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U.S. 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 June 30, 2000
|_| TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-30178
VIEW SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Florida 59-2928366
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
925 West Kenyon Avenue,
Englewood, Colorado 80110
(Address of Principal Executive Offices)
(303) 783-9153
(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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No __
APPLICABLE ONLY TO CORPORATE FILERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,539,095 shares of common stock as
of July 26, 2000.
Transitional Small Business Disclosure Format (check one): Yes __ No X
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I Financial Statements........................................F-1
Consolidated Balance Sheet.........................................F-1
Consolidated Statement of Operations...............................F-2
Consolidated Statement of Stockholder's Equity.....................F-3
Statement of Cash Flows............................................F-4
Notes to Interim Financial Statements..............................F-5
Management Discussion and Analysis...................................3
PART II..............................................................8
Legal Proceedings....................................................8
Changes In Securities................................................9
Defaults Upon Senior Securities......................................9
Submission of Matters To A Vote of Security Holders..................9
Other Information....................................................9
Exhibits And Reports On Form 8-K.....................................9
</TABLE>
ITEM 1. FINANCIAL STATEMENTS
SEE NEXT PAGE
2
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VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 91,529 $ 89,150
Accounts receivable 112,571 93,278
Inventory 186,642 141,213
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Total current assets 390,742 323,641
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PROPERTY AND EQUIPMENT:
Equipment 359,884 344,638
Leasehold improvements 20,261 4,000
380,145 348,638
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Less accumulated depreciation (72,079) (48,296)
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Net value of property and equipment 308,066 300,342
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OTHER ASSETS:
Goodwill 952,956 1,007,518
Investments 28,000 28,000
Due from affiliated entity 76,483 90,990
Due from stockholders 109,362 74,362
Deposits 7,469 7,007
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Total other assets 1,174,270 1,207,877
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TOTAL ASSETS $ 1,873,078 $ 1,831,860
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 257,617 $ 174,106
Note payable - bank 66,564 69,730
Notes payable - stockholders 110,000 110,000
Accrued interest payable 16,500 11,000
Other accrued liabilities 24,645 19,163
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Total current liabilities 475,326 383,999
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STOCKHOLDERS' EQUITY:
Common stock - par value $0.001
50,000,000 shares authorized,
8,386,080 shares issued and outstanding 8,386 --
7,167,203 shares issued and outstanding -- 7,167
Additional paid-in capital 6,059,329 5,334,342
Accumulated deficit (4,669,963) (3,893,648)
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Total stockholders' equity 1,397,752 1,447,861
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,873,078 $ 1,831,860
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</TABLE>
F1-See Accompanying Notes
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VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30 June 30, June 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
REVENUE:
Sales of security systems $ 97,360 $ 11,647 $ 115,260 $ 11,647
Sales of assembled electronic components 133,720 29,613 226,232 29,613
--------- --------- --------- ---------
Total sales 231,080 41,260 341,492 41,260
Cost of goods sold 130,361 12,869 190,756 12,869
--------- --------- --------- ---------
GROSS PROFIT ON SALES 100,719 28,391 150,736 28,391
--------- --------- --------- ---------
OPERATING EXPENSES:
Advertising and promotion 962 8,440 11,380 8,440
Amortization 27,281 4,128 54,562 4,128
Depreciation 9,221 6,616 22,111 6,624
Dues and subscriptions 1,426 100 2,246 319
Insurance 4,847 5,087 7,480 6,195
Interest 5,358 10,630 11,548 11,990
Investor relations -- 2,811 33,865 2,811
Miscellaneous expense 740 13,720 2,439 14,403
Office expenses 29,993 11,593 66,209 43,281
Professional fees 74,878 71,529 171,256 136,160
Rent 26,859 19,400 54,844 22,900
Repairs and maintenance 2,514 1,563 7,007 3,523
Research and development 45,537 2,698 109,302 2,698
Salaries and benefits 151,889 431,457 282,929 431,457
Sales promotions 21,741 -- 48,254 --
Taxes - other 100 808 4,305 808
Travel 12,625 26,450 29,530 37,963
Utilities 4,799 3,635 7,784 6,800
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Total operating expenses 420,770 620,665 927,051 740,499
