UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30178
VIEW SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-2928366
(State of incorporation) (I.R.S. Employer Identification No.)
7717 West 6th Avenue, Suite A & B, Lakewood, Colorado 80205
(Address of principal executive offices) (Zip code)
Issuer's telephone number (303) 237-8439
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ]
Issuer's revenues for its most recent fiscal year: $446,009
The aggregate market value of the registrant's voting stock on March 28, 2003,
held by non-affiliates was approximately $3,819,943.
As of March 24, 2003, the issuer had 45,620,619 outstanding shares of its
common stock.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I
Item 1. Description of Business............................................3
Item 2. Description of Property ...........................................8
Item 3. Legal Proceedings .................................................8
Item 4. Submission of Matters to a Vote of Security Holders................9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters...........9
Item 6. Management's Discussion and Analysis..............................11
Item 7. Financial Statements..............................................14
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .............................................32
PART III
Item 9. Directors and Executive Officers; Section 16(a) Compliance .......32
Item 10. Executive Compensation ...........................................33
Item 11. Security Ownership of Certain Beneficial Owners and Management ...34
Item 12. Certain Relationships and Related Transactions....................34
Item 13. Exhibits and Reports on Form 8-K..................................35
Item 14. Controls and Procedures ..........................................35
Signatures and Certifications .............................................36
In this report references to "View Systems," "we," "us," and "our" refer
to View Systems, Inc. and its subsidiaries.
FORWARD LOOKING STATEMENTS
This annual report contains certain forward-looking statements and any
statements contained in this annual report that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
View Systems's control. These factors include but are not limited to economic
conditions generally and in the industries in which View Systems may
participate; competition within View Systems's chosen industry, including
competition from much larger competitors; technological advances; and failure
by View Systems to successfully develop business relationships.
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Historical Development
We were incorporated in Florida on January 25, 1989, as Beneficial
Investment Group, Inc. and became active in September 1998 when we began
development of our product line and changed the company's name to View
Systems, Inc. In October 1998, we acquired RealView Systems, Inc. a Colorado
corporation, which owned compression technology and computer equipment. In
February 1999 we acquired Xyros Systems, Inc., a Maryland corporation, which
owned remote monitoring and storage engineering, a highly qualified employee
staff and computer hardware and software. In May 1999 we acquired Eastern
Tech Manufacturing Corp, a Maryland corporation, which is a contract
manufacturer of electronic hardware and assemblies.
In December 2001 View Systems entered into a joint venture agreement
with Milestone Technology, Inc., a research and development corporation.
Milestone Technology was a developer of concealed weapons detection systems.
Its primary product was a walk-through detector that used magnetic technology
to accurately pinpoint the location, size and numbers of concealed weapons.
Milestone Technology interfaced with the Idaho National Labs. The intent of
the joint venture was to further develop and enhance Milestones' concealed
weapons detection technology and portal. We initially acquired a 6% interest
of Milestone Technology in December 2001 in exchange for 500,000 shares of our
common stock. Then on March 25, 2003, View Systems acquired the remaining 94%
interest of Milestone Technology in exchange for 3,300,000 shares. (See,
"Management's Discussion and Analysis," below)
Our Business
View Systems is a holding company which operates through its wholly-owned
subsidiaries. Surveillance and detection devices are common today and are
used as a proven method for protection and risk management. We develop,
produce and market digital surveillance systems and weapons detection systems
utilizing digital video. Our digital video recording systems, which are
marketed under the trade name SecureView, record video images digitally and
permit their viewing remotely over the customer's existing closed-circuit
television. Digital recording translates data to a computer readable format
rather than conventional video tape. We store the video output on computer
hard disks rather than VCR tapes which significantly improves access to stored
data. In addition, our systems are programmable and are capable of being
customized to satisfy each customer's special requirements, be it coverage
which is continuous or when events are detected. Our weapons detection
device, which is marketed under the trade name SecureScan, is a walk-through
detector which uses advanced magnetic technology 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 to be stored and referenced.
Products
Our monitoring products which include View Maxx and LightView, discussed
below, include the following features:
.. users can remotely monitor multiple locations from a remote personal
computers;
.. connect to existing closed-circuit television systems allowing retrofit
enhancements using our systems;
.. 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;
.. 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;
.. modular expansion system configuration allows user to purchase add-on
components at a later date; and
.. allows the user to set the system to automatically review an area in
desired camera sequence.
3
SecureScan Weapons Detection System.
------------------------------------
SecureScan products will be distributed in two basic configurations,
stand-alone units and integrated door systems. SecureScan is a walk-through
detector which uses advanced magnetics technology to accurately pinpoint the
location, size and number of concealed weapons, such as knives and guns.
Personal possession such as coins, keys or belt buckles do not set off this
alarm. This system promotes smooth traffic flow because it only detects the
types of metals commonly found in guns and knives. False alarms are reduced
and alarm resolution is easier without using hand wands or resorting to a
personal search.
Metal detectors that are widely used to detect weapons use active
electromagnetic induction to artificially create or transmit an ionizing
field for metal objects to act upon. This energy is similar in nature to the
controversial radiation related to the use of cellular phones, high-tension
power lines, etc. Many of these systems create enough stray electromagnetic
induction to interact with medical implants and heart pacemaker devices.
While the real effects of electromagnetic induction are still being evaluated,
many consumers are taking a conservative approach when electromagnetic
induction is concerned.
SecureScan uses novel passive magnetic technology. This means special
sensors are used to measure the earth's naturally occurring magnetic field.
When an object of a specific mass passes through the sensors within the
magnetic field, software calculates the difference between the magnetic field
strength with the object inside the magnetic field and determines if the
object is a weapon or not. Since the system uses no transmitters to produce
electromagnetic induction, stray energy that can cause false alarms does not
exist.
It is this absence of electromagnetic induction energy that enables the
SecureScan to safely integrate with other electrical and electronic systems.
SecureScan is the only concealed weapons detection system that can be placed
directly next to or embedded into an automatic door for access control.
SecureScan relies on several measurements to determine:
. if there is a weapon,
. where the weapon is located,
. what kind of weapon it is, and
. the identity of the person with the weapon.
These measurements include flux-gate magnetometers which qualify the
measurement of the weapon. Spatial analysis software calculates the exact
location of the specific sensors involved in the measurement. Software
calculates magnetic disturbance against the density of the material
discovered. High-resolution video grabs a frame of the spatial data with the
picture of the actual person in the portal. All of this information is
brought together on a video screen that displays the image of the person, the
location of the weapon and variable-sized target, depending on the intensity
of the magnetic signature. On the same display screen next to the video
window is a graph that can depict the precise signal strength of the right and
left sensor arrays. This is the only product capable of these integrated
functions.
ViewMaxx Video Storage System.
