UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30178
VIEW SYSTEMS, INC.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 59-2928366
------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
1550 Caton Center Drive, Suite E, Baltimore, Maryland 21227
-----------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number: (410) 242-8439
---------------
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 25, 2005, View Systems, Inc. had 86,382,422 shares of common
stock outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
Explanatory Note
On October 12, 2005 we filed a registration statement on Form SB-2 and the
Securities and Exchange Commission ("SEC") conducted a full review of the Form
SB-2. As a result of this review we have restated our financial statements
for the year ended December 31, 2004. See the "Restatement" note to the
financial statements for an explanation of the restatement. The SEC further
requested that we include Part I, Item 3 in this amendment No. 2. The
disclosures in this amended report are as of the initial filing date of
November 10, 2005 and do not include subsequent events.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements..............................................2
Item 2. Management's Discussion and Analysis or Plan of Operation.........8
Item 3. Controls and Procedures..........................................14
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceed.......14
Item 6. Exhibits.........................................................14
Signatures................................................................15
PART I: FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of
operations for the three and nine month periods ended September 30, 2005 and
2004 is unaudited and has been restated. This financial information, in the
opinion of management, includes all adjustments consisting of normal recurring
entries necessary for the fair presentation of such data. The results of
operations for the nine month period ended September 30, 2005 are not
necessarily indicative of results to be expected for any subsequent period.
2
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2005 2004
-------------- -------------
(Restated) (Restated)
Current Assets
Cash $ 4,109 $ 173,486
Accounts Receivable (Net of allowance of
$20,054 at December 31, 2004) 146,973 108,342
Inventory 26,197 61,197
-------------- -------------
Total current assets 177,279 343,025
-------------- -------------
Property & Equipment (Net) 20,521 14,803
-------------- -------------
Other Assets
Licenses 1,626,854 1,626,854
Due from Affiliates 107,575 98,457
Deposits 5,191 2,319
-------------- -------------
Total Other Assets 1,739,620 1,727,630
-------------- -------------
Total Assets $ 1,937,420 $ 2,085,458
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Current Liabilities
Accounts Payable $ 73,047 $ 265,776
Accrued Expenses 15,238 100,548
Accrued Interest 74,100 66,000
Notes Payable 148,500 148,500
-------------- -------------
Total Current Liabilities 310,885 580,824
-------------- -------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and Outstanding 7,171,725 71,717 -
Common Stock, Authorized 100,000,000 Shares,
$0.001 Par Value, Issued and Outstanding
85,100,422 85,101 -
Issued and Outstanding 76,533,922 - 76,534
Additional Paid in Capital 17,615,863 17,119,596
Retained Earnings (Deficit) (16,146,146) (15,691,496)
-------------- -------------
Total Stockholders' Equity 1,626,535 1,504,634
-------------- -------------
Total Liabilities and Stockholders' Equity $ 1,937,420 $ 2,085,458
============== =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended September 30, Nine Months Ended September 30,
2005 2004 2005 2004
---------------- --------------- --------------- ---------------
Revenues, Net $ 338,941 $ 188,029 $ 820,497 $ 380,423
Cost of Sales 109,541 32,765 339,049 138,963
---------------- --------------- --------------- ---------------
Gross Profit (Loss) 229,400 155,264 481,448 241,460
---------------- --------------- --------------- ---------------
Operating Expenses
Business development 28,218 - 60,864 -
General & Administrative 57,724 184,259 151,744 564,937
Professional Fees 323,466 11,972 393,322 94,146
Salaries and Benefits 87,304 98,806 321,669 339,016
---------------- --------------- --------------- ---------------
Total operating expenses 496,712 295,037 927,599 998,099
---------------- --------------- --------------- ---------------
Net Operating Income (Loss) (267,312) (139,773) (446,151) (756,639)
---------------- --------------- --------------- ---------------
Other Income (Expense)
Interest Expense (2,961) (2,958) (8,499) (31,269)
---------------- --------------- --------------- ---------------
Total Other Income (Expense) (2,961) (2,958) (8,499) (31,269)
---------------- --------------- --------------- ---------------
Net Income (Loss) $ (270,273) $ (142,731) $ (454,650) $ (787,908)
================ =============== =============== ===============