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NET LOSS FOR THE PERIODS $(320,051) $(592,274) $(776,315) $(712,108)
--------- --------- --------- ---------
--------- --------- --------- ---------
LOSS PER SHARE:
Basic $ (0.04) $ (0.12) $ (0.10) $ (0.14)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ (0.04) $ (0.12) $ (0.10) $ (0.14)
--------- --------- --------- ---------
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</TABLE>
F2-See Accompanying Notes
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VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at January 1, 1999 $ 4,167 $ 406,253 $ (222,752) $ 187,668
Sale of common stock 500 747,100 -- 747,600
Net loss for the six months
ended June 30, 1999 -- -- (712,108) (712,108)
----------- ----------- ----------- -----------
Balances at June 30, 1999 (Unaudited) 4,667 1,153,353 (934,860) 223,160
Sale of common stock 452 678,277 -- 678,729
Redemption of common stock (191) (396,590) -- (396,781)
Issuance of common stock
(employee and other compensation) 1,469 2,145,864 -- 2,147,333
Issuance of common stock
(Xyros acquisition) 150 562,350 -- 562,500
Issuance of common stock
(ETMC acquisition) 250 787,250 -- 787,500
Issuance of common stock
(debt conversion) 370 403,838 -- 404,208
Net loss for the period of July 1, 1999
to December 31, 1999 -- -- (3,231,227) (3,231,227)
----------- ----------- ----------- -----------
Balances at December 31, 1999 7,167 5,334,342 (3,893,648) 1,447,861
Sale of common stock 1,134 724,142 -- 725,276
Stock options exercised 85 845 -- 930
Net loss for the six months
ended June 30, 2000 -- -- (776,315) (776,315)
----------- ----------- ----------- -----------
Balances at June 30, 2000 (Unaudited) $ 8,386 $ 6,059,329 $(4,669,963) $ 1,397,752
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</TABLE>
F3-See Accompanying Notes
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VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(776,315) $(712,108)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 76,673 31,848
Employee compensation paid with stock -- 277,000
Changes in operating assets and liabilities:
Accounts receivable (19,293) ( 79,838)
Inventory (45,429) ( 54,113)
Deposits and other assets ( 462) --
Accounts payable 85,184 4,415
Accrued interest 5,500 5,500
Other accrued liabilities 5,482 14,915
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Net cash used in operating activities (668,660) (352,705)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (31,507) ( 4,940
Funds advanced to affiliated entities (14,507) (382,042)
Investment in MediaComm Broadcasting, Inc. -- ( 28,000)
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Net cash used in investing activities ( 17,000) (405,102)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders (35,000) ( 61,927)
Repayment of note payable - bank ( 3,166) ( 3,500)
Proceeds from sales of stock 726,205 747,600
Redemption of stock -- ( 50,000)
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Net cash provided by financing activities 688,039 632,173
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NET INCREASE (DECREASE) IN CASH 2,379 (125,634)
CASH AT BEGINNING OF PERIOD 89,150 169,899
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CASH AT END OF PERIOD $ 91,529 $ 44,265
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</TABLE>
F4-See Accompanying Notes
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VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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.
Operations, from formation to June 30, 1999, have been devoted primarily to
raising capital, developing the technology, promotion, and administrative
function. As of July 1, 1999 the Company was no longer considered to be in the
development stage.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Xyros Systems, Inc. ("Xyros") and
Eastern Tech Manufacturing, Inc. ("ETMC"). 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 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.
REVENUE RECOGNITION
The Company and its subsidiaries recognize revenue and the related
cost of goods sold upon shipment of the product.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in-first-out method (LIFO).
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 or computing depreciation are as follows:
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<S> <C>
Equipment 5-7 years
Software tools 3 years
</TABLE>
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 June 30, 2000 and 1999 amounted to $22,111 and $6,624
respectively.
F5
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VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles (including
goodwill) to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount should be addressed.
Impairment is measured by comparing the carrying value to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition.
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 6 months ended June 30, 2000 were $11,380.
MONETARY 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 ("Basic EPS") 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 ("Diluted
EPS") 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 June 30, 2000
does not include potential shares of common stock equivalents, as their impact
would be antidilutive.
