As filed with the Securities and Exchange Commission on February __, 2006
Registration No. 333-128956
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2/A
Pre-effective Amendment No.1
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 9,439,999 $ 0.138 $ 1,302,719.86 $ 24.91(3)
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(1) This registration statement covers the resale by certain selling
stockholders of up to an aggregate of 9,439,999 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 January
30, 2006.
(3) The registration fee of $139.39 has been reduced by a filing fee View
Systems, Inc. previously paid of $2.80 for the 170,000 shares which
are carried forward from the Form SB-2, File No. 333-118043, and by
the filing fee of $111.68 that View Systems, Inc. paid with the initial
filing of this registration statement.
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. |
| The selling stockholders 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. |
- ------------------------------------------------------------------------------
View Systems, Inc.
a Nevada corporation
9,439,999 shares of common stock
___________
We are registering 9,439,999 shares of our common stock which will be sold by
selling stockholders who are named in this prospectus. We will not receive
the proceeds from the sale of these common shares.
Per share Aggregate
--------- -----------
Estimated price to public $ 0.138 $ 1,302,720
Estimated average proceeds to selling stockholders $ 0.138 $ 1,302,720
____________
Trading Symbol on the OTC Bulletin Board
"VYST"
Common stock prices as reported by the OTC Bulletin Board on January 30, 2006,
$0.145 high bid and low ask $0.13.
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This investment involves a high degree of risk,
you should review the "Risk Factors" beginning on page 4.
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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 February __, 2006
TABLE OF CONTENTS
Prospectus Summary.........................................................3
Risk Factors...............................................................4
Use of Proceeds............................................................7
Market for Common Equity...................................................7
Description of Business....................................................9
Property..................................................................17
Legal Proceedings.........................................................17
Management's Discussion and Analysis......................................18
Management................................................................24
Certain Related Transactions..............................................25
Principal Stockholders....................................................26
Description of Securities.................................................27
Selling Stockholders......................................................27
Plan of Distribution......................................................31
Other Information.........................................................32
Interest of Named Experts and Counsel...............................32
SEC's Position on Indemnification for Securities Act Liability......32
Additional Information..............................................33
Changes In and Disagreements With Accountants.............................33
Financial Statements......................................................33
2
PROSPECTUS SUMMARY
View Systems, Inc.
1550 Caton Center Drive, Suite E
Baltimore, Maryland 21227
Telephone: (410) 242-8439
The Company
View Systems, Inc. develops, produces and markets 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 unable to fund our operations on revenues alone and we have
incurred losses for the past two fiscal years. Our auditors have expressed
substantial 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 develop our sales and marketing channels. We
have obtained debt financing that we anticipate will likely cover operating
expenses for the first six month of 2006, but we will need to raise an
additional $500,000 through equity or debt transactions to continue our
operations for the next twelve months.
The Offering
We are registering 9,439,999 common shares to be sold by selling stockholders,
who are identified in the "Selling Stockholders" section starting on page 27.
We have agreed to register these shares under agreements and transactions we
have entered into with the selling stockholders or upon the approval of our
board of directors. These agreements and transactions are described in more
detail in "Selling Stockholders - Transactions Related to the Selling
Stockholders," starting on page 29.
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 31 for further details about the
possible methods of sale which may be used by the selling stockholders.
Shares of common stock outstanding as of January 31, 2006 90,442,422
Shares of common stock to be registered 9,439,999
Common stock outstanding after the offering 98,467,421
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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 who are seeking
higher returns on their investments through dividends from purchasing our
common stock. This lack of interest from potential investors seeking dividend
returns may decrease the pool of investors in the market for the common stock
being sold by the selling stockholders.
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 fund our operations through revenues generated
by product sales 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 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
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effective date of this registration statement, or the perception that such
sales could occur. We are registering 9,439,999 shares of our common
stock and 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 substantial doubt
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 nine month period ended September 30, 2005
was $454,650 and our net loss for the year ended December 31, 2004 was
$1,186,478. Our retained deficit was $16,146,146 at the nine month period
ended September 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. As a result we rely on private financing to cover
cash shortfalls.
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 may not be able to satisfy the debt incurred under the
promissory notes.
Our agreement to sale promissory notes to investors will result in debt of
$500,000 at 8% interest. We have reported losses for the past two fiscal
years and we anticipate that our operating cash flow, together with funds
derived from private financing will be sufficient to meet anticipated
operating expenses for the next six months. However, the debt is payable by
December 31, 2006 and we may not be able to satisfy the debt when it comes
due. If we are unable to satisfy the debt we could attempt to restructure or
refinance our indebtedness with additional private financing. We cannot
assure you that we will be able to accomplish those actions on satisfactory
terms, if at all.
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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.
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.