-----------------------------
ViewMaxx provides a scalable versatile and expandable platform, suited
for the most demanding security and surveillance tasks. It offers fully
programmable, high resolution digital video recording and real time monitoring
of up to 16 channels. Video data may be queried and reviewed locally or from
an authorized personal computer. All of the components offer out-of-the-box
compatibility with existing closed-circuit television, telecom and data
networking equipment.
The ViewMaxx is a versatile and expandable digital video recording
platform. It offers fully programmable, high resolution digital video
recording and real time monitoring of up to four channels. Video data may be
queried and reviewed locally or from an authorized personal computer. The
ViewMaxx platform is scalable to accommodate a host of components. The
features of this product are:
.. makes video images captured by cameras;
.. digitizes the video;
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.. stores the video according to times or criteria specified by the
customer;
.. retrieves the visual data selectively in a manner that the customer
considers valuable or desirable;
.. transmits the video across computer networks or ordinary phone lines;
.. has two way audio ability that can use real-time to communicate to the
location being monitored; and
.. triggers programmed responses to events detected in surveillance area,
such as break-ins or other unauthorized breaches of the secured area.
ViewMaxx stores video output on computer hard discs, rather than VCR
tapes. Storage on computer hard discs allows selective access to stored data.
With a VCR, a user must search an entire tape to review a critical event,
often fast forwarding and rewinding. With computer hard disc, a user can gain
immediate access to stored data by doing a controlled search for the desired
data. Our systems come standard with up to 28 days storage.
ViewMaxx is programmable -- it can be pre-set to take actions when events
are detected in the surveillance area. For example, it can be programmed to
begin recording when motion is detected in a surveillance area or to notify
the user if the system is not functioning properly. Because of the
programmable recording features, this product can eliminate the unnecessary
storage of non-critical image and audio data. This capacity allows the user to
utilize the hard disk storage more efficiently.
Add-on Applications.
-------------------
FaceView - can be used with SecureScan, or ViewMaxx. FaceView is a
system for recognizing faces and comparing them to known individuals such as
employees or wanted individuals.
PlateView - can be used with ViewMaxx. PlateView which is a license
plate recognition system that uses optical character recognition technology
to provide an additional means of identifying individuals in a surveillance
area for commercial or law enforcement use. The system can be integrated into
an access control mechanism that can open gates or call an attendant to
compare an identification made from other data, such as a driver's license,
with the identification made with the license plate. Law enforcement
personnel can use this system in traffic enforcement. In addition to plate
identification, officers can receive early warnings as to a number of items,
including whether the owner of a car being stopped has outstanding arrest
warrants or whether the license plate matches the vehicle's registration.
PlateView was brought to market in the first quarter of 2000.
Magnetic Lock Doors - can be used with SecureScan or ViewMaxx.
-------------------
Support Services
----------------
We also offer support services for our products which include:
. calibration services using the FAA approved method,
. on site consulting/planning with customer architect and
. engineer, installation and technical support, training and
. "Train the Trainer" programs, and
. extended service agreements.
Market
Video transmission is just beginning to transform from what was
"closed-circuit" to a mix of methods that will expand into hard-wired,
telephone line, television cable and wireless link systems. It is expected
that this will expand user demand, create new product opportunities and
channels of distribution and expand the way in which other communication
services are used.
Our family of products offers government and law enforcement agencies,
commercial security professionals, private businesses and residential
consumers a dramatically enhanced surveillance capacity. It also offers a more
efficient and economical method to store, search and retrieve historically
stored data. Because our
5
technology can be used for stakeouts and remote monitoring of areas, we
believe there is a market potential with law enforcement agencies.
Residential - The residential home security user will purchase our
products from either commercial companies installing either self-contained or
centrally monitored systems, or directly from retail distribution centers.
Utilizing our technology, individuals can run their own perimeter and interior
surveillance systems from their own home computer. Real time action can be
monitored remotely at homes through a modem and the Internet. There is also
the capability to make real-time monitors wireless. In turn, this reduces the
expense and time of the home installation and makes installation affordable
for a majority of homeowners. 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.
Commercial - Commercial business users represent the greatest potential
users of our weapons detection products. Commercial businesses have already
realized the need for using access control devices for protection. Our
products provide observation of facilities for protection of employees,
customers, and assets. This can result in the curtailment of crime and loss
prevention by employees and others. The market for this technology is on the
rise for commercial buildings including hospitals, schools, museums, and
retail, manufacturing and warehousing facilities.
Our 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, impractical or impossible.
Examples of this are special events, concerts, and conventions. Our systems
reduce the need for a large guard force and provide speedy detection for these
events.
Law Enforcement - The gathering of video and data images and weapons
detection is commonplace in law enforcement. We have installed our products
in a variety of court house situations. The data is used to protect both the
law enforcement officer and the suspect. It is also used as a historical
record for prosecution and event verification.
Distribution
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 license 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.
We currently market our products principally to commercial users for
monitoring facilities for the protection of employees, customers and assets.
We market our products to residential users and law enforcement agencies and
we are attempting to create alliances with various specialty markets which
require the use of security systems. We currently distribute and support our
products through a network of value-added domestic and international resellers
which we intend to expand.
We have ongoing reseller arrangements with small and medium sized
domestic and international resellers. Our reseller agreements grant a
non-exclusive right to sell our products. The reseller purchases our
products at a discount from the list price and the 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.
Cross marketing arrangements are under discussion with Quantum Magnetics
for distribution of SecureScan to the airline industry. Extensive
participation at leading trade shows is planned. Technical presentations and
meeting participation will also underscore priority-marketing strategies for
SecureScan.
6
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 intergrated with
other equipment and not capable of upgrades as technology improves. We have
designed our systems so that they are open, compatible with other digital and
analog systems, and easily adaptable to technological advances that will
inevitably occur with digital technology.
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. The competitors of the
SecureScan product are Ranger and Garrett, in the United States, and the
Italian company, CEIA, which has the most sophisticated electromagnetic
induction product, which ranges in price from $8,000 to $16,000. Ranger has
provided detectors to some Los Angeles schools under a special contract for
around $2,000 each. We believe our products compete with Ranger products
because a metal detector is of little value with the amount of body jewelry
and body piercing on students, when security personnel are looking for knives
and, in particular, concealed razor blades.
Competitors in the market for our identification product, PlateView,
include Polaroid Corporation, Loronix Information Systems, Data Card
Corporation, Dactek International, Inc. Competitors in the video surveillance
market include numerous VCR suppliers and digital recording suppliers
including, Loronix Information Systems, Inc., Sensormatic Corporation and NICE
Systems, Ltd.
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. 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. We also limit access to, and
distribution of, our software, documentation and other proprietary
information.
We have 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.
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 in these items. However, under law, copyright vests upon
creation of our software and firmware, and 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 statutory period from
the date of first "publication," distribution of copies to the general public,
or from the date of creation, whichever expires 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 licensed certain software from third parties for
incorporation into our products.
