As filed with the Securities and Exchange Commission on August 9, 2004
Registration No. 333-118043
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U. S. Securities and Exchange Commission
Washington, DC 20549
Form SB-2/A
Amendment No. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VIEW SYSTEMS, INC.
(Name of small business issuer in its charter)
Nevada 3812 59-2928366
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
1100 Wilso Drive
Baltimore, Maryland 21223
(410) 646-3000
(Address and telephone number of principal executive offices
and principal place of business)
Gunther Than, CEO
View Systems, Inc.
1100 Wilso Drive
Baltimore, Maryland 21223
(410) 646-3000
(Name, address and telephone number of agent for service)
---------------
Copies to:
Cindy Shy, Attorney
Cindy Shy, P.C.
2157 S. Lincoln Street, Suite 202
Salt Lake City, Utah 84106
(801) 323-2392
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. [ ]
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. [ ]
View Systems, Inc. hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until we shall file a
further amendment which specifically states that this registration statement
shall become effective in accordance with Section 8(a) of the Securities Acts
of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
PROSPECTUS
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| SUBJECT TO COMPLETION |
| The information in this prospectus is not complete and may be changed. We |
| may not sell these securities until the registration statement filed with |
| the Securities and Exchange Commission is effective. This prospectus is |
| not an offer to sell these securities and it is not soliciting an offer to |
| buy these securities in any state where the offer or sale is not permitted.|
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View Systems, Inc.
a Nevada corporation
18,621,050 shares of common stock
___________
-----------------------------
| Trading Symbol |
| |
| OTC Bulletin Board | We are registering 18,621,050 shares
| "VYST" | of our common stock which will be
| | sold by selling stockholders who are
| Common stock prices as | named in this prospectus.
| reported by the OTC |
| Bulletin Board on | We will not receive the proceeds
| August 5, 2004, | from the sale of these common shares.
| $ 0.11 high bid and |
| low ask $ 0.12 |
| |
-----------------------------
This investment involves a high degree of risk, you should review the
"Risk Factors" beginning on page 4.
_____________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined
if this prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
__________________
Prospectus dated August 23, 2004
TABLE OF CONTENTS
Prospectus Summary...........................................................3
Risk Factors.................................................................4
Use of Proceeds..............................................................6
Market for Common Equity.....................................................6
Management's Discussion and Analysis.........................................8
Description of Business.....................................................13
Property....................................................................21
Legal Proceedings...........................................................21
Management..................................................................22
Certain Related Transactions................................................23
Principal Stockholders......................................................24
Description of Common Stock.................................................25
Selling Stockholders........................................................25
Plan of Distribution........................................................27
Other Information...........................................................28
Interest of Named Experts and Counsel....................................28
SEC's Position on Indemnification for Securities Act Liability...........28
Additional Information...................................................28
Changes In and Disagreements With Accountants...............................29
Financial Statements........................................................29
2
PROSPECTUS SUMMARY
View Systems, Inc.
1100 Wilso Drive
Baltimore, Maryland 21223
Telephone: (410) 646-3000
View Systems, Inc. designs and manufactures computer software and hardware
systems for security and surveillance applications. Our principal products
include VideoMaxx Digital Video surveillance products and SecureScan Concealed
Weapons Detection products. We recently began manufacturing our newest
product, the FirstView Wireless Camera system. We also offer biometric
verification systems, magnetic door locks and central monitoring or video
command centers which can be combined with our principal products.
We are registering 18,621,050 common shares to be sold by selling
stockholders, who are identified in the "Selling Stockholders" section
starting on page 25. Our board of directors has determined that we will
register these shares as a result of transactions and agreements we have
entered into with the selling stockholders. These transactions and agreements
are described in more detail in "Selling Stockholders - Transactions Related
to the Offering," starting on page 26.
We will not receive any of the proceeds from the sale of the shares which are
being registered for the selling stockholders. These shares will be sold from
time to time at the total discretion of the selling stockholders. See "Plan
of Distribution" starting on page 27 for further details about the possible
methods of sale which may be used by the selling stockholders.
Shares of common stock offered by selling stockholders 18,621,050
Common stock outstanding after the offering 70,085,352
Common stock owned by selling stockholders after the offering 1,100,000
3
References in this prospectus to "View Systems," "we," "us," and "our" refer
to View Systems, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This prospectus
contains these types of statements. Words such as "may," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or
financial performance identify forward-looking statements. You are cautioned
not to place undue reliance on the forward-looking statements, which speak
only as of the date of this prospectus. All forward-looking statements
reflect our present expectation of future events and are subject to a number
of important factors and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. The
factors listed in the "Risk Factors" section of this prospectus, as well as
any cautionary language in this prospectus, provide examples of these risks
and uncertainties.
RISK FACTORS
Potential investors should carefully consider the following risk factors
before deciding to buy our common stock. Each investor should also consider
the other information in this prospectus. Investing in our common stock
involves a high degree of risk and you should not invest in our common stock
unless you can afford to lose your entire investment.
Risks Related to the Offering and Our Stock Price
We have not paid cash or stock dividends on our common stock and this
may discourage potential investors from purchasing our shares.
Potential investors should not anticipate receiving dividends from our common
stock. We intend to retain future earnings to finance our growth and
development and do not plan to pay cash or stock dividends. This lack of
dividend potential may discourage potential investors from purchasing our
common stock.
The nature of our business makes it difficult to predict our revenues
and operating results, which may negatively affect our stock price.
We currently are unable to finance our operations through our generated
revenues and we have consistently incurred losses since our formation. Our
revenues and operating results have varied significantly from period to period
and it is possible that our quarterly operating results from time to time will
be below the expectations of public market analysts and investors. In that
case, we expect that the price of our common stock would be materially and
adversely affected. Although we expect that the development of new sales
channels will cause our earnings to become more predictable, our revenues and
operating results can be expected to fluctuate somewhat for a variety of
reasons beyond our control, including, but not limited to:
.. Changes in the volume or timing of product orders;
.. Competitive pressures resulting in lower selling prices;
.. Purchase order delays by customers subject to prior governmental or
regulatory approval for purchases;
.. Our failure to obtain necessary funding to further develop our business
plan; and
.. New products and technologies launched by our competitors.
The future sale of common stock may negatively affect our stock price
and pose investment risks.
The market price of our common stock could drop as a result of sales of the
common stock in the market after the effective date of this registration
statement, or the perception that such sales could occur. We are registering
18,621,050 shares of common stock, or 26.6% of our issued and outstanding
common stock. If the selling
4
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.
There has not been a large public market for our common stock and it is traded
on the OTC Bulletin Board. 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. Investors may be unable to
resell their common stock at or above the price they pay for the common stock.
Also, our common stock qualifies as a "penny stock" under the Penny Stock
Suitability Reform Act of 1990 because it has a market price less than $5.00
per share. The liquidity of penny stock is affected by specific disclosure
procedures that must be followed by all broker-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.
Risks Related to Our Business
Our independent auditors have expressed concern whether we can continue
as a going concern.
We have incurred ongoing operating losses and do not currently have financing
commitments in place to meet expected cash requirements for the next twelve
months. Our net loss for the six month period ended June 30, 2004 was
$645,177 and our net loss for the year ended December 31, 2003 was $2,546,334.
Our accumulated deficit was $15,150,194 at the six month period ended June 30,
2004. 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 seek financing commitments during the next twelve months to fund
further development of our business plan. While we have expanded our product
line and expect to establish new sales channels, we may be unable to increase
revenues to the point that we attain and are able to maintain profitability.
We need additional external capital and may be unable to raise it.
Based on our current growth plan we believe we may require approximately $1
million in additional financing within the next twelve months to develop our
product lines and sales channels. Our success will depend upon our ability to
access equity capital markets and borrow on terms that are financially
advantageous to us. However, we may not be able to obtain additional funds on
acceptable terms. If we fail to obtain funds on acceptable terms, then we
might be forced to delay or abandon some or all of our business plans or may
not have sufficient working capital to develop products, finance acquisitions,
or pursue business opportunities. If we borrow funds, then we could be forced
to use a large portion of our cash reserves, if any, to repay principal and
interest on those loans. If we issue our securities for capital, then the
interests of investors and stockholders will be diluted.
We are currently dependent on the efforts of resellers for our continued
growth and must expand our sales channels to increase our revenues and
further develop our business plans.
We are in the process of developing and expanding our sales channels, but we
expect overall sales to remain down as we develop these sales channels. We are
actively recruiting additional resellers and dealers and plan to hire
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.
5
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
School Technology Management for the continued integration of our SecureScan
technology with its Comprehensive Attendance/Security System for use in
educational facilities. 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 VideoMaxx product line and the SecureScan
portal product line. We intend to invest a significant amount of our
financial resources for the development of the FirstView Wireless Camera
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.
We would be harmed if we were unable to use our manufacturing facility.
We assemble and manufacture our products at our facility located in Baltimore,
Maryland. If we were unable to continue manufacturing at this location due to
fire, prolonged power shortage or other natural disaster, then we would be
unable to supply products to our customers.
USE OF PROCEEDS
We are registering the shares for the benefit of the selling stockholders and
they will sell the shares from time to time under this prospectus. We will
not receive the proceeds from the shares sold by the selling stockholders. We
will pay the costs of this offering, with the exception of the costs incurred
by the selling stockholders for their legal counsel and the costs they may
incur for brokerage commissions on the sale of their shares.
MARKET FOR COMMON EQUITY
Market Information
Our shares of common stock are traded on the NASD OTC Bulletin Board under the
symbol "VYST." The following table lists the range of the quarterly high and
low bid prices of our common stock in the over-the-counter market for each
quarter for the two most recent fiscal years and the six month period ended
June 30, 2004. 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.
6
Year Quarter Ended High Bid Low Bid
----- ------------- -------- --------
2002 March 31 $ 0.82 $ 0.30
June 30 1.53 0.10
September 30 0.47 0.15
December 31 0.295 0.155
2003 March 31 $ 0.205 $ 0.08
June 30 0.145 0.04
September 30 0.19 0.06
December 31 0.65 0.17
2004 March 31 $ 0.37 $ 0.18
June 30 0.33 0.115
Our common shares are subject to Section 15(g) and Rule 15g-9 of the
Securities and Exchange Act of 1934 (the "Exchange Act"), commonly referred to
as the "penny stock" rule. The rule defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. The rule provides that any equity security is considered to be a
penny stock unless that security is:
.. registered and traded on a national securities exchange meeting specified
criteria set by the SEC;
.. authorized for quotation from the NASDAQ stock market;
.. 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 July 26, 2004 we had 342 stockholders of record, which does not include
"street accounts" of securities brokers.
Dividends
We have not paid cash or stock dividends, have no present plan to pay any
dividends, and payment of any cash dividends on our common stock is unlikely.
Instead, we intend to retain any earnings to finance the operation and
expansion of our business
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
Executive Overview
View Systems manufactures computer software and hardware systems for security
and surveillance applications. Our revenues for the six month period ended
June 30, 2004 and the year ended December 31, 2003 were primarily from sales
of our VideoMaxx Digital Video surveillance products and SecureScan Concealed
Weapons Detection products. (See "Our Business - Products and Services,"
starting on page 13.) We are currently manufacturing and marketing our newest
technology, the FirstView Wireless Camera product, which is a first responder
wireless video camera. Management believes that heightened attention to
terrorism and other security threats will continue to drive growth in the
market for security products.
