As filed with the Securities and Exchange Commission on October 12, 2005
Registration No. 333-___________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VIEW SYSTEMS, INC.
(Name of small business issuer in its charter)
Nevada 3812 59-2928366
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
1550 Caton Center Drive, Suite E
Baltimore, Maryland 21227
Telephone: (410) 242-8439
(Address and telephone number of principal executive offices
and principal place of business)
Gunther Than, CEO
View Systems, Inc.
1550 Caton Center Drive, Suite E
Baltimore, Maryland 21227
Telephone: (410) 242-8439
(Name, address and telephone number of agent for service)
---------------
Copies to:
Cindy Shy, Attorney
Cindy Shy, P.C.
P.O. Box 380-236
Ivins, Utah 84738
Telephone: (435) 674-1282
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THIS COMBINED PROSPECTUS RELATES TO OUR REGISTRATION STATEMENT
ON FORM SB-2, FILE NO. 333-118043
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of these securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed maximum
Title of each Amount maximum aggregate Amount of
class of securities to be offering price offering registration
to be registered registered(1) per unit(2) price fee
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Common Stock 3,770,000 $ 0.258 $ 972,660 $111.68 (3)
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(1) This registration statement covers the resale by certain selling
stockholders of up to an aggregate of 3,770,000 shares of View Systems,
Inc. common stock. Of the aggregate shares, 170,000 shares are being
carried forward from Form SB-2, File No. 333-118043.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act, based on the
average of the high and low prices of the common stock as of October 7,
2005.
(3) View Systems, Inc. previously paid a filing fee of $2.80 for the
170,000 shares which are carried forward from the Form SB-2, File No.
333-118043 and the registration fee has been reduced by that amount.
View Systems, Inc. hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until we shall file a
further amendment which specifically states that this registration statement
shall become effective in accordance with Section 8(a) of the Securities Acts
of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
PROSPECTUS
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| SUBJECT TO COMPLETION |
| The information in this prospectus is not complete and may be changed. We |
| may not sell these securities until the registration statement filed with |
| the Securities and Exchange Commission is effective. This prospectus is |
| not an offer to sell these securities and it is not soliciting an offer to |
| buy these securities in any state where the offer or sale is not permitted.|
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View Systems, Inc.
a Nevada corporation
3,770,000 shares of common stock
___________
-----------------------------
| |
| Trading Symbol |
| | We are registering 3,770,000 shares
| OTC Bulletin Board | of our common stock which will be
| "VYST" | sold by selling stockholders who are
| | named in this prospectus.
| Common stock prices as |
| reported by the OTC |
| Bulletin Board | We will not receive the proceeds
| on October 7, 2005, | from the sale of these common shares.
| $ 0.255 high bid and |
| low ask $ 0.263. |
| |
-----------------------------
This investment involves a high degree of risk, you should review
the "Risk Factors" beginning on page 4.
______________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities,
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
__________________
Prospectus dated October --, 2005
TABLE OF CONTENTS
Prospectus Summary.........................................................3
Risk Factors...............................................................4
Use of Proceeds............................................................7
Market for Common Equity...................................................7
Description of Business....................................................9
Property..................................................................16
Legal Proceedings.........................................................16
Management's Discussion and Analysis......................................17
Management................................................................22
Certain Related Transactions..............................................23
Principal Stockholders....................................................23
Description of Securities.................................................25
Selling Stockholders......................................................25
Plan of Distribution......................................................27
Other Information.........................................................28
Interest of Named Experts and Counsel.................................28
SEC's Position on Indemnification for Securities Act Liability........28
Additional Information................................................29
Changes In and Disagreements With Accountants.............................29
Financial Statements......................................................29
2
PROSPECTUS SUMMARY
View Systems, Inc.
1550 Caton Center Drive, Suite E
Baltimore, Maryland 21227
Telephone: (410) 242-8439
View Systems, Inc. designs and manufactures computer software and hardware
systems for security and surveillance applications. Our principal products
include a concealed weapons detection system, a hazardous material first
response wireless video transmitting system and digital video recorder
technology. We also offer biometric verification systems, magnetic door locks
and central monitoring or video command centers which can be combined with our
principal products.
We are registering 3,770,000 common shares to be sold by selling stockholders,
who are identified in the "Selling Stockholders" section starting on page 25.
Our board of directors has determined that we will register these shares for
the benefit of the selling stockholders. These transactions and agreements
are described in more detail in "Selling Stockholders - Transactions Related
to the Selling Stockholders," starting on page 26.
We will not receive any of the proceeds from the sale of the shares which are
being registered for the selling stockholders. These shares will be sold from
time to time at the total discretion of the selling stockholders. See "Plan
of Distribution" starting on page 27 for further details about the possible
methods of sale which may be used by the selling stockholders.
Shares of common stock outstanding as of October 11, 2005 86,382,422
Shares of common stock to be registered 3,770,000
Common stock outstanding after the offering 86,382,422
3
References in this prospectus to "View Systems," "we," "us," and "our" refer
to View Systems, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This prospectus
contains these types of statements. Words such as "may," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or
financial performance identify forward-looking statements. You are cautioned
not to place undue reliance on the forward-looking statements, which speak
only as of the date of this prospectus. All forward-looking statements
reflect our present expectation of future events and are subject to a number
of important factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. The
factors listed in the "Risk Factors" section of this prospectus, as well as
any cautionary language in this prospectus, provide examples of these risks
and uncertainties.
RISK FACTORS
Potential investors should carefully consider the following risk factors
before deciding to buy our common stock. Each investor should also consider
the other information in this prospectus. Investing in our common stock
involves a high degree of risk and you should not invest in our common stock
unless you can afford to lose your entire investment.
RISKS RELATED TO THE OFFERING AND OUR STOCK PRICE
We have not paid cash or stock dividends on our common stock and this
may discourage potential investors from purchasing our shares.
Potential investors should not anticipate receiving dividends from our common
stock. We intend to retain future earnings to finance our growth and
development and do not plan to pay cash or stock dividends. This lack of
dividend potential may discourage potential investors from purchasing our
common stock.
The nature of our business makes it difficult to predict our revenues and
operating results, which may negatively affect our stock price.
We currently are unable to finance our operations through our generated
revenues and we have consistently incurred losses since our formation. Our
revenues and operating results have varied significantly from period to period
and it is possible that our quarterly operating results from time to time will
be below the expectations of public market analysts and investors. In that
case, we expect that the price of our common stock would be materially and
adversely affected. Although we expect that the development of new sales
channels will cause our earnings to become more predictable, our revenues and
operating results can be expected to fluctuate somewhat for a variety of
reasons beyond our control, including, but not limited to:
. Changes in the volume or timing of product orders;
. Competitive pressures resulting in lower selling prices;
. Purchase order delays by customers subject to prior governmental or
regulatory approval for purchases;
. Our failure to obtain necessary funding to further develop our business
plan; and
. New products and technologies launched by our competitors.
The future sale of common stock may negatively affect our stock price
and pose investment risks.
The market price of our common stock could drop as a result of sales of the
common stock in the market after the effective date of this registration
statement, or the perception that such sales could occur. We are registering
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3,770,000 shares of common stock, or 4.3% of our issued and outstanding common
stock. If the selling stockholders attempt to sell their shares into our
market at the same time, this could drive down the market price of our common
stock. A drop in the market price for our common stock may make it more
difficult for us to raise funds through future offerings of our common stock.
Investors may have difficulty selling our shares due to penny stock
rules.
Our common stock is traded on the OTC Bulletin Board and there has not been a
large public market for our common stock. We do not know the extent to which
investor interest in our stock will lead to the development of an active
trading market for our stock, or how liquid that market might be. Also, our
common stock qualifies as a "penny stock" under the Penny Stock Suitability
Reform Act of 1990 based on its market value and our net tangible assets. The
liquidity of penny stock is affected by specific disclosure procedures that
must be followed by all broker and dealers related to a penny stock
transaction. The rules require delivery by brokers and dealers of a
disclosure schedule before any transaction in a penny stock. The broker and
dealers must determine the suitability of the stock for a particular customer
and obtain a written agreement from the customer to purchase the stock. In
addition, the SEC recently adopted new regulations which require a
two-business day delay prior to execution of a trade in a penny stock by a
broker and dealer. These additional requirements affect the timing of
purchases and sales by investors.
RISKS RELATED TO OUR BUSINESS
Our independent auditors have expressed concern whether we can continue
as a going concern.
We have incurred ongoing operating losses and do not currently have financing
commitments in place to meet expected cash requirements for the next twelve
months. Our net loss for the six month period ended June 30, 2005 was
$184,377 and our net loss for the year ended December 31, 2004 was $1,186,478.
Our accumulated deficit was $15,875,873 at the six month period ended June 30,
2005. We are unable to fund our day-to-day operations through revenues alone
and management believes we will incur operating losses for the near future
while we expand our sales channels. While we have expanded our product line
and expect to establish new sales channels, we may be unable to increase
revenues to the point that we attain and are able to maintain profitability.
We need additional external capital and may be unable to raise it.
Based on our current growth plan we believe we may require approximately
$500,000 in additional financing within the next twelve months to develop our
sales channels. Our success will depend upon our ability to access equity
capital markets and borrow on terms that are financially advantageous to us.
However, we may not be able to obtain additional funds on acceptable terms.
If we fail to obtain funds on acceptable terms, then we might be forced to
delay or abandon some or all of our business plans or may not have sufficient
working capital to develop products, finance acquisitions, or pursue business
opportunities. If we borrow funds, then we could be forced to use a large
portion of our cash reserves, if any, to repay principal and interest on those
loans. If we issue our securities for capital, then the interests of
investors and stockholders will be diluted.
We are currently dependent on the efforts of resellers for our continued
growth and must expand our sales channels to increase our revenues and
further develop our business plans.
We are in the process of developing and expanding our sales channels, but we
expect overall sales to remain down as we develop these sales channels. We are
actively recruiting additional resellers and dealers and have hired
in-house sales personnel for regional and national sales. We must continue to
find other methods of distribution to increase our sales. If we are
unsuccessful in developing sales channels we may have to abandon our business
plan.
5
We may not be able to compete successfully in our market because we have
a small market share and compete with large national and
international companies.
We estimate that we have less than a 1% market share of the surveillance and
weapons detection market. We compete with many companies that have greater
brand name recognition and significantly greater financial, technical,
marketing, and managerial resources. The position of these competitors in the
market may prevent us from capturing more market share. We intend to remain
competitive by increasing our existing business through marketing efforts,
selectively acquiring complementary technologies or businesses and services,
increasing our efficiency, and reducing costs.
Our revenues are dependent in part upon our relationships and alliances
with government agencies and partners.
While we own exclusive licenses for the SecureScan technology, we are
dependent upon the continuation of the ongoing contract between the Department
of Energy and National Institute of Justice for continuations and improvements
to the concealed weapons detection technology. We are also reliant upon the
Department of Energy and National Institute of Justice for continuations and
improvements to the Visual First Responder. If either of these entities
should discontinue its operations or research and development we may lose our
competitive edge in our market.
We must successfully introduce new or enhanced products and manage the
costs associated with producing several product lines to be successful.
Our future success depends on our ability to continue to improve our existing
products and to develop new products using the latest technology that can
satisfy customer needs. For example, our short term success will depend on
the continued acceptance of the Visual First Responder and the SecureScan
portal product line. We cannot be certain that we will be successful at
producing multiple product lines and we may find that the cost of production
of multiple product lines inhibits our ability to maintain or improve our
gross profit margins. In addition, the failure of our products to gain or
maintain market acceptance or our failure to successfully manage our cost of
production could adversely affect our financial condition.
Failure to achieve and maintain effective internal controls in
accordance with Section 404 of the Sarbanes-Oxley Act could lead to loss
of investor confidence in our reported financial information.
Pursuant to proposals related to Section 404 of the Sarbanes-Oxley Act of
2002, beginning with our Annual Report on Form 10-KSB for the fiscal year
ending December 31, 2007, we will be required to furnish a report by our
management on our internal control over financial reporting. If we cannot
provide reliable financial reports or prevent fraud, then our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.
In order to achieve compliance with Section 404 of the Act within the
prescribed period, we will need to engage in a process to document and
evaluate our internal control over financial reporting, which will be both
costly and challenging. In this regard, management will need to dedicate
internal resources, engage outside consultants and adopt a detailed work plan.
During the course of our testing we may identify deficiencies which we may not
be able to remediate in time to meet the deadline imposed by the
Sarbanes-Oxley Act for compliance with the requirements of Section 404. In
addition, if we fail to achieve and maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended from time to
time, we may not be able to ensure that we can conclude on an ongoing basis
that we have effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to
helping prevent financial fraud.
6
USE OF PROCEEDS
We are registering the shares for the benefit of the selling stockholders and
they will sell the shares from time to time under this prospectus. We will
not receive the proceeds from the shares sold by the selling stockholders. We
will pay the costs of this offering, with the exception of the costs incurred
by the selling stockholders for their legal counsel and the costs they may
incur for brokerage commissions on the sale of their shares.