Our directors and officers are able to exercise significant influence
over matters requiring stockholder approval.
Currently, our directors and executive officers collectively hold
approximately 58.8% of the voting power of our common and preferred stock
entitled to vote on any matter brought to a vote of the stockholders.
Specifically, Gunther Than, our CEO, holds approximately 57.0 % of the total
voting power as of the date of this prospectus. Pursuant to Nevada law and
our bylaws, the holders of a majority of our voting stock may authorize or
take corporate action with only a notice provided to our stockholders. A
stockholder vote may not be made available to our minority stockholders, and
in any event, a stockholder vote would be controlled by the majority
stockholders. As a result, our minority stockholders may not have the
opportunity to approve or consent to corporate actions or other transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control.
Failure to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-
6
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.
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. 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
---- ------------- -------- -------
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
December 31 0.285 0.152
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
7
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.
HOLDERS
As of January 31, 2006 we had 348 stockholders of record, which does not
include "street accounts" of securities brokers that we estimate to be
approximately 4,500.
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, Inc. develops, produces and markets computer software and
hardware systems for security and surveillance applications. In 1998 digital
video recorder technology was our first developed product and 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. In 2003 we sold this product
to places like the Ronald McDonald house, the University of Maryland Medical
Center, and restaurants and car dealers.
We expanded our product line in 2002 to include a concealed weapons detection
system we call SecureScan. We sell this product to schools, municipal
buildings, court houses, and correctional facilities in the MidAtlantic
states, the West Coast and the South. In 2003 we added a hazardous material
first response wireless video transmitting system to our product line we refer
to as Visual First Responder. We sell these units to first responder units
such as the National Guard, police departments and fire departments.
Until 2005 we assembled all of our products in-house, but we currently
contract with third party manufacturers to manufacture the SecureScan and
Visual First Responder products.
Products and Services
SecureScan Concealed Weapons Detection 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 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.
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
9
facilities that may be subject to threats or attacks by various members of the
public. Our marketing efforts and sales have been to courthouses, schools,
correction facilities, and other public/governmental facilities, rather than
public airports.
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 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 visual image allows the operator to determine
what the object is without the need to conduct a personal search to locate the
object and look at it.
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
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of images.
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 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. There were 384 alarms
triggered by the sensitivity threshold, which is a small number compared to
the number of people scanned.
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 sell these units for an average retail price of
approximately $10,000 with a one year extended warranty. 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 sell this base product for approximately $18,000 retail, but
the cost can be as high as $30,500 depending on additional special features
such as the extension link and encryption capabilities.
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.
11
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 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.
ViewMaxx 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.
Depending on the features of a particular system the retail price can
range from approximately $1,500 up to $6,500.
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.
12
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 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 and have
experienced increased inquiries about our products and increased purchase
orders as a result of these 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, county and
municipal buildings, and correctional facilities. 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.
13
Manufacturing
We initially manufactured the SecureScan portal internally at our
facilities in Baltimore, Maryland. During the second quarter of 2004 we set
up a complete manufacturing line in the 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. We also contracted
with Sports Field Specialties, LLC, an experienced manufacturer, to build the
SecureScan product line. These manufacturing agreements have allowed us to
reduce our current backlog for our product lines and also cut our labor cost.
Our third party manufacturers create 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 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 four in-house
regional sales persons and intend to develop a national sales channel model
and a distributor development program.
We use mailings and telephone calls to contact potential representatives in a
geographical area with the intent to arrange a demonstration of our products
to these persons. We attend region specific trade shows such as sheriff's
conventions, court administrators meetings, civil support team and state
police shows. Then we demonstrate or give trial offers in the area until a
sale is completed. Once we have completed a sale in a specific market area,
then we expand that market by contacting correctional facilities, courthouses
and other municipal buildings. We ship our products to the customer and each
product has an unconditional 30 day warranty, during which time the product
can be returned for a complete refund.
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 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. Previously, we
had chosen not to pursue international markets, but are now
evaluating potential sales in the Middle East. We intend to continue our
focus on domestic markets which are less expensive to support and maintain.
Backlog
As of December 31, 2005, we had a backlog of $200,000, down from $700,000
at September 30, 2005. 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,
14
.. 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.
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.
We enjoy the benefit of any continuations and improvements to the
concealed weapons detection technology performed by the government
under the ongoing contract between the Department of Energy and National
Institute of Justice. Our exclusive marketing agreement allows us to have
cutting edge technology without funding the research and development or patent
applications.
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.
15
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.
Government Regulation
We are not subject to government regulation in the manufacture of our products
or the components in our products. However, our products are subject to
certain government restrictions on sales to "unfriendly" countries and
countries designated as adversarial, which may limit our sales to the
international market. 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 that are performed by the Department of Energy and the
National Institute of Justice. We also contract with engineers and other
third parties to develop or vary the design of our products and we record
these expenses under professional fees.