The SecureScan concealed weapons detection technology involves sensing
technology and data acquisition/analysis software subsystems. These
technologies have patents pending or issued. However, since the
7
intellectual property was developed by the federal government under a grant
from the NIJ, the patents belong to the government. This 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 NIJ. Milestone, as the licensee, has
rights to these improvements as well.
Research and Development
For the year ended December 31, 2002, 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
recorded research and development expense of $26,734.
Government Regulation
We are not subject to government regulation in the manufacture and sale
of our products, and the components in our products. However, our resellers
and end users will be subject to numerous regulations that stem from proposed
activities in surveillance. 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. Shipments of our products internationally may be regulated as to
certain countries that raise national security concerns.
We have alliances with Lockheed Martin, through their Offset Program,
since Lockheed developed the concealed weapons detection technology while they
were prime contractor with the DOE. Milestone also has a cooperative research
arrangement with DOE to receive technical assistance and further enhancements
of the concealed weapons detection technology through contractual
relationships between DOE and NIJ. Discussions for inserting SecureScan into
foreign markets for debt retirement include the remodeling of the Athens
airport and products for the Athens Olympic games in 2004. Lockheed and
Milestone are also actively exploring Russia and security for their "Nuclear
City" where their nuclear weapons were built and are being dismantled.
Employees
We employ 11 persons including three persons in part-time positions. We
also employ four 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.
ITEM 2. DESCRIPTION OF PROPERTY
We lease 3,000 square feet of office space in Denver, Colorado, which
serves as our office headquarters. We have a 39 month lease which expires in
August 2005 and includes a base rent of $3,076 with an automatic annual rent
escalator of 5%. We also lease 5,800 square feet of space used for
engineering design and manufacturing in Baltimore, Maryland. The lease term
commenced on April 1, 2001 and ends on April 30, 2005. During the term of the
lease, the base rent is approximately $2,300 per month, with an annual rent
escalator of 3%. In addition, we lease office space in Blackfoot, Idaho,
under a month-to-month lease, for approximately $1,225 per month.
ITEM 3. LEGAL PROCEEDINGS
We are currently in default of a debt agreement with the former
shareholders of Milestone Technology, Inc. In connection with this default
the Milestone Technology shareholders have threatened litigation which
includes the recission of the Milestone Technology acquisition. Management is
negotiating a settlement agreement and believes that there will be no
litigation related to this matter.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We have not submitted a matter to a vote of security holders through the
solicitation of proxies, or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our shares of common stock are traded on the NASD OTC Bulletin Board
under the symbol "VYST." The following table lists the quarterly high and low
bid prices of our common stock in the over-the-counter market for the two most
recent fiscal years as reported by the OTC Bulletin Board Historical Data
Service. These over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-downs or commissions, and may not necessarily
represent actual transactions.
Year Quarter Ended High Bid Low Bid
----- -------------- -------- -------
2001 March 31 $ 1.09 $ 0.47
June 30 0.73 0.41
September 30 0.90 0.14
December 31 1.21 0.40
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
Our shares may be subject to Section 15(g) and Rule 15g-9 of the
Securities and 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
shareholders to sell their shares. Broker-dealers who sell penny stocks to
persons other than established customers and accredited investors must make a
special suitability determination 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
customers disclosing recent price information for the penny stocks.
Holders
As of January 21, 2003, we had 303 stockholders of record. We also have
outstanding options to purchase 107,690 shares and warrants to purchase
3,850,000 shares.
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Dividends
We have not paid cash or stock dividends and have no present plan to pay
any dividends. Instead, we intend to retain any earnings to finance the
operation and expansion of our business and payment of any cash dividends on
our common stock is unlikely.
Securities Under Equity Compensation Plans
The following table lists the securities authorized for issuance under
any equity compensation plans approved by our shareholders and any equity
compensation plans not approved by our shareholders. This chart also includes
individual compensation arrangements.
Equity Compensation Plan Information
----------------------------------------------------------------------------
Number of
securities
remaining
available for
future issuance
under equity
Number of securities Weighted-average compensation
to be issued upon exercise price of plans (excluding
exercise of out- outstanding securities
standing options, options, warrants reflected
Plan category warrants and rights and rights in column (a))
(a) (b) (c)
---------------- ---------------------- ------------------- -----------------
Equity compen-
sation plans
approved by
security holders 11,820,589 $0. 10 0
Equity compen-
sation plans not
approved by
security holders 107,690 1.63 4,392,310
---------------- ---------------------- -------------------- ----------------
Total 11,928,279 $0.11 4,392,310
-----------------------------------------------------------------------------
In 1999 our Board of Directors adopted a restricted share plan and a
employee stock option plan. The restricted share plan has 775,000 shares
reserved to be granted over a 10 year period. The employee stock option
adopted reserved 4,500,000 shares for options to be granted to employees and
consultants. The term of this plan was 10 years.
Recent Sale of Unregistered Securities
During the year ended December 31, 2002, we issued an aggregate of
8,550,000 shares to eleven persons in consideration for $1,277,200. We issued
3,000,000 shares to Gunther Than as compensation for services valued at
$300,000. We issued 735,000 shares to Martin Maassen to convert debt of
$194,000. We issued an aggregate of 2,100,000 shares to Russ Benefield, Joel
Konicek and Rick Langle for professional fees valued at $210,000. We issued
3,300,000 shares, valued at $1,019,700 to Milestone Technology, Inc.
shareholders in exchange for the shares they held in Milestone Technology.
In each of these isolated transactions we relied on an exemption from
registration for a private transaction not involving a public distribution
provided by Section 4(2) under the Securities Act. We believe that each
purchaser either had unrestricted access to detailed material information
regarding our operations due to personal relationships with us or 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 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,
10
. 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.
Termination of Offering
On December 10, 2001, we filed a registration statement on Form SB-2
(Registration File No. 333-74828) which became effective on December 21, 2001.
We registered 6,250,000 common shares with an estimated aggregate offering
price of $3,687,500. The shares were issued to four persons in consideration
for certain consultant agreements. These persons were the selling
stockholders and we did not receive any proceeds from the sale of these
shares. As of the date of this filing the selling stockholders have sold all
of the registered shares and we have terminated this offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Since start-up of operations in September 1998, we have devoted most of
our resources to the development of digital video surveillance products. We
have generated limited revenues from our digital video products to date, but
are expanding our sales and distribution network. We have incurred losses for
the past two fiscal years and have an accumulated deficit of $11,958,683 at
the year ended December 31, 2002. We have financed our operations primarily
through private equity financing. Management plans to implement a strategy to
reduce our operation expenses by reductions in personnel and facilities
expenses. Also, we have increased the efficiency of our processes and are
working on delivering new products to market and enhancing and upgrading our
product line. Until we more fully develop our product line and our sales and
distribution network, we expect our operating losses to continue.