F6
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VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT REPORTING
The company has determined that it does not have any separately
reportable operating segments as of June 30, 2000.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses
and as of June 30, 2000 had an accumulated deficit of $4.7 million. The Company
believes that it will incur operating losses for the foreseeable future. There
can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability in the future. However, the Company
believes that its current cash and cash equivalents, along with sales revenue
and anticipated equity infusions, will be sufficient to sustain operations
through June 30, 2001.
F7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with our audited and un-audited financial statements and the notes thereto
included in this Report.
OVERVIEW
We have two business lines. We develop, produce and sell a family of
closed circuit television - CCTV digital recording and video management products
and digital identification products based on our proprietary software. These
products are used for security and surveillance. We also provide contract
manufacturing services for electronic components and systems.
Our business depends on the profitability of our products. We began
providing contract manufacturing services in May, 1999, when we acquired Eastern
Tech Manufacturing Corp. Eastern Tech had provided such services for more than
15 years and had an established customer basis. We have continued the contract
manufacturing business line, while converting Eastern Tech's manufacturing
capacity to production of our products.
RESULTS IN OPERATIONS
Six Months Ended June 30, 2000, Compared With Six Months Ended June 30, 2000
REVENUE
For the six months ended June 30, 2000, revenues from sales of our
products increased $103,613 or 990% to $115,260 from $11,647 in the year ago
period, and revenues from sales of our services grew $196,619 or 764% to
$226,232 from $29,613 in the year ago period. We began receiving revenues from
services after May 25, 1999, when we acquired Eastern Tech, and, therefore, our
service revenue figures for the year ago period ended June 30, 1999, do not
include a full three months of operations. Of the $341,492 in total revenue
during the six month period ended June 30, 2000, $115,260 or 34% of our revenue
was derived from sales of systems and $226,232 or 66% from sales of contract
manufacturing services.
NET SALES AND GROSS PROFIT ON SALES
Gross profit on sales for the six months ended June 30, 2000, increased
$122,345 or 531% to $150,736 compared with $28,391 in the year ago period. Gross
profit margin for the six months ended June 30, 2000, was 44% compared with 69%
in the year ago period. Because of low net sales we achieved in the year ago
period ended June 30, 1999, we do not believe growth profit margin comparisons
are meaningful.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 2000, increased to
$927,051, compared with $740,499 for the comparable period in 1999. The increase
is principally due to increased expenditures in the areas of research and
development, sales and marketing and amortization of goodwill associated with
acquisitions in 1999.
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As a result of the foregoing, net loss was $(776,315) for the six
months ended June 30, 2000, compared to a net loss of $(712,108) for the six
months ended June 30, 1999.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD. The cost of products and services sold, was
$190,756 for the six months ending June 30, 2000, and represented 56% of
revenue for the period, compared with $12,869 for the six months ending June
30, 1999. Because of our low sales volume in the year ago period, we do not
consider the costs of goods sold in the year ago period to be a good measure
of our true costs of goods sold. As our product sales increase and account
for a larger percentage of our overall sales, we expect that our costs of
goods and services sold will decline as a percentage of total revenue. We
anticipate that our profit margins on sales of security systems will exceed
our profit margins on sales of services. We are continually working on
engineering changes in our security products that we expect will lower
component costs for these products.
AMORTIZATION. We acquired Xyros Systems, Inc. on February 25, 1999,
and Eastern Tech Manufacturing Corp. on May 25, 1999, and accounted for both
acquisitions under the purchase method of accounting. We recorded goodwill
for the Xyros combination of $802,069 and $495,344 for the Eastern Tech
combination, all of which was determined based on the difference between the
fair market value of what we paid for Xyros and Eastern Tech and the fair
value of their net assets. During the fourth quarter of 1999, we conducted a
thorough review of the acquired companies operations, including their current
customer base, current production capacity, and job order backlog, in
accordance with SFAS #121 and made necessary adjustments to the values
maintained on the balance sheet. For the six months ended June 30, 2000, we
recorded amortization expense for this goodwill of $54,562 based on this
schedule.
