notes
|
May
21, 2010*
|
4,000,000
|
18%
|
4,000,000
|
4,000,000
|
||||||||
10%
March Notes
|
March
31, 2011
|
650,000
|
10%
|
18,438
|
—
|
||||||||
10%
June Notes
|
June
30, 2011
|
300,000
|
10%
|
1,670
|
—
|
||||||||
Term
notes short-term
|
December
31, 2009*
|
420,000
|
18%
|
420,000
|
400,000
|
||||||||
Term
note short-term
|
February
28, 2009*
|
960,000
|
18%
|
960,000
|
960,000
|
||||||||
Term
note short-term
|
March
31, 2009*
|
1,500,000
|
18%
|
1,500,000
|
1,500,000
|
||||||||
Term
notes short-term
|
June
17, 2009*
|
250,000
|
18%
|
250,000
|
250,000
|
||||||||
Term
notes – short terms
|
August
21, 2009
|
240,004
|
30%
for loan term + 3% per month
|
240,004
|
240,004
|
||||||||
Short
term borrowings from Apro Media Corp
|
N/A
|
200,000
|
N/A
|
206,950
|
206,950
|
||||||||
Short
term borrowings from Current Technologies Corp.
|
N/A
|
70,000
|
N/A
|
32,000
|
70,000
|
||||||||
Short
term borrowings from officer of the Company
|
N/A
|
1,027,808
|
N/A
|
1,027,808
|
355,860
|
||||||||
Short
term borrowings from others
|
N/A
|
60,000
|
N/A
|
60,000
|
60,000
|
||||||||
$ |
15,677,812
|
$ |
14,716,870
|
$8,387,536
|
(a)
|
Exhibits
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification.
|
|
32.1
|
Section
1350 Certification.
|
|
32.2
|
Section
1350 Certification.
|
MSGI
SECURITY SOLUTIONS, INC.
|
|||
(Registrant)
|
|||
Date:
November 22, 2010
|
By:
|
/s/ J. Jeremy Barbera
|
|
J.
Jeremy Barbera
|
|||
Chairman
of the Board and Chief Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
By:
|
/s/ Richard J. Mitchell III
|
||
Richard
J. Mitchell III
|
|||
Chief
Accounting Officer
|
|||
(Principal
Financial Officer)
|