MARKET FOR COMMON EQUITY
MARKET INFORMATION
Our shares of common stock are traded on the NASD OTC Bulletin Board under the
symbol "VYST." The following table lists the range of the quarterly high and
low bid prices of our common stock in the over-the-counter market for each
quarter for the two most recent fiscal years and each quarter of the nine
month period ended September 30, 2005. The high and low bid prices were
reported by the OTC Bulletin Board Historical Data Service. These
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-downs or commissions, and may not necessarily represent actual
transactions.
Year Quarter Ended High Bid Low Bid
---- ------------- -------- -------
2003 March 31 $ 0.205 $ 0.08
June 30 0.145 0.04
September 30 0.19 0.06
December 31 0.65 0.17
2004 March 31 $ 0.37 $ 0.18
June 30 0.33 0.115
September 30 0.145 0.06
December 31 0.24 0.09
2005 March 31 $ 0.165 $ 0.061
June 30 0.078 0.046
September 30 0.46 0.055
Our common shares are subject to Section 15(g) and Rule 15g-9 of the
Securities and Exchange Act of 1934 (the "Exchange Act"), commonly referred to
as the "penny stock" rule. The rule defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. The rule provides that any equity security is considered to be a
penny stock unless that security is:
. registered and traded on a national securities exchange meeting
specified criteria set by the SEC;
. issued by a registered investment company; or
. excluded from the definition on the basis of share price or the issuer's
net tangible assets.
These rules may restrict the ability of broker-dealers to trade or maintain a
market in our common stock and may affect the ability of stockholders to sell
their shares. The rules require broker-dealers who sell penny stocks to
persons other than established customers and accredited investors to make a
special suitability determination about the purchaser before for the purchase
of the security. Accredited investors, in general, include individuals with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse, and certain institutional investors. The rules
require the broker-dealer to receive the purchaser's written consent to the
transaction prior to the purchase and require the broker-dealer to deliver a
risk disclosure document relating to the penny stock prior to the first
transaction. A broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative, and current
quotations for the security. Finally, monthly statements must be sent to
purchasers disclosing recent price information for the penny stocks.
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HOLDERS
As of October 11, 2005 we had 332 stockholders of record, which does not
include "street accounts" of securities brokers.
DIVIDENDS
We have not paid cash or stock dividends, have no present plan to pay any
dividends, and payment of any cash dividends on our common stock is unlikely.
Instead, we intend to retain any earnings to finance the operation and
expansion of our business
8
DESCRIPTION OF BUSINESS
HISTORICAL DEVELOPMENT
View Systems was incorporated in Florida on January 25, 1989, as Beneficial
Investment Group, Inc. and became active in September 1998 when we began
development of our digital video product line and changed the company's name
to View Systems, Inc. Starting in 1999 we expanded our business operations
through a series of acquisitions of technologies we use in our digital video
recorder technology products and in our concealed weapons technology.
On July 25, 2003, View Systems incorporated View Systems, Inc. as a
wholly-owned Nevada corporation for the sole purpose of changing the domicile
of the company from Florida to Nevada. On July 31, 2003, articles of merger
were filed with the state of Nevada to complete the domicile merger.
OUR BUSINESS
View Systems acquires and/or develops technologies related to surveillance,
detection and security for the purpose of commercializing them. Digital video
recorder technology was our first developed product. We enhanced this product
line by developing interfaces with other various technologies, such as facial
recognition, access control cards and control devices such as magnetic locks,
alarms and other common security devices.
We expanded our product line in 2002 to include a concealed weapons detection
system and in 2003 to include a hazardous material first response wireless
video transmitting system. We acquired exclusive licenses to manufacture,
use, sub-license and distribute technology and processes for the concealed
weapons detection technology and the first response wireless video
transmitting system from Bechtel BWXT Idaho, LLC. Bechtel BWXT Idaho, LLC
manages and operates the U.S. Department of Energy's Idaho National
Engineering and Environmental Laboratory ("Idaho Engineering Lab"). The
development of the concealed weapons detection technology was funded by the
National Institute of Justice and development was performed by the Idaho
Engineering Lab. The hazardous materials first response video transmitting
system was developed at the Idaho Engineering Lab through cooperative research
and development agreements at the request of various military organizations.
Products and Services
SecureScan Concealed Weapons Detection System
This product is a walk-through concealed weapons detector which uses sensing
technology and artificial intelligence algorithms to accurately pinpoint the
location, size and number of concealed weapons. The control unit for this
walk-through portal is a personal computer based unit which receives magnetic
and video information and combines it in a manner that allows the suspected
location of the weapon to be stored electronically and referenced. SecureScan
products are distributed in two basic configurations; stand-alone units and
integrated door systems.
Concealed weapons detection systems are used in a wide range of situations in
order to provide added security against violent crimes. In addition to the
well-known use of concealed weapons detection systems in public airports, such
weapons detection systems are increasingly being used in court houses, schools
and other public/governmental facilities that may be subject to threats or
attacks by various members of the public.
One commonly used concealed weapons detection system is the electromagnetic
induction system. Essentially an electromagnetic induction system operates by
periodically broadcasting an electromagnetic pulse or series of pulses,
usually in the kilohertz range. The transmitted electromagnetic pulse induces
an electrical current, or
9
currents, in electrically conductive objects contained within the sensing
area. The induced electrical current or currents create their own
electromagnetic signals which are then detected by a suitable detector
associated with this type of weapons detection system.
While electromagnetic induction systems of the type described above have been
used for decades as concealed weapons detection systems, they are not without
their problems. For example, such electromagnetic induction systems are
generally sensitive to the overall size, i.e., surface area of the object, not
its mass. Consequently, small, compact, but massive objects, such as a small
pistol, may not produce a "signature" that is significantly larger than the
signature produced by a light weight object of the same size, such as keys or
pocket change. Another problem associated with electromagnetic induction
systems is related to the fact that electromagnetic systems are sensitive to
electrically conductive objects, regardless of whether they are magnetic or
non-magnetic. That is, electromagnetic systems tend to detect non-magnetic
objects, such as pocket change, just as easily as magnetic objects, such as
weapons. Consequently, electromagnetic systems tend to be prone to false
alarms. In many circumstances, such false alarms need to be resolved by
scanning the suspect with a hand-held detector in order to confirm or deny the
presence of a dangerous weapon.
Our SecureScan system differs from electromagnetic induction systems because
the SecureScan system uses passive magnetic technology. When an object of a
specific ferro-magnetic mass passes by the magnetic sensors the surrounding
magnetic field is altered. The software calculates the difference between the
magnetic field strength with the object in the magnetic field inside the
sensors' range and the normal magnetic field strength. Then the system
displays the results in graph format on a video display unit. Since the
SecureScan technology does not use transmitters to produce electromagnetic
induction, stray energy that can cause false alarms does not exist.
The SecureScan portal uses an array of advanced magnetic sensors, each with
internal digital signal processors. The sensors communicate with the control
unit's software which spatially places identified magnetic anomalies and
visually places the location of the potential threat object with a red dot
that is superimposed over a real time snapshot image of the person walking
through the portal. Along with the snapshot, a graph displays the sensor data
which automatically scales the signal strength of the individual sensors and
cross-references them to the video image. All of this information is brought
together on a video screen that displays the image of the person, the location
of the weapon(s) and the size of the weapon(s), depending on the intensity of
the magnetic signature.
The SecureScan technology discriminates weapons from non-weapons by assuming
that possible threat objects will have ferromagnetic composition. The
SecureScan system promotes smooth traffic flow because it only detects the
types of ferrous metals commonly found in guns and knives, rather than
personal possessions such as coins, keys or belt buckles. This capability
reduces false alarms and eliminates the need to use hand wands or resort to a
personal search. In addition, the sensor settings can be adjusted to allow
the detection of high composite pistols, titanium and stainless steel guns,
and box cutters. Body cavity object identification is also available, as well
as locating objects that have been covered or masked with aluminum foil or
other materials. The SecureScan system operates faster than ordinary metal
detectors and can scan as high as 1,500 persons per hour.
The SecureScan weapons detection system can be controlled via a central
monitoring station using a Windows(TM) operating system and Pentium(TM)
hardware. This can include additional closed-circuit television, two-way
voice communication, door interlock, card-key and other biometric
identification or access control components. The functionality of the
SecureScan portal is increased by access control, database recording, video
capture and archiving of images.
The SecureScan concealed weapons detection technology was patented by the
Department of Energy and approved by the Federal Aviation Administration.
View Systems owns the exclusive worldwide rights to the SecureScan technology
and ongoing improvements currently being funded by the National Institute of
Justice.
In 2004 we introduced the SecureScan product to the venue and stadium market.
In February 2005 we tested the SecureScan at the pre-game venues of the Super
Bowl football game in Jacksonville, Florida. Our product was
10
well received for throughput and ease of use. During that installation, the
portal scanned up to 3,000 to 4,000 people and at various times throughput
ranged from approximately 600 to 1,200 persons per hour, with 384 alarms
triggered by the sensitivity threshold.
During 2005 we contracted with the University of Northern Florida to design
new sensor boards for the SecureScan product which has allowed us to reduce
the installed sensor cost by a factor of four. The new lower costs allow us
to offer price points to the market which compete directly with traditional
metal detectors. We feel the new reduced price points and enhanced interface
abilities will allow us to be more competitive, along with the advantages of
three to four times the throughput rate, non-contact imaging and permanent
visual storage, and a log of all individuals scanned.
Visual First Responder
In December 2003 View Systems obtained exclusive licensing and marketing
rights for the HAZMAT CAM technology from the U.S. Department of Energy's
Idaho National Engineering and Environmental Laboratory. We initially
marketed this product as FirstView Wireless Camera System, then changed the
name to Visual First Responder.
Visual First Responder is a lightweight, wireless camera system housed in a
tough, waterproof flashlight body. The camera system sends back real-time
images to a computer or video monitor at the command post located outside the
exclusion zone or containment area. Visual First Responder is able to
transmit high quality video in the most difficult environments. It uses a
patented triple-diversity antenna system that minimizes signal distortion in
urban environments. Traditional wireless videos use one antenna and a single
receiver. The problem with this configuration is that signals multi-path,
which means they bounce off other structures, like buildings, file cabinets,
etc., on the way to the receiver. This multi-pathing causes interference and
seriously degrades the video images. The Visual First Responder receiver
seeks the strongest signal from each of the three antennas and locks in that
signal, resulting in a more reliable and clearer image.
The image received from the Visual First Responder monitor or on the Visual
First Responder color LCD monitor, and can be easily recorded using a common
camcorder or VCR with video input. The camera can be completely submerged for
fast and easy decontamination. We also offer a unit with 360 degree coverage
of a target area.
Visual First Responder also uses Extension Link which is a separate
transmitter and receiving system that increases the operating range of the
Visual First Responder. The Extension Link has field-selectable channels to
avoid interference at longer distances. We have also incorporated a video
encryption feature that allows first responders to transmit on-scene video to
the command post without the data being intercepted by unwanted parties.
The complete Visual First Responder fully deployed by one person in a stand
alone configuration in less than 10 minutes. The system is battery operated
and can operate for eight continuous hours using one set of spare camera
batteries.
We have entered into a cooperative research and development agreement with the
Idaho Engineering Lab for the Visual First Responder. This agreement allows
us to use the research and development resources of the Idaho Engineering Lab
to further develop the technology as driven by customer need. The cooperative
research and development agreement provides a means for View Systems to
efficiently continue to offer state of the art technology, yet concentrate on
its marketing and manufacturing operations.
ViewMaxx Digital Video System
ViewMaxx is a high-resolution, digital video recording and real-time
monitoring system. This system can be scaled to meet a specific customer's
needs by using anywhere from one camera up to 16 surveillance cameras per each
ViewMaxx unit. The system uses a video capture card recording which
translates closed-circuit television
11
analog video data (a format normally used by broadcasters for national
television programs) to a computer readable digital format to be stored on
direct access digital disk devices rather than the conventional television
format of video tape.
VideoMaxx offers programmable recording features that can eliminate the
unnecessary storage of non-critical image data. This ability allows the user
to utilize the digital disk storage more efficiently. The ViewMaxx system can
be programmed to satisfy each customer's special requirements, be it coverage
which is continuous, or only when events are detected. For example, it can be
programmed to begin recording when motion is detected in a surveillance area,
or a smaller field of interest within the surveillance area, and can be
programmed to notify the user with an alarm or message.
Viewing of the stored digital images can be performed locally on the
computer's video display unit or remotely through the customer's existing
telecom systems or data network. It also uses a multi-mode search tool to
quickly play back files with simple point and click operations. The search
mode parameters can be set according to a specific monitoring need, such as:
certain times of day, selected areas of interest in the field of view or
breaches of limit areas. These features and abilities avoid the need to
review an entire, or many, VCR tapes for a critical event.
Our ViewMaxx products include the following features:
. Use any and all forms of telecommunications, such as standard telephone
lines;
. Video can be monitored 24 hours a day by a security monitoring center;
. Local and remote recording, storage and playback for up to 28 days, with
optional additional storage capability;
. The system may be set to automatically review an area in a desired
camera sequence;
. Stores the video image according to time or a criteria specified by the
customer and retrieves the visual data selectively in a manner that the
customer considers valuable or desirable;
. The system may trigger programmed responses to events detected in a
surveillance area, such as break-ins or other unauthorized breaches of
the secured area;
. Cameras can be concealed in ordinary home devices such as smoke
detectors;
. The system monitors itself to insure system functionality with alert
messages in the event of covert or natural interruption; and
. Modular expansion system configuration allows the user to purchase
add-on components at a later date.
