UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30178
VIEW SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 59-2928366
(State of incorporation) (I.R.S. Employer Identification No.)
1100 Wilso Drive
Baltimore, Maryland 21223
(Address of principal executive offices)
(410) 646-3000
(Issuer's telephone number)
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 [ ]
As of May 9, 2005 View Systems, Inc. had 79,330,422 shares of common stock
outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements...............................................2
Item 2. Management's Discussion and Analysis...............................9
Item 3. Controls and Procedures...........................................12
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......12
Item 6. Exhibits .........................................................13
Signatures.................................................................13
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of
operations for the three month periods ended March 31, 2005 and 2004 is
unaudited. This financial information, in the opinion of management, includes
all adjustments consisting of normal recurring entries necessary for the fair
presentation of such data. The results of operations for the three month
period ended March 31, 2005 are not necessarily indicative of results to be
expected for any subsequent period.
2
View Systems, Inc.
Consolidated Financial Statements
March 31, 2005
3
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
March 31, December 31,
2005 2004
------------- -------------
Current Assets
Cash $ 147 $ 173,486
Accounts Receivable(Net of Allowance of $20,054) 179,453 108,342
Inventory 26,197 61,197
------------- -------------
Total Current Assets 205,797 343,025
------------- -------------
Property & Equipment (Net) 9,400 14,803
------------- -------------
Other Assets
Licenses 1,626,854 1,626,854
Loans to shareholder 62,000 66,500
Due from Affiliates 98,457 98,457
Deposits 2,319 2,319
------------- -------------
Total Other Assets 1,789,630 1,794,130
------------- -------------
Total Assets $ 2,004,827 $ 2,151,958
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 176,725 $ 331,776
Accrued Expenses 100,533 100,548
Accrued Interest 66,000 66,000
Notes Payable 149,000 149,000
------------- -------------
Total Current Liabilities 492,258 647,324
------------- -------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and outstanding 0 - -
Common Stock, Authorized 100,000,000 Shares,
$.001 Par Value,
Issued and Outstanding 76,816,922 76,817 -
Issued and Outstanding 76,533,922 - 76,534
Additional Paid in Capital 17,153,813 17,119,596
Retained Earnings (Deficit) (15,718,061) (15,691,496)
------------- -------------
Total Stockholders' Equity 1,512,569 1,504,634
------------- -------------
Total Liabilities and Stockholders' Equity $ 2,004,827 $ 2,151,958
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended
March 31,
2005 2004
------------- -------------
Revenues, Net $ 285,643 $ 34,353
Cost of Sales 104,328 32,326
------------- -------------
Gross Profit (Loss) 181,315 2,027
------------- -------------
Operating Expenses
Business Development 15,530 -
General & Administrative 67,591 55,578
Professional Fees 38,515 24,219
Salaries & Benefits 86,244 133,571
------------- -------------
Total Operating Expenses 207,880 213,368
------------- -------------
Net Operating Income (Loss) (26,565) (211,341)
------------- -------------
Other Income(Expense)
Interest Expense - (3,014)
------------- -------------
Total Other Income(Expense) - (3,014)
------------- -------------
Net Income (Loss) $ (26,565) $ (214,355)
============= =============
Net Income (Loss) Per Share $ (0.00) $ (0.00)
============= =============
Weighted Average Shares Outstanding 76,675,422 63,376,036
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
5
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
2005 2004
------------- -------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (26,565) $ (214,355)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation & Amortization 6,388 11,290
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (71,111) 67,847
Inventories 35,000 -
Increase (Decrease) in:
Accounts Payable (136,051) (40,827)
Accrued Expenses (15) (9,818)
------------- -------------
Net Cash Provided(Used) by Operating Activities (192,354) (185,863)
Cash Flows from Investing Activities:
Purchases of equipment (985) -
------------- -------------
Net Cash Used In Investing Activities (985) -
Cash Flows from Financing Activities:
Funds advanced (to) from stockholders 4,500 137,886
Proceeds from stock issuance 15,500 35,000
------------- -------------
Net Cash Provided (Used) by Financing Activities 20,000 172,886
------------- -------------
Increase (Decrease) in Cash (173,339) (12,977)
Cash and Cash Equivalents at Beginning of Period 173,486 19,899
------------- -------------
Cash and Cash Equivalents at End of Period $ 147 $ 6,922
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
6
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
March 31,
2005 2004
------------- -------------
Cash Paid For:
Interest $ - $ 3,009
Income Taxes $ - $ -
Non-Cash Investing and Financing Activities:
Stock issued in payment of accounts payable $ 19,000 $ -
The accompanying notes are an integral part of these
consolidated financial statements.