Our ViewMaxx Digitial Video products have been the primary source of revenues
since 1998. In the fourth quarter of 2003 we experienced a revitalization in
sales of these products. While sales were down in the first quarter of 2004
for the ViewMaxx Digitial Video products, sales have rebounded during the
second quarter of 2004. We have entered into new market segments with this
product and are concentrating on local sales and services.
During the 2003 year we completed our single largest manufacturing run of
SecureScan Concealed Weapons Detection portals by building 20 portals. We
worked diligently to make engineering design changes to the SecureScan product
to accommodate the price points required by competitive pressures. We
expanded this product line in late 2003 when we combined our SecureScan
technology with School Technology Management, Inc.'s student time and
attendance program. Second phase testing of the combined technology,
conducted in early 2004, produced positive results. These positive results
lead the National Institute of Justice to provide $500,000 to fund further
development of the SecureScan technology. A portion of this funding will go
to the U.S. Department of Energy Idaho National Engineering and Environmental
Laboratory (See "Our Business" on page 13), a portion to further refinement of
the sensor circuitry and we will receive a portion. In addition, $600,000 has
been committed by the Department of Energy for a cooperative research and
development agreement related to the SecureScan technology for new and more
sensitive magnetometers at a reduced cost. We will receive the new technology
and this change will result in reduced manufacturing costs, a wider portal
opening size and improved object recognition ability.
We rely on revenues, private financing and sales of common stock to fund our
operations. While we have increased our revenues during the second quarter of
2004 compared to the first quarter of 2004, we have incurred losses for the
past two fiscal years and have an accumulated deficit of $15,150,194 at June
30, 2004. Our auditors have expressed doubt that we can continue as a going
concern based on these factors. Management believes we will incur operating
losses for the near future while we continue to expand our product line and
develop our sales and marketing channels. Management continues to seek
additional funding of up to $1 million to continue our business plan
development during the next twelve months. However, we can not assure you
that we will be successful at obtaining the necessary funding to continue this
development.
For the next twelve months our primary challenge will be to more fully develop
our product lines and our sales and distribution network. During the first
quarter of 2004 we increased our product lines when we entered into a
cooperative research and development agreement with the U.S. Department of
Energy's Idaho National Engineering and Environmental Laboratory ("Idaho
Engineering Lab") for our FirstView Wireless Camera System. 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
FirstView Wireless Camera product. We sold and delivered two FirstView units
to organizations in Boston, Massachusetts who were involved with security for
the Democratic national convention and we have received additional orders for
this product.
Along with development of our product lines, we must establish a sales and
distribution channel program for the United States. Our emphasis will be on
marketing and sales programs through dealer channels, plus internal direct
sales for our products, where applicable. We intend to build a United States
domestic network of manufacturing
8
representatives and dealers for the sale and distribution of our products
within the 48 states. Our initial focus will be in the Mid-Atlantic and
Northeast regions. In recent months we signed three new dealers for our
products; 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. Some of the major distributors of safety
products who have become our dealers and manufacturer representatives will be
adding our products to their GSA schedules.
Another major emphasis for the next twelve months is to continue our
SecureScan manufacturing cost reduction objectives. We reduced manufacturing
costs of the SecureScan product by 25% in the first quarter of 2004. We
intend to select key expensive components of the SecureScan system and replace
them with performance equivalent, less expensive parts. The final phase of
the manufacturing cost reductions will be cost reduction per unit in the
fabrication of the gradiometer sensors. In addition, we anticipate completing
circuitry conversions to fully digital signal processing from digital to
analog and back to digital, along with replacing over-engineered housings in
the SecureScan portals. We also intend to reduce assembly time and testing
times to save additional manufacturing costs.
Liquidity and Capital Resources
Our revenues are not sufficient to fund our day-to-day operations. For the
next twelve months management believes that revenues and additional financing
will provide funds for operations and further development of our business
plan. For the long term, management expects that the development of our sales
channels will increase revenues; however, management believes we will need to
continue to raise additional funds through loans and sales of our common stock
for the foreseeable future.
Net cash used by operating activities for the six month period ended June 30,
2004 ("2004 six month period") was $539,078 compared to net cash used by
operating activities of $408,723 for the six month period ended June 30, 2003
("2003 six month period"). Net cash used by operating activities was
$1,011,569 at the year ended December 31, 2003 ("2003 year"), compared to net
cash used by operating activities of $1,438,325 at the year ended December 31,
2002 ("2002 year").
We did not record any investing activities for the 2004 six month period
compared to a $4,500 advance in the 2003 six month period. For the 2003 year,
net cash provided by investing activities was $76,869 and was related to
advances from management and stockholders. Net cash provided by investing
activities for the 2002 year was $38,832 and was primarily the result of the
acquisition of $58,849 cash in the acquisition of Milestone Technology, Inc.
(See "Description of Business - Historical Developments," on page 13). We did
not record any investing activities for the 2004 second quarter.
Financing - Management estimates that we will require additional financing of
approximately $500,000 to $1 million to meet our needs for the next twelve
months. Our goal is to use this financing to increase ongoing operations to
self-sustaining levels and increase profits to the magnitude management feels
is achievable. The first phase of our financing plan is to acquire a $250,000
bridge loan that we will use to continue manufacturing the FirstView Wireless
Camera product in our Baltimore, Maryland facility. The second phase involves
the acquisition of $500,000 in the next six months to increase sales and
manufacturing personnel to support a national sales channel, lower
manufacturing unit costs of the our products and continue development of an
integrated application of the SecureScan technology with School Technology
Management Inc.'s student time and attendance system.
Net cash provided by financing activities for the 2004 six month period was
$538,685 compared to $404,050 for the 2003 six month period. The 2004 six
month period financing activities consisted of advances from stockholders of
$491,685 and $47,000 in proceeds received from sales of common stock. The
2003 six month period financing activities consisted of advances from
stockholders of $317,500 and $86,550 in proceeds received from sales of stock.
9
Net cash provided by financing activities for the 2003 year was $951,370;
consisting of debt financing of $817,820 and proceeds received from sales of
stock of $508,550. In comparison, net cash provided by financing activities
for the 2002 year was $1,329,378, primarily from proceeds of $1,292,200 from
sales of our common stock and $43,230 in advances from stockholders.
We intend to use any available cash to develop our products and expand our
sales, marketing and promotional activities. 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 if we are unsuccessful, then
we may be required to further reduce expenses and scale back our operations.
In addition to accessing the public and private equity markets, we will pursue
bank credit lines and equipment leases for certain capital expenditures, if
necessary.
Commitments and Contingent Liabilities
Our primary commitment is our operating lease for the manufacturing facility
in Baltimore, Maryland. Our rent for this facility is $2,260 per month with
an annual escalator of 3%. Our total current liabilities of $784,302 at June
30, 2004 include accounts payable of $480,200, accrued expenses of $131,717,
accrued interest of $60,500 and notes payable of $111,885. The notes payable
are primarily related to loans from third parties.
Off-balance Sheet Arrangements - None.
Results of Operations
Comparison of Three and Six Month Periods Ended June 30, 2003 and 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 three and six month periods ended June
30, 2003 and 2004 and should be read in conjunction with the financial
statements and notes to the financial statements included in this prospectus,
starting on page 29.
2003 and 2004 Interim Period Summary of Operations (Unaudited)
---------------------------------------------------------------
Six months Six months Three months Three months
ended ended ended ended
June 30,2003 June 30, 2004 June 30, 2003 June 30, 2004
------------- -------------- -------------- -------------
Revenues, net $ 212,175 $ 192,394 $ 146,485 $ 158,041
Cost of sales 94,990 106,198 67,454 73,872
Gross profit 117,185 86,196 79,031 84,169
Total operating
expenses 580,764 703,062 251,247 489,694
Net operating loss (463,579) (616,866) (172,216) (405,525)
Total other income
(expense) (5,966) (28,311) (2,957) (25,297)
Net income (loss) (469,545) (645,177) (175,173) (430,822)
Net income (loss)
per share $ (0.01) $ (0.01) $ (0.00) $ (0.01)
Revenues for the 2004 six month period decreased 9.3% compared to the 2003 six
month period and costs of sales increased 11.8% in the 2004 six month period
compared to the 2003 six month period. As a result of the decreases
10
in revenues and increases in cost of sales, our gross profit decreased 26.4%
for the 2004 six month period compared to the 2003 six month period
Revenues for the three month period ended June 30, 2004 ("2004 second
quarter") increased 7.9% compared to the three month period ended June 30,
2003 ("2003 second quarter") and costs of sales increased 9.5% in the 2004
second quarter compared to the 2003 second quarter. As a result of these
increases our gross profit increased 6.5% in the 2004 second quarter compared
to the 2003 second quarter.
During the 2004 six month period total operating expense increased 21.0%
compared to the 2003 six month period. During the 2004 second quarter total
operating expense increased 94.9% compared to the 2003 second quarter. The
increases for the 2004 periods were primarily the result of increases in
general and administrative expenses related to common shares issued for
services in the 2004 six month period and increases in professional fees for
technical and business consultants in the same period.
As a result of decreases in our gross profit and increases in our total
operating expenses, our net operating loss increased 33.1% for the 2004 six
month period compared to the 2003 six month period. Increases in gross profit
for the 2004 second quarter were offset by increases in our total operating
expenses and resulted in our net operating loss increasing 135.5% for the 2004
second quarter compared to the 2003 second quarter.
Total other expense, which represents interest expense, increased in the 2004
periods primarily due to loans received in those periods.
Our net loss for the 2004 six month period increased 37.4 % in comparison to
our net loss for the 2003 six month period and our net loss for the 2004
second quarter increased 145.9% in comparison to our net loss for the 2003
second quarter. Our net loss per share was $0.01 for the 2004 and 2003 six
month periods and the 2004 second quarter, but was $0.00 for the 2003 second
quarter.
Summary of Balance Sheet
------------------------
(Unaudited)
For year ended Quarter ended
December 31, 2003 June 30, 2004
------------------ ---------------
Cash $ 19,899 $ 19,506
Total current assets 338,228 352,599
Total assets 2,113,051 2,109,932
Total current liabilities 950,729 784,302
Accumulated deficit (14,505,017) (15,150,194)
Total stockholders equity $ 1,162,322 $ 1,325,630
As of June 30, 2004 we had negative working capital of $431,703. Our total
current assets increased slightly from the year ended December 31, 2003,
primarily due to increases in accounts receivable. At June 30, 2004 we own
property and equipment valued at $27,203 and licenses related to our
technology valued at $1,626,854. Our total current liabilities have decreased
at June 30, 2004, compared to December 31, 2003, primarily due to conversion
of debt of $522,105 into common shares during the 2004 second quarter (See
"Selling Stockholders - Transactions Related to the Selling Stockholders,"
starting on page 26).