We have provided contract manufacturing services since May 1999 when we
acquired Eastern Tech Manufacturing Corporation, Inc.. Eastern Tech
Manufacturing had provided such services for more than 15 years and had an
established customer base. We have since ceased the contract manufacturing
business line, while using Eastern Tech Manufacturing's manufacturing capacity
to permit production of our products.
In December of 2001 we entered into a joint venture agreement with
Milestone Technology to co-develop their concealed weapons detection portal.
As part of the agreement we traded 500,000 of View Systems common stock for 6%
of Milestone Technology and rights to the concealed weapons detection
technology. In March of 2003 we acquired Milestone Technology in its entirety
and are operating it as a wholly-owned subsidiary. This acquisition was
valued at approximately $1,298,000.
Results Of Operations
The following discussion and analysis should be read in conjunction with
our financial statements and the accompanying notes for the years ended
December 31, 2002 and 2001, which are included in this report.
Year Ended December 31, 2002, Compared To Year Ended December 31, 2001
Revenue - We recognize revenue when the product is shipped to the
customer. In 2001, our revenues totaled $1,391,929, which were derived from
sales of security systems. In 2002, our revenues totaled $446,009, or a
decrease of 68% over the prior year. The vast majority of our 2001 sales
were international in nature. We have refocused our sales efforts to the
selling of SecureScan concealed weapons detection portals and the transition
has included field testing the units, forming manufacturing alliances and new
distribution channels.
In 2001, we derived the preponderance of our revenues from sales of
security systems and only a immaterial amount from sales of contract
manufacturing and test services. This represents a major change from 2000 in
which 48% of revenue derived from contract manufacturing and only 52% of
revenue was derived from
11
sales of security systems. We expect sales from security systems to increase
in addition to sales from weapons detection systems.
Costs Of Goods Sold - The cost of products and services sold, consisting
principally of the costs of hardware components and supplies, was $378,600 in
2002 as compared to $572,357 in 2001, and represented 85% of sales in 2002 and
41% of sales in 2001, an increase of approximately 44%. As future product
sales account for a larger percentage of overall sales, we expect that our
costs of goods and services sold will increase as a percentage of total
revenue and stabilize in the mid 70% range. Our profit margins on sales of
security systems exceeds our profit margins on sales of services. We are
currently working on engineering changes in our security products, especially
the SecureScan concealed weapons detection portal, and we expect these changes
to further lower component costs for these products.
Gross profit - Our gross profit on sales for the year ended December 31,
2002, was $67,409 compared to $819,572 for the year ended December 31, 2001, a
92% decrease. Gross profit margin was 59% in 2001 and 15% in 2002. New
inventory requirements and the cost of delivering and training for the
concealed weapons detection product decreased our gross margins. We feel that
the future margins are not reflected in this year's figures.
Operating Expense - Operating expenses for the year ended December 31,
2002, were $3,990,878, compared with $2,756,856 in 2001. Approximately,
$723,234 of our operating expenses in 2001 were attributable to the issuance
of shares of our common stock as compensation and incentive, and as a means to
attract and retain qualified personnel. As a result, cash operating expenses
in 2001 were only $2,027,373. Approximately $1,182,059 of our operating
expenses in 2002 were attributable to the issuance of shares of our common
stock as compensation resulting in cash expenses of $2,688,153 for that year.
Salaries and Benefits. We spent $855,212 in salaries and benefits in
2001. We used an increased number of contract professionals in 2002 for their
specialized knowledge. In 2002, we spent $981,153 for salaries. We incurred
expenses associated with issuing shares of our common stock to employees of
$438,044 in 2001 and $495,000 in 2002. We believe these expenses were
necessary in the past and will continue to be necessary in the future in order
to attract qualified personnel and conserve cash during our early years of
operation.
Selling, Business Development, Travel and Entertainment. Selling,
business development, travel and entertainment expenses were $300,591 in 2001
and $386,728 in 2002.
Research and Development Expense. We spent $26,734 in 2001 on research
and development and $118,396 in 2002. We expect to continue to fund new
product development in 2003 at or above the dollar levels expended in 2002.
Investor Relations Expenses. Investor relations expenses decreased from
$231,578 in 2001 to $184,341 in 2002. Included in this expense category is
the issuance of shares to several entities for payment of their services in
providing public and investor relations support.
Professional Fees. Professional fees increased from to $402,312 in 2001
to $757,304 in 2002. These fees include attorneys, accountants, management
consultants and programming contractors. There was also an increase of
expenses from the acquisition of Milestone Technology
Net Operating Loss - Net loss was $1,937,284 for 2001, or $0.12 per
share, compared to a net loss of $3,923,469 or $0.11 per share for the year
2002. The reduction in net loss per share is mainly due to the increased
number of shares outstanding.
We have accumulated an aggregate of approximately $12 million of net
operating loss carry-forwards as of December 31, 2002, which may be offset
against taxable income in future years. The use of these losses to reduce
income taxes will depend on the generation of sufficient taxable income prior
to their expiration in the year 2019. In the event of certain changes in
control, there will be an annual limitation on the amount of net operating
loss carry-forwards which can be used. No tax benefit for these carry-forwards
has been reported in the financial statements for the years ended December 31,
2002 or 2001.
12
Liquidity and Capital Resources
Since the start-up of our operations in 1998, we have funded our cash
requirements primarily through equity transactions. We received $13,694,756
since inception through the issuance of our common stock. We are not
currently generating cash from our operations in sufficient amounts to finance
our business and will continue to need to raise capital from other sources.
We used the proceeds from these sales of equity to fund operating activities,
including, product development, sales and marketing, and to invest in the
acquisition of technology, assets and business. As of December 31, 2002, we
had total assets of $3,014,709, an increase of $415,997 over last year's
$2,598,712. Total liabilities were $1,117,916, resulting in stockholders'
equity of $1,896,793; a decrease of $207,210 from last year's $2,104,003.
During the year ended December 31, 2002, our cash decreased from $73,344
at December 31, 2001, to $3,229 at December 31, 2002. Net cash used in
operating activities was $1,438,325 for the year ended December 31, 2002,
including decreases in accounts receivable of $873,935, decreases in inventory
of $105,034, increases in accounts payable of $93,496, and increases in
accrued interest of $11,000.
Net cash generated from financing activities during the year ended
December 31, 2002, was $1,329,378, consisting of proceeds received from the
sale of stock of $1,292,200, repayments of $43,230 previously advanced to
stockholders, less payments made in the amount of $6,052 on a promissory note.
As a result of the foregoing, as of December 31, 2002, we had negative
net working capital of $880,650, including $62,711 of trade accounts
receivable and $171,326 in inventory. We have provided and may continue to
provide payment term extensions to certain of our customers from time to time.