Additional Products
We also offer integration of other products with SecureScan or ViewMaxx.
Biometric verification is a system for recognizing faces and comparing them to
known individuals, such as employees or individuals wanted by law enforcement
agencies. This product can be interfaced with SecureScan and/or ViewMaxx to
limit individual access to an area. SecureScan and/or ViewMaxx can be coupled
with magnetic door locks to restrict access to a particular area. We also
offer a central monitoring or video command center for SecureScan or ViewMaxx
products.
In addition, we offer support services for our products which include:
. On site consulting/planning with customer architect and engineers,
. Installation and technical support,
. Training and "Train the Trainer" programs, and
. Extended service agreements.
Markets
Our family of products offers government and law enforcement agencies,
commercial security professionals, private businesses and residential
consumers an enhanced surveillance and detection capacity. Management has
chosen to avoid the air passenger traffic and civilian airport market for
metal detection because we believe that a
12
larger market exists in venues, such as sporting events, concerts, and race
tracks, and schools, courthouses and municipal buildings, and law enforcement
agencies.
Commercial business users represent the greatest potential users of our
surveillance and weapons detection products. Commercial businesses have
already realized the need for surveillance and using access control devices
for protection of employees, customers, and assets. Our products can curtail
crime and prevent loss caused by employees and others. The market for
surveillance technology includes many types of commercial buildings;
including, hospitals, schools, museums, retail, manufacturing and warehousing
facilities.
Our SecureScan products and technology can be used where there is a temporary
requirement for real-time weapons detection devices in areas where a permanent
installation is cost prohibitive or impractical. For example, our SecureScan
portal could be set up for special events, concerts, and conventions. Our
systems may reduce the need for a large guard force and can provide improved
pedestrian traffic flow into an event because individuals can be scanned
quickly and false alarms are reduced.
Schools have been very receptive and enthusiastic about the SecureScan portal
and its integration with School Technology Management's Comprehensive
Attendance/Security System. In early October 2003 we announced an alliance
with School Technology Management, Inc. to integrate and market its products
with ours. School Technology Management developed the Comprehensive
Attendance, Administration and Security System ("Comprehensive
Attendance/Security System"), which is designed to use a magnetic card swipe
system to monitor identification of students entering a school and to verify
each student's attendance. School Technology Management combined our
SecureScan portal with its card swipe system.
With the combined technology a student enters the portal and is scanned for
any threat objects and his or her identity is concurrently confirmed to school
security officers. During the spring semester of 2004, a subcontractor of the
National Institute of Justice conducted a study of the effectiveness of the
SecureScan portal in a school environment and the results were positive. The
combined technology has been tested in schools in New York and Philadelphia
and we have received very positive responses from those tests. Management
estimates that there are over 120,000 schools in the United States that may
have problems with violence, truancy and other safety considerations, which
may be addressed by the combined technology.
In addition to school security, the gathering of video and data images and
weapons detection is commonplace in law enforcement. Because our technology
can be used for stakeouts and remote monitoring of areas, we believe there is
a market potential with law enforcement agencies. A primary market for our
SecureScan portal is federal and state government courthouses, and county and
municipal buildings. We have installed our SecureScan weapons detection
products in a variety of court house situations. The Visual First Responder
product's market includes state National Guard units and first response
agencies, such as; firemen, police swat and homeland security response teams.
The residential home security user may purchase our products from either
commercial companies installing self-contained or centrally monitored systems,
or directly from retail distribution centers. However, at this time we do not
have retail agreements in place. Using our technology, individuals may run
their own perimeter and interior surveillance systems from their own home
computer. Real-time action at home can be monitored remotely through a modem
and the Internet. There is also the capability to make real-time monitors
wireless. An additional advantage of our technology is that it allows for the
storage of information on the home computer and does not require a VCR. This
capability may reduce the expense and time of the home installation and may
make installation affordable for a majority of homeowners.
Manufacturing
In August 2005 we contracted with Inter-Connect Electronics, Inc. to
manufacture and assemble our Visual First Responder units. We have also
contracted with Sports Field Specialties, LLC, an experienced manufacturer, to
13
build the SecureScan line. These manufacturing agreements will allow us to
clear our current backlog, discussed below, for our product lines and reduce
our labor cost.
We manufacture several of the hardware components in our systems and assemble
our systems by combining other commercially available hardware and software
together with our proprietary software. We hold licenses for software
components that are integrated into our proprietary software and installed in
our systems. We believe that we can continue to obtain components for our
systems at reasonable prices from a variety of sources. Although we have
developed certain proprietary hardware components for use in our products and
purchased some components from single source suppliers, we believe similar
components can be obtained from alternative suppliers without significant
delay.
Sales and Distribution
We have ongoing reseller arrangements with small- and medium-sized domestic
and international resellers. Our reseller agreements grant a non-exclusive
right to the reseller to purchase our products at a discount from the list
price and then sell them to others. These agreements are generally for a term
of one year and automatically renew for successive one-year terms unless
terminated by notice or in the event of breach.
We are in the process of building a United States domestic network of
manufacturing representatives and dealers for the sale and distribution of our
products. We are seeking security consultants, specifiers and distributors of
security and surveillance equipment that sell directly to schools,
courthouses, government and commercial buildings. We hired three in-house
regional sales persons and intend to develop a national sales channel model
and a distributor development program.
We also have experienced international interest from security related
resellers and system integrators. However, sales and shipments to overseas
are regulated by federal guidelines for export. We have chosen not to pursue
international markets, but intend to focus on domestic markets which are less
expensive to support and maintain.
Backlog
As of September 30, 2005, we had a backlog of over $700,000. We measure
backlog as orders for which a purchase order or contract has been signed or a
verbal commitment for order or delivery has been made, but which has not yet
been shipped and for which revenues have not been recognized. We typically
ship our products months after receiving an order. However, we are attempting
to shorten this lead time to several weeks. Also, product shipments may
require more lead-time and may be delayed for a variety of reasons beyond our
control, including:
. additional time necessary to conduct product inspections prior to
shipping,
. design or specification changes by the customer,
. the customer's need to prepare the site, and
. delays caused by other contractors on the project.
Competition
We believe the introduction of digital technology to video surveillance and
security systems is our market opportunity. We believe that many of the
established closed-circuit television companies have approached the design of
their digital closed-circuit television products from the standpoint of
integrating their digital products to existing security and surveillance
product offerings. These systems are closed, not easily integrated with other
equipment and not capable of upgrades as technology improves. We have
designed our systems such that they are open, compatible with other digital
and analog systems, and adaptable to technological advances that will
inevitably occur with digital technology. In addition, we have evaluated
price point competition and to ease the financial burden for schools and other
customers with budget constraints, we accept a down payment with remaining
payments due monthly for an agreed upon term.
14
The markets for our products are extremely competitive. Competitors include a
broad range of companies that develop and market products for the
identification and video surveillance markets. In the weapons detection
market, we compete with Ranger Security Scanners, Inc. and Garrett
Electronics, Inc. in the United States, and an Italian company, CEIA SpA,
which has the most sophisticated electromagnetic induction product. In the
video surveillance market we compete with numerous VCR suppliers and digital
recording suppliers, including, Sensormatic Corporation and NICE Systems, Ltd.
and Integral Systems.
Trademark, Licenses and Intellectual Property
Certain features of our products and documentation are proprietary and we rely
on a combination of patent, contract, copyright, trademark and trade secret
laws and other measures to protect our proprietary information. We limit
access to, and distribution of, our software, documentation and other
proprietary information. As part of our confidentiality procedures, we
generally enter into confidentiality and invention assignment agreements with
our employees and mutual non-disclosure agreements with our manufacturing
representatives, dealers and systems integrators. Notwithstanding such
actions, a court considering these provisions may determine not to enforce
such provisions or only partially enforce such provisions.
The SecureScan concealed weapons detection technology involves sensing
technology and data acquisition/analysis software subsystems that have patents
pending or issued to the U. S. Department of Energy. We hold an exclusive
license, D.O.E. License No. 03-LA-18, to commercialize, manufacture and market
the concealed weapons detection technology. However, since the intellectual
property was developed by the federal government under a grant from the
National Institute of Justice, the patents belong to the government and we pay
royalties of 2% of the net sale price per SecureScan unit sold. We also hold
the exclusive license, D.O.E. License No. 03-LA-20, for the Visual First
Responder technology and pay royalties of 4% of the net sale price per each
Visual First Responder unit sold.
Governmental ownership of the patents is advantageous because the government
has prosecution and stewardship responsibilities for the life of the patents.
This is also true for continuations and improvements to the concealed weapons
detection technology under the ongoing contract between the Department of
Energy and National Institute of Justice.
We have obtained software licensing agreements for
. software operating systems components,
. for facial recognition to possibly integrate into our proprietary
software, and
. integration of commercially available operating systems software into
our proprietary software for installation into our products.
Because the software and firmware (software imbedded in hardware) are in a
state of continuous development, we have not filed applications to register
the copyrights for these items. However, under law, copyright vests upon
creation of our software and firmware. Registration is not a prerequisite for
the acquisition of copyright rights. We take steps to insure that notices are
placed on these items to indicate that they are copyright protected. The
copyright protection for our software extends for the 20-year statutory period
from the date of first "publication," distribution of copies to the general
public, or from the date of creation, whichever occurs first.
We provide software to end-users under non-exclusive "shrink-wrap" licenses,
which are automatic licenses executed once the package is opened. This type
of license has a perpetual term and is generally nontransferable. Although we
do not generally make source code available to end-users, we may, from time to
time, enter into source code escrow agreements with certain customers. We
have also obtained licenses for certain software from third parties for
incorporation into our products.
15
Government Regulation
We are not subject to government regulation in the manufacture of our products
or the components in our products. However, we are subject to certain
restrictions in the sale of our products to "unfriendly" countries and
countries designated as adversarial. In addition, our resellers and end users
may be subject to numerous regulations that stem from surveillance activities.
We also benefit from the recent "made in America" trade laws where non-United
States manufactures must secure waivers in order to sell security and
surveillance products to United States domestic end-users.
Security and surveillance systems, including cameras, raise privacy issues and
our products involve both video and audio, and added features for facial
identification. The regulations regarding the recording and storage of this
data are uncertain and evolving. For example, under the Federal wiretapping
statute, the audio portion of our surveillance systems may not record people's
conversations without their consent. Further, there are state and federal
laws associated with recording video in non-public places.
Research and Development
For the year ended December 31, 2004 and 2003, we did not record research and
development expense. We have cooperative research arrangements with the
Department of Energy to receive technical assistance and further enhancements
of the concealed weapons detection technology and Visual First Responder
technology through contractual relationships between the Department of Energy
and the National Institute of Justice.
Employees
We employ 12 persons, including four sales executives, four engineers and two
office personnel. Two persons are part-time and we also contract with two
independent contractors who devote a majority of their work to a variety of
our projects. Our employees are not presently covered by any collective
bargaining agreement. Our relations with our employees are good, and we have
not experienced any work stoppages.
Reports to Security Holders
We are required to comply with the reporting requirements of Section 12(g) of
the Exchange Act and must file annual, quarterly and other periodic reports
with the SEC, as well as proxy and information statements. The public may
read and copy any materials we file with the SEC, including copies of this
registration statement at the SEC's Public Reference Room at 450 Fifth Street
N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0300.
We are an electronic filer and copies of our periodic reports and other
information filed with the SEC should be available through the Internet by
using the SEC's EDGAR database which may be found at http://www.sec.gov. We
also have an Internet web site at www.viewsystems.com.
PROPERTY
We lease 4,600 square feet of office space in Baltimore, Maryland. The lease
term is three (3) years beginning on October 1, 2005, and expiring on
September 30, 2008. The base rent is approximately $3,000 per month subject
to an annual escalator of 3%. Management believes this facility will suit our
needs for the future.
LEGAL PROCEEDINGS
As of the date of this prospectus we are not a party to any material legal
proceedings.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
EXECUTIVE OVERVIEW
View Systems acquires, develops and markets technologies related to
surveillance, detection and security for the purpose of commercializing them.
Management believes that heightened attention to terrorism and other security
threats, and spending by the United States government on Homeland Security
will continue to drive growth in the market for security products.
For the past two years we have recorded revenues from the sale of our
products. During the first quarter of 2004 we increased our product lines
when we entered into a cooperative research and development agreement with the
Idaho Engineering Lab for our Visual First Responder. During the second
quarter of 2004 we set up a complete manufacturing line in our Baltimore,
Maryland facility for building, testing and further development of the Visual
First Responder product.
In 2004 we worked diligently to make engineering design changes to the
SecureScan product to accommodate the price points required by competitive
pressures. In 2005 we contracted with the University of Northern Florida to
design new sensor boards for the SecureScan product which allowed us to reduce
the installed sensor cost by a factor of four. The new lower costs allow us
to offer price points to the market which compete directly with traditional
metal detectors. We believe the new reduced price points and the enhanced
interface abilities of our products will allow us to be more competitive.
