UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A #2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under section 12(b) or (g) of the Securities Exchange Act of 1934
Commission File Number: 0-30178
TEMS, INC
(Name of small business issuer in its charter)
FLORIDA
59-2928366
(States of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
925 W. Keynon Street , Suite 15, Englewood, CO 80110
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 783-9153
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
To be so registered each class is to be registered
N/A N/A
Securities registered under Section 12 (g) of the Exchange Act:
Common stock, par value $.001 per share
(Title of class)
(Title of class)
VIEW SYSTEMS, INC.
REPORT ON AUDITS OF CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
No extracts from this report may be published without our written consent.
Stegman & Company
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS Page
Balance Sheets I
Statements of Operations 2
Statement of Changes in
Stockholders' Equity 3
Statements of Cash Flows 4
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 5 -8
STEGMAN
& COMPANY
To the Board of Directors
and Sockholders
View Systems, Inc.
Columbia, Maryland
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders View Systems, Inc.
Columbia, Maryland
We have audited the accompanying consolidated balance sheet of
View Systems, Inc. (a development stage company) and subsidiaries
as of December 31, 1998, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for
the year then ended.
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audit.
The consolidated financial statements of View Systems, Inc. as
of December 31, 1997, were audited by other auditors whose report
dated July 23, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
View Systems, Inc. and subsidiaries as of December 31, 1998, and the
results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Stegman and Company
Baltimore, Maryland
May 15, 1999
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
CURRENT ASSETS:
Cash $167,953 $ 7
Due from affiliated
entity 3,663 3,090
Total current
assets 171,616 3,097
PROPERTY AND EQUIPMENT:
Equipment 20,763 18,263
Software
tools 7,825 7,825
28,588 26,088
Less accumulated
depreciation 20,759 16,874
Net value of
property and
equipment 7,829 9,214
OTHER ASSETS - Software
development costs 50,146 50,146
TOTAL ASSETS 22,591 62,457
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $23,773 $ 6,685
Loans payable -
stockholders 18,000 18,000
Total current
liabilities 41,773 24,685
STOCKHOLDERS' EQUITY:
Common stock 4,167 1,556
Additional paid-in
capital 406,403 169,145
Deficit accumulated
during development
stage (222,752) (132,929)
Total stockholders'
equity 187,818 37,772
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 229,591 $ 62,457
See accompanying notes.
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FROM JANUARY 26,1989
(INCEPTION) TO DECEMBER 31, 1998
Cumulative
Year Ended December 31, During
Development Cumulative
1998 1997 Stage
REVENUES EARNED - - 9,230
PERATING EXPENSES:
Advertising and promotion 1,140 1,222 15,165
Automobile - - 1,728
Depreciation 3,885 4,526 20,759
Dues and
subscriptions 250 - 250
Insurance 442 - 442
Interest 217 233 500
Miscellaneous expense 282 - 282
Office expenses 1,002 2,264 18,717
Professional fees 9,500 5,054 58,811
Consulting 45,415 - 45,415
Rent 16,325 8,375 31,518
Repairs and maintenance - - 3,570
Travel and
entertainment 11,040 720 27,296
Utilities 325 2,443 7,529
Total expenses 89,823 24,837 231,982
NET LOSS (89,823) (24,837) $(222,752)
LOSS PER SHARE:
Basic (.04) (.01)
Diluted (.04) (.01)
See accompanying notes.
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 26,1989
(INCEPTION) TO DECEMBER 31, 1998
Deficit
$.001 Par Value Accumulated
Common Stock Additional During the Total
Date of Number Paid-in Development Stockholders
Transaction of Shares Par Value Capital Stage Equity
Stock issued
for services
rendered 06/01/1990 5,000 $5,000
$
Net loss for
the period
January 26,
1989 to December
31, 1990 (5,000) (5,000)
Balance at
December 31, 1990 5,000 5,000 (5,000)
Balance at
December 31, 1991 5,000 5,000 (5,000)
Balance at
December 31, 1992 5,000 5,000 (5,000)
Balance at
December 31, 1993 5,000 5,000 (5,000)
Balance at
December 31, 1994 5,000 5,000 (5,000)
Balance at
December 31, 1995 5,000 5,000 (5,000)
Balance at
December 31, 1996 5,000 5,000 (5,000)
Balance at
December 31, 1997 5,000 5,000 (5,000)
Articles of incorporation restated.