As of December 31, 2002, we have not granted material payment term extensions.
Our inventory balance at December 31, 2002, was $171,326. We do not take
inventory on a quarterly basis, and we made inventory estimates based on
annual inventory determinations. However, the inventory at December 31, 2002
is based on a physical count and valuation of materials on hand. With expected
increased product sales, we will need to make increased inventory xpenditures.
In addition, we endeavor to keep inventory levels low. Therefore, we do not
believe that increased product sales, associated materials purchases and
inventory increases, will adversely affect liquidity.
Commitments and Contingent Liabilities
Our commitments include operating leases and accounts payable. Future
minimum payments for operating leases were $183,069 through 2006. Notes
payable of $599,450 are outstanding and management is attempting to negotiate
adjustments to the terms of a past due note payable of $244,450 to a former
stockholder of Milestone Technology. Also, management has successfully
negotiated repayment of a $110,000 loan as cash flow permits.
Factors Affecting Future Performance
The amount of capital that we need to raise will depend upon many factors
primarily including:
. the rate of sales growth and market acceptance of our product lines;
. the amount and timing of necessary research and development
expenditures;
. the amount and timing of expenditures to sufficiently market and
promote our products; and
. the amount and timing of any accessory product introductions.
We intend to use the cash raised from the private sale of shares and the
exercise of warrants to the following:
. bring SecureScan and SecureView products to market;
. continue our product development efforts;
. expand our sales, marketing and promotional activities for the
SecureView line of products; and
. increase our engineering, production management, quality control, and
customer support staff.
13
Financing
We operate in a very competitive industry that requires continued large
amounts of capital to develop and promote our products. We believe that it
will be essential to continue to raise additional capital, both internally and
externally, to compete in this industry. In addition to accessing the public
and private equity markets, we will pursue bank credit lines and equipment
lease lines for certain capital expenditures. We currently estimate we will
need between $2 million and $3 million to fully develop all of our products
and launch our expanded business operations in accordance with our current
business plan.
Management intends to finance 2003 operations through an additional
equity financing which should be completed by the second quarter of 2003. We
cannot assure that this financing will be successful and we may be required to
further reduce expenses and scale back our operations.
ITEM 7. FINANCIAL STATEMENTS
14
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, 2002, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 2002 and 2001. 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 audits.
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 accompanying consolidated balance sheet as of
December 31, 2002 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December
31, 2002 and 2001 present fairly, in all material respects, the financial
position of the Company as of December 31, 2002, and the results of its
operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred ongoing operating losses and does not currently have financing
commitments in place to meet expected cash requirements through 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
15
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash $ 3,229
Accounts receivable (net of allowance for
uncollectible accounts of $10,000) 62,711
Inventory - finished goods 171,326
-------------
Total current assets 237,266
-------------
PROPERTY AND EQUIPMENT:
Equipment 348,385
Leasehold improvements 17,940
Software tools 34,571
Vehicles 46,832
-------------
447,728
Less accumulated depreciation 204,247
-------------
Net value of property and equipment 243,481
-------------
OTHER ASSETS:
Goodwill 781,248
Licenses and patents 1,626,855
Due from affiliated entities 123,327
Deposits 2,532
-------------
Total other assets 2,533,962
-------------
TOTAL ASSETS $ 3,014,709
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 445,623
Accrued interest 72,843
Notes payable 599,450
-------------
Total current liabilities 1,117,916
-------------
STOCKHOLDERS' EQUITY:
Common stock - par value $.001, 50,000,000 shares
authorized, 44,598,620 shares issued and outstanding 44,598
Additional paid-in capital 13,810,878
Accumulated deficit (11,958,683)
-------------
Total stockholders' equity 1,896,793
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,014,709
=============
See accompanying notes.
1
16
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
------------- -------------
REVENUE:
Sales $ 446,009 $ 1,391,929
Cost of goods sold 378,600 572,357
------------- -------------
GROSS PROFIT ON SALES 67,409 819,572
------------- -------------
OPERATING EXPENSES:
Advertising and promotion 52,549 46,671
Amortization - goodwill - 113,135
Amortization - licenses and patents 131,739 -
Bad debts 948,432 226,111
Business development 345,686 269,540
Depreciation 62,881 60,755
Directors' fees - 111,316
Dues and subscriptions 2,004 5,045
Insurance 31,270 29,328
Interest 24,083 17,421
Inventory obsolescence 37,854 -
Investment loss - 28,000
Investor relations 184,341 231,578
Loss from abandoned leasehold - 17,999
Miscellaneous expense 30,008 10,692
Office expenses 108,485 96,992
Professional fees 757,304 402,312
Rent 58,513 102,611
Repairs and maintenance 13,724 14,243
Research and development 118,396 26,734
Salaries and benefits 981,153 855,212
Taxes - other 2,754 9,151
Telephone 43,262 32,953
Travel 41,042 31,051
Utilities 15,398 18,006
------------- -------------
Total operating expenses 3,990,878 2,756,856
------------- -------------
NET LOSS FOR THE YEAR $ (3,923,469) $ (1,937,284)
============= =============
LOSS PER SHARE:
Basic $ (0.11) $ (0.12)
============= =============
Diluted $ (0.11) $ (0.12)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 34,677,576 13,337,333
============= =============
See accompanying notes.
2
17
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ------------- ------------- -------------
Balances at
January 1, 2001 $ 11,481 $ 7,364,502 $ (6,097,930) $ 1,278,053
Sales of common stock
- employees and others 5,500 1,759,500 - 1,765,000
Issuance of common
stock(employee and
other compensation) 2,712 720,522 - 723,234
Issuance of common
stock in exchange for
interest in Milestone
Technology, Inc. 500 274,500 - 275,000
Net loss for the year
ended December 31, 2001 - - (1,937,284) (1,937,284)
----------- ------------- ------------- -------------
Balances at
December 31, 2001 20,193 10,119,024 (8,035,214) 2,104,003
Sales of common stock 8,550 1,283,650 - 1,292,200
Issuance of common
stock (employee and
other compensation) 11,820 1,195,239 - 1,207,059
Issuance of common
stock in exchange for
remaining interest in
Milestone Technology,
Inc. 3,300 1,019,700 - 1,023,000
Issuance of common
stock in payment of
a note payable 735 193,265 - 194,000
Net loss for the year
ended December 31, 2002 - - (3,923,469) (3,923,469)
----------- ------------- ------------- -------------
Balances at
December 31, 2002 $ 44,598 $ 13,810,878 $(11,958,683) $ 1,896,793
=========== ============= ============= =============
See accompanying notes.