Net Income (Loss) Per Share $ (0.00) $ 0.00 $ (0.01) $ (0.01)
================ =============== =============== ===============
Weighted Average Shares Outstanding 83,304,922 70,341,359 79,990,172 65,895,908
================ =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
4
View Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Retained
Preferred Common Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit)
------------ ------- ----------- ------- ----------- -------------
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 - - - - - (1,186,479)
---------- ------- ----------- ------- ----------- -------------
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 2,288 114,713 -
April - June 2005 -
shares issued for services - - 2,405,000 2,405 68,745 -
July - September 2005 -
shares issued for cash - - 612,000 612 55,588 -
July - September 2005 -
shares issued for services - - 2,979,000 2,979 294,721 -
July - September 2005 -
shares issued 7,171,725 71,717 - - (71,717) -
Net loss for the period
ended September 30, 2005 - - - - - (454,650)
------------ ------- ----------- ------- ----------- -------------
Balance, September 30, 2005 7,171,725 $71,717 85,100,422 $85,101 $17,615,863 $(16,146,146)
============ ======= =========== ======= =========== =============
The accompanying notes are an integral part of these consolidated financial statements
5
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30,
2005 2004
--------------- -------------
(Restated)
Cash Flows from Operating Activities:
Net Income (Loss) $ (454,650) $ (787,908)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation and Amortization 7,379 23,690
Stock Issued for Services 368,850 348,804
Loss on Settlement of Debt - 3,750
Changes in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (38,631) (34,197)
Inventory 35,000 -
Deposits (2,872) -
Increase (Decrease) in:
Accounts Payable (173,729) (106,373)
Accrued Expenses (77,210) (39,971)
--------------- -------------
Net Cash Used by Operating Activities (335,863) (592,205)
--------------- -------------
Cash Flows from Investing Activities:
Purchases of Equipment (13,096) -
Funds Advanced (to) from Affiliated Entities (9,118) -
--------------- -------------
Net Cash Used in Investing Activities (22,214) -
--------------- -------------
Cash Flows from Financing Activities:
Funds Advanced (to) from Stockholders - 591,685
Proceeds from Stock Issuance 188,700 80,500
--------------- -------------
Net Cash Provided by Financing Activities 188,700 672,185
--------------- -------------
Increase (Decrease) in Cash (169,377) 79,980
Cash and Cash Equivalents at Beginning of Period 173,486 19,899
--------------- -------------
Cash and Cash Equivalents at End of Period $ 4,109 $ 99,879
=============== =============
Cash Paid For:
Interest $ 399 $ -
Income Taxes $ - $ -
Non-Cash Activites:
Stock Issued in Payment of Accounts Payable $ 19,000 $ 180,000
Stock Issued for Notes Payable and Accrued Interest $ - $ 522,105
The accompanying notes are an integral part of these consolidated financial statements
6
View Systems, Inc.
Notes to the Consolidated Financial Statements
September 30, 2005
GENERAL
View Systems, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the nine months ended September 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.
PREFERRED STOCK
In July 2005 the Company issued 7,171,725 shares of Series A Preferred Stock
in payment of notes payable and for services. The issuance had been
previously authorized by the Board of Directors. Each share of Series A
Preferred Stock has a liquidation preference, in the event of liquidation of
the corporation, of $0.01 per share before any payment or distribution is made
to the holders of common stock. 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
on the common stock shareholders.
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.
RESTATEMENT
Pursuant to a regulatory review, the financial statements for the year ended
December 31, 2004 have been changed. During 2004, the Company's President
loaned funds to the Company to meet its financial needs, however, a payment
back to Mr. Than was incorrectly recorded as a loan receivable to Mr. Than,
leaving a receivable and payable in the same amount. This officer receivable
has been offset against accounts payable and notes payable and when combined,
Mr. Than had an identical balance. The restatement caused a decrease in
loans to shareholder of $66,500, leaving a $0 balance, and caused a decrease
in accounts payable of $66,000 and a decrease in notes payable of $500. This
change carried forward to 2005 and as a result the loans to shareholder
decreased $62,000, once again leaving a $0 balance, and caused a decrease in
accounts payable of $61,500 and a decrease in notes payable of $500. The
restatement also required a change to the 2005 cashflow statement by removing
funds received from a shareholder and including it in the accounts payable
section.