Change par value to
$0.001 per
share 07/21/1998 (4,995) 4,995
Forward stock split
200:1 07/21/1996 995,000 995 (995)
Forward stock split
2:1 09/30/1998 1,000,000 1,000 (1,000)
Stock issuance in
conjunction with
Real View Systems, Inc.
business
combination 10/06/1998 2,000,000 2,000 153,570 (127,929) 27,641
Stock issuance - 504
public offering
11/16/1998 166,667 167 249,833 250,000
Net loss for
the year ended
December 31, 1998 (89,823) (89,823)
Balance at
December 31, 1998 $4,166,667 4,164 406,403 (222,752) 187,818
See accompanying notes.
3
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE PERIOD FROM JANUARY 26,1989
(INCEPTION) TO DECEMBER 31, 1998
Cumulative
During
Year Ended December 31. Development
1998 1997 Stage
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(89,823) $(24,837) $(222,752)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation 3,885 4,526 20,759
Expenses incurred for
issuance of stock - 830 10,601
Net changes in operating assets and liabilities:
Software development
costs - (13,792) (50,146)
Due (to) from affiliated
entity (573) 8,543 (3,663)
Accounts payable 17,088 6,687 23,773
Net cash used by
operating activities (69,423) (18,043) (221,428)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and
equipment (2,500) (4,050) (28,588)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans provided
by stockholders 13,000 18,000
Stock issuance costs - (2,900) (2,900)
Proceeds from issuance
of stock 239,869 12,000 402,862
Net cash provided by
financing activities 239,869 22,100 417,962
NET INCREASE IN CASH 167,946 7 167,946
CASH AT BEGINNING
OF YEAR 7 - 7
CASH AT END OF YEAR $167,953 7 167,953
See accompanying notes.
VIEW SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Qperations
View Systems, Inc. (the "Company") has been in the development
stage since its formation on January 26, 1989. It designs and
develops high technology software used in conjunction with
surveillance capabilities. The technology utilizes the compression
and decompression of digital inputs. Operations, since formation,
have been devoted primarily to raising capital, developing the
technology, promotion, and administrative functions.
Basis of Consolidation
The consolidated financial statements include the accounts of
View Systems, Inc. and its wholly owned subsidiary, Real View
Systems, Inc. All significant inter company accounts and
transactions have been eliminated in consolidation.
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, 1998
and 1997 amounted to $3,885 and $4,526, respectively.
Advertising
Advertising costs are charged to operations as incurred.
5
VIEW SYSTEMS, NC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
View Systems, Inc. (the "Company") has been in the development
stage since its formation on January 26, 1989. It designs and
develops high technology software used in conjunction with
surveillance capabilities. The technology utilizes the compression
and decompression of digital inputs. Operations, since formation,
have been devoted primarily to raising capital, developing the
technology, promotion, and administrative functions.
Basis of Consolidation
The consolidated financial statements include the accounts of
View Systems, Inc. and its wholly owned subsidiary, Real View
Systems, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Prope!:Iy 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, 1998 and 1997 amounted
to $3,885 and $4,526, respectively.
Advertising
Advertising costs are charged to operations as incurred.
5
Loss Per Share
Loss per share is computed by dividing the net
loss for the year by the weighted average number
of common shares outstanding.
Income Taxes
Income taxes are provided for the tax effects of
transactions reported in the financial statements
and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between
basis of assets and liabilities for financial statement
and 'income tax purposes.
The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which
will be either taxable or deductible when the assets or
liabilities are recovered or settled.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements 'in accordance with generally accepted accounting
principles. 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.
2. UNINSURED CASH BALANCES
The Company maintains its cash balances at a regional bank, located
in Laurel, Maryland.
Accounts at this institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances were
approximately $146,005 at December 31, 1998.
3. SOFTWARE DEVELOPMENT COSTS
The Company accounts for computer software development costs,
in accordance with Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Softvare to be Sold,
Leased, or Othervise Marketed. Capitalized costs will be amortized
over the estimated product life on the straight-line basis. At
December 31, 1998 and 1997, the Company has recorded no amortization
since a final product has yet to be completed and marketed.
4. RELATED PARTY TRANSACTIONS
The Company's major stockholders also own interests in a related
corporation - View Technologies, Inc. View Technologies, Inc. is
the owner of the source code of the software being developed, as
well as all enhancements, documentation and derivatives by the
Company. The two companies enter into various transactions throughout
the year to provide working capital to one another when necessary.