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 100 F Street
N.E., 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
16
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.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
EXECUTIVE OVERVIEW
Our product lines are related to surveillance, detection and
security. Management believes that heightened attention to terrorism and
other security threats in the United States and spending by the
United States government on Homeland Security will continue to drive growth in
the market for security 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 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. We also 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.
Historically we have relied on private financing to supplement our revenues.
For the year ended December 31, 2003 ( "2003 year") we recorded revenues of
$569,952 and received $817,820 in debt financing and $508,550 in proceeds
18
from sales of our common stock. For the year ended December 31, 2004 ("2004
year"), we recorded revenues of $476,319, received $933,800 from debt
financing, $157,900 from sales of common stock and advances totaling $132,000
from Gunther Than, our CEO.
In September 2005 and December 2005 we entered into private financing
agreements, discussed below, to pay off debt and cover cash shortfalls for the
short term; however, we must improve our sales and marketing channels to
increase our revenues to be able to service these obligations. 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 through private financing and sales of our common
stock, as needed.
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.
If revenues do not increase to a level to support operations, then we may
consider additional private financing within the next six months.
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 $148,500, accrued expenses of $15,238, accrued interest of
$74,100 and notes payable of $73,047.
At December 31, 2004 we were in default on our debt obligations. On September
22, 2005, we arranged for three accredited investors to pay notes payable of
$237,357 that we owed to Niki Group, LLC and Compass Equity Partners LLC. In
consideration for the pay-off our board of directors authorized the issuance
of an aggregate of 2,390,000 shares to 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.
Subscription Agreement
In December 2005, we entered into a Subscription Agreement with three
accredited investors; Starr Consulting, Inc., Active Stealth, LLC, and KCS
Referral Service LLC (the "Subscribers"). We agreed to sale and the
Subscribers agreed to purchase convertible promissory notes and warrants. The
Subscribers agreed to purchase up to an aggregate of $500,000 of 8% promissory
notes convertible into shares of our common stock at a per share conversion
price of $0.10. The notes are due and payable by December 31, 2006. The
Subscribers agreed to purchase the promissory notes over a 5 month period in
$100,000 per month installments. On January 3, 2006, we closed the first
$100,000 installment.
The agreement requires that we register the underlying shares of the
convertible promissory notes and warrants and it is likely that this debt may
be converted into common stock. We must increase our authorized common stock
in order to have sufficient shares to issue the 10,000,002 shares of common
stock required if all the promissory notes are converted and the warrants
exercised. We negotiated an agreement the Subscribers that allows us to delay
the registration requirement for the underlying common stock for the warrants
until such time as we have increased our authorized common stock.
OFF-BALANCE SHEET ARRANGEMENTS
None.
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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
For the Three and Nine Month Periods Ended September 30, 2005 Compared to the
Three and Nine Month Periods Ended September 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 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 prospectus starting
on page 33.
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)
20
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.
21
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.
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 33.
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 1,369,474 2,832,243
Net operating income (loss) (1,150,334) (2,519,923)
Total other income (expense) (36,144) (26,411)
Net income (loss) (1,186,478) (2,546,334)
Net earnings (loss) per share $ (0.02) $ (0.05)
22
Revenues for the 2004 year decreased 16.4% compared to the 2003 year
primarily as a result of the biggest manufacturing run of 20 SecureScan
portals occurring in the 2003 year, along with a resurgence of View Maxx
product sales in 2003. Sales of the SecureScan product line dropped in 2004
while we focused our sales and marketing efforts on the Visual First Responder
product line.
The following chart provides a breakdown of our sales in 2004 and 2003.
Dec. 31, 2004 Dec. 31, 2003
------------- -------------
Secure Scan $ 24,800 $ 319,145
ViewMaxx 153,271 243,441
Visual First Responder 296,100 -
Service 2,148 7,366
Costs of sales remained relatively the same in the 2004 year compared to the
2003 year. However, management expects cost of sales to increase as we expand
our marketing efforts. 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 51.6% 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 due to reduced
contracts with engineers, a 25.2% decrease in salaries and benefits and
recording $0 for business development expenses.
In addition, a valuation/impairment loss of $888,658 in the 2003 year compared
to no valuation/impairment loss for the 2004 year reduced total operating
expense for the 2004 year. The impairment loss for the 2003 year was related
to 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. Goodwill represents the excess of the cost of assets acquired in a
business combination accounted for under the purchase method of accounting
over the fair value of the net assets acquired at the date of acquisition.