7
In this report references to "View Systems," "we," "us," and "our" refer to
View Systems, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The SEC encourages companies to disclose forward-looking information so that
investors can better understand future prospects and make informed investment
decisions. This report contains these types of statements. Words such as
"may," "will," "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 report.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
EXECUTIVE OVERVIEW
View Systems, Inc. develops, produces and markets computer software and
hardware systems for security and surveillance applications. Our principal
products include:
.. Visual First Responder - a lightweight, wireless camera system housed
in a tough, waterproof flashlight body.
.. SecureScan Concealed Weapons Detection System - 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.
.. ViewMaxx Digitial Video products - a high-resolution, digital video
recording and real-time monitoring system.
.. Biometric verification systems, magnetic door locks and central
monitoring or video command centers which can be combined with our
principal 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 August 2005 we contracted with Inter-Connect
Electronics, Inc. to manufacture and assemble our Visual First Responder
units.
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. We
also contracted with Sports Field Specialties, LLC, an experienced
manufacturer, to build the SecureScan product line. These manufacturing
agreements allowed us to reduce our backlog for our product lines and
decreased our labor cost.
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
8
which will result in increased revenues or continued profitability.
For the next twelve months our primary challenge will be to more fully develop
our sales and distribution network for the United States. We intend to
increase sales by offering demonstrations of our products in specific
geographical areas to potential customers or at region specific trade shows,
such as sheriff's conventions, court administrators' meetings, civil support
team, state police shows and dealers shows. When a demonstration results in a
sale of one of our products, then we will attempt to expand that market by
contacting other potential customers in the area, such as, correctional
facilities, courthouses and other municipal buildings. After several sales in
a particular geographic area management will decide whether it is appropriate
to open a sales and service office.
LIQUIDITY AND CAPITAL RESOURCES
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 $454,650 for the nine month
period ended September 30, 2005. At December 31, 2004, we were in default on
our debt obligations and did not have financing commitments in place to meet
our expected cash requirements. Our auditors have expressed substantial doubt
that we can continue as a going concern based on these operating losses.
Management intends to focus our efforts on development of our sales and
marketing channels in order to increase our revenues. However, management
also believes we will incur operating losses for the near future and will need
to rely on private financing to satisfy our cash requirements.
While our revenues are increasing, we are unable to satisfy our operating
expenses. Net cash used by operating activities was $335,863 for the nine
month period ended September 30, 2005 (the "2005 nine month period") compared
to $592,205 for the nine month period ended September 30, 2004 (the "2004 nine
month period"). For the long term, management expects that the development of
our sales and marketing channels will increase our revenues; however, we will
need to continue to raise additional funds.
Historically, private financing has covered our cash shortfalls. Net cash
provided by financing activities for the 2004 nine month period was $672,185,
with $591,685 of that amount related to funds advanced by stockholders and
$80,500 proceeds from the sale of our common stock. Net cash provided by
financing activities for the 2005 nine month period was $188,700 in proceeds
from sales of our common stock.
We estimate that we will require additional financing of approximately
$500,000 to meet our needs for the next twelve months. 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.
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 $310,885 at September 30, 2005 included
accounts payable of $73,047, accrued expenses of $15,238, accrued interest of
$74,100 and notes payable of $148,500.
In September 2005, we negotiated the payment of notes payable of $237,357 that
we owed to Niki Group, LLC and Compass Equity Partners LLC. Three accredited
investors each paid a portion of the total debt and received shares of our
common stock in consideration. Our board of directors authorized the issuance
of an aggregate of 2,390,000 shares to the three investors. Starr Consulting,
Inc. received 597,500 shares for $60,000 paid on the debt; Power Network, Inc.
received 597,500 shares for $60,000 paid on the debt; and YT2K, Inc. received
1,195,000 shares for $120,000 paid on the debt.
9
OFF-BALANCE SHEET ARRANGEMENTS
None.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Estimates of
particular significance in our financial statements include annual tests for
impairment of our licenses. These estimates could likely be materially
different if events beyond our control, such as changes in government
regulations that affect the usefulness of our licenses or the introduction of
new technologies that compete directly with our licensed technologies affect
the value of our licenses.