At December 31, 1998 and 1997, View Technologies, Inc. owed the Company
$3,663 and $3,090, respectively.
6
Additionally, the Company has entered into a licensing agreement with
View Technologies, Inc. Under the terms of this agreement, the Company
will pay a source code license fee in an amount equal to 5% of gross
sales derived from use of the software to View Technologies, Inc. Payment
of this fee will cease when total fees of $50,000 have been paid. In
addition, upon delivery of a copy of the software to a customer, the
Company wiII remit a sublicense fee equal to 5% of gross sales to View
Technologies, Inc. This software license agreement commenced in October
1997 and has a ten year term. At December 31, 1998, the Company has yet
to generate any sales with respect to this agreement.
5. LOANS PAYABLE - STOCKHOLDERS
Certain stockholders have made loans to the Company. These loans have no
specific repayment terms. These individuals have been issued stock as
compensation in place of interest payments.
6. STOCK OFFERING
On November 16, 1998, the Company commenced a private placement stock
offering for 650,000 shares of common stock. The offering was
successfully concluded on February 8, 1999 with the sale of 650,000
shares and total proceeds to the Company of $1,000,000. As of
December 31, 1998, 166,667 shares of the 650,000 shares offered were
sold resulting in proceeds of $250,000. The total proceeds of the
offering will be used by the Company to fund its operations and other
capital needs for the coming year.
7, INCOME TAXES
The components of the net deferred tax asset and liability as of
December 31, 1998 are as follows:
Effect of net operating loss carry forward $49,000
Less valuation allowance (49,000)
Net deferred tax asset (liability) $ -
The Company has recorded a valuation allowance in an amount
equal to the deferred tax asset resulting from its net operating
loss carryforward. The Company believes this to be appropriate
due to its status as a development stage company.
The Company has net operating loss carryforwards of
approximately $222,750 at
December 31, 1998.
7
8. BUSINESS COMBINATIONS - POOLING OF INTERESTS
On October 6, 1998, the Company completed its acquisition
of Real View Systems, Inc. in Columbia, Maryland. As provided
under the terms of the merger agreement, Real View Systems,
Inc. became a wholly owned subsidiary of the Company and each
of the outstanding shares of the common stock of Real View
Systems, Inc. was converted into 1.33 shares of the Company's
common stock. The Company issued 2,000,000 shares of its common
stock in connection with the merger.
This acquisition was accounted for as a pooling of interests and
all financial statements and financial information contained
herein have been restated to include the accounts and results of
operations of these companies for all periods presented.
On February 25, 1998, the Company acquired Xyros Systems, Inc.
of Columbia, Maryland, a developer of a computer based system
that captures video and audio data from surveillance equipment,
transmits and stores it within standard personal computer systems.
Under the terms of the merger agreement, each of the 100 shares
of Xyros Systems, Inc.'s common stock will be exchanged for 1,500
shares of the Company's common stock. The transaction was completed
in the first quarter of 1999 and was accounted for as a pooling of
interest.
9. SUBSEQUENT EVENTS
During the first quarter of 1999, a letter of intent to purchase
Eastern Tech Manufacturing, Inc. was entered into by the Company.
Eastern Tech Manufacturing, Inc. deals *in the production of
computer parts and accessories. The merger agreement is expected
to be consummated as a pooling of Interests during the second
quarter of 1999.
8
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS:
Cash $399,867 $169,899
Due from affiliated
entities 208,243 3,663
Accounts receivable 23,473 13,599
Inventory 5,774 4,574
Investment in MediaComm
Broadcasting, Inc. -
at fair value which
approximates cost 28,000
Total current assets 665,357 191,735
PROPERTY AND EQUIPMENT:
Equipment 133,635 22,429
Software tools 10,263 10,263
143,898 32,692
Less accumulated
depreciation 21,580 21,580
Net value of property
and equipment 122,318 11,112
OTHER ASSETS -
Software developmental
costs 72,223 72,223
TOTAL ASSETS 859,898 275,070
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $24,919 $ 30,071
Loans payable -
stockholders 170,677 238,000
Note payable - bank 75,000
Taxes payable 1,473 2,915
Total current
liabilities 272,069 270,98
STOCKHOLDERS' EQUITY:
Common stock - par
value $.01, 50,000,000
shares authorized,
issued and outstanding
4,816,667 (March 31, 1999)
and 4,316,667
(December 31, 1998) 4,817 4,317
Additional paid-in
capital 1,153,503 406,253
Deficit accumulated
during development
stage (570,491) (406,486)
Total stockholders'
equity 587,829 4,094
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 859,898 275,070
See accompanying notes.