7
View Systems, Inc.
Notes to the Consolidated Financial Statements
March 31, 2005
GENERAL
-------
View Systems, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the three months ended March 31,
2005 since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their
Annual Report filed on the Form 10-KSB for the twelve months ended December
31, 2004.
UNAUDITED INFORMATION
---------------------
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
which are, in the opinion of management, necessary to properly reflect the
results of the interim period presented. The information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
COMMON STOCK
------------
During January 2005, the Company issued 128,000 shares of common stock for
services valued at $19,000.
During January 2005, the Company issued 275,000 shares of common stock for
cash of $27,500.
During February 2005, the Company issued 81,000 shares of common stock for
cash of $8,100
During March 2005, the Company issued 25,000 shares of common stock for cash
of $2,500.
8
In this report references to "View Systems," "we," "us," and "our" refer to
View Systems, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This report contains
these types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or
financial performance identify forward-looking statements. You are cautioned
not to place undue reliance on the forward-looking statements, which speak
only as of the date of this report. All forward-looking statements reflect
our present expectation of future events and are subject to a number of
important factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
EXECUTIVE OVERVIEW
View Systems acquires and/or develops technologies related to surveillance,
detection and security for the purpose of commercializing them. We offer:
. Visual First Responder - a lightweight, wireless camera system housed
in a tough, waterproof flashlight body.
. SecureScan Concealed Weapons Detection System - a walk-through
concealed weapons detector which uses sensing technology and artificial
intelligence algorithms to accurately pinpoint the location, size and
number of concealed weapons.
. ViewMaxx Digitial Video products - a high-resolution, digital video
recording and real-time monitoring system.
Our revenues for the past two years have been from sales of our products and
our sales continued to increase for first quarter of 2005 as a result of sales
of our Visual First Responder product. Management believes that heightened
attention to terrorism and other security threats will continue to drive
growth in the market for security products.
We rely on revenues, private financing and sales of common stock to fund our
operations. We have incurred losses for the past two fiscal years and have an
accumulated deficit of $15,718,061 at March 31, 2005. Our auditors have
expressed doubt that we can continue as a going concern based on these
factors. Management believes we will incur operating losses for the near
future while we continue to expand our product line and develop our sales and
marketing channels. Management continues to seek additional funding of up to
$1 million to continue our business plan development for the next twelve
months. However, we can not assure you that we will be successful at
obtaining the necessary funding to continue this development.
For the next twelve months our primary challenge will be to more fully develop
our product lines and our sales and distribution network for the United
States. Our emphasis has been on marketing and sales programs through dealer
channels, plus internal direct sales for our products. We intend to build a
United States domestic network of manufacturing representatives and dealers
for the sale and distribution of our products within the 48 states. However,
we cannot assure you that we will be able to develop these sales and
distribution channels to a level which will result in increased revenues or
continued profitability.
LIQUIDITY AND CAPITAL RESOURCES
For the short term, management believes that revenues, advances and sales of
our common stock will provide funds for operations and further development of
our business plan. For the long term, management expects that the
9
development of our sales and distribution channels will increase our revenues;
however, we will need to continue to raise additional funds through loans and
sales of our common stock, as needed.