We first determine the value of the license using a projected cash-flow
analysis to determine the present value of cash flows. The test is done using
assumptions as to various scenarios of increases and decreases in the revenue
stream and applying a discount rate of 6%. If the value achieved under these
various methods is less than the carrying value of the assets then it is
considered that an impairment has occurred and the asset's carrying value is
adjusted to reflect the impairment.
Management also makes estimates on the useful life of our licenses based on
the following criteria:
.. Whether other assets or group of assets are related to the useful life
of the licenses,
.. Whether any legal, regulatory or contractual provisions will limit the
use of the assets,
.. We evaluate the cost of maintaining the license,
.. We consider the possible effects of obsolescence, and
.. Whether there is maintenance or any other costs associated with the
license.
RESULTS OF OPERATIONS
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 nine month periods ended
September 30, 2005 and 2004 and should be read in conjunction with the
financial statements, and notes thereto, included in this report at Part I,
Item I, above.
Summary Comparison of Three and Nine Month Period Operations
-----------------------------------------------------------
Three month Three month Nine month Nine month
period ended period ended period ended period ended
Sept. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004
-------------- -------------- -------------- --------------
Revenues, net $ 338,941 $ 188,029 $ 820,497 $ 380,423
Cost of sales 109,541 32,765 339,049 138,963
Gross profit 229,400 155,264 481,448 241,460
Total operating
expenses 496,712 295,037 927,599 998,099
Total other income
(expense) (2,961) (2,958) (8,499) (31,269)
Net income (loss) (270,273) (142,731) (454,650) (787,908)
Net earnings
(loss) per share $ (0.00) $ (0.00) $ (0.01) $ (0.01)
10
Revenue is considered earned when the product is shipped to the customer. The
concealed weapons system and the digital video system each require
installation and training. Training is a revenue source separate and apart
from the sale of the product. In those cases revenue is recognized at the
completion of the installation and training.
Our marketing efforts have increased sales of our SecureScan and Visual First
Responder and resulted in revenues for the three month period ended September
30, 2005 (the "2005 third quarter") increasing 180.1% compared to the three
month period ended September 30, 2004 (the "2004 third quarter"). Revenues
for the nine month period ended September 30, 2005 ("2005 nine month period")
increased 115.7% compared to the nine month period ended September 30, 2004
("2004 nine month period"). Management anticipates that increases in revenues
will continue as we develop our sales and marketing channels and establish
local sales and service offices in geographic areas that we have already
completed sales.
The breakdown of revenues by product line follows:
Nine month period Nine month period
Sept. 30, 2005 Sept. 30, 2004
----------------- -----------------
Secure Scan $ 413,149 $ 54,499
ViewMaxx 41,520 128,906
Visual First Responder 360,940 192,320
Service 4,888 4,698
Our backlog at December 31, 2005, was $200,000, down from $700,000 at
September 30, 2005. The reduction in backlog is primarily a result of
outsourcing our manufacturing. Our back log is more manageable and is in part
carried by the third party manufacturers because purchase orders are placed
with the manufacturers and they receive payment when we receive payment from
the customer. However, the delay between the time of the purchase order and
shipping of the product results in a delay of recognition of the revenue from
the sale. This delay in recognition of revenues will continue as part of our
results of operations.
While revenues increased in the 2005 periods, cost of sales also increased
234.3% for the 2005 third quarter compared to the 2004 third quarter and they
increased 144.0% for the 2005 nine month period compared to the 2004 nine
month period. Cost of sales increased in the 2005 periods as a result of the
expenses related to expanding our sales and distribution channels including
the cost of products for demonstrations, travel to shows and increased dealer
relations, and promotional materials. Management anticipates that cost of
sales will increase as our marketing efforts continue but that the relative
margins of each product line should remain relatively the same.
Despite the increase in cost of sales, the increased revenues resulted in a
gross profit increase of 47.7% for the 2005 third quarter compared to the 2004
third quarter and an increase of 99.4% for the 2005 nine month period compared
to the 2004 nine month period.