Prior to the adoption of SFAS Nos. 141 and 142, the excess purchase price was
amortized using the straight-line method over ten years. Effective January 1,
2002, goodwill was no longer amortized but rather tested for impairment under
the provision of SFAS No 142. As of December 31, 2003, we determined that
goodwill related to the assets we had acquired in business combinations was
impaired and we wrote off of that goodwill in 2003.
The reductions in these operating expenses resulted in a 54.4% decrease in net
operating loss. Management anticipates that business development expenses
will increase with the development of our sales and marketing activities, but
that the other operating expenses will remain relatively constant.
Total other expense increased in the 2004 year compared to the 2003 year
primarily as a result of increased interest expense related to interest on
loans. Interest expense may increase as we continue to rely on private
financing to fund our operations.
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.
23
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., a company that
developed compression technology and computer equipment. Real View Systems
was acquired by View Systems in 1998. Mr. Than is the founder, President and
CEO of View Technologies, Inc., a software development company, and he
continues in those positions. 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
24
(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 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 as independent directors as
defined by NASD Fule 4200(a)(15). Mr. Maassen accrued 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. These transactions 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.
Our CEO, Gunther Than, loans funds to View Systems on occasion in order for us
to meet our financial obligations. He is repaid when funds are available.
During 2004 Mr. Than advanced a total of $132,000 and during 2003 he advanced
$1,500. These amounts were paid back to him in the respective years and the
balance owed him is $0.
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 April 2004 we
issued 600,000 shares to Mr. Than in accordance with his employment agreement.
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 conversion
of notes payable of $48,000 and services rendered to the company valued at
$23,717. The 7,171,725 shares of Series A Preferred represent 107,575,875
votes on any matter brought to a stockholder vote. Prior to this transaction
Mr. Than held 7.5% of the voting power of the common stock. Immediately after
this transaction, Mr. Than held 60.9% of the total voting power of the common
and Series A Preferred.
Mr. Than is the President and CEO of View Technologies, Inc., a private
company that develops software. Mr. Than devotes approximately 12 hours a
week to this company. Our Board is aware of his position in this company and
believes that there are no conflicts of interest resulting from his positions
in both companies.
25
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 90,442,422 outstanding
shares of common stock as of January 31, 2006 and any shares that each of the
following persons may acquire within 60 days by the exercise of warrants
and/or options.
MANAGEMENT
-----------
Name and address of Title of Amount of Percent of
beneficial owner class beneficial ownership class
- -------------------------- ---------- ---------------------- ------------
Michael L. Bagnoli Common 800,000(1) Less than 1%
40 Redwood Court
Lafayette, Indiana
47905
Martin Maassen Common 2,665,419 (2) 3.0%
1340 Fawn Ridge Drive
West Lafayette, Indiana
47906
Gunther Than Common 5,344,140 (3) 5.9%
1550 Caton Center Drive,
Suite E Preferred 7,171,725 100%
Baltimore, Maryland
21227
Directors and officers Common 8,809,559 9.7%
as a group Preferred 7,171,725 100%
(1) Represents 730,000 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 1,915,419 held by Mr. Maassen and his spouse
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.
26
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 90,442,422 common shares outstanding as of January
31, 2006, 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
stockholder 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 stockholder 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 15 votes and shall be entitled to vote on any matters
brought to a vote of the common stock stockholders. 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, 66,273,341 shares are
freely transferable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act"), and 24,169,081 shares
are "restricted securities," as that term is defined in Rule 144 under the
Securities Act. Of the restricted securities, 8,809,559, or 9.7%, are
held by our "affiliates," as defined under 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. Also, on November 8, 2005,
we filed a Form S-8 registration statement registering 3,500,000 shares. We
have issued 3,340,000 of those registered shares and 160,000 shares remain for
future grants. 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 offered 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 percentage after
27
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
- --------------------------- -------------- ------------ ----------- -------
John V. Addeo, Sr.