3
18
VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,923,469) $ (1,927,634)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 194,620 173,890
Loss from abandoned leasehold - 17,999
Investment loss - 28,000
Bad debt expense 948,432 226,111
Employee and other compensation paid
through the issuance of stock 1,207,059 723,234
Changes in operating assets and liabilities:
Accounts receivable (74,498) (1,018,974)
Inventory 105,035 39,695
Deposits and other assets - (1,700)
Accounts payable 93,496 (55,590)
Accrued interest 11,000 11,000
Other accrued liabilities - (31,951)
-------------- --------------
Net cash used in operating activities (1,438,325) (1,815,920)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (27,111) (34,761)
Funds advanced to affiliated entities 7,094 -
Cash element in Milestone Technology,
Inc. acquisition 58,849 -
-------------- --------------
Net cash provided (used) by
investing activities 38,832 (34,761)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from stockholders 43,230 (70,189)
Repayment of note payable - bank (6,052) (36,031)
Proceeds from sales of stock 1,292,200 1,765,000
-------------- --------------
Net cash provided by financing activities 1,329,378 1,658,780
-------------- --------------
NET DECREASE IN CASH (70,115) (191,901)
CASH AT BEGINNING OF YEAR 73,344 265,245
-------------- --------------
CASH AT END OF YEAR $ 3,229 $ 73,344
============== ==============
4
19
View Systems, Inc.
Statements of Cash Flows (Continued)
For the Years Ended December 31, 2002 And 2001
2002 2001
-------------- --------------
Significant noncash investing activities:
Common stock issued in exchange for net assets
of Milestone Technology, Inc. as follows:
Accounts receivable $ 28,132
Inventory 359,647
Fixed assets 188
Patents 1,317,467
Accounts payable (6,470)
Notes payable (703,449)
Accrued interest (28,843)
Common stock issued to effect purchase of
minority interest in Milestone
Technology, Inc. $ - $ 275,000
============== ==============
Significant noncash financing activities:
Common stock issued in payment of note payable $ 194,000 $ -
============== ==============
Cash paid during the period for:
Interest $ 15,203 $ 6,421
============== ==============
Taxes $ - $ -
============== ==============
See accompanying notes.
5
20
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
Accounts Receivable
--------------------
Accounts receivable are stated at the amount management expects to collect
from the outstanding balances. Management provides for probable uncollectible
amounts through a charge to earnings and a credit to a valuation allowance
based upon its assessment of the current collection status of individual
accounts. Delinquent amounts that are outstanding after management has
conducted reasonable collection efforts, are written off through a charge to
the valuation allowance and a credit to accounts receivable.
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, 2002
consisted of finished goods.
6
21
Property and Equipment
----------------------
Property and equipment is recorded at cost and depreciated over their
estimated useful lives, using the straight-line and accelerated depreciation
methods. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts, and the resulting
gain or loss is included in the results of operations. The useful lives of
property and equipment for purposes of computing depreciation are as follows:
Equipment 5 - 7 years
Software tools 3 years
Repairs and maintenance charges which do not increase the useful lives of
assets are charged to operations as incurred. Depreciation expense for the
years ended December 31, 2002 and 2001 amounted to $62,881 and $60,755,
respectively.
Goodwill
--------
Goodwill represents the excess of the cost of assets acquired in business
combinations accounted for under the purchase method of accounting over the
fair value of the net assets acquired at the dates of acquisition. Effective
January 1, 2002 goodwill will no longer be amortized but rather tested for
impairment. on an annual basis.
Licenses and Patents
--------------------
The Company has assigned a value to licenses and patents acquired in its
acquisition of Milestone which are being amortized on a straight-line basis
over a ten-year period.
Income Taxes
------------
Deferred income taxes are recorded under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences, measured by enacted tax rates, attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective.
Valuation allowances are recorded for deferred tax assets when it is more
likely than not that such deferred tax assets will not be realized.
Research and Development
------------------------
Research and development costs are expensed as incurred. Equipment and
facilities acquired for research and development activities that have
alternative future uses are capitalized and charged to expense over the
estimated useful lives.
Advertising
-----------
Advertising costs are charged to operations as incurred. Advertising
costs for the years ended December 31, 2002 and 2001 were $52,549 and $46,671,
respectively.
7
22
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.
Net Loss Per Common Share
-------------------------
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common shares
outstanding. Diluted net loss per common share 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, 2002 and 2001 does not
include potential shares of common stock equivalents, as their impact would be
antidilutive.
2. BUSINESS PLANS
The Company has incurred and continues to incur, losses from operations.
For the years ended December 31, 2002 and 2001, the Company incurred net
losses of $3,923,469 and $1,937,284, respectively. During 2002 and 2001, 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
equity financing. It is management's intention to finance 2003 operations
through an additional equity financing which should be completed in the second
quarter of 2003. 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.
8
23
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 with 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 to 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.
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.
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or 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 No. 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, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements, and FASB Statement 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 authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The Company does not expect the
implementation of SFAS No. 145 to have a material impact on the Company's
financial condition or results of operations.
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 Company does not expect the
implementation of SFAS No. 146 to have a material impact on the Company's
financial condition or results of operations.
9
24
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 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 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
Company does not expect the implementation of SFAS No. 148 to have a material
impact on the Company's financial condition 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 shares 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.
10
25
Summarized unaudited financial statements for Milestone Technology, Inc.
as of and for the year ended December 31, 2001 are as follows:
MILESTONE TECHNOLOGY, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2001
(UNAUDITED)
ASSETS
Current assets $ 200,043
Fixed assets 188
Other assets 177,127
Licenses and patents 264,000
--------------
TOTAL ASSETS $ 641,358
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - current $ 84,000
Other current liabilities 300,768
Notes payable to stockholders 277,750
Notes payable - long-term 160,000
--------------
Total liabilities 822,518
Stockholders' equity (181,160)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 641,358
==============
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
Revenue $ 21,667
Operating expenses 134,608
--------------
Net loss for the year $ (112,941)
==============
11
26
The intangible asset of $1,758,594 created by the Milestone Technology,
Inc. acquisition was assigned entirely to licenses and patents owned by
Milestone. This intangible is being amortized over its estimated useful life
of 10 years on a straight-line basis.
5. INVESTMENTS
The Company also owns approximately 14% of the common stock of a privately
held entity known as MediaComm Broadcasting Systems, Inc. As of December 31,
2001 the Company determined that its investment had little or no value.
Accordingly, the Company has reflected its original investment of $28,000 as a
loss on the accompanying financial statements.
6. DUE FROM AFFILIATED ENTITIES
The Company has advanced non-interest bearing funds of $98,458 as of
December 31, 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 of its officers
in the amount of $24,869 as of December 31, 2002. There are no repayment
terms associated with this advance.
7. NOTES PAYABLE
Notes payable as of December 31, 2002 consist of the following:
Note payable - due to commercial bank - due in
monthly installments of $5,000 which includes
principal and interest at 6% per annum $ 245,000
Note payable - due former stockholder of Milestone
Technology, Inc. without interest due upon demand 244,450
Notes payable - due former stockholder of Xyros
Technology, due upon demand interest at 10% per annum 110,000
-----------
$ 599,450
===========
The note payable due to a commercial bank is personally guaranteed by a
former stockholder of Milestone Technology, Inc.