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
from
Three Months Ended Years Ended January 26, 1989
March 31 March 31, December 31,- (Inception) to
1999 1998 1998 1997 March 31, 1999
(Unaudited) (Unaudited)
REVENUE:
Sales and other
income $ 19,117 $ $ 31,438 $50,555
Cost of goods
sold 1,206 20,891 22,097
GROSS PROFIT ON
SALES 17,911 10,547 28,458
OPERATING EXPENSES:
Advertising and promotion 3,959 1,222 17,894
Automobile 65 - - 1,728
Depreciation 8 4,706 4,526 21,580
Dues and subscriptions 219 250 - 250
Insurance 1,108 1,268 1,268
Interest 6,477 114 10,054 233 10,337
Miscellaneous expense 944 27 1,343 - 27,556
Office expenses 34,701 106,375 2,264 135,008
Professional fees 61,974 10,819 5,054 60,130
Consulting 2,657 - 45,415 - 45,415
Rent 3,900 2,925 52,204 8,375 67,397
Repairs and maintenance 1,960 - - - 3,570
Research and development 2,698 -
Salaries and benefits 49,429 - - -
Travel and entertainment 11,893 178 13,465 720 31,361
Utilities 3,983 64 4,246 2,443 11,450
Total expenses 181,916 3,308 254,104 24,837 434,944
NET LOSS (164,005 (3.308) $(243,557) (24,837) (406,486)
LOSS PER SHARE:
Basic (.04) (.001) (.06) (.01)
Diluted (04) (.001) (.06) (.01)
See accompanying notes.
2
VIEW SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1997 TO MARCH 31, 1999 (UNAUDITED)
Deficit
Accumulated Total
Additional During the Stockholders'
Common Paid-in Development Equity
Stock Capital Stage (Deficit)
Balance at January 1, 1997 $4,150 $ 156,570 $(138,092) $ 22,628
Net loss - (24,837) (24,83
Balance at December 31, 1997 4,150 156,570 (162,929) (2,209)
Sale of common stock 167 249,833 250,000
Net loss - (243,557) (243,55
Balance at December 31, 1998 4,317 406,403 (406,486) 4,234
Sale of common stock 500 747,100 747,600
Net loss - (164,005) (164,
Balance at March 31,
1999 (Unaudited) $(4,817) (1,153,503) $(570,491) $587,829
See accompanying notes.
3
VIEW SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
from
Three Months Ended Years Ended January 26, 198
March 3 1, March 31, December 31, (Inception) to
1999 1998 1998 1997 March 31, (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(164,005) $(3,308) $(243,557) S(24,837) $(570,491)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,706 4,526 21,580
Changes in operating assets and liabilities:
Accounts receivable (9,894) (13,599) - (23,473)
Inventory (1,200) (4,574) (5,774)
Software development costs - (22,077) (13,792) (72,223)
Due (to) from affiliated entity (204,580) 3,090 (573) 8,543 (208,243)
Accounts payable (5,153) 749 23,386 7,517 24,919
Taxes payable (1,442 - 2,915 - 1,473
Net cash (used) provided by
operating activities (386,254) 531 (253,373 (18,043 (832,232
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment (111,205) (2,500) (6,604) (4,050) (143,898)
Investment in MediaCornm Broadcasting, Inc. (28,000 - - - (28.000
Net cash used in
investing activities (139,205) (2,500) (6,604) (4,050) (171,898
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans provided by stockholders 20,150 - 189,850 13,000 170,677
Proceeds from loans payable (12,323) 3,128 - - 75,000
Proceeds from issuance of stock 747,600 - 240,019 9,100 1,158,320
Net cash provided by
financing activities 755,427 3,128 429,869 22,100 1,403,997
NET INCREASE IN CASH 229,968 1,159 169,892 7 399,867
CASH AT BEGINNING OF PERIOD 169,899 7 7 - -
CASH AT END OF PERIOD 399,867 1,166 169,899 7 399,867
set~ accompanying notes.