RESEARCH AND DEVELOPMENT EXPENSE. We spent $109,302 on research and
development for the six months ended June 30, 2000, as compared with $2,698 in
the year ago period. Our R&D expenditures in the six months ended June 30, 2000,
represented 73% of revenue for this period. We continue work on enhancements and
upgrades to our existing products and introduced a redesigned base model
SecureView-4 product to the market in April, 2000. We are working on introducing
additional products to the market in 2000. We expect continued heavy
expenditures in this area, evidencing our commitment to develop industry leading
video management and identification products.
SALARIES AND BENEFITS. We spent $282,929 on salaries and benefits for
the six months ended June 30, 2000, as compared with $431,457 in the year ago
period. We recognized a $277,000 salary expense associated with offering stock
as compensation for the six months ended June 30, 1999, and we did not record a
comparable ????? in the month period ended June 30, 2000. We have increased
expenditure on salaries and fees for sales and marketing personnel, including
consultants, and we incurred $48,254 on sales and promotional expenses for the 6
month period ended June 30, 2000, with no comparable expense in the year ago
period.
4
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Three Months Ended June 30, 2000, Compared With Three Months Ended June 30, 1999
REVENUE
For the three months ended June 30, 2000, revenues from sales of our
products increased $85,713 or 838% to $97,630 from $11,647 in the year ago
period, and revenues from sales of our services grew $104,107 or 452% to
$133,720 from $29,613 in the year ago period. We only began receiving revenues
from services after May 25, 1999, when we acquired Eastern Tech, and, therefore,
our service revenue figures for the year ago period ended June 30, 1999, do not
include a full three months of operations. Of the $231,080 in total revenue
during the three month period ended June 30, 2000, $97,360_or 42% of our revenue
was derived from sales of systems and $133,720 or 58% from sales of contract
manufacturing services. We expect sales of our products to continue becoming a
larger percentage of our overall revenues, as we begin converting our
manufacturing capacity to production of our products.
GROSS PROFIT ON SALES
Gross profit on sales for the three months ended June 30, 2000,
increased $72,328 or 354% to $100,719 compared with $28,391 in the year ago
period. Gross profit margin for the three months ended June 30, 2000, was 44%
compared with 69% in the year ago period. Because of low net sales we achieved
in the year ago period ended June 30, 1999, we do not believe growth profit
margin comparisons provide meaningful information.
OPERATING EXPENSES
Operating expenses for the three months ended June 30, 2000, decreased
to $420,770, compared with $620,665 for the comparable period in 1999. The
decrease is principally due to the fact that did not have comparable stock
issuances as employee compensation in the period ended June 30, 2000, as we did
for the year ago period. We have increased expenditures in the areas of research
and development, sales and marketing and write-offs of goodwill associated with
acquisitions we did in 1999.
As a result of the foregoing, net loss was $(320,051) for the three
months ended June 30, 2000, compared to a net loss of $(592,274) for the three
months ended June 30, 1999.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD. The cost of products and services sold, was
$130,361 for the three months ending June 30, 2000, and represented
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56% of revenue for the period, compared with $12,869 for the three months ending
June 30, 1999. Because of our low sales volume in the year ago period, we do not
consider the costs of goods sold in the year ago period to be a good measure of
our true costs of goods sold.
LIQUIDITY AND CAPITAL RESOURCES.
Since start-up of operations in 1999, we have funded our cash
requirements primarily through equity transactions. We received $726,205 from
the sale of stock during the six month period ended June 30, 2000, and
$2,885,526 since inception, excluding $244,000 in loan payables that were
satisfied through the issuance of 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 transactions to fund investments in, and acquisition of, technology,
assets and companies, to provide working capital and for general corporate
purposes, including paying expenses incurred in connection with the development
of the SecureView(TM) line of products. As of June 30, 2000, we had total assets
of $1,873,078, and total liabilities of $475,326, resulting in stockholder's
equity of $1,397,752. Our principal uses of cash during the six months ended
June 30, 2000, were to:
- fund operating activities, including increased sales and marketing
activities
- invest in the development of products
During the six months ended June 30, 2000, our cash increased from
$89,150 at December 31, 1999, to $91,529 at June 30, 2000. Net cash used in
operating activities was $668,660 for the six months ended June 30, 2000,
including increases in accounts receivable of $19,293, increases in inventory of
$45,429, increases in accounts payable of $85,184 and increases in accrued
interest of $5,500. Net cash used in investing activities of $17,000 consisted
of $31,507 used for the purchase of capital equipment and $14,507 advanced to
View Technologies, a company controlled by Gunther Than. Net cash generated from
financing activities during the six months ended June 30, 2000, was $688,039,
consisting of proceeds received from the sale of stock, less $35,000 advanced to
Leokadia Than, Gunther Than's mother, and payments made on a promissory note
owed to Columbia Bank.