While our revenues are increasing, we are unable to satisfy our operating
expenses. Net cash used by operating activities was $192,354 for the three
month period ended March 31, 2005 (the "2005 first quarter") compared to
$185,863 for the three month period ended March 31, 2004 (the "2004 first
quarter"). Net cash used for investing activities was $985 for the 2005 first
quarter and was related to the purchase of equipment.
FINANCING
We have financed our operations primarily through revenues and private
financing. Net cash provided by financing activities for the 2005 year was
$20,000, primarily from proceeds from sales of common stock. Net cash
provided by financing activities for the 2004 first quarter was $172,886,
consisting of debt financing of $137,886 and proceeds received from sales of
common stock of $35,000.
We estimate that we will require additional financing of approximately $1
million to meet our needs for the next twelve months. Our goal is to use this
financing to increase ongoing operations to self-sustaining levels and
increase profits to the magnitude management feels is achievable.
We intend to use any available cash to develop our products and expand our
sales, marketing and promotional activities. We will likely finance our 2005
operations through additional equity financing. Management believes that it
will be essential to continue to raise additional capital, both internally and
externally, to compete in our markets. We cannot assure you that we will be
able to obtain financing on favorable terms and we may be required to further
reduce expenses and scale back our operations. In addition to accessing the
public and private equity markets, we will pursue bank credit lines and
equipment leases for certain capital expenditures, if necessary.
COMMITMENTS AND CONTINGENT LIABILITIES
Our total current liabilities of $492,258 include accounts payable of
$176,725, accrued expenses of $100,533, accrued interest of $66,000 and notes
payable of $149,000. Our base rent for operating leases related to our
principal office and manufacturing facility is approximately $2,300 per month,
with an annual rent escalator of 3%. At December 31, 2004 future minimum
payments for operating leases related to our office and manufacturing facility
were $19,964 through 2006.
OFF-BALANCE SHEET ARRANGEMENTS
None.
RESULTS OF OPERATIONS
The following discussions are based on the consolidated financial statements
of View Systems and its subsidiaries. These charts and discussions summarize
our financial statements for the three month periods ended March 31, 2004 and
2005 and should be read in conjunction with the financial statements, and
notes thereto, included with this report at Part I, Item 1, above.
Summary Comparison of 2004 and 2005 First Quarter Operations
------------------------------------------------------------
First Quarter First Quarter
2004 2005
-------------- -------------
Revenues, net $ 34,353 $ 285,643
10
Cost of sales 32,326 104,328
Gross profit 2,027 181,315
Total operating expenses 213,368 207,880
Total other income (expense) (3,014) -
Net income (loss) (214,355) (26,565)
Net earnings (loss) per share $ (0.00) $ (0.00)
Revenues for the 2005 first quarter increased $251,290 compared to the 2004
first quarter due to increased sales of our Visual First Responder products.
However, costs of sales also increased for the 2005 first quarter compared to
the 2004 first quarter. As a result of the increase in revenues our gross
profit increased $179,288 from the 2004 first quarter compared to 2005 first
quarter.
For the 2005 first quarter total operating expense decreased slightly compared
to the 2004 first quarter. The 2005 decrease was primarily the result of
decreased salaries and benefits.
Total other expense for the 2004 first quarter was primarily related to
interest on loans.
As a result of the above changes, our net loss decreased $187,790 from the
2004 first quarter to the 2005 first quarter and we recorded $0.0 loss per
share for the comparable quarters.
FACTORS AFFECTING FUTURE PERFORMANCE
Our independent auditors have expressed concern whether we can
continue as a going concern.
We have incurred ongoing operating losses and do not currently have financing
commitments in place to meet expected cash requirements for the next twelve
months. We are unable to fund our day-to-day operations through revenues
alone and management believes we will incur operating losses for the near
future while we seek financing commitments during the next twelve months to
fund further development of our business plan. While we have expanded our
product line and expect to establish new sales channels, we may be unable to
increase revenues to the point that we attain and are able to maintain
profitability.