Comparison of Years Ended December 31, 2002 and 2003 - The following
discussions are based on the audited consolidated financial statements of View
Systems and its subsidiaries. These charts and discussions summarize
11
our financial statements for the years ended December 31, 2002 and 2003 and
should be read in conjunction with the financial statements and notes to the
financial statements included in this prospectus, starting on page 29.
Summary of Operations
---------------------
2002 Year 2003 Year
-------------- ---------------
Revenues, net $ 446,009 $ 569,952
Cost of sales 378,600 257,632
Gross profit 67,409 312,320
Total operating expenses 2,980,509 1,547,585
Loss from operations (2,913,100) (1,560,265)
Total other income (expense) (1,010,369) (1,311,069)
Net income (loss) (3,923,469) (2,546,334)
Net earnings (loss) per share $ (0.11) $ (0.05)
Revenues for the 2003 year increased 27.8% compared to the 2002 year, and
costs of sales decreased by 32.0% in the 2003 year compared to the 2002 year.
Cost of sales were 84.9% of net revenues in the 2002 year compared to 45.2% of
net revenues in the 2002 year. The reduction in costs of sales was primarily
the result of engineering design changes to lower the costs of production of
the SecureScan concealed weapons detection product. As a result of the
reduction in cost of sales we recorded an increase of 363.3% in gross profit
for the 2003 year compared to the 2002 year.
During the 2003 year total operating expense decreased 48.1% compared to the
2002 year. The decrease reflects a 66.4% decrease in general and
administrative expenses and an 11.0% decrease in salaries and benefits related
to reductions in personnel and other costs during the 2003 year. Business
development expenses decreased 55.1% in the 2003 year compared to the 2002
year. Professional fees decreased 71.3% due to decreased reliance on
technical and business consultants in the 2003 year. The reductions in these
expenses resulted in a 46.4% decrease in net operating loss for the 2003 year
compared to the 2002 year.
Total other expense decreased in the 2003 year compared to the 2002 year
primarily as a result of bad debt expense of $948,432 in the 2002 year
compared to $71,000 bad debt expense in the 2003 year. Also, we recorded a
valuation/impairment loss of $888,658 for the 2003 year compared to a
valuation/impairment loss of $37,854 in the 2002 year. The impairment loss
for the 2003 year is related to a change in accounting principle from the
adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," issued in June 2001, which addresses financial
accounting and reporting for acquired goodwill and intangible assets. The
adoption of SFAS No. 142 required the cessation of goodwill amortization from
our acquisitions in the 2002 year, which decreased net loss for the 2002 year
by $113,135, and the write off of goodwill in 2003 resulted in a decreased net
loss of $787,248.
We recorded a 35.1% decrease in net loss for the 2003 year compared to the
2002 year and decreased our loss per share from $0.11 for the 2002 year to
$0.05 for the 2003 year.
12
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. In February 1999 we acquired Xyros Systems,
Inc., a Maryland corporation, which owned hardware technology with remote
video monitoring capability and digital video storage and retrieval software.
In May 1999 we acquired Eastern Tech Manufacturing Corp, a Maryland
corporation, which is a contract manufacturer of board level electronic
hardware and cable assemblies.
In December 2001 we acquired a 6% interest in Milestone Technology, Inc. and
shortly thereafter entered into a joint venture agreement with Milestone
Technology to develop and enhance its concealed weapons technology. Milestone
Technology's primary product was a walk-through detector that used passive
magnetic detection technology to accurately pinpoint the location, size and
number of concealed weapons. On March 25, 2002 we acquired the remaining 94%
interest of Milestone Technology.
On July 25, 2003 View Systems incorporated View Systems, Inc. as a
wholly-owned Nevada corporation for the sole purpose of changing the domicile
of the company from Florida to Nevada. On July 31, 2003 articles of merger
were filed with the state of Nevada to complete the domicile merger.
Our Business
View Systems acquires and/or develops technologies related to surveillance,
detection and security for the purpose of commercializing them. Digital video
recorder technology was our first developed product. We enhanced this product
line by developing interfaces with other various technologies, such as facial
recognition, access control cards and control devices such as magnetic locks,
alarms and other common security devices.
During the past two years we have expanded our product line to include a
concealed weapons detection systems and a hazardous material first response
wireless video transmitting system. We acquired exclusive licenses to
manufacture, use, sub-license and distribute technology and processes for the
concealed weapons detection technology and the first response wireless video
transmitting system from Bechtel BWXT Idaho, LLC. Bechtel BWXT Idaho, LLC
manages and operates the U.S. Department of Energy's Idaho National
Engineering and Environmental Laboratory ("Idaho Engineering Lab"). The
development of the concealed weapons detection technology was funded by the
National Institute of Justice and development was performed by the Idaho
Engineering Lab. The hazardous materials first response video transmitting
system was developed at the Idaho Engineering Lab through cooperative research
and development agreements at the request of various military organizations.
Products and Services
ViewMaxx Digital Video System - ViewMaxx is a fully programmable,
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 32 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.
VideoMaxx offers programmable recording features that can eliminate the
unnecessary storage of non-critical image data. This ability allows the user
to utilize the digital disk storage more efficiently. The ViewMaxx system can
be programmed to satisfy each customer's special requirements, be it coverage
which is continuous, or only when events are detected. For example, it can be
programmed to begin recording when motion is detected in a
13
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.
SecureScan Concealed Weapons Detection System - This product is a walk-through
concealed weapons detector which uses sensing technology and artificial
intelligence algorithms to accurately pinpoint the location, size and number
of concealed weapons. The control unit for this walk-through portal is a
personal computer based unit which receives magnetic and video information and
combines it in a manner that allows the suspected location of the weapon to be
stored electronically and referenced. SecureScan products are distributed in
two basic configurations; stand-alone units and integrated door systems. In
the third quarter of 2003 we brought the manufacturing in house and made
various modifications to prepare it for mass market distribution. In March
2004 we modified the design of the SecureScan portal to allow portability.
Concealed weapons detection systems are used in a wide range of situations in
order to provide added security against violent crimes. In addition to the
well-known use of concealed weapons detection systems in public airports, such
weapons detection systems are increasingly being used in court houses, schools
and other public/governmental facilities that may be subject to threats or
attacks by various members of the public.
One commonly used concealed weapons detection system is the electromagnetic
induction system. Essentially an electromagnetic induction system operates by
periodically broadcasting an electromagnetic pulse or series of pulses,
usually in the kilohertz range. The transmitted electromagnetic pulse induces
an electrical current, or 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,
14
electromagnetic systems tend to detect non-magnetic objects, such as pocket
change, just as easily as magnetic objects, such as weapons. Consequently,
electromagnetic systems tend to be prone to false alarms. In many
circumstances, such false alarms need to be resolved by scanning the suspect
with a hand-held detector in order to confirm or deny the presence of a
dangerous weapon.
Our SecureScan system differs from electromagnetic induction systems because
the SecureScan system uses passive magnetic technology. When an object of a
specific ferro-magnetic mass passes by the magnetic sensors the surrounding
magnetic field is altered. The software calculates the difference between the
magnetic field strength with the object in the magnetic field inside the
sensors' range and the normal magnetic field strength. Then the system
displays the results in graph format on a video display unit. Since the
SecureScan technology does not use transmitters to produce electromagnetic
induction, stray energy that can cause false alarms does not exist.
The SecureScan portal uses an array of advanced magnetic sensors, each with
internal digital signal processors. The sensors communicate with the control
unit's software which spatially places identified magnetic anomalies and
visually places the location of the potential threat object with a red dot
that is superimposed over a real time snapshot image of the person walking
through the portal. Along with the snapshot, a graph displays the sensor data
which automatically scales the signal strength of the individual sensors and
cross-references them to the video image. All of this information is brought
together on a video screen that displays the image of the person, the location
of the weapon(s) and the size of the weapon(s), depending on the intensity of
the magnetic signature.
The SecureScan technology discriminates weapons from non-weapons by assuming
that possible threat objects will have ferromagnetic composition. The
SecureScan system promotes smooth traffic flow because it only detects the
types of ferrous metals commonly found in guns and knives, rather than
personal possessions such as coins, keys or belt buckles. This capability
reduces false alarms and eliminates the need to use hand wands or resort to a
personal search. In addition, the sensor settings can be adjusted to allow
the detection of high composite pistols, titanium and stainless steel guns,
and box cutters. Body cavity object identification is also available, as well
as locating objects that have been covered or masked with aluminum foil or
other materials. The SecureScan system operates faster than ordinary metal
detectors and can scan as high as 1,500 persons per hour.
The SecureScan weapons detection system can be controlled via a central
monitoring station using a Windows operating system and Pentium hardware.
This can include additional closed-circuit television, two-way voice
communication, door interlock, card-key and other biometric identification or
access control components. The functionality of the SecureScan portal is
increased by access control, database recording, video capture and archiving
of images.
The SecureScan concealed weapons detection technology was patented by the
Department of Energy and approved by the Federal Aviation Administration.
View Systems owns the exclusive worldwide rights to the SecureScan technology
and ongoing improvements currently being funded by the National Institute of
Justice.
Combined Technology - 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.
FirstView Wireless Camera System - In December 2003 we obtained exclusive
licensing and marketing rights from the U.S. Department of Energy's Idaho
Engineering Lab for hazmat cam technology. The hazmat cam is a
first-responder camera that emergency response teams, such as the National
Guard, fire departments and other military personnel, carry into ground zero.
Images are transmitted to a command post where the incident
15
commanding officer and other experts can see in real-time what the entry team
sees while making a first entry. We market this product as "FirstView" and
began manufacture of this product during the second quarter of 2004.
FirstView 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. FirstView 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 FirstView 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 FirstView camera can be displayed on an existing
video monitor or on the FirstView 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.
FirstView also uses Extension Link which is a separate transmitter and
receiving system that increases the operating range of the FirstView by seven
to nine miles, depending on environmental factors. The Extension Link has
field-selectable channels to avoid interference at longer distances.
The complete FirstView system is stored in four cases that weigh 146 pounds,
and can be fully deployed by one person in a stand alone configuration in less
than 10 minutes. The system is battery operated and can operate for five
continuous hours using one set of spare camera batteries.
We have entered into a cooperative research and development agreement with the
Idaho Engineering Lab. 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.
Additional Products - We also offer other products that can be integrated 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:
.. Calibration services using the Federal Aviation Administration approved
method,
.. On site consulting/planning with customer architect and engineers,
.. Installation and technical support,
.. Training and "Train the Trainer" programs, and
.. Extended service agreements.
Market
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 it believes that a larger market exists in schools,
courthouses and municipal buildings, and law enforcement agencies.
Video transmission is just beginning to transform from what was
"closed-circuit" to a mix of methods that may
16
expand into hard-wired, telephone line, television cable and wireless link
systems. Management believes that this will expand user demand, create new
product opportunities and channels of distribution for our products and expand
the way in which other communication services are used.
Commercial - 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.
Educational - Schools have been very receptive and enthusiastic about the
SecureScan portal and its integration with School Technology Management's
Comprehensive Attendance/Security System. The combined technology has been
tested in schools in New York and Philadelphia and we have received very
positive responses from those tests. Management estimates that there are over
120,000 schools in the United States that may have problems with violence,
truancy and other safety considerations, which may be addressed by the
combined technology.
