UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
| | TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30178
VIEW SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 59-2928366
(State of incorporation) (I.R.S. Employer Identification No.)
1100 Wilso Drive
Baltimore, Maryland 21223
(Address of principal executive offices)
(410) 646-3000
(Issuer's telephone number)
7717 West 6th Avenue, Suite A & B
Lakewood, Colorado 80205
(Former address)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
As of July 28, 2003, the issuer had 45,620,619 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements.........................................3
Item 2: Management's Discussion and Analysis........................11
Item 3: Controls and Procedures.....................................13
PART II: OTHER INFORMATION
Item 1: Legal Proceedings...........................................13
Item 5: Other Information ..........................................14
Item 6: Exhibits and Reports on Form 8-K ...........................14
Signatures ..........................................................15
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements
of operations for the three and six month periods ended June 30, 2003 and 2002
are unaudited. This financial information, in the opinion of management,
includes all adjustments consisting of normal recurring entries necessary for
the fair presentation of such data. The results of operations for the six
month period ended June 30, 2003, are not necessarily indicative of results to
be expected for any subsequent period. These statements should be read in
conjunction with our Form 10-KSB for the year ended December 31, 2002 which
was filed with the Securities and Exchange Commission on March 31, 2003.
2
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 AND DECEMBER 31, 2002
ASSETS
December 31,
June 30, 2003 2002
------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash $ 3,056 $ 3,229
Accounts receivable (Net of allowance for
uncollectible accounts of $10,000 at
June 30, 2003 and December 31, 2002 130,066 62,711
Inventory 99,940 171,326
------------- -------------
Total current assets 233,062 237,266
------------- -------------
PROPERTY AND EQUIPMENT:
Equipment 348,385 348,385
Leasehold improvements 17,940 17,940
Software tools 34,571 34,571
Vehicles 46,832 46,832
------------- -------------
447,728 447,728
Less accumulated depreciation 235,687 204,247
------------- -------------
Net value of property and equipment 212,041 243,481
------------- -------------
OTHER ASSETS:
Goodwill 781,248 781,248
Licenses and patents 1,538,925 1,626,855
Due from affiliated entities 118,827 123,327
Deposits 2,532 2,532
------------- -------------
Total other assets 2,441,532 2,533,962
------------- -------------
TOTAL ASSETS $ 2,886,635 $ 3,014,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 377,544 $ 445,623
Accrued interest 78,343 72,843
Notes payable - related entities 916,950 599,450
------------- -------------
Total current liabilities 1,372,837 1,117,916
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock-par value $0.001
50,000,000 shares authorized,
45,275,619 shares issued and outstanding 45,275 -
44,598,620 shares issued and outstanding - 44,598
Additional paid-in capital 13,896,751 13,810,878
Accumulated deficit (12,428,228) (11,958,683)
------------- -------------
Total stockholders' equity 1,513,798 1,896,793
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,886,635 $ 3,014,709
============= =============
See Accompanying Notes.
3
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 2003 AND DECEMBER 31, 2002
(Unaudited)
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
-------------- -------------- -------------- --------------
REVENUE:
Sales of security systems $ 53,568 $ 71,512 $ 99,758 $ 131,596
Sales of weapons
detection portals 92,917 - 112,417 -
-------------- -------------- -------------- --------------
Total sales 146,485 71,512 212,175 131,596
Cost of goods sold 67,454 39,338 94,990 72,114
-------------- -------------- -------------- --------------
GROSS PROFIT ON SALES 79,031 32,174 117,185 59,482
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Advertising and promotion 11,872 1,139 11,872 9,110
Amortization 43,965 - 87,930 -
Bad debts - 234,809 - 234,809
Business development 29,892 27,763 29,892 70,257
Depreciation 15,720 15,189 31,440 30,378
Dues and subscriptions - - 122 -
Insurance 4,380 7,146 7,088 16,495
Interest 2,957 6,878 5,966 11,654
Investor relations 16,119 17,007 16,119 51,829
Miscellaneous expense 4,891 7,135 4,891 9,935