Investor 85,000 85,000 0 0
- --------------------------- -------------- ------------ ----------- -------
John F. Alexander Less
Consultant 245,000 245,000 0 than 1%
- --------------------------- -------------- ------------ ----------- -------
Active Stealth, LLC (1)
Investor 1,666,666 1,666,666 0 0
- --------------------------- -------------- ------------ ----------- -------
Business Development
Corporation, Inc. (2)
Consultant 2,400,000 2,400,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Timothy Clark Less
Investor 120,000 85,000 35,000 than 1%
- --------------------------- -------------- ------------ ----------- -------
Doug Coombs
Investor 70,000 70,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Thomas Cloutier
Consultant 80,000 80,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Charlotte DeLoof Less
Employee 120,000 60,000 60,000 than 1%
- --------------------------- -------------- ------------ ----------- -------
KCS Referral
Service, LLC (3)
Investor 1,666,666 1,666,666 0 0
- --------------------------- -------------- ------------ ----------- -------
David Hume
Investor 175,000 175,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Lesniak &
Associates (4)
Creditor 2,000,000 500,000 1,500,000 1.5
- --------------------------- -------------- ------------ ----------- -------
Marc Mintz Less
Investor 200,000 100,000 100,000 than 1%
- --------------------------- -------------- ------------ ----------- -------
Michael Paduano
Investor 85,000 85,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Thomas F. Pierson
Legal Consultant
and Investor 300,000 300,000 0 0
- --------------------------- -------------- ------------ ----------- -------
Jane Seymour
Investor 85,000 85,000 0 0
- --------------------------- -------------- ------------ ----------- -------
William D. Smith
Former Secretary,
Chairman of the Board
and consultant 1,170,000 170,000 1,000,000 1.0
- --------------------------- -------------- ------------ ----------- -------
28
- --------------------------- -------------- ------------ ----------- -------
Starr Consulting,
Inc. (5) Less
Consultant and Investor 2,264,167 1,666,667 597,500 than 1%
- --------------------------- -------------- ------------ ----------- -------
Total 12,732,499 9,439,999 3,235,500 3.3
- --------------------------- -------------- ------------ ----------- -------
(1) As provided by Active Stealth, LLC, Richard Muller holds the power
to vote and dispose of the securities.
(2) As provided by Business Development Corporation, Inc., Thomas
Coultier has power to vote and dispose of the securities.
(3) As provided by KCS Referral Service, LLC, John Braxton has power to
vote and dispose of the securities.
(4) As provided by Lesniak & Associates, Bruce Lesniak has power to
vote and dispose of the securities.
(5) As provided by Starr Consulting, Inc., Daniel Starczewski has power
to vote and dispose of the securities.
TRANSACTIONS RELATED TO THE SELLING STOCKHOLDERS
We have sold restricted shares in isolated transactions to seven of the
selling stockholders in consideration for cash. We are under no formal or
informal obligation to register these shares under this registration
statement, however, our Board has authorized the registration of 720,000
shares. The selling stockholders acquired the shares in the following
transactions. 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 issued 70,000
shares to Doug Coombs for $10,500 on November 17, 2005. On November 23, 2005,
we issued 100,000 shares to Mark Mintz for $15,000. On December 29, 2005, we
authorized the issuance of 85,000 shares to Jennifer Seymour for $12,750;
120,000 shares to Timothy Clark for $18,000; and 85,000 shares to John V.
Addeo, Sr. for $12,750.
Subscription Agreement
We entered into a Subscription Agreement, dated December 23, 2005, with three
accredited investors; Starr Consulting, Inc., Active Stealth, LLC, and KCS
Referral Service LLC (the "Subscribers"). We agreed to sale and the
Subscribers agreed to purchase convertible promissory notes and warrants.
However, on January 6, 2006, the Subscribers consented to the removal of the
warrants from the subscription agreement, with the understanding that the
warrants would be reinstated after we increased our authorized common stock
and the shares underlying the warrant would be registered in a later
registration statement. The Subscribers agreed to purchase up to an aggregate
of $500,000 of 8% promissory notes convertible into shares of our common stock
at a per share conversion price of $0.10. The notes are due and payable by
December 31, 2006. The Subscribers agreed to purchase the promissory notes
over a 5 month period in $100,000 per month installments.
Starr Consulting, Inc. agreed to purchase convertible promissory notes in the
aggregate amount of $166,667, which may be converted into 1,666,667 shares of
our common stock. Active Stealth, LLC and KCS Referral Service LLC each
agreed to purchase convertible promissory notes in the aggregate amount of
$166,666, convertible into 1,666,666 common shares. On January 3, 2006, we
closed the first $100,000 installment under this agreement and Starr
Consulting purchased promissory notes valued at $33,334, Active Stealth
purchased promissory notes of $33,333 and KCS Referral Service purchased
promissory notes valued at $33,333.
The agreement provides for piggy back registration rights for the shares
underlying the convertible promissory notes. The agreement provides that we
must file a registration statement within 60 days of a request by any
Subscriber and cause the registration statement to become effective within 120
days of that request. We are obligated to maintain the effectiveness of the
registration statement until all the underlying shares have been sold by the
Subscribers. If we fail to obtain or maintain effectiveness of the
registration statement, then we are required to pay liquidated damages in an
amount equal to 2% of the purchase price of the convertible promissory notes
remaining unconverted and the
29
purchase price of the shares issued upon conversion of the notes owned of
record by the holder of the notes for each 30 day period that the registration
statement is not effective.
If we fail to issue shares within 10 business days after a request by a
Subscriber, then the Subscriber is entitled to a sum of money, whichever is
greater of either (i) multiplying the outstanding principal amount of the note
designated by the Subscriber by 130%, or (ii) multiplying the number of shares
deliverable upon conversion of the amount of the note's principal and/or
interest at the conversion price that would be in effect on the deemed
conversion date by the highest closing price of the common stock on the
principal market for the period commencing on the deemed conversion date until
the day prior to the receipt of the payment.