Law Enforcement - The gathering of video and data images and weapons detection
is commonplace in law enforcement. Because our technology can be used for
stakeouts and remote monitoring of areas, we believe there is a market
potential with law enforcement agencies. A primary market for our SecureScan
portal is federal and state government courthouses, and county and municipal
buildings. We have installed our SecureScan weapons detection products in a
variety of court house situations. The FirstView product's market includes
state National Guard units and first response agencies, such as; firemen,
police swat and homeland security response teams.
Residential - The residential home security user may purchase our products
from either commercial companies installing self-contained or centrally
monitored systems, or directly from retail distribution centers. However, at
this time we do not have retail agreements in place. Using our technology,
individuals may run their own perimeter and interior surveillance systems from
their own home computer. Real-time action at home can be monitored remotely
through a modem and the Internet. There is also the capability to make
real-time monitors wireless. An additional advantage of our technology is
that it allows for the storage of information on the home computer and does
not require a VCR. This capability may reduce the expense and time of the
home installation and may make installation affordable for a majority of
homeowners.
Manufacturing
We manufacture several of the hardware components in our systems and assemble
our systems by combining other commercially available hardware and software
together with our proprietary software. We hold licenses for software
components that are integrated into our proprietary software and installed in
our systems. We believe that we can continue to obtain components for our
systems at reasonable prices from a variety of sources. Although we have
developed certain proprietary hardware components for use in our products and
purchased some components from single source suppliers, we believe similar
components can be obtained from alternative suppliers without significant
delay.
In early October 2003, we began production of our SecureScan portals and at
the end of the 2003 year we completed the in-house manufacturing of 15
SecureScan portals. The SecureScan portal consists of two components; the
work station contains the software and display imagery, and the archway holds
the sensors which detect threat objects. Both components are assembled and
manufactured internally at our facilities in Baltimore, Maryland. Once
complete, the portal is tested and shipped to its final destination.
17
In June of 2003, through a collaborative effort with the Idaho Engineering Lab
we successfully transferred production of the FirstView Wireless Camera System
to our Baltimore, Maryland facility. We created comprehensive manufacturing
ability with a bill of materials and vendor supply source list for ongoing
engineering support and production. We established the necessary
manufacturing process to sustain output levels of 8 to 10 systems per month.
Sales and Distribution
We have ongoing reseller arrangements with small- and medium-sized domestic
and international resellers. Our reseller agreements grant a non-exclusive
right to the reseller to purchase our products at a discount from the list
price and then sell them to others. These agreements are generally for a term
of one year and automatically renew for successive one-year terms unless
terminated by notice or in the event of breach.
We are in the process of building a United States domestic network of
manufacturing representatives and dealers for the sale and distribution of our
products. We are seeking security consultants, specifiers and distributors of
security and surveillance equipment that sell directly to schools,
courthouses, government and commercial buildings. We plan to initially hire
four in-house regional sales persons, then we expect to develop a national
sales channel model and a distributor development program.
During 2003 we experienced increased sales of our SecureScan and ViewMaxx
products. We installed SecureScan portals and ViewMaxx systems in court
houses in both Colorado and West Virginia and the Canadian Federation
Building. In addition, we currently have proposals to East coast court houses
and other government facilities in Maryland, New York and West Virginia.
However, we cannot assure that we will realize any final sales from these
proposals.
During the last two quarters of 2003 our ViewMaxx product sales were
revitalized when we were able to expand our ViewMaxx digital video
surveillance client base with sales to places like Ronald McDonald house, the
University of Maryland Medical Center, and restaurants and car dealers.
During the last week of June, our engineers were on site in the Northeast to
verify the first two FirstView wireless camera systems delivered to a customer
were fully operational and to provide training to their personnel. Also, our
products have received publicity through newspapers, television and trade
publications which have resulted in inquiries about our products. As a
result, we have demonstrated our products to large agencies and system
integrators. However, we are unable to guarantee that any of these inquiries
will result in additional sales of our products.
We believe our relationship with School Technology Management will expand the
market for our products. School Technology Management has proposals out to
the two school systems that may result in orders for over 300 SecureScan
portals. We anticipate knowing the resolution of these proposals after the
school boards have reviewed and approved their capital budgets. These budget
approval processes generally take several months through the summer. We
cannot guarantee that additional sales will occur, but if one of the proposals
is accepted, then we will need to increase our manufacturing capability before
September 2004 to provide 60 or more portals per month for delivery and
installation.
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 and we are unable to guarantee
that any of these inquiries will result in additional sales of our products.
Backlog
As of June 1, 2004 we had a backlog of three SecureScan portals, five
FirstView camera systems and eight VideoMaxx systems. 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 SecureScan portals and VideoMaxx products months after receiving an order.
However, the SecureScan portal shipments may require more lead-time and other
18
shipments may be delayed for a variety of reasons beyond our control,
including:
.. additional time necessary to conduct portal inspections prior to
shipping,
.. design or specification changes by the customer,
.. the customer's need to prepare the site,
.. additional fine tuning of the portal once it is installed, 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, Loronix Information Systems, Inc., 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 FirstView
technology and will pay royalties of 4% of the net sale price per each
FirstView unit sold.
Governmental ownership of the patents is advantageous because the government
has prosecution and stewardship responsibilities for the life of the patents.
This is also true for continuations and improvements to the concealed weapons
detection technology under the ongoing contract between the Department of
Energy and National Institute of Justice.
We have obtained software licensing agreements for
.. compression software 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.
19
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, we are subject to certain
restrictions in the sale of our products to "unfriendly" countries and
countries designated as adversarial. In addition, our resellers and end users
may be subject to numerous regulations that stem from surveillance activities.
We also benefit from the recent "made in America" trade laws where non-United
States manufactures must secure waivers in order to sell security and
surveillance products to United States domestic end-users.
Security and surveillance systems, including cameras, raise privacy issues and
our products involve both video and audio, and added features for facial
identification. The regulations regarding the recording and storage of this
data are uncertain and evolving. For example, under the Federal wiretapping
statute, the audio portion of our surveillance systems may not record people's
conversations without their consent. Further, there are state and federal
laws associated with recording video in non-public places.
Research and Development
For the six month period ended June 30, 2004 and the year ended December 31,
2003, we did not record research and development expense. However, we
recorded research and development expense of $118,396 related to development
of our concealed weapons detection technology for the year ended December 31,
2002.
We have cooperative research arrangements with the Department of Energy to
receive technical assistance and exclusive rights to further enhancements of
the concealed weapons detection technology through contractual relationships
between the Department of Energy and the National Institute of Justice.
Employees
We employ 11 persons, including two persons in part-time positions. We also
employ two independent contractors who devote a majority of their work to a
variety of our projects. Our employees are not presently covered by any
collective bargaining agreement. Our relations with our employees are good,
and we have not experienced any work stoppages.
Reports to Security Holders
We are required to comply with the reporting requirements of Section 12(g) of
the Exchange Act and must file annual, quarterly and other periodic reports
with the SEC, as well as proxy and information statements. The public may
read and copy any materials we file with the SEC, including copies of this
registration statement at the SEC's Public Reference Room at 450 Fifth Street
N.W., Washington, D.C. 20549. The public may obtain
20
information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0300. We are an electronic filer and copies of our periodic
reports and other information filed with the SEC should be available through
the Internet by using the SEC's EDGAR database which may be found at
http://www.sec.gov. We also have an Internet web site at www.viewsystems.com.
PROPERTY
We lease 5,800 square feet of space used for office space, engineering design
and manufacturing in Baltimore, Maryland. During the term of the lease, which
expires in April 2006, the base rent is approximately $2,300 per month with an
annual rent escalator of 3%. Management believes this facility will suit our
needs for the foreseeable future.
LEGAL PROCEEDINGS
As of the date of this prospectus we are not a party to any material legal
proceedings.
21
MANAGEMENT
Directors and Executive Officers
The name, age, position and biographical information of our executive officers
and directors are presented below. Our bylaws provide for a board of
directors consisting of at least one director. The term of office of each
director is until the next annual meeting of stockholders or until the
director's earlier death, resignation, or removal. However, if his term
expires, he continues to serve until his successor is elected and qualified.
In April 2004 our President and Director, Barry S. Feldman, resigned those
positions to pursue other interests. In June 2004, our Secretary and Chairman
of the Board, William D. Smith resigned due to family health problems. Our
board of directors appointed Michael L. Bagnoli as Secretary, but as of the
date of this prospectus we have not filled the President vacancy. We intend
to fill that position as soon as practicable.
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 56 Chief Executive Officer, Treasurer, September 1998
and Director
Dr. Michael
L. Bagnoli 48 Director and Secretary May 1999
Dr. Martin
Maassen 61 Director May 1999
Gunther Than - Gunther Than was appointed Treasurer in July 2003 and has
served as our Chief Executive Officer since September 1998. He served as our
President from September 1998 to May 2003 and had served intermittently as
Chairman of the Board from September 1998 to September 2003. Mr. Than was the
founder, President and CEO of Real View Systems, Inc. and View Technologies,
Inc., software developers. Mr. Than continues as President, CEO and director
of View Technologies, Inc. Mr. Than is a graduate of the University of
Wisconsin, with a dual bachelors degree in engineering physics and applied
mathematics.
Dr. Michael L. Bagnoli - Dr. 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. Dr. Bagnoli was
founder, CEO and president of a successful medical products company, Biotek,
Inc., which was sold in 1994.
Dr. Martin Maassen - Dr. 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 and directors in all capacities during the past three fiscal years.
22
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Fiscal
Principal Position Year Salary Other
--------------------------- --------- --------------- -------------
Gunther Than 2003 $ 100,000 (1) $ 138,000 (2)
CEO, Treasurer 2002 18,000 0
Director 2001 96,000 110,400 (3)
Barry S. Feldman 2003 $ 0 $ 50,000 (4)
Former President 2002 0 0
and Director 2001 0 0
William D. Smith 2003 $ 0 $ 24,000 (5)
Former Secretary, 2002 0 0
Chairman of the Board 2001 0 0
(1) Represents accrued salary.
(2) Represents 1,150,000 common shares issued as compensation.
(3) Represents 480,000 common shares issued as compensation.
(4) Represents 350,000 common shares issued as compensation.
(5) Represents 200,000 common shares issued as compensation.
Compensation of Directors
We compensate our independent directors, Messrs. Maassen and Bagnoli, with
5,000 shares of our common stock for each month of service. Messrs. Maassen
and Bagnoli each accrued 60,000 shares for the year ended December 31, 2003.
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 View Systems 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 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 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.
During the year ended December 31, 2002, we advanced $98,458 to View
Technologies, Inc., which is controlled by Gunther Than, our Chief Executive
Officer and Director. There are no formal repayment terms associated with
this advance. View Systems and View Technologies, Inc. entered into various
transactions throughout the 2002
24
year to provide working capital to one another when necessary. These
transactions between View Systems and View Technologies were negotiated
between related parties without "arms length" bargaining and, as a result, the
terms of these transactions may be different than transactions negotiated
between unrelated persons.