We have a demand loan payable to Columbia Bank with an approximate
outstanding balance of $70,000. This loan has been called and is now due and
owing.
We agreed to pay Hal Peterson, a former officer of Xyros, approximately
$88,000 on or before August 22, 2000, or consent to entry
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of judgment. This agreement arose out of our settlement of a suit brought by Hal
Peterson for repayment of monies he advanced to Xyros prior to our acquisition
of Xyros. We also have a purported promissory note due Ken Weiss, the former
President of Xyros, for monies he advanced to Xyros prior to our acquisition of
Xyros, in the stated outstanding amount of $40,000, plus accrued and unpaid
interest. Ken Weiss has made demand for repayment of monies and the monies are
immediately due according to the stated terms of the note.
As a result of the foregoing, as of June 30, 2000, we had ($84,584) in
net working capital, including $112,571 of trade accounts receivable and
$186,642 in inventory. We have provided and may continue to provide payment term
extensions to certain of our customers from time to time. As of June 30, 2000,
we have not granted material payment term extensions.
Our inventory balance at June 30, 2000, was estimated to be $186,642.
We do not take inventory on a quarterly basis, and we made inventory estimates
based on annual inventory determinations. With expected increased product sales,
we will need to make increased inventory expenditures. However, the terms of our
product sales requires a twenty five percent (25%) deposit on order. 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.
We anticipate further capital expenditures for 2000 of approximately
$500,000 for production and test equipment.
Under our outstanding employment and consulting agreements, we are
obligated to pay $156,000 in cash to Messrs. Than and Lesniak in salary and fees
during calendar year 2000. We are also obligated to issue common stock to them
with an value of $40,000. If we terminate the employment or engagement of
Messrs. Than and Lesniak without cause (including because of merger, acquisition
or change in control), we will be obligated to pay approximately $350,000 in
severance payments over a three year period.
We report each issuance of stock for less than fair market value as a
charge against earnings to the extent of fair market value. The obligation to
issue stock is a substantial capital commitment in year 2000 and subsequent
years.
We believe that cash from operations and funds available will not be
sufficient to meet anticipated operating capital expenditure and debt service
requirements for the next twelve months and that we will be dependent on raising
additional capital through equity sales or debt financing. We have outstanding
warrants with various investors with an exercise price of $2.00 per share. Some
of the shares that can be obtained from exercise of these warrants have been
registered for resale with the SEC and some state jurisdictions. These warrants
are out-of-the-money, as the trading price as of the date of this report is
approximately $1.00 per share. If the selling stockholders exercise all of their
warrants, at the exercise price of $2.00 per share, we
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will receive approximately $4,000,000, which we will use for capital
equipment, working capital and to expand operations to execute our business
plan.
However, unless the range of trading prices of our common stock
increases to over $2.00 per share or we agree to lower the exercise price of the
warrants, it is unlikely that the warrants will be exercised. In May, 2000, we
lowered the exercise price of warrants for 200,000 shares held by a selling
shareholder from $2.00 to $.50 per share and the warrants were immediately
exercised, resulting in net proceeds to us of $100,000.
We have an outstanding loan balance of $94,362 representing monies that
have been advanced to Gunther Than, our President & CEO, and his mother,
Leokadia Than. Mr. Than and Ms. Than have indicated that they have the ability
to repay these loans and they have been making loan repayments. Moreover, Mr.
Than has indicated that he will loan monies to us that we may need to meet
operating capital needs.