During 2005 we have continued to provide live demonstrations of our SecureScan
product at sporting and entertainment venues, expos, and at state corrections
facilities. We also have provided demonstrations of our Visual First
Responder for police and civil support teams. These demonstrations have
raised interest in our products and resulted in increased orders of our
products.
During 2005 we continue to establish new partnerships, add active resellers
and dealers and we hired four sales representatives to build a United States
domestic network for the sale and distribution of our products within the 48
states. However, we cannot assure you that we will be able to develop these
sales and distribution channels to a level which will result in increased
revenues or continued profitability.
In August 2005 we contracted with Inter-Connect Electronics, Inc. to
manufacture and assemble our Visual First Responder units. We have also
contracted with Sports Field Specialties, LLC, an experienced manufacturer, to
build the SecureScan line. These manufacturing agreements allowed us to clear
our backlog for our product lines and reduced our labor cost.
For the next twelve months our primary challenge will be to more fully develop
our sales and distribution network for the United States.
LIQUIDITY AND CAPITAL RESOURCES
We rely on revenues from the sale of our products, private financing and sales
of common stock to fund our operations. We have incurred losses for the past
two fiscal years and had a net loss of $1,186,478 at December 31, 2004 and a
net loss of $184,377 for the six month period ended June 30, 2005. Our
auditors have expressed doubt that we can continue as a going concern based on
these operating losses. Management believes we will incur operating losses
for the near future while we continue to expand our product line and develop
our sales and marketing channels. Management continues to seek additional
funding to continue our business plan development for the next twelve months.
However, we can not assure you that we will be successful at obtaining the
necessary funding to continue this development.
While our revenues are increasing, we are unable to satisfy our operating
expenses. Net cash used by operating
17
activities was $211,201 for the six month period ended June 30, 2005 (the
"2005 six month period") compared to $539,078 for the six month period ended
June 30, 2004 (the "2004 six month period"). However, operating expenses for
the 2005 second quarter were less than half of the 2004 second quarter. Net
cash used by operating activities was $788,113 for the 2004 year compared to
$1,011,569 for the 2003 year.
For the short term, management believes that revenues, advances and sales of
our common stock will provide funds for operations and further development of
our business plan. For the long term, management expects that the development
of our sales and distribution channels will increase our revenues; however, we
will need to continue to raise additional funds through loans and sales of our
common stock, as needed.
FINANCING
We have financed our operations primarily through revenues and private
financing. Net cash provided by financing activities for the 2005 six month
period was $137,000, primarily from proceeds from sales of common stock. Net
cash provided by financing activities for the 2004 six month period was
$538,685, with $491,685 of that amount related to funds advanced by
stockholders. We estimate that we will require additional financing of
approximately $500,000 to meet our needs for the next six months. We intend
to use this financing to increase ongoing operations to self-sustaining levels
and increase profits.
Net cash provided by financing activities for the 2004 year was $941,700,
primarily from proceeds from sales of common stock. Net cash provided by
financing activities for the 2003 year was $951,370; consisting of debt
financing of $817,820 and proceeds received from sales of common stock of
$508,550.
Management believes that it will be essential to continue to raise additional
capital, both internally and externally, to compete in our markets. We cannot
assure you that we will be able to obtain financing on favorable terms 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, if
necessary.
COMMITMENTS AND CONTINGENT LIABILITIES
Our base rent for operating leases related to our principal office and
manufacturing facility is approximately $2,870 per month, with an annual rent
escalator of 3%. At December 31, 2004, future minimum payments for operating
leases related to our office and manufacturing facility were $19,964 through
2006.
Our total current liabilities of $394,579 at June 30, 2005 included accounts
payable of $143,377, accrued expenses of $30,802, accrued interest of $71,400
and notes payable of $149,000
OFF-BALANCE SHEET ARRANGEMENTS
None.
RESULTS OF OPERATIONS
For the Three and Six Month Periods Ended June 30, 2005 Compared
to the Three and Six Month Periods Ended June 30, 2004
The following discussions are based on the unaudited consolidated financial
statements of View Systems and its subsidiaries. These charts and discussions
summarize our financial statements for the three and six month periods ended
June 30, 2005 and 2004 and should be read in conjunction with the financial
statements, and notes thereto, included in this prospectus starting on page
30.
18
Summary Comparison of Three and Six Month Period Operations
------------------------------------------------------------
Six month Six month Three month Three month
period ended period ended period ended period ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------
Revenues, net $ 481,556 $ 192,394 $ 195,914 $ 158,041
Cost of sales 229,508 106,198 125,180 73,872
Gross profit 252,048 86,196 70,734 84,169
Total operating expenses 430,887 703,062 223,008 489,694
Total other income
(expense) (5,538) (28,311) (5,538) (25,297)
Net income (loss) (184,377) (645,177) (157,812) (430,822)
Net earnings (loss)
per share $ (0.00) $ (0.01) $ (0.00) $ (0.01)
Revenues for the 2005 six month period increased 150.2% compared to the 2004
six month period due to increased sales of our products. Revenues for the
three month period ended June 30, 2005 (the "2005 second quarter") increased
24.0% compared to the three month period ended June 30, 2004 (the "2004 second
quarter"). However, costs of sales also increased 116.0% for the 2005 six
month period compared to the 2004 six month period and increased 69.4% for the
2005 second quarter compared to the 2004 second quarter. As a result of
increased revenues in the 2005 six month period our gross profit increased
192.4% from the 2004 six month period. Due to increased cost of sales, gross
profit decreased 16.0% for the 2005 second quarter compared to 2004 second
quarter
For the 2005 six month period total operating expense decreased 54.6% compared
to the 2004 six month period. For the 2005 second quarter total operating
expense decreased 38.7% compared to the 2004 second quarter. The decreases in
the 2005 periods were primarily a result of decreases in general and
administrative expense and salaries and benefits.
Total other expense for the 2005 and 2004 comparable periods was related to
interest on loans.
As a result of the above, our net loss decreased 63.4% for the 2005 six month
period compared to the 2004 six month period and decreased 71.4% for the 2005
second quarter compared to the 2004 second quarter.
The following chart summarizes our balance sheet at June 30, 2005 and December
31, 2004
Summary Balance Sheet
---------------------
For six month
period ended For the year ended
June 30, 2005 December 31, 2004
-------------- ------------------
Cash and cash equivalents $ 93,269 $ 173,486
Total current assets 133,438 343,025
Total assets 1,937,487 2,151,958
19
Total current liabilities 394,579 647,324
Retained earnings (Deficit) (15,875,873) (15,691,496)
Total stockholders equity $ 1,542,908 $ 1,504,634
Our total assets decreased at June 30, 2005, primarily as a result of
decreases in our total current assets and property and equipment. Total
current liabilities decreased primarily due to decreases in accounts payable
and accrued expenses.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
The following discussions are based on the consolidated financial statements
of View Systems and its subsidiaries. These charts and discussions summarize
our financial statements for the years ended December 31, 2004 and 2003 and
should be read in conjunction with the financial statements, and notes
thereto, included in this prospectus starting on page 35.
Summary Comparison of 2004 and 2003 Fiscal Year Operations
-----------------------------------------------------------
2004 2003
-------------- --------------
Revenues, net $ 476,319 $ 569,952
Cost of sales 257,179 257,632
Gross profit 219,140 312,320
Total operating expenses 1,220,546 1,872,585
Loss from operations (1,001,406) (1,560,265)
Total other income (expense) (185,072) (986,069)
Net income (loss) (1,186,478) (2,546,334)
Net earnings (loss) per share $ (0.02) $ (0.05)
Revenues for the 2004 year decreased 16.4% compared to the 2003 year and costs
of sales remained relatively the same in the 2004 year compared to the 2003
year. As a result of the decrease in revenues our gross profit decreased
29.8% for the 2004 year compared to 2003.
For the 2004 year total operating expense decreased 34.8% compared to the 2003
year. The 2004 decrease was the result of a 6.8% decrease in general and
administrative expenses, a 47.2% decrease in professional fees, a 25.2%
decrease in salaries and benefits and recording $0 for business development
expenses. The reductions in these expenses resulted in a 35.8% decrease in
net operating loss.
Total other expense decreased in the 2004 year compared to the 2003 year
primarily as a result of recording a valuation/impairment loss of $888,658 in
the 2003 year compared to no valuation/impairment loss for the 2004 year. The
impairment loss for the 2003 year was related to a change in accounting
principle from the adoption of Statement of Financial Accounting Standards No
142, "Goodwill and Other Intangible Assets," issued in June 2001, which
addressed financial accounting and reporting for acquired goodwill and
intangible assets. The adoption of SFAS No. 142, required the cessation of
goodwill amortization for 2002 which decreased net loss for
20
2002 by $113,135, and the write off of goodwill in 2003 resulted in a
decreased net loss of $787,248.
As a result of the above changes, we recorded a 53.4% decrease in net loss for
the 2004 year compared to the 2003 year and decreased our loss per share from
$0.05 for the 2003 year to $0.02 for the 2004 year.
21
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age, position and biographical information of our executive officers
and directors are presented below. Our bylaws provide for a board of
directors consisting of at least one director. The term of office of each
director is until the next annual meeting of stockholders or until the
director's earlier death, resignation, or removal. However, if his term
expires, he continues to serve until his successor is elected and qualified.
Executive officers are chosen by our board of directors and serve at its
discretion. There are no family relationships between or among any of our
directors and executive officers.
Name Age Position Director Since
---- ---- -------- --------------
Gunther Than 58 Chief Executive Officer, Treasurer, September 1998
and Director
Michael L. Bagnoli 49 Secretary and Director May 1999
Martin Maassen 63 Director May 1999
Gunther Than - Gunther Than was appointed Treasurer in July 2003 and has
served as our Chief Executive Officer since September 1998. He served as our
President from September 1998 to May 2003 and had served intermittently as
Chairman of the Board from September 1998 to September 2003. Mr. Than was the
founder, President and CEO of Real View Systems, Inc. and View Technologies,
Inc., software developers. Mr. Than continues as President, CEO and director
of View Technologies, Inc. Mr. Than is a graduate of the University of
Wisconsin, with a dual bachelors degree in engineering physics and applied
mathematics.
Michael L. Bagnoli - Mr. Bagnoli became a Director in May 1999 and was
appointed Secretary in June 2004. He holds degrees as a medical doctor and a
dental specialist. Since 1988 he has practiced dentistry in the specialty
area of oral and masiofacial surgery for a physician group in Lafayette,
Indiana. In his practice he introduced arthroscopy surgery along with the
full scope of arthroplastic and total joint reconstruction. Mr. Bagnoli was
founder, CEO and president of a successful medical products company, Biotek,
Inc., which was sold in 1994.
Martin Maassen - Mr. Maassen became a Director in May 1999, he formerly
served as our Chairman of the Board from April 2000 to September 2002. He is
board-certified in internal medicine and emergency medicine and has served as
a staff physician in the emergency departments of Jackson County, Deaconess,
Union and St. Elizabeth hospitals located in Indiana. In addition to
practicing medicine, he maintains an expertise in computer technologies and
their medical applications.
EXECUTIVE COMPENSATION
The following table shows the compensation paid to our named executive
officers in all capacities during the past three fiscal years.
SUMMARY COMPENSATION TABLE
---------------------------
Annual Compensation
-------------------
Fiscal
Name and Principal Position Year Salary Other
--------------------------- ---- ------------- -------------
Gunther Than 2004 $ 100,000 (1) $ 120,000 (2)
CEO, Treasurer 2003 100,000 (1) 138,000 (3)
Director 2002 18,000 0
22
(1) Represents accrued salary.
(2) Represents 600,000 common shares issued as compensation.
(3) Represents 1,150,000 common shares issued as compensation.
Compensation of Directors
We compensate our independent directors, Messrs. Maassen and Bagnoli, with
5,000 shares of our common stock for each month of service. Messrs. Maassen
and Bagnoli each accrued 60,000 shares for the year ended December 31, 2003
and 60,000 shares for the year ended December 31, 2004. In June 2005 we
issued 120,000 shares valued at approximately $12,000 to Michael Bagnoli for
services rendered on our behalf. We have not issued the accrued shares to Mr.
Maassen. We do not have any arrangement for cash compensation of our
directors for the services they provide in their capacity as directors,
including services for committee participation or for special assignments.
Employment Contracts
Mr. Than entered into an employment agreement with us and agreed to serve as
our Chief Executive Officer, effective January 1, 2003. Mr. Than's employment
is "at will" and we may terminate him with or without cause. Either party may
terminate his employment with a 30-day written notice or we may terminate him
immediately and provide Mr. Than with severance pay in an amount equal to
thirty (30) days of salary as of the date of termination. Mr. Than will
receive an annual salary of $100,000 and 50,000 shares of common stock for
each month of service. Mr. Than has agreed to maintain the confidentiality of
our trade secrets and not to compete with the company or to solicit any
employee or client of the company during his employment and for a period of
one year after any termination of his employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes transactions exceeding $60,000 we have
either engaged in during the last two years, or propose to engage in,
involving our executive officers, directors, more than 5% stockholders, or
immediate family members of these persons.