Office expense 19,985 49,331 30,441 95,540
Professional fees (36,595) 257,651 40,469 321,191
Rent 17,193 15,213 37,780 26,268
Repairs and maintenance - 1,758 - 4,064
Research and development 1,342 21,404 11,432 74,886
Salaries and benefits 112,021 123,581 243,066 295,026
Taxes-other 2,140 20 2,290 2,150
Travel 3,401 12,332 14,749 30,779
Utilities 4,921 2,957 11,183 8,645
-------------- -------------- -------------- --------------
Total operating expenses 254,204 801,313 586,730 1,293,016
-------------- -------------- -------------- --------------
NET LOSS FOR THE PERIOD $ (175,173) $ (769,139) $ (469,545) $ (1,233,534)
============== ============== ============== ==============
LOSS PER SHARE:
Basic $ (0.004) $ (0.03) $ (0.01) $ (0.04)
============== ============== ============== ==============
Diluted $ (0.004) $ (0.03) $ (0.01) $ (0.04)
============== ============== ============== ==============
WEIGHTED AVERAGE
SHARES OUTSTANDING 45,275,619 26,501,289 44,937,195 27,166,289
============== ============== ============== ==============
See Accompanying Notes
4
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2003 AND 2002
June 30, 2003 June 30, 2002
-------------- -------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (469,545) $ (1,233,534)
Adjustments to reconcile net loss to net cash
provided by operating activates:
Depreciation and amortization 119,370 30,378
Bad debt expense - 234,809
Employee compensation paid with stock - 214,238
Changes in operating assets and liabilities:
Accounts receivable (67,355) (1,008)
Inventory 71,386 (60,360)
Accounts payable (68,079) (24,414)
Accrued interest 5,500 5,500
-------------- -------------
Net cash used in operating activities (408,723) (834,391)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (21,023)
Funds advanced (to) from affiliated entities 4,500 (20,594)
Cash element in Milestone Acquisition - 52,448
-------------- -------------
Net cash provided by investing activities 4,500 10,831
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders 317,500 31,332
Repayment of note payable-bank - (6,052)
Proceeds from sales of stock 86,550 753,700
-------------- -------------
Net cash provided by financing activities 404,050 778,980
-------------- -------------
NET DECREASE IN CASH (173) (44,580)
CASH AT BEGINNING OF PERIOD 3,229 73,344
-------------- -------------
CASH AT END OF PERIOD $ 3,056 $ 28,764
============== =============
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
Common stock issued in exchange for net assets of
Milestone Technology, Inc. as follows:
Accounts receivable - 28,132
Inventory - 359,647
Fixed assets - 188
Patents - 1,323,867
Accounts payable - (6,470)
Notes payable - (703,449)
Accrued interest - (28,343)
See Accompanying Notes
5
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 2003 AND DECEMBER 31, 2002
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------------- ------------- ------------- -------------
Balances at January 1, 2002 $ 20,193 $ 10,119,024 $ (8,035,214) $ 2,104,003
Sales of common stock 3,415 750,285 - 753,700
Issuance of common stock in
exchange for interest in
Milestone Technology, Inc. 3,300 1,019,700 - 1,023,000
Issuance of common stock
(employee and other
compensation) 985 213,253 - 214,238
Net loss for the six months
ended June 30, 2002 - - (1,233,534) (1,233,534)
------------- ------------- ------------- -------------
Balances at June 30, 2002
(Unaudited) 27,893 12,102,262 (9,268,748) 2,861,407
Sales of common stock 5,135 533,365 - 538,500
Issuance of common stock
(employee and other
compensation) 10,835 981,986 - 992,821
Issuance of common stock in
payment of a note payable 735 193,265 - 194,000
Net loss for the period of July
1, 2002 to December 31, 2002 - - (2,689,935) (2,689,935)
------------- ------------- ------------- -------------
Balances at December 31, 2002 44,598 13,810,878 (11,958,683) 1,896,793
Sales of common stock 677 85,873 - 86,550
Net loss for the six months
ended June 30, 2003 - - (469,545) (469,545)
------------- ------------- ------------- -------------
Balances at June 30, 2003
(Unaudited) $ 45,275 $ 13,896,751 $(12,428,228) $ 1,513,798
============= ============= ============= =============
See Accompanying Notes
6
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
View Systems, Inc. (the "Company") designs and develops computer software
and hardware used in conjunction with surveillance capabilities. The
technology utilizes the compression and decompression of digital inputs. In
March 2002, the Company acquired Milestone Technology, Inc. which has
developed a concealed weapons detection portal.
Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States of America and the rules and regulations of the Securities
and Exchange Commission for interim financial information. Accordingly, they
do not include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations. It is
management's opinion, however, that all adjustments (consisting of normal
recurring adjustments have been made which are necessary for a fair financial
statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Milestone Technology, Inc. ("Milestone").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
----------------
Management uses estimates and assumptions in preparing financial
statements in accordance with accounting principles generally accepted in the
United States of America. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
differ from the estimates that were used.
Revenue Recognition
--------------------
The Company and its subsidiaries recognize revenue and the related cost
of goods sold upon shipment of the product, the price of the product is fixed
or determinable and collectibility is reasonably assured.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in-first-out method (LIFO). The inventory at June 30,
2003 and December 31, 2002 consists entirely of weapons detection portals.
7
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
Property and Equipment
----------------------
Property and equipment is recorded at cost and depreciated over their
estimated useful lives, using the straight-line and accelerated depreciation
methods. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts, and the resulting
gain or loss is included in the results of operations. The useful lives of
property and equipment for purposes or computing depreciation are as follows:
Equipment 5-7 years
Software tools 3 years
Repairs and maintenance charges, which do not increase the useful lives
of assets, are charged to operations as incurred. Depreciation expense for
the six months ended June 30, 2003 and 2002 amounted to $31,440 and $30,378,
respectively.
Income Taxes
------------
Deferred income taxes are recorded under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences, measured by enacted tax rates, attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective.
Valuation allowances are recorded for deferred tax assets when it is more
likely than not that such deferred tax assets will not be realized.
Research and Development
------------------------
Research and development costs are expensed as incurred. Equipment and
facilities acquired for research and development activities that have
alternative future uses are capitalized and charged to expense over the
estimated useful lives.
Advertising
-----------
Advertising costs are charged to operations as incurred. Advertising
costs for the six months ended June 30, 2003 and 2002 were $11,872 and $9,110,
respectively.
Nonmonetary Transactions
------------------------
Nonmonetary transactions are accounted for in accordance with Accounting
Principles Board Opinion No. 29 Accounting for Nonmonetary Transactions which
requires the transfer or distribution of a nonmonetary asset or liability to
be based, generally, on the fair value of the asset or liability that is
received or surrendered, whichever is more clearly evident.
Financial Instruments
---------------------
For most financial instruments, including cash, accounts receivable,
accounts payable and accruals, management believes that the carrying amount
approximates fair value, as the majority of these instruments are short-term
in nature.
8
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
Goodwill
--------
Goodwill represents the excess of the cost of assets acquired in business
combinations accounted for under the purchase method of accounting over the
fair value of the net assets acquired at the dates of acquisition. Effective
January 1, 2002 goodwill will no longer be amortized but rather tested for
impairment on an annual basis.
Licenses and Patents
--------------------
The Company has assigned a value to licenses and patents acquired in its
acquisition of Milestone which are being amortized on a straight-line basis
over a ten-year period.
Net Loss Per Common Share
-------------------------
Basic net loss per common share ("Basic EPS") is computed by dividing
net loss available to common stockholders by the weighted average number of
common shares outstanding. Diluted net loss per common share ("Diluted EPS")
is computed by dividing net loss available to common stockholders by the
weighted average number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of shares
issuable upon the exercise of stock options and warrants. The calculation of
the net loss per share available to common stockholders for the three and six
months ended June 30, 2003 does not include potential shares of common stock
equivalents, as their impact would be antidilutive.
Segment Reporting
-----------------
The company has determined that it does not have any separately
reportable operating segments as of June 30, 2003.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses and as
of June 30, 2003 had an accumulated deficit of $12.5 million. The Company
believes that it will incur operating losses for the foreseeable future.
There can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability or sustain operations in the
future.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30, 2003 December 31, 2002
------------------------- -------------------------
Average Gross Gross
Life Carrying Accumulated Carrying Accumulated
(Years) Amount Amortization Amount Amortization
------- ------------ ------------ ------------ ------------
Amortized intangible assets:
Licensed and patents 10.0 $ 1,758,594 $ 219,669 $ 1,758,594 $ 131,739
============ ============ ============ ============
Intangible assets not subject to
amortization:
Goodwill $ 1,346,972 $ 565,724 $ 1,346,972 $ 656,724
============ ============ ============ ============
9
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003
Amortization expense for the three and six months ended June 30, 2003 was
$43,965 and $87,930, respectively.