4
VIEW SYSTEMS, INC. AND SUSIDIARIES,INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 December 31
1999
1998
(unaudited)
CURRENT ASSETS:
Cash $ 44,265 $ 169,899
Accounts receivable 14,751 13,599
Inventory - at lower of cost or market 88,897 41574
Due from affiliated entities 385,705 3,663
Total current assets 533,618 191,735
PROPERTY AND EQUIPMENT
Machinery and other equipment 526,607 22,429
Software tools 7,825 10,263
534,432 32,692
Less accumulated depreciation 116,560 21,580
Net value of property and equipment 417,872 11,112
OTHER ASSETS:
Investment in MediaComm Broadcasting, Inc. - at
cost which approximates fair value 28,000 -
Software development costs 57,527 72,223
INTANGIBLE ASSETS - net of accumulated amortization 491,216 -
TOTAL ASSETS 1,528,233 $ 275,070
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 50,282 $ 30,071
Accrued interest payable 5,500 -
Loans payable - stockholders 327,097 163,000
Note payable - bank 71,500 75,000
Taxes payable 21,180 21915
Total current liabilities 475,559 270,986
STOCKHOLDERS' EQUITY:
Common stock - par value $.001, 50,000,000 shares
authorized, issued and outstanding -
5,595,667 ( June 30, 1999) and 4,316,667 ( December 31, 1998) 5,596 4,317
Additional paid in capital 2,165,671 406,253
Deficit accumulated during development stage (1,118,593) (406,486
Total stockholders' equity 1,052,674 4,084
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY S 1,528,233 $ 275,070
See accompying notes,
VIEW SYSTEMS, INC. AND SUSIDIARIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,1999 AND 1998
1999 .1998
(unaudited) (unaudited)
REVENUE:
Sales and other income $ 41,260 $16,953
Cost of goods sold 12,869 3,887
GROSS PROFIT ON SALES 28,391 13,066
OPERATING EXPENSES:
Advertising and promotion 8,440 2,819
Amortization 4,128 -
Automobile expenses 1,221 -
Commissions 1,000 -
Depreciation 6,624 -
Dues and subscriptions 319 -
Insurance 6,195 488
Interest 11,990 1,617
Investor relations 2,811 -
Miscellaneous expenses 1,660 197
Office expenses 22,290 2,638
Postage and delivery 2,878 226
Printing and reproduction 21,637 -
Professional fees 136,160 9,901
Rent 22,900 14,746
Repairs and maintenance 3,523 -
Research and development 2,698 2,538
Salaries and benefits 431,457 31,894
Taxes 808 3,065
Telephone 6,800 582
Travel expenses 37,963 981
Utilities 6,997 -
Total expenses 740,499 71,692
NET LOSS $ (712,108 $ (58,626
LOSS PER SHARE:
Basic $ (0.14 $ (0.01
Diluted $ (0.14 $ (0.01
See accompanying notes.
VIEW SYSTEMS, INC. AND SUBSIDIARIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,1999 AND 1998
1999 1998
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (712,108) $ (58,626)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 31,848 -
Employee compensation paid through the issuance of common stock 277,000 -
Changes in operating assets and liabilities:
Accounts receivable 79,838 -
Inventory (54,113) -
Accounts payable 4,415 749
Accrued interest payable 5,500 -
Taxes payable 14,915
(352,705 (57,877
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment 4,940
Amounts advanced to/from affiliated entities (382,042) 3,090
Investment in MediaComm Broadcasting, Inc. (28,000) -
(405,102 3,090
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans provided by stockholders - 57,280
Repayment of loans to stockholders (61,927) -
Repayment of note payable - bank (3,500)
Proceeds from issuance of common stock 747,600
Redemption of Stock (50,000 -
632,173 57,280
NET DECREASE IN CASH (125,634) 2,493
CASH AT BEGINNING OF PERIOD 169,899 7
CASH AT END OF PERIOD $ 44,265 $ 2,500
Schedule of non cash investing and financing transactions:
Stock issued to effect purchase of Eastern Technologies, Inc. $ 787,500 $ -
Debt issued to effect purchase of Eastern Technologies, Inc. $ 148,184 $
Cash paid during the period for:
Interest $ 6,490 $
Income taxes
See accompanying notes.