Consulting Agreements
We entered into a consulting agreement with John F. Alexander dated October 6,
2005. We engaged Mr. Alexander as an engineering consultant. The term of the
consulting agreement is a period of one year beginning January 2, 2005 and
renewing automatically. We agreed to pay Mr. Alexander 10,000 shares per
month. Pursuant to the agreement he will maintain the confidentiality of
information obtained while providing services to us for the term of the
agreement and for three years after the agreement is terminated by mutual
agreement. He agreed not to solicit our customers for the term of the
agreement and for one year after its termination. Any ideas, inventions,
patents and copyrights or other work product is our property and we may seek
patents, copyrights or other protections for this work product. Our Board has
approved the registration of 125,000 shares Mr. Alexander has earned under his
consulting agreement. We are under no formal or informal obligation to
register these shares under this registration statement.
On December 21, 2005, we engaged Thomas F. Pierson as legal counsel. His
initial fee was $20,000 payable in cash or 200,000 shares registered under
Form S-8. Mr. Pierson opted to receive the 200,000 shares, but our Board
decided to register these shares in this registration statement rather than
under a Form S-8 registration. Mr. Pierson is entitled to an additional
100,000 shares for services rendered. Our Board has approved the registration
of 300,000 shares for Mr. Pierson.
On December 27, 2005, we entered into a consulting agreement with Business
Development Corporation, Inc., a Nevada corporation, located in Palm Springs,
California ("Business Development"). Business Development agreed to act as an
independent consultant, to provide financing, public relations, business
modeling and corporate development related to acquisitions, mergers and
financing. The term of the agreement was for one year beginning on the date
payment of the required compensation was received. The compensation for the
services was options to purchase 2,500,000 shares and the shares underlying
the options have piggy back registration rights. Pursuant to the agreement,
we are registering 2,500,000 shares for Business Development. In addition,
the executive officer of Business Development, Thomas Cloutier, provided
consulting services to us as an individual and we agreed to pay him 80,000
shares for his services. The Board has also approved the registration of the
80,000 shares under this registration statement.
Debt Conversion
On September 24, 2004, we issued 2,000,000 shares valued at $180,000 to
Lesniak & Associates as settlement for debt. We had entered into a settlement
agreement with Lesniak & Associates in November 2003, but we were unable to
satisfy the payments under that settlement agreement and renegotiated a
settlement of $100,000 cash and 2,000,000 common shares as full satisfaction
of all debt. We are under no obligation to register these shares; however,
our Board has authorized the registration of 500,000 of these shares.
Compensation
William D. Smith served as the Chairman of the Board and Secretary of View
Systems 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
30
September 2002 through August 2003. 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. William D. Smith was listed as a selling shareholder
of 250,000 shares in the Form SB-2 File No. 333-118043. Mr. Smith sold a
portion of his shares in that offering and the 170,000 shares that he did not
sell have been carried forward to this registration statement.
Charlotte DeLoof is an employee of View Systems and earns shares of common
stock for each month worked. Our Board has approved the registration of
60,000 of the shares she owns. We are under no obligation to register these
shares.
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 post-effective amendment 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 who 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
31
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.
The selling stockholders and any broker-dealers participating in the
distribution of the shares are 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 are 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.
32
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 100 F Street N.E., Washington, D.C. 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
nine month periods ended September 30, 2005 and September 30, 2004
Consolidated Balance Sheets .........................................34
Consolidated Statements of Operations ...............................35
Consolidated Statements of Cash Flows................................36
Notes to Consolidated Financial Statements...........................37
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.....40
Consolidated Balance Sheets..........................................41
Consolidated Statements of Operations................................42
Consolidated Statements of Stockholders' Equity......................43
Consolidated Statements of Cash Flows.............................44-45
Notes to Financial Statements.....................................46-57
33
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.
34
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.
35
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30,
2005 2004
--------------- -------------
(Restated)
<s> <c> <c>
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 Activities:
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.
36
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.
37
VIEW SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
38
C O N T E N T S
Accountants' Report.........................................................40
Consolidated Balance Sheets ................................................41
Consolidated Statements of Operations.......................................42
Consolidated Statements of Stockholders' Equity.............................43
Consolidated Statements of Cash Flows....................................44-45
Notes to the Consolidated Financial Statements...........................46-57
39
Chisholm 533 West 2600 South, Suite 250
Bierwolf & Bountiful, Utah 84010
Nilson, LLC Phone (801) 292-8756
Certified Public Accountants Fax: (801) 292-8809
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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., (the Company) as of December 31, 2004 and 2003, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for the years then ended. 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 standards of the PCAOB (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. 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 financial statements referred to above present fairly, in
all material respects, the financial position of View Systems, Inc. as of
December 31, 2004 and 2003 and the result of its operations, and it's cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
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 2005. 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.