In April 2005 we issued an aggregate of 1,800,000 shares of common stock to
Gunther Than, our Chief Executive Officer and director, in accordance with his
employment agreement. Of those shares, 1,200,000 shares were in lieu of wages
of $100,000 and 600,000 shares were issued in accordance with the 50,000
shares a month requirement in his employment contract. In June 2005, our
board of directors authorized the issuance of 7,171,725 shares of Series A
Preferred Stock to Mr. Than in consideration for $573,738 that he invested in
the company. In April 2004 we issued 600,000 shares to Mr. Than in accordance
with his employment agreement. These transactions between View Systems and
View Technologies were negotiated between related parties without "arms
length" bargaining and, as a result, the terms of these transactions may be
different than transactions negotiated between unrelated persons.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of our management. We are
unaware of any person or group that beneficially owns 5% or more of our
outstanding common stock. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power
with respect to the shares. Except as indicated by footnote, the persons
named in the table below have sole voting power and investment power with
respect to all shares of common stock shown as beneficially owned by them.
The percentage of beneficial ownership is based on 86,382,422 outstanding
shares of common stock as of October 11, 2005 and any shares that each of the
following persons may acquire within 60 days by the exercise of warrants
and/or options.
23
MANAGEMENT
-----------
Name and address of Title of Amount of Percent of
beneficial owner class beneficial ownership class
------------------ --------- ----------------------- -----------
Michael L. Bagnoli Common 730,000 (1) Less than 1%
40 Redwood Court
Lafayette, Indiana 47905
Martin Maassen Common 2,810,419 (2) 3.3%
1340 Fawn Ridge Drive
West Lafayette, Indiana 47906
Gunther Than Common 5,344,140 (3) 6.2%
1100 Wilso Drive Preferred 7,171,725 100%
Baltimore, Maryland 21223
Directors and officers Common 8,884,559 10.3%
as a group Preferred 7,171,725 100%
(1) Represents 660,000 shares owned by Mr. Bagnoli, 40,000 shares held
by his spouse, and 30,000 shares held by Mr. Bagnoli as trustee
of a trust.
(2) Represents 2,060,419 held by Mr. Maassen and 750,000 shares held
by his spouse
(3) Represents 5,174,140 shares owned by Mr. Than and 170,000 shares
held by his spouse.
24
DESCRIPTION OF SECURITIES
We are registering common stock under this prospectus and have 100,000,000
authorized shares of common stock, par value $0.001, and 10,000,000 shares of
Series A Preferred stock authorized, par value $0.01, as of the date of this
prospectus. We have 86,382,422 common shares outstanding as of October 11,
2005, and have 7,171,725 of Series A preferred stock outstanding.
COMMON STOCK
All shares of common stock have equal rights and privileges with respect to
voting, liquidation and dividend rights. After preferential rights are
satisfied, if any, the holders of common stock are entitled to receive
dividends out of funds legally available if, and when, declared by our board
of directors and to participate pro rata in any distribution of assets
available for distribution upon liquidation of View Systems. Any dividends
declared with respect to shares of common stock will be paid pro rata in
accordance with the number of shares of common stock held by each stockholder.
Each holder of common stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders. A majority of the
outstanding common stock is required to establish a quorum for a shareholder
vote and a majority vote of the outstanding shares present at a stockholders'
meeting is required for actions to be taken by stockholders. Our bylaws
provide that shareholder action may be taken by written consent of a majority
of the outstanding common stock. Directors are elected by a majority vote at
a stockholders' meeting and the holders of the common stock do not have
cumulative voting rights. Accordingly, the holders of a majority of the
voting power of the shares voting for the election of directors can elect all
of the directors if they choose to do so.
PREFERRED STOCK
Each share of Series A Preferred has a liquidation preference of $0.01 per
share before any payment or distribution is made to the holders of common
stock in the event of liquidation of View Systems. The Series A Preferred has
no conversion rights into common stock. Each share of Series A Preferred is
entitled to fifteen votes and shall be entitled to vote on any matters brought
to a vote of the common stock shareholders. We may elect to redeem the Series
A Preferred with proper notice to the holders of the Series A Preferred and,
upon redemption, the Series A Preferred will be cancelled and not be reissued
as Series A Preferred.
SHARES ELIGIBLE FOR FUTURE SALE
Of the shares of common stock outstanding, 62,252,091 shares are freely
transferable without restriction or further registration under the Securities
Act of 1933 (the "Securities Act"), and 24,130,331 shares are "restricted
securities," as that term is defined in Rule 144 under the Securities Act. Of
the restricted securities, 8,884,559, or 10.3%, are held by our "affiliates,"
as defined in Rule 144. In addition, we have options outstanding exercisable
through 2009 to purchase 107,690 common shares at a weighted average exercise
price of $1.63. Sales of substantial amounts of common stock in the public
market could adversely affect the prevailing market prices of our common
stock.
SELLING STOCKHOLDERS
The following table identifies the selling stockholders under this prospectus
and identifies their relationship to View Systems during the past three years.
The table also lists the number of shares of common stock owned by each
selling stockholder prior to the offering, the estimated number of shares to
be offered for the selling stockholder's account and the estimated number of
shares and percentage of outstanding shares to be owned by each selling
stockholder after the completion of the offering. Since the selling
stockholders may sell all, a portion, or none of their shares from time to
time, no firm estimate can be made of the aggregate number of shares that will
be owned by each selling stockholder upon completion of the offering.
Accordingly, the ownership amount and
25
percentage after the offering assumes the sale of all of the registered shares
by the selling stockholders.
------------------------------------------------------------------------------
Estimated securities
Securities Number of owned after
Selling stockholder owned prior shares being offering
name and relationship to offering registered Shares Percent
------------------------------------------------------------------------------
MBA Investors, Inc. (1)
Consultant 1,210,000 1,210,000 0 0%
------------------------------------------------------------------------------
Power Network, Inc. (2)
Investor 597,500 597,500 0 0%
------------------------------------------------------------------------------
William D. Smith
Former Secretary,
Chairman of the Board
and consultant 1,170,000 170,000 1,000,000 1.2%
------------------------------------------------------------------------------
Starr Consulting, Inc. (3)
Investor 597,500 597,500 0 0%
------------------------------------------------------------------------------
YT2K, Inc. (4)
Investor 1,195,000 1,195,000 0 0%
------------------------------------------------------------------------------
Total 4,770,000 3,770,000 1,000,000 1.2%
------------------------------------------------------------------------------
(1) As provided by MBA Investors, Inc., Thomas F. Pierson has power to
vote and dispose of the securities.
(2) As provided by Power Network, Inc., Joe V. Overcash has power to
vote and dispose of the securities.
(3) As provided by Starr Consulting, Inc., Dan Starczewski has power
to vote and dispose of the securities.
(4) As provided by YT2K, Inc., Richard Muller has power to vote and
dispose of the securities.
TRANSACTIONS RELATED TO THE SELLING STOCKHOLDERS
On September 22, 2005, our board of directors authorized the issuance of an
aggregate of 2,390,000 shares to three accredited investors. These investors
paid on our behalf notes payable of $237,357 that we owed to Niki Group, LLC
and Compass Equity Partners LLC. Starr Consulting, Inc. received 597,500
shares for $60,000; Power Network, Inc. received 597,500 shares for $60,000;
and YT2K, Inc. received 1,195,000 shares for $120,000. Our board of directors
has determined that these shares shall be registered under this prospectus.
On September 22, 2005, our board of directors authorized the issuance of
1,210,000 shares to MBA Investors for corporate consulting services valued at
$120,000 rendered to us over the past four months by MBA Investors and Thomas
F. Pierson. Our board of directors has determined that these shares will be
registered under this prospectus.
Carry Over Shares
We filed a registration statement on Form SB-2 (File No. 333-118043) which
originally registered 17,521,050 shares of our common stock to be sold by the
selling stockholders named in that registration statement. Of the shares
registered, 14,099,230 shares have been sold, 170,000 shares will be carried
over to this registration statement and 3,251,820 shares have not been sold
and are deregistered.
26
William D. Smith is the owner of the 170,000 shares being carried over from
the prior registration statement. He served as the Chairman of the Board and
Secretary of the company from February 2003 to June 2004. On August 20, 2003
we issued 1,000,000 common shares to Mr. Smith for $100,000. On September 10,
2003, we issued 200,000 common shares, valued at $24,000, to Mr. Smith for
consulting services for the period from September 2002 through August 2003.
Our board of directors has determined that 170,000 shares held by Mr. Smith
shall be registered under this prospectus.
PLAN OF DISTRIBUTION
We have agreed to register these shares for the benefit of the selling
stockholders, but the registration of these shares does not necessarily mean
that any of them will be offered or sold by the selling stockholders. The
selling stockholders will have absolute discretion as to when and if the
registered shares will be sold, and the manner and timing of sales of the
shares. They may sell all or a portion of the shares through public or
private transactions, on or off established markets, or in negotiated
transactions or otherwise.
We will not use the services of underwriters or dealers in connection with the
sale of the shares registered under this prospectus. However, the selling
stockholders may sell all or any part of the shares offered in this prospectus
through an underwriter. No selling stockholder has entered into any agreement
with a prospective underwriter as of the date of this filing and there is no
assurance that any agreement will be entered into. If a selling stockholder
enters into an agreement or agreements, the relevant details will be disclosed
in a supplement or revision to this prospectus.
The shares may be sold by the selling stockholders either directly or through
brokers or dealers, or in a distribution by one or more underwriters on a firm
commitment or best-efforts basis. The methods by which the shares may be sold
may include:
. a block trade, which may involve crosses, in which the broker or dealer
will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transaction;
. purchases by a broker or dealer as principal and resale by the broker or
dealer for its own account;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. privately negotiated transactions;
. through the writing of options on the shares;
. the selling stockholders may deliver all or a portion of the shares to
cover a short sale or sales made after the date of this prospectus, or a
call equivalent position or a put equivalent position entered or
established after the date of this prospectus; and/or
. the selling stockholders may also sell all or any portion of the shares
in reliance upon Rule 144 or Regulation S.
The sale price to the public may be:
. the market price prevailing at the time of sale;
. a price related to the prevailing market price;
. at negotiated prices; or
. any other price as the selling stockholders determine from time to time.
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders. These broker-dealers may also receive compensation from the
purchasers of shares for whom the broker-dealers may act as agents or to whom
they sell as a principal. This compensation might be in excess of customary
commissions as to a particular broker-dealer. Market makers and block
purchasers purchasing the shares will do so for their own account and at their
own risk. It is possible that selling stockholders will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price.
27
The selling stockholders and any broker-dealers participating in the
distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of the shares by the
selling stockholders and any commissions received by any broker-dealers may be
deemed to be underwriting commissions or discounts under the Securities Act.
Since the selling stockholders may be deemed to be "underwriters" they will be
subject to the prospectus delivery requirements of the Securities Act.
We and the selling stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations promulgated under it,
including, without limitation, Regulation M. Regulation M restricts certain
activities of the selling stockholders and may limit the timing of purchases
and sales of any of the shares by the selling stockholders or any other
person. Also, Regulation M may restrict the ability of any person engaged in
the distribution of the shares to engage in market-making activities with
respect to the particular shares being distributed for a period of up to five
business days prior to the commencement of a distribution. All of these
limitations may affect the marketability of our shares and the ability of any
person or entity to engage in market-making activities with respect to our
shares.
In the event a block trade or other special offering of these shares is
arranged, then we will distribute a prospectus supplement, if required, that
will identify the name of any dealers or agents and any commissions and other
terms constituting compensation from the selling stockholders and as well as
any other required information.
Some states securities laws may require the shares be sold only through
registered or licensed brokers or dealers. In addition, in some states, these
shares may not be sold unless they have been registered or qualified for sale
in that state or an exemption from the registration or qualification
requirement of that state is available and is complied with.
OTHER INFORMATION
INTEREST OF NAMED EXPERTS AND COUNSEL
We are not aware of any expert or legal counsel named in this prospectus who
will receive a direct or indirect substantial interest in the offering. Our
financial statements for the year ended December 31, 2004, were audited by
Chisholm, Bierwolf & Nilson, LLC. We have included the financial statements
in this prospectus in reliance on the reports provided by Chisholm, Bierwolf &
Nilson, LLC, dated March 23, 2005, given on their authority as experts in
accounting and auditing. Cindy Shy, P.C. has provided an opinion regarding
the validity of the shares to be registered.
SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or persons controlling us, we have
been informed that in the opinion of the SEC this type of indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
In the event that a claim for indemnification against these liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by any director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether this indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of this issue.
28
ADDITIONAL INFORMATION
This prospectus does not contain all of the information in or attached as an
exhibit to the registration statement. Investors should refer to the exhibits
to the registration statement for the complete text. The registration
statement and its exhibits may be inspected at the office of the SEC without
charge. A copy of the registration statement, any post-effective amendment
and exhibits may be accessed through the SEC's EDGAR database located at the
SEC's web site at http://www.sec.gov. Other information can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024
of the SEC's office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC
20549. Additional updating information with respect to the securities covered
by this prospectus may be provided to purchasers in the future by means of
amendments to this prospectus.
In addition, the information incorporated by reference is available to you
without charge upon your written or oral request. We agree to respond to your
requests for the additional information within one business day of receipt of
the request. We will send the copies of the document by first class mail or
other equally prompt means. You must address your request to:
Investor Relations
View Systems, Inc.