PRINCIPAL STOCKHOLDERS
The following table lists the beneficial ownership of our management of our
common stock. 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 70,085,352
outstanding shares as of July 26, 2004 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 Amount of Percent of
beneficial owner beneficial ownership class
----------------------------- ------------------------- ---------------
Dr. Michael L. Bagnoli 470,000 (1) Less than 1%
40 Redwood Court
Lafayette, Indiana 47905
Dr. Martin Maassen 2,128,419 (2) 3.1%
1340 Fawn Ridge Drive
West Lafayette, Indiana 47906
Gunther Than 4,294,140 (3) 6.1%
1100 Wilso Drive
Baltimore, Maryland 21223
Directors and officers 7,492,559 9.8%
as a group
(1) Represents 400,000 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 1,378,419 held by Mr. Maassen and 750,000 shares held by
his spouse
(3) Represents 4,124,140 shares owned by Mr. Than and 170,000 shares held
by his spouse.
24
DESCRIPTION OF COMMON STOCK
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
preferred stock, par value $0.01, as of the date of this filing. We have
70,085,352 common shares outstanding as of July 26, 2004 and have not issued
any preferred stock. Of those shares, 34,515,250 shares are freely
transferable without restriction or further registration under the Securities
Act of 1933 (the "Securities Act"), and 35,570,102 shares are "restricted
securities," as that term is defined in Rule 144 under the Securities Act. Of
the restricted securities, 7,492,559, or 9.8%, are held by our "affiliates,"
as defined in Rule 144. In addition, we have options outstanding to purchase
107,690 common shares at a weighted average exercise price of $1.63
exercisable through 2009.
All shares of common stock have equal rights and privileges with respect to
voting, liquidation and dividend rights. After preferential rights are
satisfied, if any, the holders of common stock are entitled to receive
dividends out of funds legally available if, and when, declared by our board
of directors and to participate pro rata in any distribution of assets
available for distribution upon liquidation of View Systems. Any dividends
declared with respect to shares of common stock will be paid pro rata in
accordance with the number of shares of common stock held by each stockholder.
Each holder of common stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders. A majority of the
outstanding common stock is required to establish a quorum for a shareholder
vote and a majority vote of the outstanding shares present at a stockholders'
meeting is required for actions to be taken by stockholders. Our bylaws
provide that shareholder action may be taken by written consent of a majority
of the outstanding common stock. Directors are elected by a majority vote at
a stockholders' meeting and the holders of the common stock do not have
cumulative voting rights. Accordingly, the holders of a majority of the
voting power of the shares voting for the election of directors can elect all
of the directors if they choose to do so.
SELLING STOCKHOLDERS
The following table identifies the selling stockholders under this prospectus
and identifies their relationship to View Systems during the past three years.
The table also lists the number of shares of common stock owned by each
selling stockholder prior to the offering, the estimated number of shares to
be offered for the selling stockholder's account and the estimated number of
shares and percentage of outstanding shares to be owned by each selling
stockholder after the completion of the offering. Since the selling
stockholders may sell all, a portion, or none of their shares from time to
time, no firm estimate can be made of the aggregate number of shares that will
be owned by each selling stockholder upon completion of the offering.
Accordingly, the ownership amount and percentage after the offering assumes
the sale of all of the registered shares by the selling stockholders.
------------------------------------------------------------------------------
Estimated
securities
Securities Number of owned after
owned prior shares being offering
Name and relationship to offering registered Shares Percent
---------------------------- ------------- ------------ ----------- ---------
Broad Investment Partners
Investor 2,750,000 2,750,000 0 0%
---------------------------- ------------- ------------ ----------- ---------
Compass Equity Partners Less
Investor 2,846,440 2,746,440 100,000 than 1%
---------------------------- ------------- ------------ ----------- ---------
Daniel W. Jackson
Attorney 500,000 500,000 0 0%
---------------------------- ------------- ------------ ----------- ---------
25
---------------------------- ------------- ------------ ----------- ---------
Empire Fund Managers, LLC
Investor 2,750,000 2,750,000 0 0%
---------------------------- ------------- ------------ ----------- ---------
Barry S. Feldman Less
Former Director and President 850,000 750,000 100,000 than 1%
---------------------------- ------------- ------------ ----------- ---------
First Equity Holdings Corp.
Investor 2,235,610 2,235,610 0 0%
---------------------------- ------------- ------------ ----------- ---------
Liberty Partners, LLC
Investor 2,500,000 2,500,000 0 0%
---------------------------- ------------- ------------ ----------- ---------
Niki Group
Investor 3,039,000 3,039,000 0 0%
---------------------------- ------------- ------------ ----------- ---------
William D. Smith
Former Secretary, Chairman
of the Board and consultant 1,250,000 250,000 1,000,000 1.4%
---------------------------- ------------- ------------ ----------- ---------
Total 18,721,050 17,521,050 1,200,000 1.7%
---------------------------- ------------- ------------ ----------- ---------
Transactions Related to the Selling Stockholders
Starting in September 2003 we conducted a Rule 505 Regulation D offering for
an aggregate offering of $1,500,000, at $0.10 per common share. On August 6,
2003, we issued an aggregate of 10,800,000 common shares under this offering
valued at $1,080,000 to five accredited investors. The investors included
Broad Investment Partners, Compass Equity Partners, Empire Fund Managers, LLC,
First Equity Holdings Corp., and Liberty Partners, LLC. Our board of
directors has determined that these shares issued in the Regulation D offering
shall be registered under this prospectus.
During 2003 Daniel W. Jackson provided legal services valued at approximately
$60,000 to View Systems in connection with the Milestone Technology law suit
and negotiations. On September 10, 2003 we issued 500,000 common shares
valued at approximately $0.12 per share to Mr. Jackson for the services
rendered. Our board of directors has determined that Mr. Jackson's shares
shall be registered under this prospectus.
William D. Smith served as the Chairman of the Board and Secretary of the
company from February 2003 to June 2004. On August 20, 2003 we issued
1,000,000 common shares to Mr. Smith for $100,000. On September 10, 2003 we
issued 200,000 common shares, valued at $24,000, to Mr. Smith for consulting
services for the period from September 2002 through August 2003. Our board of
directors has determined that 250,000 shares held by Mr. Smith shall be
registered under this prospectus.
Barry S. Feldman served as our President and director during the 2003 year.
On August 20, 2003 we issued 300,000 common shares to Mr. Feldman to covert a
note payable to him of $30,000. On September 10, 2003 our board of directors
issued 250,000 common shares, valued at $30,000, to Mr. Feldman in
consideration for his services for the period from May 2003 through August
2003. On February 24, 2004 we issued 100,000 common shares to Mr. Feldman
pursuant to his employment agreement and on June 3, 2004 we issued 100,000
shares to him in consideration for services valued at $19,000. We agreed to
grant registration rights to 750,000 common shares owned by Mr. Feldman and,
accordingly, our board of directors has determined those shares shall be
registered under this prospectus.
On June 21, 2004 we issued an aggregate of 5,221,050 common shares to convert
notes payable and accrued interest of $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. These shares were granted registration rights and
our board of
26
directors has determined that these shares shall be registered under this
prospectus.
PLAN OF DISTRIBUTION
We have agreed to register these shares for the benefit of the selling
stockholders, but the registration of these shares does not necessarily mean
that any of them will be offered or sold by the selling stockholders. The
selling stockholders will have absolute discretion as to when and if the
registered shares will be sold, and the manner and timing of sales of the
shares. They may sell all or a portion of the shares through public or
private transactions, on or off established markets, or in negotiated
transactions or otherwise.
We will not use the services of underwriters or dealers in connection with the
sale of the shares registered under this prospectus. However, the selling
stockholders may sell all or any part of the shares offered in this prospectus
through an underwriter. No selling stockholder has entered into any agreement
with a prospective underwriter as of the date of this filing and there is no
assurance that any agreement will be entered into. If a selling stockholder
enters into an agreement or agreements, the relevant details will be disclosed
in a supplement or revision to this prospectus.
The shares may be sold by the selling stockholders either directly or through
brokers or dealers, or in a distribution by one or more underwriters on a firm
commitment or best-efforts basis. The methods by which the shares may be sold
may include:
.. a block trade, which may involve crosses, in which the broker or dealer
will attempt to sell the securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
.. purchases by a broker or dealer as principal and resale by the broker or
dealer for its own account;
.. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
.. privately negotiated transactions;
.. through the writing of options on the shares;
.. the selling stockholders may deliver all or a portion of the shares to
cover a short sale or sales made after the date of this prospectus, or a
call equivalent position or a put equivalent position entered or
established after the date of this prospectus; and/or
.. the selling stockholders may also sell all or any portion of the shares in
reliance upon Rule 144 or Regulation S.
The sale price to the public may be:
.. the market price prevailing at the time of sale;
.. a price related to the prevailing market price;
.. at negotiated prices; or
.. any other price as the selling stockholders determine from time to time.
The selling stockholders or their respective pledgees, donees, transferees or
other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders. These broker-dealers may also receive compensation from the
purchasers of shares for whom the broker-dealers may act as agents or to whom
they sell as a principal. This compensation might be in excess of customary
commissions as to a particular broker-dealer. Market makers and block
purchasers purchasing the shares will do so for their own account and at their
own risk. It is possible that selling stockholders will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price.
The selling stockholders and any broker-dealers participating in the
distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of the shares by the
selling stockholders and any commissions received by any broker-dealers may be
deemed to be underwriting commissions or discounts under the Securities Act.
Since the selling stockholders may be deemed to be "underwriters" they will
27
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, 2003 were audited by
Chisholm, Bierwolf & Nilson, LLC. Our financial statements for the year ended
December 31, 2002, were audited by Stegman & Company, Certified Public
Accountants. We have included the financial statements in this prospectus in
reliance on the reports provided by Chisholm, Bierwolf & Nilson, LLC, dated
February 25, 2004, and by Stegman & Company, dated March 26, 2003, given on
their authority as experts in accounting and auditing. Our counsel, 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.
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
28
web site at http://www.sec.gov. Other information can be inspected and copied
at the public reference facilities maintained by the SEC at Room 1024 of the
SEC's office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549.
Additional updating information with respect to the securities covered by this
prospectus may be provided to purchasers in the future by means of amendments
to this prospectus.
In addition, the information incorporated by reference is available to you
without charge upon your written or oral request. View Systems agrees to
respond to your requests for the additional information within one business
day of receipt of the request. View Systems 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.
1100 Wilso Drive
Baltimore, Maryland 21223
(410) 646-3000
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In our current report on Form 8-K, dated February 24, 2004 and as amended, we
reported that we engaged Chisholm, Bierwolf & Nilson, LLC, as our independent
auditors. Our former auditors, Stegman & Company, Certified Public
Accountants, resigned as our independent auditors on March 1, 2004.