VIEW SYSTEMS, INC. AND SUBSIDIARIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Common Additional Retained
Stock Paid-In Capital
Earnings
Balance at January 1, 1998 S 4,150 156,570 (162,928)
Net loss - - (59,626)
Balance at June 30,1998 4,150 156,570 (221,554)
Sale of common stock 167 249,683
Net loss - (184,931)
Balance at December 31, 1998 4,317 406,253 (406,485)
Sale of common stock 500 745,697
Redemption of common stock (25) (49,975)
Issuance of common stock (employee
compensation) 554 276,446
Issuance of common stock
(Eastern Tech acquisition) 250 787,250
Net loss (712,109)
Balance at June 30, 1999 5,596 $ 2,165,671 (1,118,593)
See accompanying notes.
VIEW SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997 AND THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
View Systems, Inc. (the "Company") has been in the development
stage since its formation on January 26, 1989. It designs and
develops high technology software used in conjunction with
surveillance capabilities. The technology utilizes the compression
and decompression of digital inputs. Operations, since formation,
have been devoted primarily to raising capital, developing the
technology, promotion, and administrative functions.
Basis of Consolidation
The consolidated financial statements include the accounts of
View Systems, Inc. and its wholly owned subsidiaries, Real View
Systems, Inc. and Xyros Systems, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
The Company and its subsidiaries recognize revenue and the related
cost of goods sold upon shipment of the product.
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, 1998 and 1997 amounted to
$4,706 and $4,526, respectively.
Advertising
Advertising costs are charged to operations as incurred.
Loss Per Share
Loss per share is computed by dividing the net loss for the period by the
weighted average number of common shares outstanding.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between
basis of assets and liabilities for financial statement and income tax
purposes.
The deferred tax. assets and liabilities represent the future tax return
consequences of those differences, which will be either taxable or
deductible when the assets or liabilities are recovered or settled.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. 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.
2. UNINSURED CASH BALANCES
The Company maintains its cash balances at a regional bank, located in
Laurel, Maryland.
Accounts at this institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances were
approximately $69,899 at December 31, 1998.
3. INVESTMENT IN MEDIACOMM BROADCASTING, INC.
During the three months ended March 31, 1999, the Company
purchased 280,000 shares of MediaComm Broadcasting, Inc., a
privately held corporation based in Denver, Colorado which
develops and/or acquires new internet related technologies.
As an available-for-sale investment security, it is being
carried at fair value as of March 31, 1999 which approximates
its fair value.
4. SOFTWARE DEVELOPMENT COSTS
The Company accounts for computer software development costs, in
accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of ConWuter Software to be Sold, Leased, or
Otherwise Marketed. Capitalized costs will be amortized over the
estimated product life on the straight-line basis. As of March 31,
1999, the Company has recorded no amortization since a final product
has yet to be completed and marketed.
6
5. RELATED PARTY TRANSACTIONS
The Company's major stockholders also own interests in a related
corporation - View Technologies, Inc. View Technologies, Inc. is
the owner of the source code of the software being developed, as
well as all enhancements, documentation and derivatives by the Company.
The two companies enter into various transactions throughout the year
to provide working capital to one another when necessary. At March 31,
1999 and December 31, 1998, View Technologies, Inc. owed the Company
$114,924 and $3,663, respectively.
Additionally, the Company has entered into a licensing agreement with
View Technologies, Inc. Under the terms of this agreement, the Company
will pay a source code license fee in an amount equal to 5 % of gross
sales derived from use of the software to View Technologies, Inc. Payment
of this fee will cease when total fees of $50,000 have been paid. In
addition, upon delivery of a copy of the software to a customer, the
Company will remit a sublicense fee equal to 5 % of gross sales to View
Technologies, Inc
re license agreement commenced in October 1997 and has a ten year term.
At March 31, 1999, the Company has yet to generate any sales with
respect to this agreement.
6. LOANS PAYABLE - STOCKHOLDERS
Certain stockholders have made loans to the Company. These loans have
no specific repayment terms or interest rates. It is the Company's
intention to repay these loans within the next six months with the
proceeds from equity issues.
7. NOTE PAYABLE -BANK
One of the Company's subsidiaries has a demand note payable with a bank
with an outstanding balance of $75,000 as of March 31, 1999. The note
bears interest at 10.5% per annul payable monthly and is personally
guaranteed by a stockholder of the Company.