1550 Caton Center Drive, Suite E
Baltimore, Maryland 21227
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In our current report on Form 8-K, dated February 24, 2004, and as amended, we
reported that we engaged Chisholm, Bierwolf & Nilson, LLC, as our independent
auditors. Our former auditors, Stegman & Company, Certified Public
Accountants, resigned as our independent auditors on March 1, 2004.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Unaudited consolidated financial statements for View Systems for the three and
six month periods ended June 30, 2005 and June 30, 2004
Consolidated Balance Sheets......................................... 30
Consolidated Statements of Operations............................... 31
Consolidated Statements of Stockholders Equity...................... 32
Consolidated Statements of Cash Flows............................... 33
Notes to Consolidated Financial Statements.......................... 34
Audited consolidated financial statements for View Systems for the year ended
December 31, 2004 and 2003
Independent Auditor's Report of Chisholm, Bierwolf & Nilson, LLC.... 37
Consolidated Balance Sheets......................................... 38
Consolidated Statements of Operations............................... 39
Consolidated Statements of Stockholders' Equity..................... 40
Consolidated Statements of Cash Flows............................ 41-42
Notes to Financial Statements.................................... 43-53
29
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2005 2004
------------- -------------
(unaudited)
Current Assets
Cash $ 93,269 $ 173,486
Accounts Receivable (Net of allowance of
$20,054 at December 31, 2004) 13,972 108,342
Inventory 26,197 61,197
------------- -------------
Total current assets 133,438 343,025
------------- -------------
Property & Equipment (Net) 9,518 14,803
------------- -------------
Other Assets
Licenses 1,626,854 1,626,854
Loans to Shareholder 62,000 66,500
Due from Affiliates 103,358 98,457
Deposits 2,319 2,319
------------- -------------
Total Other Assets 1,794,531 1,794,130
------------- -------------
Total Assets $ 1,937,487 $ 2,151,958
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 143,377 $ 331,776
Accrued Expenses 30,802 100,548
Accrued Interest 71,400 66,000
Notes Payable 149,000 149,000
------------- -------------
Total Current Liabilities 394,579 647,324
------------- -------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and Outstanding -0- - -
Common Stock, Authorized 100,000,000 Shares,
$0.001 Par Value, Issued and Outstanding
81,509,422 81,510 -
Issued and Outstanding 76,533,922 - 76,534
Additional Paid in Capital 17,337,271 17,119,596
Retained Earnings (Deficit) (15,875,873) (15,691,496)
------------- -------------
Total Stockholders' Equity 1,542,908 1,504,634
------------- -------------
Total Liabilities and Stockholders' Equity $ 1,937,487 $ 2,151,958
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
30
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ---------------------------
2005 2004 2005 2004
-------------- ------------- ------------- -------------
Revenues, Net $ 195,914 $ 158,041 $ 481,556 $ 192,394
Cost of Sales 125,180 73,872 229,508 106,198
-------------- ------------- ------------- -------------
Gross Profit (Loss) 70,734 84,169 252,048 86,196
-------------- ------------- ------------- -------------
Operating Expenses
Business development 17,617 - 32,646 -
General & Administrative 25,238 325,100 94,020 380,678
Professional Fees 31,341 57,955 69,856 82,174
Salaries and Benefits 148,812 106,639 234,365 240,210
-------------- ------------- ------------- -------------
Total operating expenses 223,008 489,694 430,887 703,062
-------------- ------------- ------------- -------------
Net Operating Income (Loss) (152,274) (405,525) (178,839) (616,866)
-------------- ------------- ------------- -------------
Other Income (Expense)
Interest Expense (5,538) (25,297) (5,538) (28,311)
-------------- ------------- ------------- -------------
Total Other Income
(Expense) (5,538) (25,297) (5,538) (28,311)
-------------- ------------- ------------- -------------
Net Income (Loss) $ (157,812) $ (430,822) $ (184,377) $ (645,177)
============== ============= ============= =============
Net Income (Loss) Per Share $ (0.00) $ (0.01) $ (0.00) $ (0.01)
============== ============= ============= =============
Weighted Average Shares
Outstanding 76,866,047 64,523,490 76,866,047 63,671,982
============== ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements
31
View Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Common Stock Additional Retained
----------------- --------------------------- Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit)
------- --------- ------------- ------------- ------------- -------------
Balance,
December 31, 2004 - $ - 76,533,922 $ 76,534 $ 17,119,596 $(15,691,496)
January - March 2005 -
shares issued for cash - - 155,000 155 15,345 -
January - March 2005 -
shares issued in payment
of accounts payable - - 128,000 128 18,872 -
April - June 2005 - shares
issued for cash - - 2,287,500 2,288 114,712 -
April - June 2005 - shares
issued for services - - 2,405,000 2,405 68,745 -
Net loss for the period
ended June 30, 2005 - - - - - (184,377)
------- --------- ------------- ------------- ------------- -------------
Balance, June 30, 2005
(unaudited) - $ - 81,509,422 $ 81,510 $ 17,337,270 $(15,875,873)
======= ========= ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
32
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30,
--------------------------------
2005 2004
---------------- ---------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (184,377) $ (645,177)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation and Amortization 6,400 17,490
Stock Issued for Services 71,150 239,380
Changes in Operating Assets and Liabilities:
Accounts Receivable 94,370 (14,764)
Inventory 35,000 -
Increase (Decrease) in:
Accounts Payable (169,398) (168,514)
Accrued Expenses (64,346) 32,507
---------------- ---------------
Net Cash Used by Operating Activities (211,201) (539,078)
---------------- ---------------
Cash Flows from Investing Activities:
Purchases of Equipment (1,115) -
Funds Advanced (to) from Affiliated Entities (4,901) -
---------------- ---------------
Net Cash Used in Investing Activities (6,016) -
---------------- ---------------
Cash Flows from Financing Activities:
Funds Advanced (to) from Stockholders 4,500 491,685
Proceeds from Stock Issuance 132,500 47,000
---------------- ---------------
Net Cash Provided by Financing Activities 137,000 538,685
---------------- ---------------
Increase (Decrease) in Cash (80,217) (393)
Cash and Cash Equivalents at Beginning of Period 173,486 19,899
---------------- ---------------
Cash and Cash Equivalents at End of Period $ 93,269 $ 19,506
================ ===============
Cash Paid For:
Interest $ 138 $ -
Income Taxes $ - $ -
Non-Cash Activites:
Stock Issued in Payment of Accounts Payable $ 19,000 $ -
Stock Issued for Notes Payable and Accrued Interest $ - $ 522,105
Stock Issued for Services $ - $ 239,380
The accompanying notes are an integral part of these consolidated financial statements.
33
View Systems, Inc.
Notes to the Consolidated Financial Statements
June 30, 2005
GENERAL
View Systems, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2005
since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their
Annual Report filed on the Form 10-KSB for the twelve months ended December
31, 2004.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
which are, in the opinion of management, necessary to properly reflect the
results of the interim period presented. The information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
34
VIEW SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
35
C O N T E N T S
Accountants' Report........................................................F-3
Consolidated Balance Sheets ...............................................F-4
Consolidated Statements of Operations .....................................F-5
Consolidated Statements of Stockholders' Equity............................F-6
Consolidated Statements of Cash Flows......................................F-7
Notes to the Consolidated Financial Statements.............................F-8
36
INDEPENDENT AUDITORS' REPORT
To the Audit Committee of the Board of Directors and Stockholders
View Systems, Inc.
Baltimore, Maryland
We have audited the accompanying consolidated balance sheet of View Systems,
Inc., and subsidiaries (the Company) as of December 31, 2004, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for the years ended December 31, 2004 and 2003. These consolidated
financial statements are the responsibility of Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The Company has determined that it is not required to have, nor
were we engaged to perform, an audit of its internal control over financial
reporting. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the accompanying consolidated balance sheet as of December 31,
2004 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 2004 and
2003 present fairly, in all material respects, the financial position of the
Company as of December 31, 2004, and the results of operations and cash flows
for the years then ended in conformity with U.S. generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
ongoing operating losses and does not currently have financing commitments in
place to meet expected cash requirements through 2004. Additionally, the
Company is in default on its debt obligations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the
outcome of this uncertainty.
/s/ Chisholm, Bierwolf & Nilson LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
March 23, 2005
F-3
37
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
December 31,
2004
-------------
Current Assets
Cash $ 173,486
Accounts Receivable(Net of Allowance of $20,054) 108,342
Inventory 61,197
-------------
Total Current Assets 343,025
-------------
Property & Equipment (Net) 14,803
-------------
Other Assets
Licenses 1,626,854
Loans to shareholder 66,500
Due from Affiliates 98,457
Deposits 2,319
-------------
Total Other Assets 1,794,130
-------------
Total Assets $ 2,151,958
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 331,776
Accrued Expenses 100,548
Accrued Interest 66,000
Notes Payable 149,000
-------------
Total Current Liabilities 647,324
-------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and outstanding 0 -
Common Stock, Authorized 100,000,000 Shares,
$.001 Par Value, Issued and Outstanding 76,533,922 76,534
Additional Paid in Capital 17,119,596
Retained Earnings (Deficit) (15,691,496)
-------------
Total Stockholders' Equity 1,504,634
-------------
Total Liabilities and Stockholders' Equity $ 2,151,958
=============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
38
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended
December 31,
---------------------------
2004 2003
------------- -------------
Revenues, Net $ 476,319 $ 569,952
Cost of Sales 257,179 257,632
------------- -------------
Gross Profit (Loss) 219,140 312,320
------------- -------------
Operating Expenses
Business Development - 155,130
General & Administrative 281,127 301,482
Professional Fees 286,323 542,612
Salaries & Benefits 653,096 873,361
------------- -------------
Total Operating Expenses 1,220,546 1,872,585
------------- -------------
Net Operating Income (Loss) (1,001,406) (1,560,265)
------------- -------------
Other Income(Expense)
Loss on Sale of Assets - (14,839)
Interest Expense (36,144) (11,572)
Bad Debt (148,928) (71,000)
Valuation/Impairment Loss - (888,658)
------------- -------------
Total Other Income(Expense) (185,072) (986,069)
------------- -------------
Net Income (Loss) $ (1,186,478) $ (2,546,334)
============= =============
Net Income (Loss) Per Share $ (0.02) $ (0.05)
============= =============
Weighted Average Shares Outstanding 68,924,152 51,529,119
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
39
View Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
------------- ---------- ------------- -------------
Balance, December 31, 2002 44,598,620 $ 44,598 $ 13,810,878 $(11,958,683)
January - March 2003 -
shares issued for cash 676,999 677 85,873 -
January 2003 - shares
issued for services 445,000 445 51,755 -
July - September 2003 -
share issued for cash 3,220,000 3,220 318,780 -
September 2003 - shares
issued for payment of
notes payable 300,000 300 29,700 -
September 2003 - Stock
issued for services 500,000 500 59,500 -
September 2003 share
issued to employees 1,600,000 1,600 190,400 -
September 2003 - shares
issued for payment
of notes payable 10,800,000 10,800 755,520 -
October 2003 - shares
issued for services 190,000 190 9,310 -
Forgiveness of Debt by
subsidiary-contribution - - 193,293 -
October-December 2003 -
shares issued for cash 400,000 400 99,600 -
Net loss for the year
ended December 31, 2003 - - - (2,546,334)
------------- ---------- ------------- -------------
Balance, December 31, 2003 62,730,619 62,730 15,604,609 (14,505,017)
Cancellation of shares (100,000) (100) (4,900) -
January - March 2004 -
shares issued for cash 244,500 245 34,755 -
January - March 2004 -
shares issued for services 932,000 932 203,048 -
April - June 2004 -
shares issued for cash 84,333 84 11,916 -
April - June 2004 - shares
issued for services 221,250 221 39,979 -
June 2004 - shares issued
for payment of notes
payable and accrued
interest 5,221,050 5,221 516,884 -
July - September 2004 -
shares issued for cash 100,000 100 19,900 -
July - September 2004 -
shares issued for services 781,600 782 108,642 -
September 2004 - shares
issued in settlement
of litigation 2,000,000 2,000 178,000 -
October - December 2004 -
shares issued for cash 1,066,750 1,067 89,833 -
December 2004 - shares
issued for payment of
notes payable and
accrued interest 3,251,820 3,252 321,930 -
Cost of issuance of
common stock - - (5,000) -
Net loss for the year
ended December 31, 2004 - - - (1,186,478)
------------- ---------- ------------- -------------
Balance, December 31, 2004 76,533,922 $ 76,534 $ 17,119,596 $(15,691,495)
============= ========== ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
40
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
2004 2003
-------------- -------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (1,186,478) $ (2,546,334)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation & Amortization 29,890 45,160
Impairment of Assets - 888,658
(Gain) Loss on Disposal of Assets - 14,839
Bad Debts 148,928 71,000
Accrued interest paid with stock 13,987 -
Stock Issued for Services 353,604 313,700
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (32,182) (143,376)
Inventories 32,044 (21,916)
Prepaid expenses - (655)
Other Assets 2,500 (2,287)
Increase (Decrease) in:
Accounts Payable (146,439) 211,747
Accrued Expenses (3,967) 157,895
-------------- -------------
Net Cash Provided(Used) by Operating Activities (788,113) (1,011,569)
Cash Flows from Investing Activities:
Advances (to)/ receipt from related party - 76,869
-------------- -------------
Net Cash Provided (Used) by Investing Activities - 76,869
Cash Flows from Financing Activities:
Funds advanced (to) from stockholders (62,000) -
Proceeds from debt financing 933,800 817,820
Proceeds from stock issuance 157,900 508,550
Cost of issuance of common stock (5,000) -
Principal Payments on Notes Payable (83,000) (375,000)
-------------- -------------
Net Cash Provided (Used) by Financing Activities 941,700 951,370
-------------- -------------
Increase (Decrease) in Cash 153,587 16,670
Cash and Cash Equivalents at Beginning of Period 19,899 3,229
-------------- -------------
Cash and Cash Equivalents at End of Period $ 173,486 $ 19,899
============== =============
The accompanying notes are an integral part of these
consolidated financial statements.