As discussed in Note 12 to the consolidated financial statements, there was an
error in reporting a payment on a loan from an officer, resulting in a loan
receivable to this officer. This error was discovered by management s a result
of a regulatory review. Accordingly, the financial statements have been
restated to correct the errors and disclosures.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
March 23, 2005, except for Note 12, 5, 6 and 11
dated January 20, 2006
40
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
December 31,
2004
-------------
(Restated)
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
Due from Affiliates 98,457
Deposits 2,319
-------------
Total Other Assets 1,727,630
-------------
Total Assets $ 2,085,458
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 265,776
Accrued Expenses 100,548
Accrued Interest 66,000
Notes Payable 148,500
-------------
Total Current Liabilities 580,824
-------------
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 $ 2,085,458
=============
The accompanying notes are an integral part of these
consolidated financial statements.
41
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended
December 31,
---------------------------
2004 2003
------------- -------------
(Restated)
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
Bad Debt 148,928 71,000
Salaries & Benefits 653,096 873,361
Valuation/Impairment Loss - 888,658
------------- -------------
Total Operating Expenses 1,369,474 2,832,243
------------- -------------
Net Operating Income (Loss) (1,150,334) (2,519,923)
------------- -------------
Other Income(Expense)
Loss on Sale of Assets - (14,839)
Interest Expense (36,144) (11,572)
------------- -------------
Total Other Income(Expense) (36,144) (26,411)
------------- -------------
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.
42
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 -
shares 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 - shares
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.
43
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
---------------------------
2004 2003
------------- -------------
(Restated) (Restated)
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 (208,439) 211,747
Accrued Expenses (3,967) 157,895
------------- -------------
Net Cash Provided(Used) by Operating Activities (850,113) (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:
Proceeds from debt financing 933,800 817,820
Proceeds from stock issuance 157,900 508,550
Proceeds from related party advances 132,000 1,500
Payments on related party advances (132,000) (1,500)
Cost of issuance of common stock (5,000) -
Principal Payments on Notes Payable (83,000) (375,000)
------------- -------------
Net Cash Provided (Used) by Financing Activities 1,003,700 951,370
------------- -------------
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.
44
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.
45
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
digital video technology utilizes the compression and decompression of digital
inputs. In March 2002, the Company acquired Milestone Technology, Inc., which
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 has three main products, namely the concealed weapons
detection system, the visual first responder system and the Viewmaxx digital
video system. In all cases 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. The customer can engage us for
installation and training, which 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. However, the customer can also
self install or can engage another firm to provide installation and training.
Each product has an unconditional 30 day warranty, during which time the
product can be returned for a complete refund. Prior to the issuance of
financial statements management reviews any returns subsequent to the end of
the accounting period which are from sales
46
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
recognized during the accounting period, and makes appropriate adjustments as
necessary. Product prices are fixed or determinable and products are only
shipped when 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 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 $45,160,
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).
47
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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
48
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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
49
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
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.
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
50
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
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
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
51
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
3. NEW ACCOUNTING PRONOUNCEMENTS (Continued)
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.
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
52
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
4. BUSINESS COMBINATION (Continued)
pinpoint the location, size, and numbers of concealed weapons. Prior to its
acquisition, Milestone Technology, Inc., was considered to be a development
stage enterprise.
5. DUE FROM AFFILIATED ENTITIES (Restated)
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.
6. NOTES PAYABLE (Restated)
Notes payable as of December 31, 2004 consist of the following:
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 $ 148,500
=========
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.
53
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:
54
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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
============= ============ =============
55
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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.
11. RELATED PARTY TRANSACTIONS
In order for the Company to meet it's financial obligations, the
Company's president Gunther Than, loans the Company funds on occasion and is
repaid when funds are available. During 2004 and 2003 Mr. Than advanced the
Company a total of $132,000 and $1,500, respectively. Amounts paid back to Mr.
Than in 2004 and 2003 totaled $132,000 and $1,500, respectively, leaving
balances due as of December 31, 2004 and 2003 of $0.
12. RESTATEMENT OF FINANCIAL STATEMENTS
Pursuant to a regulatory review, the financial statements for the year
ended December 31, 2004 and 2003 have been restated. During 2004, the
Company's President loaned funds to the Company to meet it's 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 wherein 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. The restatement also required a change to the cashflow
statement by removing funds paid to a shareholder and applied this change to
the accounts payable section. The financing section was also edited to include
the gross amounts loaned to the Company an paid back by Mr. Than for the years
2004 and 2003.