8. STOCK OFFERING
On November 16, 1998, the Company commenced a private placement
stock offering for 650,000 shares of common stock. The offering
was successfully concluded on February 8, 1999 with the sale of
650,000 shares and total proceeds to the Company of $1,000,000.
The total proceeds of the offering will be used by the Company to
fund its operations and other capital needs for the coming year.
9. RESTRICTED SHARE PLAN
The Company has approved a restricted share plan under which shares
of the Company will be granted to officers, employees and directors
at the discretion of the Board of Directors. The Company has reserved
775,000 shares for this plan. No shares have been granted as of March
31, 1999.
7
10. INCOME TAXES
The components of the net deferred tax asset and liability
as of March 31, 1999 and December 31, 1998 are as follows:
March 3 1, December 3 1,
1999 1998
(Unaudited)
Effect of net operating loss carryforward $171,000 $108,000
Less valuation allowance (171,000 (108,000
Net deferred tax asset (liability) - $ -
The Company has recorded a valuation allowance in an amount
equal to the deferred tax asset resulting from its net operating
loss carryforward. The Company believes this to be appropriate
due to its status as a development stage company.
The Company has net operating loss carryforwards of
approximately $375,000 at December 31, 1998 which,
due to ownership changes, will be limited in annual usage.
11. BUSINESS COMBINATIONS
On October 6, 1998, the Company completed its acquisition of
Real View Systems, Inc. in Columbia, Maryland. As provided under
the terms of the merger agreement, Real View Systems, Inc. became
a wholly owned subsidiary of the Company and each of the outstanding
shares of the common stock of Real View Systems, Inc. was converted
into 1.33 shares of the Company's common stock. The Company issued
2,000,000 shares of its common stock in connection with the merger.
This acquisition was accounted for as a pooling of interests and all
financial statements and financial information contained herein have
been restated to include the accounts and results of operations of
these companies for all periods presented.
On February 25, 1998, the Company acquired Xyros Systems, Inc. of
Columbia, Maryland, a developer of a computer based system that
captures video and audio data from surveillance equipment, transmits
and stores it within standard personal computer systems. Under the
terms of the merger agreement, each of the 100 shares of Xyros Systems,
Inc.'s common stock will be exchanged for 1,500 shares of the Company's
common stock. This acquisition was accounted for as a pooling of interest
and all financial statements
l information contained herein have been restated to include the
amounts and results of operations of these companies for all periods
presented.
12. PROPOSED ACQUISITION
During the first quarter of 1999, a letter of intent to purchase
Eastern Tech Manufacturing, Inc. was entered into by the Company.
Eastern Tech Manufacturing, Inc. deals in the production of computer
parts and accessories. The merger agreement is expected to be consummated
as a purchase during the second quarter of 1999.
8
VIEW SYSTEMS, INC
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE I - General
Reclassification
Certain amounts for 1998 have been reclassified to conform to the
1999 presentation
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires
management to make estimates that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Estimates are used when accounting for uncollectible accounts
recievable inventory valuation, depreciation, and amortization,
intangable assets and contingencies, among others. Actual results
could vary from those estimates.
NOTE 2 - Loss Per Share
Basic and fully diluted loss per share have been calculated by the
dividing the loss by the weighted average
shares OutStanding during each of the periods presented
.
NOTE 3 - Due From Affiliated Entities
Due from affiliated entities includes amounts due from a member of the
Board of Directors andr j senior management and a company under his
control. The amounts due during tile third quarter through equity
transaction.
NOTE 4 - Intangible Assets
Intangible assets consist of goodwill created by the purchase
acquisition of Eastern Technologies, Inc., This good
will is being amortizized on a straight line basis over a ten year period.
NOTE 5 - Loans Payable - Stockholders
Loans payable - stockholders consist of amounts dues to stockholders
which will be converted common stock during the third quarter.
NOTE 6 - Income Taxes
The Company is in a net operating loss (NOL) carryforward position
for book and tax purposes; No tax benefit will be recognized until
taxable income is recognized
NOTE 7 - Business Combination
During the quarter ended June 30, 1999, the Company acquired all of
the outstanding common stock of Eastern
Technologies, Inc., a closely held company located in
Columbia Maryland. The business combination was
accounted for as a purchase and resulted in the creation
of the goodwill in the amount of $495,34