FINANCIAL STATEMENTS
Index to Financial Statements
Unaudited consolidated financial statements for View Systems for the three and
six month periods ended June 30, 2004 and June 30, 2003
Consolidated Balance Sheets ...........................................F-2
Consolidated Statements of Operations..................................F-3
Consolidated Statements of Cash Flows..................................F-4
Notes to Consolidated Financial Statements.............................F-5
Audited consolidated financial statements for View Systems for the year ended
December 31, 2003 and 2002
Independent Auditor's Report of Chisholm, Bierwolf & Nilson, LLC.......F-3
Independent Auditor's Report of Stegman & Company.....................F-3A
Consolidated Balance Sheets............................................F-4
Consolidated Statements of Operations..................................F-5
Consolidated Statements of Stockholders' Equity........................F-6
Consolidated Statements of Cash Flows..................................F-7
Notes to Financial Statements..........................................F-9
29
View Systems, Inc.
Consolidated Financial Statements
June 30, 2004
30
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2004 2003
------------- -------------
(unaudited)
Current Assets
Cash $ 19,506 $ 19,899
Accounts Receivable(Net of Allowance of $81,000) 239,852 225,088
Inventory 93,241 93,241
------------- -------------
Total Current Assets 352,599 338,228
------------- -------------
Property & Equipment (Net) 27,203 44,693
------------- -------------
Other Assets
Licenses 1,626,854 1,626,854
Due from Affiliates 98,457 98,457
Deposits 4,819 4,819
------------- -------------
Total Other Assets 1,730,130 1,730,130
------------- -------------
Total Assets $ 2,109,932 $ 2,113,051
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 480,200 $ 648,714
Accrued Expenses 131,717 115,515
Accrued Interest 60,500 55,000
Notes Payable 111,885 131,500
------------- -------------
Total Current Liabilities 784,302 950,729
------------- -------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and Outstanding - -
Common Stock, Authorized 100,000,000 Shares,
$.001 Par Value, Issued and Outstanding
69,403,752 and 62,730,619, respectively 69,404 62,730
Additional Paid in Capital 16,406,420 15,604,609
Retained Earnings (Deficit) (15,150,194) (14,505,017)
------------- -------------
Total Stockholders' Equity 1,325,630 1,162,322
------------- -------------
Total Liabilities and Stockholders' Equity $ 2,109,932 $ 2,113,051
============= =============
F-2
31
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2004 2003 2004 2003
------------- ------------- ------------- --------------
Revenues, Net $ 158,041 $ 146,485 $ 192,394 $ 212,175
Cost of Sales 73,872 67,454 106,198 94,990
------------- ------------- ------------- --------------
Gross Profit (Loss) 84,169 79,031 86,196 117,185
------------- ------------- ------------- --------------
Operating Expenses
Research & Development - 1,342 - 11,432
General & Administrative 325,100 175,821 380,678 285,797
Professional Fees 57,955 (36,595) 82,174 40,469
Salaries & Benefits 106,639 112,021 240,210 243,066
------------- ------------- ------------- --------------
Total Operating Expenses 489,694 251,247 703,062 580,764
------------- ------------- ------------- --------------
Net Operating Income (Loss) (405,525) (172,216) (616,866) (463,579)
------------- ------------- ------------- --------------
Other Income(Expense)
Interest Expense (25,297) (2,957) (28,311) (5,966)
------------- ------------- ------------- --------------
Total Other Income(Expense) (25,297) (2,957) (28,311) (5,966)
------------- ------------- ------------- --------------
Net Income (Loss) $ (430,822) $ (175,173) $ (645,177) $ (469,545)
============= ============= ============= ==============
Net Income (Loss) Per Share $ (0.01) $ (0.00) $ (0.01) $ (0.01)
============= ============= ============= ==============
Weighted Average Shares Outstanding 64,523,490 45,275,619 63,671,982 44,937,195
============= ============= ============= ==============
F-3
32
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
---------------------------
2004 2003
------------- -------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (645,177) $ (469,545)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation & Amortization 17,490 119,370
Stock Issued for Services 239,380 -
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (14,764) (67,355)
Inventories - 71,386
Increase (Decrease) in:
Accounts Payable (168,514) (68,079)
Accrued Expenses 32,507 5,500
------------- -------------
Net Cash Provided(Used) by Operating Activities (539,078) (408,723)
Cash Flows from Investing Activities:
Advances (to)/ receipt from related party - 4,500
------------- -------------
Net Cash Provided (Used) by Investing Activities - 4,500
Cash Flows from Financing Activities:
Funds advanced (to) from stockholders 491,685 317,500
Proceeds from stock issuance 47,000 86,550
------------- -------------
Net Cash Provided (Used) by Financing Activities 538,685 404,050
------------- -------------
Increase (Decrease) in Cash (393) (173)
Cash and Cash Equivalents at Beginning of Period 19,899 3,229
------------- -------------
Cash and Cash Equivalents at End of Period $ 19,506 $ 3,056
============= =============
Cash Paid For:
Interest $ - $ -
Income Taxes $ - $ -
Non-Cash Activities:
Stock Issued for Notes Payable and Accrued Interest $ 522,105 $ -
Stock Issued for Services $ 239,380 $ -
F-4
33
View Systems, Inc.
Notes to the Consolidated Financial Statements
June 30, 2004
GENERAL
View Systems, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the six months ended June 30, 2004
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, 2003.
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.
COMMON STOCK
During February 2004, the Company issued 200,000 shares of common stock for
services valued at $52,000.
During February 2004, the Company issued 44,500 shares of common stock for
cash of $10,000.
During March 2004, the Company issued 709,500 shares of common stock for
services valued at $151,980.
During March 2004, the Company issued 200,000 shares of common stock for cash
of $25,000.
During April 2004, the Company issued 33,333 shares of common stock for cash
of $5,000.
During May 2004, the Company issued 27,000 shares of common stock for cash of
$4,000.
During May 2004, the Company issued 31,250 shares of common stock for services
valued at $5,000.
During June 2004, the Company issued 160,000 shares of common stock for
services valued at $30,400.
During June 2004, the Company issued 24,000 shares of common stock for cash of
$3,000.
During June 2004, the Company issued 5,221,050 shares of common stock for
notes payable and accrued interest of $522,105.
F-5
34
VIEW SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
35
CHISHOLM, BIERWOLF & NILSON
Certified Public Accountants
A Limited Liability 533 W. 2600 S., Suite 250 Office (801) 292-8756
Company Bountiful, Utah 84010 Fax (801) 292-8809
______________________________________________________________________________
INDEPENDENT AUDITORS' REPORT
To the Audit Committee of the Board of Directors and Stockholders
View Systems, Inc.
Baltimore, Maryland
We have audited the accompanying consolidated balance sheet of View
Systems, Inc., and subsidiaries (the Company) as of December 31, 2003, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year 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. The
consolidated financial statements of View Systems, Inc. for the year ended
December 31, 2002, were audited by other auditors whose report dated March 26,
2003 expressed an unqualified opinion.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 accompanying consolidated balance sheet as of
December 31, 2003 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year then ended present
fairly, in all material respects, the financial position of the Company as of
December 31, 2003, and the results of operations and cash flows for the year
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 2004.
Additionally, the Company is in default on its debt obligations. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets or the amounts and classifications of liabilities that may result
from the outcome of this uncertainty.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
February 25, 2004
F-3
36
___
| |STEGMAN
|___|& COMPANY
________________________________
CERTIFIED PUBLIC ACCOUNTANTS and
MANAGEMENT CONSULTANTS SINCE 1915
To the Audit Committee of the Board of
Directors and Stockholders
View Systems, Inc.
Baltimore, Maryland
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of View Systems, Inc. and
Subsidiaries (the "Company") for the year ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of their operations and
their cash flows of View Systems, Inc. and Subsidiaries for the year ended
December 31, 2002 in conformity with accounting principles generally accepted
in the United States of America.
The financial statements referred to in the first paragraph 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
2003. 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 classification of liabilities that may result
from the outcome of this uncertainty.
/s/ Stegman & Company
Baltimore, Maryland
March 26, 2003
Suite 200, 405 East Joppa Road Baltimore, Maryland 21286 * 410-823-8000
Fax: 410-296-4815 * www.stegman.com*
F-3A
37
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
December 31,
2003
-------------
Current Assets
Cash $ 19,899
Accounts Receivable(Net of Allowance of $81,000) 225,088
Inventory 93,241
-------------
Total Current Assets 338,228
-------------
Property & Equipment (Net) 44,693
-------------
Other Assets
Licenses 1,626,854
Due from Affiliates 98,457
Deposits 4,819
-------------
Total Other Assets 1,730,130
-------------
Total Assets $ 2,113,051
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 648,714
Accrued Expenses 115,515
Accrued Interest 55,000
Notes Payable 131,500
-------------
Total Current Liabilities 950,729
-------------
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 62,730,619 62,730
Additional Paid in Capital 15,604,609
Retained Earnings (Deficit) (14,505,017)
-------------
Total Stockholders' Equity 1,162,322
-------------
Total Liabilities and Stockholders' Equity $ 2,113,051
=============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
38
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended
December 31,
----------------------------
2003 2002
------------- --------------
Revenues, Net $ 569,952 $ 446,009
Cost of Sales 257,632 378,600
------------- --------------
Gross Profit (Loss) 312,320 67,409
------------- --------------
Operating Expenses
Business Development 155,130 345,686
General & Administrative 301,482 896,366
Professional Fees 542,612 757,304
Salaries & Benefits 873,361 981,153
------------- --------------
Total Operating Expenses 1,872,585 2,980,509
------------- --------------
Net Operating Income (Loss) (1,560,265) (2,913,100)
------------- --------------
Other Income(Expense)
Loss on Sale of Assets (14,839) -
Interest Expense (11,572) (24,083)
Bad Debt (71,000) (948,432)
Valuation/Impairment Loss (888,658) (37,854)
------------- --------------
Total Other Income(Expense) (986,069) (1,010,369)
------------- --------------
Net Income (Loss) $ (2,546,334) $ (3,923,469)
============= ==============
Net Income (Loss) Per Share $ (0.05) $ (0.11)
============= ==============
Weighted Average Shares Outstanding 51,529,119 34,677,576
============= ==============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
39
View Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
------------- ---------- ------------- -------------
Balance, December 31, 2001 20,193,620 $ 20,193 $ 10,119,024 $ (8,035,214)
Sales of common stock 8,550,000 8,550 1,283,650 -
Issuance of common stock
(employee and other
compensation) 11,820,000 11,820 1,195,239 -
Issuance of common stock
in exchange for remaining
interest in Milestone
Technology, Inc. 3,300,000 3,300 1,019,700 -
Issuance of common stock
in payment of a notes
payable 735,000 735 193,265 -
Net loss for the year
ended December 31, 2002 - - - (3,923,469)
------------- ---------- ------------- -------------
Balance, December 31, 2002 44,598,620 44,598 13,810,878 (11,958,683)
January - March 2003 -
shares issued for cash 676,999 677 85,873 -
January 2003 - shares
issued for services 445,000 445 51,755 -
July - September 2003 -
share issued for cash 3,220,000 3,220 318,780 -
September 2003 - shares
issued for payment of
notes payable 300,000 300 29,700 -
September 2003 - Stock
issued for services 500,000 500 59,500 -
September 2003 share
issued to employees 1,600,000 1,600 190,400 -
September 2003 - shares
issued for payment
of notes payable 10,800,000 10,800 755,520 -
October 2003 - shares
issued for services 190,000 190 9,310 -
Forgiveness of Debt by
subsidiary-contribution - - 193,293 -
October-December 2003 -
shares issued for cash 400,000 400 99,600 -
Net loss for the year
ended December 31, 2003 - - - (2,546,334)
------------- ---------- ------------- -------------
Balance, December 31, 2003 62,730,619 $ 62,730 $ 15,604,609 $(14,505,017)
============= ========== ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
40
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended
December 31,
2003 2002
------------- -------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (2,546,334) $ (3,923,469)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation & Amortization 45,160 194,620
Impairment of Assets 888,658 -
(Gain) Loss on Disposal of Assets 14,839 -
Bad Debts 71,000 948,432
Stock Issued for Services 313,700 1,207,059
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (143,376) (74,498)
Inventories (21,916) 105,035
Prepaid expenses (655) -
Other Assets (2,287) -
Increase (Decrease) in:
Accounts Payable 211,747 93,496
Accrued Expenses 157,895 11,000
------------- -------------
Net Cash Provided(Used) by Operating Activities (1,011,569) (1,438,325)
Cash Flows from Investing Activities:
Purchase of property and equipment - (27,111)
Advances (to)/ receipt from related party 76,869 7,094
Cash element in Mileston Technology acquisition - 58,849
------------- -------------
Net Cash Provided (Used) by Investing Activities 76,869 38,832
Cash Flows from Financing Activities:
Funds advanced (to) from stockholders - 43,230
Proceed from debt financing 817,820 -
Proceeds from stock issuance 508,550 1,292,200
Principal Payments on Notes Payable (375,000) (6,052)
------------- -------------
Net Cash Provided (Used) by Financing Activities 951,370 1,329,378
------------- -------------
Increase (Decrease) in Cash 16,670 (70,115)
Cash and Cash Equivalents at Beginning of Period 3,229 73,344
------------- -------------
Cash and Cash Equivalents at End of Period $ 19,899 $ 3,229
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
41
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Year Ended
December 31,
---------------------------
2003 2002
------------- -------------
Cash Paid For:
Interest $ 572 $ 15,203
Income Taxes $ - $ -
Non-Cash Investing and Financing Activities:
Stock Issued in payment for Note Payable $ 796,320 $ 194,000
Stock Issued in exchange for net assets
of Milestone Technology, Inc as follows:
Accounts Receivable $ - $ 28,132
Inventory - 359,647
Fixed Assets - 188
Patents - 1,317,467
Accounts payable - (6,470)
Notes payable - (703,449)
Accrued interest - (28,843)
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
42
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
View Systems, Inc. (the "Company") designs and develops computer software
and hardware used in conjunction with surveillance capabilities. The
technology utilizes the compression and decompression of digital inputs. In
March 2002, the Company acquired Milestone Technology, Inc., which has
developed a concealed weapons detection portal.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Milestone Technology, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements in accordance with accounting principles generally accepted in the
United States of America. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
differ from the estimates that were used.