The note payable due to former stockholder of Milestone Technology, Inc.
is in default under the terms of the original agreement. The Company is
currently negotiating to adjust the terms of the note agreement.
The notes payable due former stockholder 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.
12
27
8. INCOME TAXES
The components of the net deferred tax asset and liability as of December
31, 2002 are as follows:
Effect of net operating loss carryforward $ 3,758,000
Less valuation allowance (3,758,000)
------------
Net deferred tax asset (liability) $ -
============
9. OPERATING LEASES
The Company leases its office headquarters located in Denver, Colorado.
The Company has a 39-month noncancelable operating lease, expiring in August,
2005. Base rent is $3,076 with an automatic annual rent escalator of 5%.
Rent expense was $20,038 for the year ended December 31, 2002.
The Company also leases office and warehouse space in Baltimore, Maryland
under a five-year noncancelable operating lease, expiring August, 2005. Base
rent is $2,250 per month with an annual rent escalator of 3%. Rent expense
was $27,540 for the year ended December 31, 2002.
The Company also leases office space in Blackfoot, Idaho under a
month-to-month lease agreement. Rent is $1,215 a month and resulted in rent
expense of $10,935 for the year ended December 31, 2002.
The following is a schedule by year, of approximate future minimum lease
payments required under these leases:
Year ending December 31:
2003 $ 66,356
2004 69,108
2005 47,605
2006 and thereafter -
----------
Total minimum future
rental payments $ 183,069
==========
10. STOCK-BASED COMPENSATION
During the year ended December 31, 2002 the Company granted restricted
stock, incentive stock options, nonqualified stock options, and warrants to
employees, officers, and independent contractors and consultants.
13
28
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 2002 and 2001 the Company issued the following shares
under this Plan and additional shares at the discretion of the Board of
Directors:
2002 2001
------------------------- -------------------------
Number Expense Number Expense
of Shares Recognized of Shares Recognized
------------ ------------ ------------ ------------
Officers and employees 4,950,000 $ 495,000 1,607,500 $ 438,044
Independent contractors
and consultants 6,870,589 687,059 1,104,500 285,190
------------ ------------ ------------ ------------
11,820,589 $ 1,182,059 2,712,000 $ 723,234
============ ============ ============ ============
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.
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 grant.
A summary of the Company's stock option activity and related information
for the year ended December 31, 2002 is as follows:
2002
--------------------------------------------
Common Weighted
Stock Average Range of
Options Exercise Price Exercise Prices
------------ --------------- ---------------
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
============ =============== ===============
14
29
2001
--------------------------------------------
Common Weighted
Stock Average Range of
Options Exercise Price Exercise Prices
------------ --------------- ---------------
Outstanding at beginning of year 107,690 $ 1.63 $ 0.01 - $2.07
Granted - - -
Exercised - - -
Expired/cancelled - - -
------------ --------------- ---------------
Outstanding at end of year 107,690 $ 1.63 $ 0.01 - $2.07
============ =============== ===============
The Company has issued warrants to purchase the Company's stock as
follows:
2002
--------------------------------------------
Common Weighted
Stock Average Range of
Warrants Exercise Price Exercise Prices
------------ --------------- ---------------
Outstanding at beginning of year 3,850,000 $ .49 $ .20 - $.70
Granted - - -
Exercised (3,850,000) .49 $ .20 - $.70
Expired/cancelled - - -
------------ --------------- ---------------
Outstanding at end of year - $ - $ -
============ =============== ===============
The Company has issued warrants to purchase the Company's stock as follows:
2001
--------------------------------------------
Common Weighted
Stock Average Range of
Warrants Exercise Price Exercise Prices
------------ --------------- ---------------
Outstanding at beginning of year 2,989,000 $ 1.97 $ 0.01 - $2.07
Granted 8,250,000 .48 .20 - .70
Exercised (4,600,000) .32 .20 - .40
Expired/cancelled (2,789,000) - -
------------ --------------- ---------------
Outstanding at end of year 3,850,000 $ .49 $ .20 -$ .70
============ =============== ===============
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 year ended December 31, 2002 and 2001.
15
30
11. 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, 2002 and 2001:
2002 2001
-------------- -------------
Accounting $ 70,907 $ 68,689
Legal 54,152 211,424
Management 514,129 95,465
Programming 118,116 26,734
-------------- -------------
$ 757,304 $ 402,312
============== =============
12. POTENTIAL LITIGATION
The Company is currently in default of its debt agreement with former
stockholders of Milestone Technology, Inc. In connection with this default
those stockholders have threatened litigation which includes the recision of
the Milestone Technology, Inc. acquisition. Management has negotiated a
settlement agreement for which the final details are being brought to
resolution. As a result of these negotiations, management believes that there
will be no adverse consequences as a result of this potential litigation.
16
31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no change, or disagreement with, our principal independent
accountants during the past two fiscal years.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; SECTION 16(a) COMPLIANCE
The table below lists the name, age, and position of each of our
executive officers and directors. Our bylaws provide for a board of directors
consisting of up to seven persons. The term of office of each director is one
year or until his successor is elected and qualified. Executive officers are
chosen by our board of directors and serve at its discretion. We currently
have a vacancy in the office of president and secretary of the company.
Biographical information for each officer and director is also provided below.
There are no family relationships between or among any of our directors and
executive officers.
Name Age Position Director Since
----- ---- --------- --------------
Gunther Than 55 CEO and Director September 1998
Dr. Michael L. Bagnoli 47 Director May 1999
Dr. Martin Maassen 60 Director May 1999
William D. Smith 67 Director, Secretary February 2003
Gunther Than- Gunther Than has served as our President and Chief
Executive Officer since September 1998. He also served as Chairman of the
Board from September 1998 to April 2000, and as a director since April 2000.
From 1994 - 1998, Mr. Than was the founder, President and CEO of RealView
Systems, Inc. and View Technology, Inc., software developers. Mr. Than
continues as President, CEO and director of View Technology, Inc. Prior to
founding RealView Systems, Inc., Mr. Than held a variety of executive business
management positions. Mr. Than is a graduate of the University of Wisconsin,
with a dual degree in engineering physics and applied mathematics.
Dr. Martin Maassen- Dr. Maassen became a Director in May 1999, then was
appointed as our Chairman of the Board in April 2000. In September 2002 he
was relieved of his duties as Chairman of the Board. He is board-certified
in internal medicine and emergency medicine and has served as a staff
physician since 197 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.
Dr. Michael L. Bagnoli- Dr. Bagnoli became a Director in May 1999. 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.