Estimated amortization expense for each of the following years ending on
December 31, is as follows:
2003 $ 175,860
2004 175,860
2005 175,860
2006 175,860
2007 175,860
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation 46 Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 (FIN 46). FIN 46 provides a new framework for
identifying variable interest entities (VIEs) and determining when a company
should include the assets, liabilities, noncontrolling interests and results
of activities of a VIE in its consolidated financial statements. FIN 46 is
effective immediately for VIEs created after January 31, 2003 and is effective
beginning in the third quarter of 2003 for VIEs created prior to the issuance
of the interpretation. The adoption of this standard will not have a material
impact on the Company's financial statements.
Statement of Financial Accounting Standards (SFAS) No. 148 Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123 (SFAS 148) provides alternative methods of transition for a
voluntary change to the fair value-based method of accounting for stock-based
employee compensation. SFAS 148 also amends the disclosure requirements of
SFAS 123, Accounting for Stock-Based Compensation to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. The adoption of this standard will not have
a material impact on the Company's financial statements.
On May 15, 2003, the FASB issued SFAS 150 Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity and
is effective May 31, 2003 for all new and modified financial instruments and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. SFAS 150 changes the accounting for certain financial
instruments that, under previous guidance issuers could account for as equity.
SFAS 150 requires that those instruments be classified as liabilities (or
assets in some circumstances). The adoption of this standard did not have a
material impact on the Company's financial statements.
10
In this report references to "View Systems," "we," "us," and "our" refer
to View Systems, Inc.
FORWARD LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the View System's plans
and expectations. Any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate" or "continue" or comparable terminology
are intended to identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, and actual results
may differ materially depending on a variety of factors, many of which are not
within View Systems's control. These factors include but are not limited to
economic conditions generally and in the industry which View Systems
participate; competition within View Systems's chosen market and failure by
View Systems to successfully develop business relationships.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
View Systems designs and develops computer software and hardware used in
conjunction with surveillance capabilities. We have incurred losses for the
past two fiscal years and have an accumulated deficit of $12,428,228 at June
30, 2003. Management believes we will incur operating losses for the
foreseeable future. However, management expects projected sales revenues and
anticipated equity infusions and advances from management to be sufficient to
provide sufficient funding to sustain operations through June 30, 2004.
Since start-up of operations in September 1998, we have devoted most of
our resources to the development of digital video surveillance products.
However, in March 2002 we shifted the focus of our operations to the
introduction of our SecureScan Concealed Weapons Detection System. We have
worked diligently to make engineering design changes to the Concealed Weapons
Detection product to accommodate the price points required by competitive
pressures. The engineering design changes required locating new sources for
components and limited field testing. In addition, demonstration of the
product involves the shipping of a large bulky archway and a highly trained
technical staff, consequently, sales cycle times are lengthy.
Acquisition Treatment
In December of 2001 we entered into a joint venture agreement with
Milestone Technology, Inc., an Idaho corporation, to develop its Concealed
Weapons Detection portal. As part of the agreement we issued 500,000 shares
of View Systems common stock for a 6% interest in Milestone Technology and the
rights to the Concealed Weapons Detection technology. Then on March 25, 2002,
View Systems acquired the remaining 94% interest of Milestone Technology in
exchange for 3,300,000 common shares. This acquisition was valued at
approximately $1,298,000 and was accounted for under the purchase method of
accounting. Accordingly, Milestone Technology's results of operation have
been included with View Systems from the closing date in March 2002 and its
consolidated assets and liabilities have been recorded at their fair values on
the same date. In May 2003 a controversy arose regarding the ownership of
Milestone Technology, Inc. and the Concealed Weapons Detection technology,
see, "Part II, Item 1: Legal Proceedings" for further details.
Results Of Operations
The following discussion and analysis should be read in conjunction with
our unaudited financial statements and the accompanying notes for the three
and six month periods ended June 30, 2003 and 2002, which are included in this
report.
Sales -- Total sales increased 61.2% from $131,596 for the six month
period ended June 30, 2002 to $212,175 for the six month period ended June 30,
2003. Total sales increased 104.8% from $71,512 for the three month period
ended June 30, 2002 to $146,485 for the three month period ended June 20,
2003, our 2003 second
11
quarter. These increases in sales are largely due to the addition of sales
for our SecureScan Concealed Weapons Detection product. The sales cycles in
the concealed weapons detection market are long and require the approval of
highly bureaucratic decision makers. However, in contrast to digital video
storage, the Concealed Weapons Detection product price points and profit
margins are larger.