7
41
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Year Ended
December 31,
----------------------------
2004 2003
-------------- -------------
Cash Paid For:
Interest $ 25,144 $ 572
Income Taxes $ - $ -
Non-Cash Investing and Financing Activities:
Stock Issued in payment for Note Payable $ 833,300 $ 796,320
Stock issued in payment of accounts payable $ 200,000 $ -
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
42
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND 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 Consolidation
----------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Milestone Technology, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
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 recognizes revenue when the product has been shipped. 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). All inventory as of December 31, 2003
consisted of finished goods.
Property and Equipment
----------------------
Property and equipment is recorded at cost and depreciated over their useful
lives, using the straight-line and accelerated depreciation methods. Upon
sale or retirement, the cost and
F-9
43
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of 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
years ended December 31, 2004 and 2003 amounted to $29,890 and $45,1260,
respectively.
Goodwill
--------
Goodwill represents the excess of the cost of assets acquired in the business
combinations accounted for under the purchase method of accounting over the
fair value of the net assets acquired at the dates of acquisition. Prior to
the adoption of SFAS Nos. 141 and 142, the excess purchase price was being
amortized using the straight-line method over ten years. Effective January 1,
2002 goodwill will no longer be amortized but rather tested for impairment
under the provision of SFAS No 142. As of December 31, 2003, goodwill was
determined to be impaired and was written off.
Licenses
--------
In connection with the acquisition on Milestone, the Company received various
licenses to products developed by INEEL (Idaho National Engineering and
Environmental Laboratory). Milestone transferred the licenses to View
Systems, Inc., and in November 2003, two separate licenses were signed in the
name of View Systems with Bechtel BWXT Idaho, LLC (BBWI).
BBWI is the management and operating contractor of the INEEL under its
Contract No. DE-AC07-99ID13727 ("M&O Contract") and has the authorization,
right and ability to grant the license of the Agreement. The licenses allow
View Systems to commercially develop, manufacture, use, sell and distribute
processes and products embodying the U.S. Patent No. 6.150.810 "Method for
Detecting the Presence of a Ferromagnetic Object Using Maximum and Minimum
Magnetic Field Data", and U.S. Patent Application S/N 10/623,372,
"Communication Systems, Camera Devices, and Communication Methods".
The valuation of these licenses consist of the cost of acquiring Milestone, ie
the difference of the cost paid for the entity vs. the value of the
underlying assets and liabilities which was determined to be $1,626,866.
Consistent with SFAS No. 142, the license was analyzed to determine if any
impairment existed at December 31, 2004. It was determined to not be
impaired. Pursuant to SFAS No. 142, the license will not be amortized, rather
the valuation of this intangible will reviewed periodically.
F-10
44
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
------------
Deferred income taxes are recorded under the assets 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 years ended December 31, 2004 and 2003 were $10,214 and $21,264.
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.
F-11
45
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Common Share
-------------------------
Basic net loss per common share is computed by dividing net loss available to
common stockholder by the weighted average number of common shares
outstanding. Diluted net loss per common share 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 years ended December 31, 2004 and 2003 does not
include potential shares of common stock equivalents, as their impact would be
antidilutive.
2. GOING CONCERN
The Company has incurred and continues to incur, losses from operations. For
the years ended December 31, 2004 and 2003, the Company incurred net losses of
$1,186,478 and $2,546,334, respectively. During 2004 and 2003, the Company
implemented a strategy to reduce its cash used in operating activities which
included reductions in personnel and facilities expense. Additionally, the
Company has increased the efficiency of its processes and focused its
development efforts on products with greater sales potential.
To date, the Company has financed its operations primarily through private
financing. Additionally, the Company is in default on its debt obligations.
It is management's intention to finance 2005 operations through an additional
equity financing. There can be no assurance, however, that this financing
will be successful and the Company may be required to further reduce expenses
and scale back operations. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
3. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure-an Amendment of FASB
Statement No. 123, effective for fiscal years ending after December 15, 2002.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 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 SFAS No. 148, did not have a material impact on the Company's
financial position or results of operations.
F-12
46
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2004, FASB issued a revision to SFAS 123 "Share-Based Payment".
This Statement is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. This Statement does not change the accounting guidance
for share-based payment transactions with parties other than employees
provided in Statement 123 as originally issued and EITF Issue No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services." This Statement
does not address the accounting for employee share ownership plans, which are
subject to AICPA Statement of Position 93-6, Employers' Accounting for
Employee Stock Ownership Plans. The Company does not believe adoption of this
revision will have a material impact on the Company's consolidated financial
statements.
In December 2004, FASB issued SFAS 153 "Exchanges of Nonmonetary Assets an
amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The Company does not believe
adoption of SFAS 153 will have any impact on the Company's consolidated
financial statements
In December 2004, FASB issued SFAS 152 "Accounting for Real Estate
Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67". This
Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate,
to reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position
(SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This
Statement also amends FASB Statement No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in
F-13
47
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
SOP 04-2. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005. The Company does not believe adoption of
SFAS 152 will have any impact on the Company's consolidated financial
statements.
In November 2004, the FASB issued SFAS 151 "Inventory Costs an amendment of
ARB No. 43". This Statement amends the guidance in ARB No. 43, Chapter 4,
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and re-handling costs may be so abnormal as to require treatment as
current period charges. . . ." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. The provisions of this
Statement shall be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company does not believe adoption of SFAS
151 will have any impact on the Company's consolidated financial statements.
In December 2003, FASB issued a revision to SFAS 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits an amendment of FASB
Statements No. 87, 88, and 106". This Statement revises employers' disclosures
about pension plans and other postretirement benefit plans. It does not change
the measurement or recognition of those plans required by FASB Statements No.
87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This Statement retains the disclosure
requirements contained in FASB Statement No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original Statement 132 about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. The
required information should be provided separately for pension plans and for
other postretirement benefit plans. The Company does not believe adoption of
this revision will have a material impact on the Company's consolidated
financial statements.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with characteristics of both Liabilities and Equity." This new
statement changes the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity or classifications
between liabilities and equity in a section that has been know as "mezzanine
capital." It requires that those certain instruments be classified as
liabilities in balance sheets. Most of the guidance in SFAS 150 is effective
for all financial instruments entered into or modified after May 31, 2003.
The adoption of SFAS 150 did not have any impact on the Company's consolidated
financial statements.
F-14
48
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This
Statement is effective for contracts entered into or modified after June 30,
2003, with certain exceptions, and for hedging relationships designated after
June 30, 2003, with certain exceptions. The adoption of SFAS 149 did not have
any effect on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities" (FIN 46), which addresses consolidation by business
enterprises of variable interest entities. FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements",
to certain entities in which equity investors do not have the Characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company has not
identified and does not expect to identify any variable interest entities that
must be consolidated.
4. BUSINESS COMBINATION
The Company purchased 100% of the common stock of Milestone Technology, Inc.,
effective March 25, 2002. The purchase was accomplished in two transactions.
The Company acquired 6% of Milestone in December 2001 in exchange for 500,000
shares of the Company's common stock. In March 2002, the Company acquired the
remaining 94% of Milestone for 3,300,000 share of the Company's common stock.
Based on the market value of the Company's common stock ($0.55 per share in
December and $0.31 per share in March) the total cost of the acquisition was
$1,298,000.
Milestone Technology, Inc., is a developer of concealed weapons detections
systems. Its primary product is a walk-through detector that uses advanced
magnetic technology to accurately pinpoint the location, size, and numbers of
concealed weapons. Prior to its acquisition, Milestone Technology, Inc., was
considered to be a development stage enterprise.
F-15
49
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
5. DUE FROM AFFILIATED ENTITIES
The Company has advanced non-interest bearing funds of $98,458 as of December
31, 2004 and 2003 to a related corporation, View Technologies, Inc., which is
controlled by the Chief Executive Officer of the Company. There are no formal
repayment terms associated with this advance. The two companies enter into
various transactions throughout the year to provide working capital to one
another when necessary.
The Company has advanced non-interest bearing funds to one of its officers in
the amount of $66,500 as of December 31, 2004.
6. NOTES PAYABLE
Notes payable as of December 31, 2004 consist of the following:
Note payable - due to an individual, non-interest
bearing due on demand. 500
Note payable - due to an individual, non-interest
bearing due on demand 9,500
Note payable - due to an individual, non-interest
bearing due on demand 3,000
Note payable - due to an individual, non-interest
bearing due on demand 11,000
Note payable - due to an individual, non-interest
bearing, due on demand 15,000
Notes payable - due former stockholder of Zyros
Technology, due on demand, interest at 10% per annum 110,000
------------
Total Notes Payable $ 149,000
============
The notes payable due former stockholders of Xyros Technology, which was
acquired by the Company in 1999 was due December 31, 1999 but the Company has
negotiated to repay the loan as cash flow permits.
F-16
50
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
7. INCOME TAXES
The components of the net deferred tax asset and liability as of December 31,
2004 are as follows:
Effect of net operating loss carryforward $ 6,118,178
Less evaluation allowance (6,118,178)
---------------
Net deferred tax asset (liability) $ -
===============
8. OPERATING LEASE
The Company leases office and warehouse space in Baltimore, Maryland under a
five-year noncancellable operating lease, expiring August 2005. Base rent is
$2,260 per month with an annual rent escalator of 3%. Rent expense was
$52,900 and $61,047 for the years ended December 31, 2004 and 2003,
respectively.
The following is a schedule by year, of approximate future minimum lease
payments required under this lease:
Year ending December 31:
2005 19,964
2006 and Thereafter -
------------
Total minimum future rental payments $ 19,964
============
9. STOCK BASED COMPENSATION
During the years ended December 31, 2004 and 2003 the Company granted
restricted stock, incentive stock options, nonqualified stock options, and
warrants to employees, officers, and independent contractors and consultants.
Restricted Stock Grants
The Company's Board of Directors and stockholders have approved a restricted
share plan under which shares of the Company's common stock will be granted to
employees, officers and directors at the discretion of the Board of Directors.
During 2004 and 2003, the Company issued the following shares under this Plan
and additional shares at the discretion of the Board of Directors:
F-17
51
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
9. STOCK BASED COMPENSATION(Continued)
Stock Options and Warrants
2004 2003
----------------------- ---------------------
Number Expense Number Expense
of Shares Recognized of Shares Recognized
----------- ----------- --------- -----------
Officers and employees 702,000 $ 144,480 1,690,000 $ 196,500
Independent contractors and
consultants 1,502,850 209,124 1,035,000 117,200
----------- ----------- --------- -----------
Total 2,204,850 $ 353,604 2,725,000 $ 313,700
=========== =========== ========= ===========
Officers' and employees' compensation was based on the fair market value of
the common stock issued on the date of grant less a discount of 10% due to the
restricted nature of the grant. Independent contractors and consultants
expense was based on the estimated value of services rendered.
The Company adopted the 1999 Stock Option Plan during the year ended December
31, 1999. The Plan reserves 4,500,000 shares of the Company's unissued common
stock for options. Options, which may be tax qualified and non-qualified, are
exercisable for a period of up to ten years at prices at or above market price
as established on the date of the grant.
A summary of the Company's common stock option activity and related
information for the years ended December 31, 2004 and 2003 is as follows:
2003
----------------------------------------
Weighted
Common Average Range of
Stock Exercise Exercise
Options Price Price
------------- ------------ -------------
Outstanding at beginning of year 107,690 $ 1.63 $ .01 - 2.07
Granted - - -
Exercised - - -
Expired/Cancelled - - -
------------- ------------ -------------
Outstanding at end of year 107,690 $ 1.63 $ .01 - 2.07
============= ============ =============
2004
----------------------------------------
Weighted
Common Average Range of
Stock Exercise Exercise
Options Price Price
------------- ------------ -------------
Outstanding at beginning of year 107,690 $ 1.63 $ .01 - 2.07
Granted - - -
Exercised - - -
Expired/Cancelled - - -
------------- ------------ -------------
Outstanding at end of year 107,690 $ 1.63 $ .01 - 2.07
============= ============ =============
F-18
52
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
9. STOCK BASED COMPENSATION (Continued)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), but applies Accounting Principle Board Opinion
No. 25 and related interpretations. There were no stock options granted
during the years ended December 31, 2004 and 2003.