For the 2005 third quarter total operating expense increased 68.4% compared to
the 2004 third quarter. The increase in the 2005 third quarter was primarily
a result of additional business development expenses related to expanding our
markets and increased professional fees related to contracts with four
engineers. For the 2005 nine month period total operating expense decreased
7.1% compared to the 2004 nine month period. This decrease was primarily the
result of a 73.1%, decrease in general and administrative expenses and
management expects these expenses to remain relatively the same, but as we
continue to develop our marketing channels expenses related to business
development may increase.
Total other expense for the 2005 and 2004 comparable periods was related to
interest on loans. Management anticipates interest expense to increase as a
result of the subscription agreement with the Subscribers, described above,
and our need to seek further private financing in the future.
As a result of the above, our net loss increased 89.4% for the 2005 third
quarter compared to the 2004 third quarter, but decreased 42.3% for the 2005
nine month period compared to the 2004 nine month period.
11
Balance Sheet
The following chart summarizes our balance sheet at September 30, 2005 and
December 31, 2004
Summary Balance Sheet
----------------------
For nine month
period ended For the year ended
September 30, 2005 December 31, 2004
-------------------- ------------------
Cash and cash equivalents $ 4,109 $ 173,486
Total current assets 177,279 343,025
Total assets 1,937,420 2,085,458
Total current liabilities 310,885 580,824
Retained earnings (Deficit) (16,146,146) (15,691,496)
Total stockholders equity $ 1,626,535 $ 1,504,634
Our total assets decreased at September 30, 2005, primarily as a result of
decreases in cash and inventory. Total current liabilities decreased
primarily due to decreases in accounts payable as a result of the pay-off of
notes payable totaling $237,357 by Starr Consulting, Inc., Power Network, Inc.
and YT2K, Inc.
FACTORS AFFECTING FUTURE PERFORMANCE
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. 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
12
increase our sales. If we are unsuccessful in developing sales channels we
may have to abandon our business plan.
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.
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ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our filings under the Exchange
Act is recorded, processed, summarized and reported within the periods
specified in the rules and forms of the SEC. This information is accumulated
and communicated to our executive officers to allow timely decisions regarding
required disclosure.
Our Chief Executive Officer, who also acts in the capacity of principal
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. He concluded
that our disclosure controls and procedures were effective. However,
subsequently, he identified a weakness in our disclosure controls and
procedures with respect to accounting entries made in 2004 related to loans
receivable and payable to our executive officers which resulted in a
restatement of our 2004 financial statements.
Also, our Chief Executive Officer determined that there has been no change in
our internal control over financial reporting during the third quarter 2005
that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II: OTHER INFORMATION
--------------------------
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following discussion describes securities sold by View Systems without
registration through November 2, 2005 that have not been previously reported.
On November 2, 2005, we issued 85,000 shares to Michael Paduano for $12,750
and 175,000 shares to David Hume for $26,250. 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 4, 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, 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 October 4, 2005, we issued 1,210,000 shares to MBA Investors, Inc. in
consideration for corporate development 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.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Chief Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
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)
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3.2 By-Laws of View Systems (Incorporated by reference to exhibit 3.2 to
Form 10-QSB filed November 14, 2003)
4.1 View Systems 2005(B) Professional/Consultant Compensation Plan, dated
November 7, 2005 (Incorporated by reference to exhibit 4.1 to Form
S-8, filed November 8, 2005)
10.1 Employment agreement between View Systems and Gunther Than, dated
January 1, 2003. (Incorporated by reference to exhibit 10.3 to Form
10-KSB, filed April 14, 2004)
10.2 Lease agreement between View Systems and MIE Properties, Inc., dated
August 3, 2005 (Filed November 10, 2005)
21.1 Subsidiaries (Incorporated by reference to exhibit 21.1 to Form
10-KSB, filed March 31, 2003)
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIEW SYSTEMS, INC.
/s/ Gunther Than
Date: April 27, 2006 By: ___________________________________________
Gunther Than
Chief Executive Officer, Treasurer,
Director, Principal Financial and
Accounting Officer
/s/ Michael L. Bagnoli
Date: April 27, 2006 By: ___________________________________________
Michael L. Bagnoli
Secretary and Director
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