UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No.1
[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.)
1550 Caton Center Drive, Suite E, Baltimore, Maryland 21227
-----------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number: (410) 242-8439
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 9, 2005 View Systems, Inc. had 79,330,422 shares of common stock
outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
Explanatory Note
On October 12, 2005 we filed a registration statement on Form SB-2, and the
Securities and Exchange Commission ("SEC") conducted a full review of the Form
SB-2. The SEC requested that we expand the disclosures in this Form 10-QSB to
comply with its comments. As a result of this review we have restated our
financial statements for the year ended December 31, 2004. See the
"Restatement" note to the financial statements for the explanation of the
restatement. The disclosures in this report are as of the initial filing date
of May16, 2005 and do not include subsequent events.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements................................................2
Item 2. Management's Discussion and Analysis................................8
Item 3. Controls and Procedures............................................12
PART II: OTHER INFORMATION
Item 6. Exhibits ..........................................................12
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 and has been restated. This financial information, in the opinion
of management, includes all adjustments consisting of normal recurring entries
necessary for the fair presentation of such data. The results of operations
for the three month period ended March 31, 2005 are not necessarily indicative
of results to be expected for any subsequent period.
2
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
------
March 31, December 31,
2005 2004
------------- -------------
(Restated) (Restated)
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
Due from Affiliates 98,457 98,457
Deposits 2,319 2,319
------------- -------------
Total Other Assets 1,727,630 1,727,630
------------- -------------
Total Assets $ 1,942,827 $ 2,085,458
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Accounts Payable $ 115,225 $ 265,776
Accrued Expenses 100,533 100,548
Accrued Interest 66,000 66,000
Notes Payable 148,500 148,500
------------- -------------
Total Current Liabilities 430,258 580,824
------------- -------------
Stockholders' Equity
Preferred Stock, Authorized 10,000,000 Shares,
$.01 Par Value, Issued and outstanding 0 - -
Common Stock, Authorized 100,000,000 Shares,
$.001 Par Value, Issued and Outstanding 76,816,922 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 $ 1,942,827 $ 2,085,458
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
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.
4
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
---------------------------
2005 2004
-------------- ------------
(Restated)
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 (131,551) (40,827)
Accrued Expenses (15) (9,818)
-------------- ------------
Net Cash Provided(Used) by Operating Activities (187,854) (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 - 137,886
Proceeds from stock issuance 15,500 35,000
-------------- ------------
Net Cash Provided (Used) by Financing Activities 15,500 172,886
-------------- ------------
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.
5
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Three Months Ended
March 31,
---------------------------
2005 2004
-------------- ------------
(Restated)
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.
6
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.
RESTATEMENT
Pursuant to a regulatory review, the financial statements for the year ended
December 31, 2004 have been changed. During 2004, the Company's President
loaned funds to the Company to meet its financial needs, however, a payment
back to Mr. Than was incorrectly recorded as a loan receivable to Mr. Than,
leaving a receivable and payable in the same amount. This officer receivable
has been offset against accounts payable and notes payable and when combined,
Mr. Than had an identical balance. The restatement caused a decrease in
loans to shareholder of $66,500, leaving a $0 balance, and caused a decrease
in accounts payable of $66,000 and a decrease in notes payable of $500. This
change carried forward to 2005 and as a result the loans to shareholder
decreased $62,000, once again leaving a $0 balance, and caused a decrease in
accounts payable of $61,500 and a decrease in notes payable of $500. The
restatement also required a change to the 2005 cashflow statement by removing
funds received from a shareholder and including it in the accounts payable
section.
7
In this report references to "View Systems," "we," "us," and "our" refer to
View Systems, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The SEC encourages companies to disclose forward-looking information so that
investors can better understand future prospects and make informed investment
decisions. This report contains these types of statements. Words such as
"may," "will," "expect," "believe," "anticipate," "estimate," "project," or
"continue" or comparable terminology used in connection with any discussion of
future operating results or financial performance identify forward-looking
statements. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this report.
All forward-looking statements reflect our present expectation of future
events and are subject to a number of important factors and uncertainties that
could cause actual results to differ materially from those described in the
forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
EXECUTIVE OVERVIEW
View Systems, Inc. develops, produces and markets computer software and
hardware systems for security and surveillance applications. Our principal
products include:
.. Visual First Responder - a lightweight, wireless camera system housed
in a tough, waterproof flashlight body.
.. SecureScan Concealed Weapons Detection System - a walk-through
concealed weapons detector which uses sensing technology and artificial
intelligence algorithms to accurately pinpoint the location, size and
number of concealed weapons.
.. ViewMaxx Digitial Video products - a high-resolution, digital video
recording and real-time monitoring system.
.. Biometric verification systems, magnetic door locks and central
monitoring or video command centers which can be combined with our
principal products.