We are currently dependent on the efforts of our resellers for our
continued growth and must expand our sales channels to increase our
revenues.
We are in the process of developing and expanding our sales channels, but we
expect overall sales to remain down as we develop our marketing activities.
If we are unsuccessful in developing sales channels then we may have to
abandon our business plan. We are actively recruiting and adding other
additional resellers and must continue to recruit additional resellers and
find other methods of distribution to increase customers.
We may not be able to compete successfully in our market because we
have a small market share and compete with large national and
international companies.
We estimate that we have less than a 1% market share of the surveillance and
weapons detection market. We compete with many companies that have greater
brand name recognition and significantly greater financial, technical,
marketing, and managerial resources. The position of these competitors in the
market may prevent us from capturing more market share. We intend to remain
competitive by increasing our existing business through marketing efforts,
selectively acquiring complementary technologies or businesses and services,
and increasing our
11
efficiency and reducing costs.
Our revenues are dependent in part upon our relationships and
alliances with government agencies and partners.
While we own exclusive licenses for the SecureScan technology, we are
dependent upon the continuation of the ongoing contract between the Department
of Energy and National Institute of Justice for continuations and improvements
to the concealed weapons detection technology. We are also dependent upon the
U.S. Department of Energy's Idaho National Engineering and Environmental
Laboratory for developments of the Visual First Responder product. If either
of these entities should discontinue its operations or research and
development we may lose our competitive edge in our markets.
We must successfully introduce new or enhanced products and manage
the costs associated with producing several product lines to be
successful.
Our future success depends on our ability to continue to improve our existing
products and to develop new products using the latest technology that can
satisfy customer needs. However, we cannot be certain that we will be
successful at producing multiple product lines and we may find that the cost
of production of multiple product lines inhibits our ability to maintain or
improve our gross profit margins. In addition, the failure of our products to
gain or maintain market acceptance or our failure to successfully manage our
cost of production could adversely affect our financial condition.
We would be harmed if we were unable to use our manufacturing facility.
We assemble and manufacture our products at our facility located in Baltimore,
Maryland. If we were unable to continue manufacturing at this location due to
fire, prolonged power shortage or other natural disaster, then we would be
unable to supply products to our customers.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer, who also acts in the capacity of principal
financial officer, has concluded that the disclosures related to the
effectiveness of our disclosure controls and procedures and our internal
control over financial reporting made in our annual report on Form 10-KSB,
filed March 30, 2005, remain accurate.
PART II: OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sale of Unregistered Securities
The following discussion describes securities sold by View Systems without
registration through a recent date which have not been previously reported.
On March 10, 2005 we issued 25,000 shares of common stock to Calvin McCohm for
$2,500 cash. We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.
On April 7, 2005 we issued 1,200,000 shares of common stock to Gunther Than in
consideration for his salary for the 2004 year. These shares were valued at
approximately $120,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On April 15, 2005 we issued 600,000 shares of common stock to Gunther Than as
required by his employment
12
agreement. These shares were valued at approximately $60,000. We relied on
an exemption from registration for a private transaction not involving a
public distribution provided by Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Chief Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
3.1 Articles of Incorporation of View Systems, as amended (Incorporated
by reference to exhibit 3.1 to Form 10-QSB filed November 14, 2003)
3.2 By-Laws of View Systems (Incorporated by reference to exhibit 3.2 to
Form 10-QSB filed November 14, 2003)
10.1 Employment agreement between View Systems and Gunther Than, dated
January 1, 2003. (Incorporated by reference to exhibit 10.3 to Form
10-KSB, filed April 14, 2004)
21.1 Subsidiaries (Incorporated by reference to exhibit 21.1 to Form
10-KSB, filed March 31, 2003)
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VIEW SYSTEMS, INC.
/s/ Gunther Than
Date: May 13, 2005 By: ________________________________________
Gunther Than
Chief Executive Officer, Treasurer,
Director and Principal Financial Officer
13