The statement of operations for the year ended December 31, 2004 and
2003 was restated for presentation reclassifications. Bad Debt expense in 2004
and 2003 of $148,928 and $71,000, respectively, and Impairment losses in 2003
of $888,658 were moved from other income and
56
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
12. RESTATEMENT OF FINANCIAL STATEMENTS (Continued)
expense to operating expenses. The effect was a decrease in operating losses
of $148,928 and $959,658 for 2004 and 2003, respectively. There was no change
to Net Income for either year.
57
__________
We have not authorized any dealer,
salesman or any other person to
give any information or to make any
representations not contained in _________________
this prospectus. Any information
or representation not contained in PROSPECTUS
this prospectus must not be relied
upon as having been authorized by _________________
View Systems.
__________
TABLE OF CONTENTS
Prospectus Summary................3
Risk Factors......................4
Use of Proceeds...................7
Market for Common Equity..........7 VIEW SYSTEMS, INC.
Description of Business...........9
Property.........................17
Legal Proceedings................17
Management's Discussion and
Analysis........................18 9,439,999 Common Shares
Management.......................24
Certain Related Transactions.....25
Principal Stockholders...........26
Description of Securities........27
Selling Stockholders.............27
Plan of Distribution.............31
Other Information................32
Interest of Named Experts
and Counsel...................32
SEC's Position on
Indemnification for
Securities Act Liability......32 February , 2006
Additional Information..........33
Changes In and Disagreements
With Accountants................33
Financial Statements.............33
58
PART II
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be paid for by View Systems in
connection with the sale of the shares. We will pay all the costs of
this offering, with the exception of the costs incurred by the selling
stockholders for their legal counsel and the costs they may incur for
brokerage commissions on the sale of their shares. All the amounts shown
include estimates of future expenses, except for the registration fee:
Securities and Exchange Commission registration fee............ ..$ 139.39
Printing expenses................................................... 200.00
Legal fees and expenses............................................. 10,000.00
Accounting fees and expenses........................................ 5,000.00
Transfer agent and registrar fees and expenses...................... 1,000.00
Miscellaneous....................................................... 200.00
Total..................................................... $16,539.39
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 December 29, 2005, we issued 85,000 shares to Jennifer Seymour for
$12,750, we issued 120,000 shares to Tim Clark for $18,000 and we issued
85,000 shares to John V. Addeo, Sr. 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 23, 2005, we issued 100,000 shares to Mark Mintz for $15,000. 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 17, 2005, we issued 70,000 shares to Doug Coombs for $10,500. 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.
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
59
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 conversion of notes payable of $48,000
and services rendered to the company valued at $23,717. 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 Scott Clark
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 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 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 of his interest in the
Milestone technology. 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
60
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, 2004, 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.
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.
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
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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 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
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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
No. 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)
4.1 View Systems, Inc. 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)
4.2 Subscription Agreement between View Systems, Inc. and Starr
Consulting, Inc., Active Stealth, LLC, and KCS Referral Service LLC,
dated December 23, 2005 (Incorporated by reference to exhibit 4.1 of
Form 8-K, filed January 6, 2006)
5.1 Opinion of Cindy Shy, P.C. (To be filed by amendment)
10.1 View Systems, Inc. 1999 Stock Option Plan (Incorporated by reference
to exhibit 10.16 to Form SB-2 filed January 11, 2000)
10.2 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)
10.3 Lease agreement between View Systems and MIE Properties, Inc., dated
August 3, 2005 (Incorporated by reference to exhibit 10.2 to Form
10-QSB, filed November 10, 2005)
10.4 Consulting Agreement between View Systems and Business Development
Corporation, dated December 27, 2005.
10.5 Engagement between View Systems and John F. Alexander, dated October
6, 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.
99.1 Release of warrants by Subscribers, dated January 6, 2006
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.
For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned small business issuer undertakes that in a primary offering of
securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
small business issuer will be a seller to the purchaser and will be considered
to offer or sell such securities to such purchaser:
(1) Any preliminary prospectus or prospectus of the undersigned small
business issuer relating to the offering required to be filed pursuant to
Rule 424 (230.424 of this chapter);
(2) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small
63
business issuer or used or referred to by the undersigned small business
issuer;
(3) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned small
business issuer; and
(4) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
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 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 January 31, 2006.
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: January 31, 2006 _________________________________________________
Gunther Than
Chief Executive Officer, Principal Financial and
Accounting Officer, Treasurer and Director
/s/ Michael L. Bagnoli
Date: January 31, 2006 _________________________________________________
Michael L. Bagnoli
Secretary and Director
/s/ Martin J. Maassen
Date: January 31, 2006 _________________________________________________
Martin J. Maassen
Director
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