Our revenues for the past two years have been from sales of our products and
our sales continued to increase in the 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 primarily on private financing to fund our operations, along with our
revenues. 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 substantial 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 sales and distribution network for the United States. We continue to
establish new partnerships, add active resellers and dealers. 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.
Our emphasis has been on marketing and sales programs through dealer channels,
plus internal marketing support for our products. We train our dealers and
support the dealer network by collaborating at customer demonstrations.
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
While our revenues are increasing, we are unable to satisfy our operating
expenses. Net cash used by operating activities was $187,854 for the three
month period ended March 31, 2005 (the "2005 first quarter") compared to
8
$185,863 for the three month period ended March 31, 2004 (the "2004 first
quarter"). For the 2004 first quarter we relied primarily on net cash
provided by financing activities of $172,886, consisting of debt financing of
$137,886 and proceeds of $35,000 received from sales of common stock. For the
2005 first quarter we financed our operations primarily with revenues of
$285,643 and we augmented the revenues with proceeds of $15,500 from the sale
of our common stock.
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 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.
We estimate that we will require additional financing of approximately $1
million to meet our needs for the next twelve months. We will likely finance
our 2005 operations through additional private financing. 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. Management believes that it will
be essential to continue to raise additional capital, both internally and
externally, to compete in our markets. We cannot assure you that we will be
able to obtain financing on favorable terms and, if not, then we may be
required to further reduce expenses and scale back our operations. In
addition to accessing the public and private equity markets, we will pursue
bank credit lines and equipment leases for certain capital expenditures, if
necessary.
COMMITMENTS AND CONTINGENT LIABILITIES
Our total current liabilities of $430,258 include accounts payable of
$115,225, accrued expenses of $100,533, accrued interest of $66,000 and notes
payable of $148,500. 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.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Estimates of
particular significance in our financial statements include annual tests for
impairment of our licenses. These estimates could be materially different if
we used a different set of standards than those described below. Also, events
beyond our control, such as changes in government regulations that may affect
the usefulness of our licenses or the introduction of new technologies that
compete directly with our technologies may affect the value of our licenses.
We first determine the value of the license using a projected cash-flow
analysis to determine the present value of cash flows. The test is done using
assumptions as to various scenarios of increases and decreases in the revenue
stream and applying a discount rate of 6%. If the value achieved under these
various methods is less than the carrying value of the assets then it is
considered that an impairment has occurred and the asset's carrying value is
adjusted to reflect the impairment.
Management also makes estimates on the useful life of our licenses based on
the following criteria:
.. Whether other assets or group of assets are related to the useful life
of the licenses,
9
.. Whether any legal, regulatory or contractual provisions will limit the
use of the assets,
.. We evaluate the cost of maintaining the license,
.. We consider the possible effects of obsolescence, and
.. Whether there is maintenance or any other costs associated with the
license.
RESULTS OF OPERATIONS
The following discussions are based on the 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
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)
Revenue is considered earned when the product is shipped to the customer. The
SecureScan product and the ViewMaxx product lines each require installation
and training. Training is a revenue source separate and apart from the sale
of the product. In those cases revenue is recognized at the completion of the
installation and training.
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 were approximately 94% of sales for the 2004 first
quarter due to selling products at reduced prices. Cost of sales dropped to
approximately 36% of sales for the 2005 first quarter due to selling an
increased amount of units at higher prices. As a result of the increase in
units sold at higher prices 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. General and administrative expenses increased
21.6% in the 2005 first quarter. Professional fees increased 59.0% in the
2005 first quarter as a result of contracts with engineers. Business
development expenses of $15,530 were also recorded in the 2005 first quarter
compared to no business development expenses in the 2004 first quarter. These
increases were offset by a 35.4% decrease in salaries and benefits related to
reductions in employees. Management anticipates that business development,
professional fees and general and administrative expense will remain at the
higher levels as we move forward with our business plan.
Total other expense for the 2004 first quarter was related to interest on
loans and was reduced to $0 for the 2005 first quarter. Interest expense will
likely increase if we obtain debt financing to provide the additional $1
million we will need for operations during the next twelve months.
10
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 substantial doubt whether we can
continue as a going concern.
We have incurred ongoing operating losses and do not currently have financing
commitments in place to meet expected cash requirements for the next twelve
months. 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 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.
11
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, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, he concluded that our disclosure controls and procedures were
effective.
Also, our Chief Executive Officer determined that there were no changes made
in our internal controls over financial reporting during the first quarter of
2005 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.
PART II: OTHER INFORMATION
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)
12
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: February 2, 2006 By: ______________________________________________
Gunther Than
Chief Executive Officer, Treasurer, Director
and Principal Financial Officer
/s/ Michael L. Bagnoli
Date: February 2, 2006 By: _____________________________________________
Michael L. Bagnoli
Secretary and Director