10. LITIGATION
On May 8, 2003, the Company filed a complaint against two former officers and
shareholders of Milestone Technology, Inc., related to the ownership of the
Concealed Weapons Detection System. In July 2003, the complaint was settled
and the Company agreed to pay $375,000 including attorney fees of $50,000. The
liability is recorded in accounts payable at December 31, 2003. The settlement
also called for the cancellation of 1,050,000 shares issued to one of the
principals of Milestone. Other legal actions are in the normal course of
business.
F-19
53
__________
We have not authorized any dealer,
salesman or any other person to
give any information or to make any
representations not contained in _________________
this prospectus. Any information
or representation not contained in PROSPECTUS
this prospectus must not be relied
upon as having been authorized by _________________
View Systems.
__________
TABLE OF CONTENTS
Prospectus Summary................3
Risk Factors......................4
Use of Proceeds...................7
Market for Common Equity..........7 VIEW SYSTEMS, INC.
Description of Business...........9
Property.........................16
Legal Proceedings................16
Management's Discussion and
Analysis........................17 3,770,000 Common Shares
Management.......................22
Certain Related Transactions.....23
Principal Stockholders...........23
Description of Securities........25
Selling Stockholders.............25
Plan of Distribution.............27
Other Information................28
Interest of Named Experts
and Counsel...................28
SEC's Position on
Indemnification for
Securities Act Liability......28 October --, 2005
Additional Information..........29
Changes In and Disagreements
With Accountants................29
Financial Statements.............29
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PART II
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751 our articles of
incorporation and bylaws provide for the indemnification of present and former
directors and officers and each person who serves at our request as our
officer or director. Indemnification for a director is mandatory if the
indemnification is determined to be permissible and authorized, and
indemnification for an officer, agent or employee is permissive.
We will indemnify these individuals against all costs, expenses and
liabilities incurred in a threatened, pending or completed action, suit or
proceeding brought because the individual acted or failed to act when serving
as our director or officer. Indemnification is authorized if the individual
met the standard of conduct, the expenses are reasonable and we have the
financial ability and desire to pay the expenses. The standard of conduct
required for indemnification is that the individual conducted himself in good
faith and reasonably believed that his conduct was in, or not opposed to, our
best interest. In a criminal action he must not have had reasonable cause to
believe his conduct was unlawful. This right of indemnification is not
exclusive of other rights the individual is entitled to as a matter of law or
otherwise.
We will not indemnify an individual a court finds liable to us due to his
negligence or willful misconduct toward us, or if he improperly received
personal benefit. In absence of a final adjudication of liability, our board
of directors may rely on an opinion of legal counsel as to the liability of
the individual seeking indemnification.
Indemnification in a derivative action is limited to reasonable expenses
incurred in connection with the proceeding. Also, we are authorized to
purchase insurance on behalf of an individual for liabilities incurred whether
or not we would have the power or obligation to indemnify him pursuant to our
bylaws.
Our bylaws provide that individuals may receive advances for expenses if the
individual provides a written affirmation of his good faith belief that he met
the required standard of conduct and he will repay the advance if he is judged
not to have met the standard of conduct.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be paid for by View Systems in
connection with the sale of the shares. We will pay all the costs of this
offering, with the exception of the costs incurred by the selling stockholders
for their legal counsel and the costs they may incur for brokerage commissions
on the sale of their shares. All the amounts shown include estimates of
future expenses, except for the registration fee:
Securities and Exchange Commission registration fee.................$ 111.68
Printing expenses................................................... 200.00
Legal fees and expenses............................................. 5,500.00
Accounting fees and expenses........................................ 2,000.00
Transfer agent and registrar fees and expenses...................... 500.00
Miscellaneous....................................................... 200.00
Total.........................................................$ 8,511.68
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
The following discussion describes all securities sold without registration by
View Systems during the past three years.
On September 22, 2005, we issued an aggregate of 2,390,000 common shares to
three investors for conversion of debt totaling approximately $240,000. We
issued 1,195,000 shares valued at approximately $120,000 to YT2K,
55
Inc. and 597,500 shares valued at $60,000 each to Starr Consulting, Inc. and
Power Network, Inc. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On September 22, 2005, we issued 1,210,000 shares to MBA Investors, Inc. in
consideration for consulting services valued at approximately $120,000. We
relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On September 19, 2005, we issued 60,000 shares to Charles Nelson for services
rendered to us. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On August 22, 2005, we issued 50,000 shares to Cheryl Stamp for $10,000. We
relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On August 3, 2005 we issued 90,000 shares to William Jordan in consideration
for services rendered to us. We relied on an exemption from registration for
a private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On July 27, 2005, we issued 100,000 shares to Will Stamp for $10,000. We
relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On July 18, 2005, we issued 200,000 shares to Jeffrey McIntosh for $10,000.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On June 21, 2005, we issued 522,000 shares of common stock to Martin J.
Maassen for advances to the company of $52,000. We issued 230,000 shares of
common stock to Michael L. Bagnoli for direct investments to the company of
$11,000 and director services rendered to the company. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
On June 15, 2005, we issued 7,171,725 shares of Series A Preferred Stock to
Gunther Than in consideration for $573,738 that he invested in the company.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On May 11, 2005, we issued 200,000 shares of common stock to Jeffrey B.
McIntosh for $10,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On May 3, 2005, we issued 2,000,000 shares of common stock to Clark Companies
in consideration for an agreement. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On April 15, 2005, we issued 600,000 shares of common stock to Gunther Than as
required by his employment agreement. These shares were valued at
approximately $60,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On October 12, 2004, we issued an aggregate of 571,750 common shares to five
purchasers for $45,740. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
56
On April 7, 2005, we issued 1,200,000 shares of common stock to Gunther Than
in consideration for his salary for the 2004 year. These shares were valued at
approximately $120,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On April 6, 2005, we issued 87,500 shares of common stock to William H. Zuhone
for $7,000. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On March 10, 2005, we issued 25,000 shares of common stock to Calvin McCohm
for $2,500 cash. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On March 9, 2005, we issued 200,000 shares of common stock to Liem Nguyen in
consideration for a final and full release. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On February 16, 2005, we issued 51,000 common shares to Will Stamp for $5,100.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
On February 10, 2005, we issued 30,000 common shares to H.J. Lurie for $3,000
cash. We relied on an exemption from registration for a private transaction
not involving a public distribution provided by Section 4(2) of the Securities
Act.
On January 10, 2005, we issued 128,000 common shares to Charles G. Davis III
to convert a debt for accounting services valued at $19,000. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
On January 4, 2005, we issued an aggregate of 275,000 common shares to three
purchasers for $27,500. We issued 100,000 shares to Lex Dalton, 25,000 shares
to Calvin L. McCollum and 150,000 shares to William Stamp. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
On December 6, 2004, we issued an aggregate of 3,251,820 common shares to
convert debt of $325,182. We issued 851,000 shares to Compass Equity
Partners, 1,151,000 to Niki Group, and 1,249,820 to First Equity Holdings
Corp. We relied on an exemption from registration for a private transaction
not involving a public distribution provided by Section 4(2) of the Securities
Act.
On December 1, 2003, we issued 400,000 common shares to Robert T. Williamson
for $100,000. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On November 4, 2004, we issued an aggregate of 160,000 common shares to three
purchasers for $16,000. We issued 100,000 shares to Lex Dalton, 20,000 shares
to Maxwell G. Levy and 40,000 shares to Duane R. Anderson. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
On October 12, 2004, we issued 160,000 common shares to Martin J. Maassen for
$12,500. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
57
On July 9, 2004, we issued an aggregate of 805,600 common shares to four
purchasers for $20,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On June 21, 2004, we issued an aggregate of 5,221,050 common shares to convert
notes payable with accrued interest totaling $522,105. We issued 1,246,440
shares to Compass Equity Partners, 3,039,000 shares to Niki Group and 935,610
shares to First Equity Holdings Corp. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On June 3, 2004, we issued an aggregate of 160,000 shares in consideration for
services valued at $30,400. We issued 100,000 shares to Barry S. Feldman and
60,000 shares to Liem Nguyen We relied on an exemption from registration for
a private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On May 11, 2004, we issued 31,250 common shares valued at approximately $5,000
to InCap Group, Inc. in consideration for services. We relied on an exemption
from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
In February and March of 2004 we issued an aggregate of 902,000 common shares
in consideration for services rendered or as compensation pursuant to
employment agreements. We issued 100,000 shares valued at approximately
$26,000 to Paul Scaccio; 100,000 shares valued at approximately $26,000 to
Barry S. Feldman; 102,000 shares valued at approximately $24,480 to David
Johansen; and 600,000 shares valued at approximately $120,000 to Gunther Than.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
During the six month period ended June 30, 2004, we issued an aggregate of
334,833 shares to five investors for $47,000. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On October 14, 2003, we issued an aggregate of 290,000 common shares in
consideration for services rendered under employment agreements. We issued
100,000 shares valued at approximately $5,000 to Ruediger Klose; 100,000
shares to Lawrence Seiler valued at approximately $5,000; and 90,000 shares
valued at approximately $4,500 to Charlotte DeLoof. We relied on an exemption
from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
In September 2003 we issued an aggregate of 2,100,000 common shares for
services rendered. We issued 1,150,000 common shares valued at approximately
$138,000 to Gunther Than in consideration for services rendered to the
company. We issued 500,000 shares valued at approximately $60,000 to Daniel
W. Jackson for legal services. We issued 200,000 shares valued at
approximately $24,000 to William D. Smith for consulting services rendered to
the company. We issued 250,000 shares valued at approximately $30,000 to
Barry S. Feldman for services rendered to the company. We relied on an
exemption from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
Starting in August 2003 we conducted a Regulation D, Rule 505 offering for an
aggregate offering amount of $1,500,000. We issued 12,300,000 common shares
for a combination of cash and conversion of debt valued at approximately
$1,230,000. We relied on an exemption from the registration requirements of
the Securities Act of 1933 for a limited offering provided by Section 3(b) and
Regulation D.
In January through March of 2003 we sold an aggregate of 676,999 common shares
to six purchasers for $86,550. We relied on an exemption from registration
for a private transaction not involving a public distribution provided by
Section 4(2) of the Securities Act.
In December 2002 we issued 3,300,000 common shares to Milestone Technology,
Inc. in a stock-for-stock
58
exchange for the remaining 94% interest of Milestone Technology. The exchange
was valued at approximately $1,023,000. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
In each private transaction we believe each purchaser either had unrestricted
access to detailed material information regarding our operations due to
personal relationships with us or each purchaser was provided the same kind of
information regarding our operations as would be available in a registration
statement. We believe each possessed sufficient sophistication to evaluate
the information provided and each was able to bear the economic risk of the
purchase. Also, we believe each purchaser:
. was aware that the securities had not been registered under federal
securities laws;
. acquired the securities for his/her/its own account for investment
purposes of the federal securities laws;
. understood that the securities would need to be indefinitely held unless
registered or an exemption from registration applied to a proposed
disposition; and,
. was aware that the certificate representing the securities would bear a
legend restricting its transfer.
We believe that, in light of the foregoing, the sale of our securities to the
respective acquirers did not constitute the sale of an unregistered security
in violation of the federal securities laws and regulations by reason of the
exemptions provided under 4(2) of the Securities Act, and the rules and
regulations promulgated thereunder.
ITEM 27: EXHIBITS
Exhibit Description
------- -------------
3.1 Articles of Incorporation of View Systems, as amended (Incorporated
by reference to exhibit 3.1 to Form 10-QSB, filed November 14, 2003)
3.2 By-Laws of View Systems (Incorporated by reference to exhibit 3.2 to
Form 10-QSB, filed November 14, 2003)
5.1 Opinion of Cindy Shy, P.C.
10.1 Employment agreement between View Systems and Gunther Than, dated
January 1, 2003 (Incorporated by reference to exhibit 10.3 for Form
10-KSB, filed April 14, 2004)
10.2 Lease agreement between View Systems and MIE Properties, Inc., dated
August 3, 2005
21.1 Subsidiaries (Incorporated by reference to exhibit 21.1 for Form
10-KSB, filed March 31, 2003)
23.1 Consent of Chisholm, Bierwolf, Nilson, LLC
23.2 Consent of Cindy Shy, P.C. (See Exhibit 5.1)
ITEM 28: UNDERTAKINGS
Pursuant to Rule 415 of the Securities Act of 1933, the undersigned registrant
hereby undertakes to:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement which will
include any prospectus required by Section 10(a)(3) of the Securities
Act; reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and include any additional or changed material
information on the plan of distribution;
(2) for the purpose of determining any liability under the Securities Act,
to treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering; and
(3) to file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
this indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against these liabilities (other
than the payment by the registrant of
59
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by any director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether this indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of this issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Baltimore, State of Maryland, on October 11, 2005.
VIEW SYSTEMS, INC.
/S/ Gunther Than
By: ______________________________________________
Gunther Than
Chief Executive Officer and Treasurer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Gunther Than
Date: October 11, 2005 ______________________________________________
Gunther Than
Chief Executive Officer, Principal Financial
and Accounting Officer, Treasurer and Director
/s/ Michael L. Bagnoli
Date: October 11, 2005 _______________________________________________
Michael L. Bagnoli
Secretary and Director
/s/ Martin Maassen
Date: October 11, 2005 ______________________________________________
Martin J. Maassen
Director
61