We own 840,000 shares of MediaComm Broadcasting, Inc. MediaComm is
filing an application to be quoted and traded on the NASD OTCBB. If their
application is accepted, we may be able to make limited sales of MediaComm
shares in this public market.
RISK FACTORS AND CAUTIONARY STATEMENTS
Statements within this 10-QSB which are not historical facts, including
statements about strategies and expectations for new and existing products,
technologies, and opportunities, are forward-looking statements that involve
risks and uncertainties. Our actual results may differ substantially from such
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements, including, but not limited to, risks
detailed in our other securities filings, including our Annual Report on Form
10-KSB for the year ended December 31, 1999, and our registration statement, as
amended, filed on Form SB-2.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hal Peterson, a former executive officer of Xyros and a trust he
controls filed suit against us on October 28, 1999 in the Circuit Court for
Howard County, Maryland. We have settled this lawsuit by agreeing to pay $88,000
on or before August 22, 2000, or consent to entry of judgment in that amount
against us.
Lawrence Seiler, the former President of Easter Tech, is being
criminally prosecuted by the U.S. Department of Justice in the U.S. District
Court for the District of Columbia for acts he took several years prior to our
acquisition of Eastern Tech. Mr. Seiler is no longer an employee of the company.
We have been advised by the prosecutors in that case that we are not the subject
of investigation or proceedings arising out of this case. We reported this
proceeding on our registration statement on Form SB-2
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We are not aware of any other material pending legal proceedings
against us or our property.
ITEM 2. CHANGES IN SECURITIES
On May 4, 2000, we issued 50,000 shares to Rubin Investment Group after
it partially exercised a warrant by paying consideration consisting of $56,000
in cash and computer equipment with a value of $44,000. On May 22, 2000, we
issued another 200,000 shares to Rubin Investment Group, after it partially
exercised a warrant by paying consideration with a fair market value of
$100,000. Rubin Investment Group acquired its warrant on February 18, 2000,
under Rule 506 of Regulation D of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Our subsidiary, Xyros Systems, Inc., is the maker of two promissory
notes in favor of two former shareholders of Xyros, Ken Weiss and Hal Peterson.
The promissory notes are alleged to evidence loans from Ken Weiss and Hal
Peterson to Xyros prior to the time that we acquired Xyros. We have guarantied
repayment of the indebtedness evidenced by these notes. The promissory notes to
Ken Weiss carry an outstanding principal balance of $40,000, plus accrued and
unpaid interest, which the notes state accrues at the rate of 10% per annum. The
notes in favor of Ken Weiss have matured by their terms and Ken Weiss has
demanded immediate payment.
We have agreed to pay $88,000 on or before August 22, 2000, or consent
to entry of judgment on the notes in favor of Hal Peterson.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(A) EXHIBITS:
3.1 (1) Articles of Incorporation
3.2 (1) By-laws
4.1 (2) Amendment to First Common Stock Purchase Warrant of VIEW
SYSTEMS, INC. (Company)Dated February 18, 2000, and Second Common Stock Purchase
Warrant of Company, Dated February 18, 2000, Issued to Rubin Investment Group
(Holder) and to Subscription and Investment Agreement dated February 18, 2000,
Between Company and Holder
4.2 (attached to report) Second Amendment to First Common Stock Purchase
Warrant of View Systems, Inc. (Company), Dated February 18, 2000, Issued to
Rubin Investment Group (Holder) and to Subscription and Investment Agreement,
dated February 18, 2000, Between Company and Holder
11. (attached to report) Statement re: Computation of Per Share Earnings
27. (attached to report) Financial Data Schedule
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(1) Incorporated By Reference From Issuer's Registration Statement on Form
SB-2 Filed With The Securities & Exchange Commission On January 11,
2000
(2) Incorporated By Reference From Issuer's Registration Statement on Form
SB-2 Filed With The Securities & Exchange Commission On June 7, 2000
(B) REPORTS ON FORM 8-K
We filed did not file any reports on Form 8-K during the quarter for
which this report is filed.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the Undersigned,
thereunto duly authorized.
View Systems, Inc.
Registrant
August 14, 2000 /S/ GUNTHER THAN
Date -------------------
GUNTHER THAN
PRESIDENT & CEO
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