Revenue Recognition
The Company recognizes revenue when the product has been shipped. The
price of the product is fixed or determinable and collectibility is reasonably
assured.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in-first-out method (LIFO). All inventory as of
December 31, 2003 consisted of finished goods.
Property and Equipment
Property and equipment is recorded at cost and depreciated over their
useful lives, using the straight-line and accelerated depreciation methods.
Upon sale or retirement, the cost and 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
F-9
43
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2003 and 2002 amounted to $45,160 and $62,881,
respectively.
Goodwill
Goodwill represents the excess of the cost of assets acquired in the
business combinations accounted for under the purchase method of accounting
over the fair value of the net assets acquired at the dates of acquisition.
Prior to the adoption of SFAS Nos. 141 and 142, the excess purchase price was
being amortized using the straight-line method over ten years. Effective
January 1, 2002 goodwill will no longer be amortized but rather tested for
impairment under the provision of SFAS No 142. As of December 31, 2003,
goodwill was determined to be impaired and was written off.
Licenses
In connection with the acquisition on Milestone, the Company received
various licenses to products developed by INEEL (Idaho National Engineering
and Environmental Laboratory). Milestone transferred the licenses to View
Systems, Inc., and in November 2003, two separate licenses were signed in the
name of View Systems with Bechtel BWXT Idaho, LLC (BBWI).
BBWI is the management and operating contractor of the INEEL under its
Contract No. DE-AC07-99ID13727 ("M&O Contract") and has the authorization,
right and ability to grant the license of the Agreement. The licenses allow
View Systems to commercially develop, manufacture, use, sell and distribute
processes and products embodying the U.S. Patent No. 6.150.810 "Method for
Detecting the Presence of a Ferromagnetic Object Using Maximum and Minimum
Magnetic Field Data", and U.S. Patent Application S/N 10/623,372,
"Communication Systems, Camera Devices, and Communication Methods".
The valuation of these licenses consist of the cost of acquiring
Milestone, i.e., 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, 2003. 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 be reviewed
periodically.
F-10
44
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
Deferred income taxes are recorded under the assets and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences, measured by enacted tax rates, attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective.
Valuation allowances are recorded for deferred tax assets when it is more
likely than not that such deferred tax assets will not be realized.
Research and Development
Research and development costs are expensed as incurred. Equipment and
facilities acquired for research and development activities that have
alternative future uses are capitalized and charged to expense over the
estimated useful lives.
Advertising
Advertising costs are charged to operations as incurred. Advertising
costs for the years ended December 31, 2003 and 2002 were $21,264 and $52,549.
Nonmonetary Transactions
Nonmonetary transactions are accounted for in accordance with Accounting
Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions"
which requires the transfer or distribution of a nonmonetary asset or
liability to be based generally, on the fair value of the asset or liability
that is received or surrendered, whichever is more clearly evident.
Financial Instruments
For most financial instruments, including cash, accounts receivable,
accounts payable and accruals, management believes that the carrying amount
approximates fair value, as the majority of these instruments are short-term
in nature.
F-11
45
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss
available to common stockholder by the weighted average number of common
shares outstanding. Diluted net loss per common share is computed by dividing
net loss available to common stockholders by the weighted average number of
common shares and dilutive potential common share equivalents then
outstanding. Potential common shares consist of shares issuable upon the
exercise of stock options and warrants. The calculation of the net loss per
share available to common stockholders for the years ended December 31, 2003
and 2002 does not include potential shares of common stock equivalents, as
their impact would be antidilutive.
2. BUSINESS PLAN
The Company has incurred and continues to incur, losses from operations.
For the years ended December 31, 2003 and 2002, the Company incurred net
losses of $2,546,334 and $3,923,469, respectively. During 2003 and 2002, 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. It is management's intention to finance 2004 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.
3. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 141, Business
Combinations ("SFAS No. 141"), issued in June 2001, addresses financial
accounting and reporting for business combinations which were initiated after
June 30, 2001. This Statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. The adoption of SFAS No. 141 did not have a material
impact on the Company's financial position or the results of operations.
F-12
46
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
3. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No 142, Goodwill and Other
Intangible Assets ("SFAS NO. 142"), issued in June 2001, addresses financial
accounting and reporting for acquired goodwill and intangible assets. The
provisions of SFAS No 142 are required to be applied starting with fiscal
years beginning after December 15, 2001. Early application is permitted for
entities wich fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not previously been issued.
Impairment losses for goodwill and indefinite-lived intangible assets that
arise due the initial application of this Statement (resulting from a
transitional impairment test) are to be reported as resulting from a change
in accounting principle. The adoption of SFAS No. 142, required the cessation
of goodwill amortization for 2002 which decreased net loss for 2002 by
$113,135, and the write off of goodwill in 2003 resulting in a decreased net
loss of $787,248.
Statement of Financial Accounting Standards No 143, "Accounting for Asset
Retirement Obligations ("SFAS No. 143"), issued in August 2001, addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and for the associated retirement
costs. SFAS No. 143, which applies to all entities that have a legal
obligation associated with the retirement of a tangible long-lived asset is
effective for fiscal years beginning after June 15, 2001. The adoption of
SFAS No. 143, did not have a material impact on the Company's financial
position or results of operations.
Statements of Financial Accounting Standards No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets ("SFAS No. 144"), issued in
October 2001, addresses financial accounting and reporting for the impairment
of disposal of long-lived assets. SFAS No. 144, which applies to all
entities, is effective for fiscal years beginning after December 15, 2001.
The adoption of SFAS No. 144, did not have a material impact on the Company's
financial position or results of operations.
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, effective for fiscal years beginning May 15, 2002, or
later that rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements, and FASB
Statements No 44, Accounting for Intangible Assets of Motor Carriers. This
Statement Amends FASB Statement No. 4 and FASB Statement No 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions. This Statement also amends other existing
authoritive pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
adoption of SFAS No. 145 did not have a material impact on the Company's
financial position or results of operations.
F-13
47
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
3. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, effective for exit or disposal
activities that are initiated after December 31, 2002. This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of
commitment to an exit or disposal plan. The adoption of SFAS did not have a
material impact on the Company's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, which clarifies disclosure and
recognition/measurement requirements related to certain guarantees. The
disclosure requirements are effective for financial statements issued after
December 15, 2002 and the recognition/measurement requirements are effective
on a prospective basis for guarantees issued or modified after December 31,
2002. The application of the requirements of FIN No. 45 did not have a
material impact on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure-an Amendment of FASB
Statement No. 123, effective for fiscal years ending after December 15, 2002.
This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The adoption of SFAS No. 148, did not have a material impact on the Company's
financial position or results of operations.
4. BUSINESS COMBINATION
The Company purchased 100% of the common stock of Milestone Technology,
Inc., effective March 25, 2002. The purchase was accomplished in two
transactions. The Company acquired 6% of Milestone in December 2001 in
exchange for 500,000 shares of the Company's common stock. In March 2002, the
Company acquired the remaining 94% of Milestone for 3,300,000 share of the
Company's common stock. Based on the market value of the Company's common
stock ($0.55 per share in December and $0.31 per share in March) the total
cost of the acquisition was $1,298,000.
Milestone Technology, Inc., is a developer of concealed weapons
detections systems. Its primary product is a walk-through detector that uses
advanced magnetic technology to accurately pinpoint the location, size, and
numbers of concealed weapons. Prior to its acquisition, Milestone Technology,
Inc., was considered to be a development stage enterprise.
F-14
48
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
5. DUE FROM AFFILIATED ENTITIES
The Company has advanced non-interest bearing funds of $98,458 as of
December 31, 2003 and 2002 to a related corporation, View Technologies, Inc.,
which is controlled by the Chief Executive Officer of the Company. There are
no formal repayment terms associated with this advance. The two companies
enter into various transactions throughout the year to provide working capital
to one another when necessary.
The Company has advanced non-interest bearing funds to one or its
officers in the amount of $24,869 as of December 31, 2002. The amount was
applied to the officers' wages in 2003, and there is no balance due at
December 31, 2003.
6. NOTES PAYABLE
Notes payable as of December 31, 2003 consist of the following:
Note payable - due to an individual, non-interest bearing
due on demand. $ 1,500
Note payable - due to an individual, non-interest bearing,
due on demand. 20,000
Notes payable - due former stockholder of Zyros Technology,
due on demand, interest at 10% per annum. 110,000
-------------
Total Notes Payable $ 131,500
=============
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.