Costs Of Goods Sold -- Cost of products and services sold consist
principally of the costs of hardware components and supplies. We generally
operate through resellers who install and service the units. We do not
determine our inventory on a quarterly basis, instead we do it on an annual
basis. Therefore, our cost of goods sold calculations are based on estimates
of inventory used in products sold. These costs increased $22,876, or 31.7%,
in the 2003 six month period compared to the 2002 six month period. These
costs increased $28,116, or 71.5%, for the 2003 second quarter compared to the
2002 second quarter. As our product sales increase we expect that our costs
of goods and services sold will decline and stabilize as a percentage of total
sales. Also, we have been working on engineering changes in our SecureScan
products that we expect will lower component costs for these products.
Gross Profit -- Gross profit for the 2003 six month period increased
$57,703, or 97.0%, compared to the same period in 2002. Gross profit
increased $46,857, or 145.6%, for the 2003 second quarter compared to the 2002
second quarter.
Total Operating Expense -- Total operating expenses for the 2003 six
month period decreased $706,286 compared to the 2002 six month period. These
expenses decreased $547,109 for the 2003 second quarter compared to the 2002
second quarter. The 2003 decrease is principally the result of a combination
of bad debt expense of $234,809 recognized in the 2002 comparable periods and
reductions in professional fees, research and development and office expense
in the 2003 periods.
Net Loss -- Our net loss was $469,545 for the 2003 six month period
compared to $1,233,534 for the 2002 comparable period. Our net loss was
$175,173 for the 2003 second quarter compared to a net loss of $769,139 for
2002 second quarter. Our net loss per diluted weighted average outstanding
share was $0.01 for the 2003 six month period compared to $0.04 for the 2002
six month period and was $0.004 for the 2003 second quarter compared to $0.03
for the 2002 second quarter.
Liquidity and Capital Resources
Historically, we have funded our cash requirements primarily through
equity transactions. We are not currently generating sufficient cash from our
operations to finance our business and will continue to need to raise capital
from other sources. At June 30, 2003 we had negative working capital of
$1,139,775. We had total assets of $2,886,635 at June 30, 2003 compared to
total assets of $3,014,709 at December 31, 2002. Total current liabilities
were $1,372,837 at June 30, 2003 compared to $1,117,916 at December 31, 2002.
This resulted in stockholders' equity of $1,513,798 for the 2003 six month
period compared to $1,896,793 at December 31, 2002.
During the six months ended June 30, 2003, net cash used in operating
activities was $408,723 compared to net cash used of $834,391 for the 2002 six
month period. Net cash provided by investing activities was $4,500 in the
2003 six month period and was related to advances from affiliated entities.
Net cash provided by investing activities was $10,831 in the 2002 six month
period and was primarily the result of the acqusition of cash in the Milestone
Technology acquisition.
Net cash provided by financing activities during the 2003 six month
period was $404,050, consisting of proceeds received from sales of stock of
$86,550 and loans from shareholders of $317,500. During the 2002 six month
period net cash generated from financing was $778,980 and was primarily the
result of proceeds from sales of our common stock.
During the six month period ended June 30, 2003 we have relied primarily
on our management for cash infusions to sustain operations. These cash
infusions are in the form of advances without repayment terms. It is
12
anticipated that we will require additional advances at least until equity
financing is arranged. There can be no assurance that these funds will be
available in the future
Commitments and Contingent Liabilities
Our commitments include operating leases and current liabilities. At
December 31, 2002, future minimum payments for operating leases related to
properties in Colorado, Maryland and Idaho were $183,069 through 2006. Other
commitments include notes payable of $916,950 for the 2003 six month period,
which are related to notes payable of $354,450 to former shareholders of
companies we acquired, $245,000 payable to a commercial bank and $317,500
advanced by shareholders during the 2003 second quarter.
Financing
We operate in a very competitive industry that requires continued large
amounts of capital to develop and promote our products. We currently estimate
we will need between $1 million and $2 million to fully develop our products
and further expand our business operations. We believe that it will be
essential to continue to raise additional capital, both internally and
externally, to compete in this industry. Management intends to finance our
operations through additional equity financing, which we expected to complete
by the first quarter of 2003. We delayed this financing, but anticipate
completion of equity financing before the end of 2003. Any proceeds we may
receive from these equity transactions will be used for business operations.