William D. Smith - Mr. Smith was appointed as a Director, Secretary and
Chairman of our Audit Committee on February 11, 2003. He retired in 1984 from
McGraw-Hill Information Systems Company and from 1995 to 1997 he has been
Chairman of the Board of View Technologies, Inc. He has been employed as a
industrial engineer and he founded Numerax, Inc. which became a wholly owned
subsidiary of McGraw-Hill Information Company in 1984.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and person who own more than ten percent of a
registered class of our equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of our common stock.
Officers, directors and greater than ten-
32
percent beneficial owners are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file. Based upon review of the
copies of such forms furnished to us during the fiscal year ended December 31,
2002, and representations from reporting persons that Forms 5 were required,
we believe Mr. Than filed late Forms 4 related to 13 transactions.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the compensation paid to our named executive
officers in all capacities during the past three fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and principal Fiscal
position Year Salary Bonus Other
--------------------- ----- ---------- ----------- --------------
Gunther Than 2002 $ 18,000 $ 0 $ 0
CEO, Treasurer 2001 96,000 0 110,400 (1)
Director 2000 96,000 0 110,400 (1)
Dr. Michael L. Bagnoli 2002 0 0 0
Director 2001 0 0 0
2000 0 0 0
Dr. Martin Maassen 2002 0 0 0
Director 2001 0 0 0
2000 0 0 0
Bruce Bradley 2002 0 0 0
Former Chairman 2001 0 0 0
of the Board 2000 0 0 0
Paul J. Reep 2002 75,000 0 0
Former President 2001 0 0 0
2000 0 0 0
(1) Represents annual payment of 480,000 shares of our common stock
valued at $0.23 per share
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. We do not
have any arrangement for compensating our directors in cash for the services
they provide in their capacity as directors, including services for committee
participation or for special assignments.
Employment Contracts
Under our outstanding employment and consulting agreements, we are
obligated to pay Mr. Than $96,000 per year in salary and fees during calendar
year 2002. If we terminate the employment of Mr. Than because of merger,
acquisition or change in control, we will be obligated to pay him
approximately $2,000,000 in severance payments. Mr. Than entered into an
Executive Employment Agreement with us to serve as our President and Chief
Executive Officer, effective June 1, 1999. This agreement does not have a
specific term, but is terminable by either party on 60 days written notice.
He is also entitled to compensation in the amount of $10,000 per month and an
annual payment of 480,000 shares of our common stock. If the termination is
without cause, Mr. Than
33
would be entitled to a severance of three years base salary plus the bonus, if
any, received in the year prior to termination. Mr. Than has a covenant not
to compete with the company or to solicit any employee or client of the
company for a period of one year after any termination of the agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of each of our
executive officers; each of our directors; and all executive officers and
directors as a group. We are unaware of any person or group that beneficially
owns more than 5% 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 45,620,619 outstanding shares as of March 27, 2003, and any shares the each
of the following persons may acquire within 60 days by the exercise of
warrants and/or options.
MANAGEMENT
Amount and
Name and address of nature of Percent of
beneficial owner beneficial ownership class
----------------- --------------------- ----------
Gunther Than 4,480,423 (1) 9.8%
7717 West 6th Avenue
Lakewood, Colorado 80205
Dr. Michael L. Bagnoli 470,000 (2) 1.0%
40 Redwood Court
Larayette, Indiana 47905
Dr. Martin Maassen 2,239,784 4.9%
1340 Fawn Ridge Drive
West Lafayette, Indiana 47906
Paul J. Reep 2,000,000 4.4%
7717 West 6th Avenue
Lakewood, Colorado 80205
William D. Smith 50,000 Less than 1%
2608 Creswell Road
Bel Air, Maryland 21015
Directors and officers 9,240,207 20.3%
as a group
(1) Mr. Than owns 4,310,423 shares and his spouse owns 170,000.
(2) Mr. Bagnoli owns 400,000 shares, his spouse owns 40,000 shares, and
he beneficially owns 30,000 shares as trustee of a trust.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes transactions exceeding $60,000 we
have either engaged in during the last two years, or propose to engage in,
involving our executive officers, directors, more than 5% stockholders, or
immediate family members of these persons.
34
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. have entered into
various transactions throughout the year to provide working capital to one
another when necessary.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
2.1 View Systems, Inc. Acquisition Agreement and Plan of
Reorganization with Eastern Tech Manufacturing Corp (1)
3.1 Articles of Incorporation and all Articles of Amendment of View
Systems, Inc. (1)
3.2 By-Laws of View Systems, Inc. (1)
10.1 View Systems, Inc. 2000 Restricted Share Plan (2)
10.2 View Systems, Inc. Employment Agreement with Gunther Than. (1)
21.1 Subsidiaries of Registrant
23.1 Consent of Stegman & Company to incorporation by reference to other
filings.
99.1 Section 1350 certification
------------------------------------------
(1) Incorporated by reference from registrant's registration statement
on Form SB-2 filed with the commission on January 11, 2000
(2) Incorporated by reference to registrant's definitive proxy statement
on Schedule 14a, dated May 3, 2000.
Reports on Form 8-K
On March 28, 2003, we filed an current report on Form 8-K, dated March
21, 2003, under Item 5 we announced the resignation of directors and officers.
ITEM 14: CONTROLS AND PROCEDURES
During the year ended December 31, 2002, we formalized the procedures we
rely on to ensure that material information regarding our company and its
operations is provided to the public in a timely manner. On March 28, 2003,
our CEO and principal financial officer, Gunther Than, evaluated the
effectiveness of these disclosure controls and procedures and determined that
there were no significant deficiencies in these procedures.
Also, Mr. Than did not identify any deficiencies or material weaknesses
in our internal controls, nor did he identify fraud that involved management
or other employees who had a significant role in our internal controls. He
did not find any deficiencies or weaknesses which would require changes to be
made or corrective actions to be taken related to our internal controls.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
View Systems, Inc.
/s/ Gunther Than
Date: March 31, 2003 By:___________________________________________
Gunther Than
CEO, Principal Financial Officer, Treasurer
and Director
In accordance with the Exchange Act this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Dr. Martin J. Maassen
Date: March 31, 2003 By:_______________________________________
Dr. Martin J. Maassen
Director
/s/ William D. Smith
Date: March 31, 2003 By:_______________________________________
William D. Smith
Director and Secretary
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Gunther Than, certify that:
1. I have reviewed this annual report on Form 10-KSB of View Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which statements
were made, not misleading with respect to the period covered by this annual
report;
36
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Gunther Than
Date: March 31, 2003 ____________________________________
Gunther Than
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER CERTIFICATION
I, Gunther Than, certify that:
1. I have reviewed this annual report on Form 10-KSB of View Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
37
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Gunter Than
Date: March 31, 2003 ____________________________________
Gunther Than
Principal Financial Officer
38