7. INCOME TAXES
The components of the net deferred tax asset and liability as of December
31, 2003 are as follows:
Effect of net operating loss carryforward $ 4,931,700
Less evaluation allowance (4,931,700)
----------------
Net deferred tax asset (liability) $ -
================
F-15
49
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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 $61,047 and $58,513 for the years ended December 31, 2003 and 2002,
respectively.
The following is a schedule by year, of approximate future minimum lease
payments required under this lease:
Year ending December 31:
2004 $ 29,217
2005 19,964
2006 and Thereafter -
------------------
Total minimum future rental payments $ 49,181
==================
9. STOCK BASED COMPENSATION
During the years ended December 31, 2003 and 2002 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 2003 and 2002, the Company issued the following shares
under this Plan and additional shares at the discretion of the Board of
Directors:
2003 2002
-------------------------- --------------------------
Number Expense Number of Expense
of Shares Recognized of Shares Recognized
------------- ------------ ------------- ------------
Officers and employees 1,690,000 $ 196,500 4,950,000 $ 495,000
Independent contractors
and consultants 1,035,000 117,200 6,870,589 687,059
------------- ------------ ------------- ------------
Total 2,725,000 $ 313,700 11,820,589 $ 1,182,059
============= ============ ============= ============
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.
F-16
50
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
9. STOCK BASED COMPENSATION
Stock Options and Warrants
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, 2003 and 2002 is as follows:
2002
----------------------------------------
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
============= ============ =============
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
============= ============ =============
The Company has issued warrants to purchase the Company's stock as
follows:
2002 & 2003
----------------------------------------
Weighted
Common Average Range of
Stock Exercise Exercise
Warrants Price Price
------------- ------------ -------------
Outstanding at beginning of year 3,850,000 $ 0.49 $ .20 - .70
Granted - - -
Exercised (3,850,000) 0.49 $ .20 - .70
Expired/Cancelled - - -
------------- ------------ -------------
Outstanding at end of
year 2002 & 2003 - $ - $ -
============= ============ =============
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51
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
9. STOCK BASED COMPENSATION
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, 2003 and 2002.
10. PROFESSIONAL FEES
The Company engages both technical and business consultants, as well as
accountants and attorneys, throughout the year for business support and
required services. Professional fees consist of the following for the years
ended December 31, 2003 and 2002.
2003 2002
----------------- -----------------
Accounting $ 50,055 $ 70,907
Legal 87,389 54,152
Management 51,901 514,129
Programming 28,267 118,116
----------------- -----------------
Total $ 217,612 $ 757,304
================= =================
11. 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.
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52
_________________________
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 PROSPECTUS
representation not contained in 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........................6
Market for Common Equity...............6
Management's Discussion and Analysis...8 View Systems, Inc.
Description of Business...............13
Property..............................21
Legal Proceedings.....................21
Management............................22
Certain Related Transactions..........23 18,621,050 Common Shares
Principal Stockholders................24
Description of Common Stock...........25
Selling Stockholders..................25
Plan of Distribution..................27
Other Information.....................28
Interest of Named Experts
and Counsel.......................28
SEC's Position on Indemnification
for Securities Act Liability......28
Additional Information.............28
Changes In and Disagreements August 23, 2004
With Accountants.....................29
Financial Statements..................29
53
PART II
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751 our articles of
incorporation and bylaws provide for the indemnification of present and former
directors and officers and each person who serves at our request as our
officer or director. Indemnification for a director is mandatory if the
indemnification is determined to be permissible and authorized, and
indemnification for an officer, agent or employee is permissive.
We will indemnify these individuals against all costs, expenses and
liabilities incurred in a threatened, pending or completed action, suit or
proceeding brought because the individual acted or failed to act when serving
as our director or officer. Indemnification is authorized if the individual
met the standard of conduct, the expenses are reasonable and we have the
financial ability and desire to pay the expenses. The standard of conduct
required for indemnification is that the individual conducted himself in good
faith and reasonably believed that his conduct was in, or not opposed to, our
best interest. In a criminal action he must not have had reasonable cause to
believe his conduct was unlawful. This right of indemnification is not
exclusive of other rights the individual is entitled to as a matter of law or
otherwise.
We will not indemnify an individual a court finds liable to us due to his
negligence or willful misconduct toward us, or if he improperly received
personal benefit. In absence of a final adjudication of liability, our board
of directors may rely on an opinion of legal counsel as to the liability of
the individual seeking indemnification.
Indemnification in a derivative action is limited to reasonable expenses
incurred in connection with the proceeding. Also, we are authorized to
purchase insurance on behalf of an individual for liabilities incurred whether
or not we would have the power or obligation to indemnify him pursuant to our
bylaws.
Our bylaws provide that individuals may receive advances for expenses if the
individual provides a written affirmation of his good faith belief that he met
the required standard of conduct and he will repay the advance if he is judged
not to have met the standard of conduct.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses to be paid for by View Systems in
connection with the sale of the shares. We will pay all the costs of this
offering, with the exception of the costs incurred by the selling stockholders
for their legal counsel and the costs they may incur for brokerage commissions
on the sale of their shares. All the amounts shown include estimates of
future expenses, except for the registration fee:
Securities and Exchange Commission registration fee...$ 306.71
Printing expenses..................................... 200.00
Legal fees and expenses............................... 7,000.00
Accounting fees and expenses.......................... 10,000.00
Transfer agent and registrar fees and expenses........ 1,000.00
Miscellaneous......................................... 200.00
Total...................$ 18,706.71
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
Recent Sale of Unregistered Securities
The following discussion describes all securities sold without registration by
View Systems during the past three years.
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54
On July 9, 2004 we issued an aggregate of 805,600 common shares to investors
for cash. We issued 100,000 shares to David Hume, 81,600 shares to Guy Parr,
600,000 shares to Donald Koerner, and 24,000 shares to Duane 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 June 21, 2004 we issued an aggregate of 5,221,050 common shares to convert
notes payable with accrued interest totaling $522,105. We issued 1,246,440
shares to Compass Equity Partners, 3,039,000 shares to Niki Group and 935,610
shares to First Equity Holdings Corp. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On June 3, 2004 we issued an aggregate of 160,000 shares in consideration for
services valued at $30,400. We issued 100,000 shares to Barry S. Feldman and
60,000 shares to Liem Nguyen We relied on an exemption from registration for
a private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On May 11, 2004 we issued 31,250 common shares valued at approximately $5,000
to InCap Group, Inc. in consideration for services. We relied on an exemption
from registration for a private transaction not involving a public
distribution provided by Section 4(2) of the Securities Act.
In February and March of 2004 we issued an aggregate of 902,000 common shares
in consideration for services rendered or as compensation pursuant to
employment agreements. We issued 100,000 shares valued at approximately
$26,000 to Paul Scaccio; 100,000 shares valued at approximately $26,000 to
Barry S. Feldman; 102,000 shares valued at approximately $24,480 to David
Johansen; and 600,000 shares valued at approximately $120,000 to Gunther Than.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
During the six month period ended June 30, 2004 we issued an aggregate of
334,833 shares to five investors for $47,000. We relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) of the Securities Act.
On December 1, 2003 we issued 400,000 common shares to Robert T. Williamson
for $100,000. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On 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.
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55
In January through March of 2003 we sold an aggregate of 676,999 common shares
to six investors 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.
During the year ended December 31, 2002 we issued an aggregate of 7,625,000
common shares as compensation to employees, including, 3,000,000 shares to
Gunther Than as compensation for services valued at approximately $300,000.
We issued an aggregate of 1,100,000 shares to Russ Benefield, 500,000 to Joel
Konicek and 500,000 tp Rick Langley for professional fees valued at
approximately $210,000. We issued 2,525,000 shares valued at approximately
$252,000 to consultants and other employees for services rendered. 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 year ended December 31, 2002 we sold 8,550,000 shares to eleven
persons for $1,292,200. 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 three month period ended September 30, 2002 we issued 735,000
common shares to Martin J. Maassen to convert debt of $194,000. 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 September 2001 we granted warrants to purchase 1,750,000 shares to Columbia
Financial Group in consideration for investor and public relations consulting
services. Warrants to purchase 1,000,000 shares had an exercise price of
$0.30 and warrants to purchase 750,000 shares had an exercise price of $0.20.
We relied on an exemption from registration for a private transaction not
involving a public distribution provided by Section 4(2) of the Securities
Act.
In each private transaction we believe each purchaser either had unrestricted
access to detailed material information regarding our operations due to
personal relationships with us or each purchaser was provided the same kind of
information regarding our operations as would be available in a registration
statement. We believe each possessed sufficient sophistication to evaluate
the information provided and each was able to bear the economic risk of the
purchase. Also, we believe each purchaser:
.. was aware that the securities had not been registered under federal
securities laws;
.. acquired the securities for his/her/its own account for investment
purposes of the federal securities laws;
.. understood that the securities would need to be indefinitely held unless
registered or an exemption from registration applied to a proposed
disposition; and,
.. was aware that the certificate representing the securities would bear a
legend restricting its transfer.
We believe that, in light of the foregoing, the sale of our securities to the
respective acquirers did not constitute the sale of an unregistered security
in violation of the federal securities laws and regulations by reason of the
exemptions provided under 4(2) of the Securities Act, and the rules and
regulations promulgated thereunder.
ITEM 27: EXHIBITS
Exhibit Description
3.1 Articles of Incorporation of View Systems, as amended
(Incorporated by reference to exhibit 3.1 to Form 10-QSB, filed
November 14, 2003)
3.2 By-Laws of View Systems (Incorporated by reference to exhibit 3.2
to Form 10-QSB, filed November 14, 2003)
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56
5.1 Opinion of Cindy Shy, P.C. (Filed August 9, 2004)
10.1 Employment agreement between View Systems and Gunther Than, dated
January 1, 2003 (Incorporated by reference to exhibit 10.3 for Form
10-KSB, filed April 14, 2004)
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 (Filed August 9,
2004)
23.2 Consent of Stegman & Company (Filed August 9, 2004)
23.3 Consent of Cindy Shy, P.C. (Filed August 9, 2004)
ITEM 28: UNDERTAKINGS
Pursuant to Rule 415 of the Securities Act of 1933, the undersigned registrant
hereby undertakes to:
(1) file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement which will
include any prospectus required by Section 10(a)(3) of the Securities
Act; reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and include any additional or changed material
information on the plan of distribution;
(2) for the purpose of determining any liability under the Securities Act,
to treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering; and
(3) to file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
this indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against these liabilities (other
than the payment by the registrant of 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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57
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, Maryland on August 23, 2004.
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: 8-23-04 By:____________________________________________
Gunther Than
Director, Chief Executive Officer,
Treasurer, Principal Financial
Officer, and Principal Accounting
Officer
/s/ Michael Bagnoli
Date: 8/23/04 By:___________________________________________
Michael L. Bagnoli
Secretary and Director
/s/ Martin J. Maassen
Date: 8-23-04 By:___________________________________________
Martin J. Maassen
Director
II-5