We cannot assure that this financing will be successful and we may be required
to further reduce expenses and scale back our operations. In addition to
accessing the public and private equity markets, we will pursue bank credit
lines and equipment leases for certain capital expenditures.
ITEM 3: CONTROLS AND PROCEDURES
Our CEO and principal financial officer, Gunther Than, has supervised the
design and establishment of disclosure controls and procedures to ensure that
material information is made known to him in a timely manner by others within
the company and its subsidiaries. He reevaluated the effectiveness of these
disclosure controls and procedures as of the end of the period covered by this
report and determined that there continued to be no significant deficiencies
in these procedures.
Also, Mr. Than evaluated the design and operation of our internal control
over financial reporting which relates to our ability to record, process,
summarize and report financial information. He did not find any significant
deficiency or material weakness which would require changes to be made or
corrective actions to be taken related to our internal control over financial
reporting. Nor did he identify fraud that involved management or other
employees who had a significant role in our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On May 8, 2003, View Systems, Inc. filed a complaint against Messrs.
Steve Williams and Paul Reep, former officers and shareholders of Milestone
Technology, Inc. The complaint was filed in the United States District Court
for the District of Maryland Division and the controversy is related to the
ownership of Milestone Technology, Inc. and the Concealed Weapons Detection
System. View Systems claims ownership of Milestone Technology, Inc. and the
exclusive licensing rights to the Concealed Weapons Detection System.
View Systems asked the court to declare it as the beneficial and legal
owner of 100% of the outstanding Milestone Technology, Inc. shares pursuant to
a purchase contract dated May 24, 2002. View Systems also asked the court to
require Messrs. Williams and Reep to complete the conveyance of all of the
Milestone Technology, Inc. shares in accordance with the agreement. In
addition, View Systems seeks to enjoin Messrs. Williams and Reep
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from the use, sale, marketing or exploitation of the assets of Milestone
Technology, Inc. View Systems also asked the court to enjoin Mr. Williams
from acting for or on behalf of Milestone Technology, Inc. Management and
counsel negotiated a settlement with Mr. Williams and Milestone Technology,
Inc. in July 2003; but we continue to pursue Mr. Reep.
ITEM 5: OTHER INFORMATION
On July 31, 2003, View Systems, Inc., completed a change of domicile
merger moving its domicile from Florida to Nevada. As part of the domicile
merger, the following persons were named as directors and officers of View
Systems, Inc., Nevada.
Barry S. Feldman President and Director
Gunther Than Chairman of the Board and Treasurer
William D. Smith Secretary and Director
Dr. Michael L. Bagnoli Director
Dr. Martin Maassen Director
Barry S. Feldman is 63 years old and in May 2003 joined View Systems as
President. From April 2002 to April 2003 he was a partner and Sr. Vice
President Corporate Relations for Summit Resource Group. From July 1998 to
February 2002 he was Sr. Vice President Corporate Relations for Columbia
Financial Group. Mr. Feldman has over 25 years experience with small business
corporate restructuring, management and financing. He holds a Bachelors of
Science in Business Management from Rutgers University.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Part II Exhibits
3.1 Articles of Incorporation and all Articles of Amendment of
View Systems, Inc. (Incorporated by reference to registration
statement on Form SB-2, filed January 11, 2000)
3.2 By-Laws of View Systems, Inc. (Incorporated by reference to
registration statement on Form SB-2, filed January 11, 2000)
10.1 View Systems, Inc. Employment Agreement with Gunther Than.
(Incorporated by reference to registration statement on Form SB-2,
filed January 11, 2000)
21.1 Subsidiaries of Registrant (Incorporated by reference to Form 10-KSB,
filed March 31, 2003)
31.1 Section 302 Chief Executive Officer Certification
31.2 Section 302 Principal Financial Officer Certification
32.1 Section 1350 Certification
Reports on Form 8-K
On May 19, 2003, we filed a current report on Form 8-K, dated May 8,
2003, under Item 5, disclosing the initiation of a legal proceeding related to
the ownership of Milestone Technology, Inc. No financial statements were
filed.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIEW SYSTEMS, INC.
/s/ Barry S. Feldman
Date: August 12, 2003 By: ___________________________________
Barry S. Feldman
President and Director
/s/ Gunther Than
Date: August 12, 2003 By: ___________________________________
Gunther Than
CEO, Principal Financial Officer,
Treasurer and Chairman of the Board
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